Sometimes, a little can go a long way, and in today’s challenging business environment, a little extra for the bottom line is the right way.

For an ambulatory surgery center (ASC), any number of minute additions can enhance the service provided to patients. If a center can cater to the average multi-tasker, then it will be centered for success. Luckily too, CMS (the Centers for Medicare & Medicaid Services) has “seen the light” — at least in part — and will now be slightly more generous with its payments to ASCs for some such ancillary services.

Adding ancillary services can be profitable, but it doesn’t come without its share of challenges and even pitfalls. Many extra costs and considerations must be taken into account when considering adding such services to a business model.

Consider the following:

• start up fees 
• equipment costs 
• return on investment (ROI) and other financial considerations 
• changes in staffing, new work flow processes, or in billing office practices 
• marketing materials, time and additional expenses 
• reimbursement rates and referral sources 

Thorough research of the feasibility of such an addition must be done carefully. The feasibility study of added services should include, but not be limited to, the following:

• what the center’s competitors offer 
• what works best with the center’s current patient demographics 
• how the new service will bring new patients to the center or otherwise increase center utilization 
• a thorough review of best practices throughout the industry considering the service 
• how the service will be implemented (in phases or all at once?) 
• the space needed to aptly supply the service 
• and, moving forward, how to track and manage results 

A plethora of legal considerations abound. Depending upon a center’s state laws, some centers may have more considerations than others. Most will include the following:

• Stark law 
• federal anti-kickback statute 
• certificate of need (CON) 
• licensure 
• certification 
• and in some cases, accreditation 

When changing any structure of an ASC, collaboration with an experienced attorney who is familiar with healthcare and especially ASC-specific law, is absolutely critical.

Financial Concerns

The start up fees for equipment and other materials must balance with the benefit the service will offer a center and its patients. For example, in addition to the initial equipment costs, the cost of technological advances associated with that niche offering must also be considered. Will the return on investment be worthwhile?

The financial impact of adding ancillary services can run the gamut. Will the center’s leases or other contracts have to be changed, or at the very least, modified? How will the ancillary service affect revenue, expenses and staffing? What about miscellaneous operating and building expenses?

The following is an extensive list of financial considerations compiled by Tyler D. Artz for a presentation he gave for MGMA.

Financial Considerations¹
Volume/units of service 

• external demand profile: payer mix, demographics, etc.
• current patient conversions 
• by CPT code/procedure, per unit Operating Revenue 
• charge per unit 
• payment per unit 

Operating Expenses 

• staff: by position, salary, benefits 
• supplies: medical, office, other 
• insurance: malpractice, P&C 
• space: rent or equivalent 
• marketing: if necessary, brochures, advertising 
• capital: current portion – rent, amortization/depreciation or principal and interest (P&I) 
• total operating expenses per unit 

Capital Investment 

• hard costs: equipment, construction, land, etc.
• soft costs: legal, consultants, architects, appraisals, installation, inspections, broker fees, commissions, deliver/handling, etc.
• interim interest: cost during development period 
• working capital: operating costs during initial collection cycle 

And remember, “great ancillary services won’t compensate for poor professional performance.”¹ o

Reference 1. Artz, Tyler D. Do Ancillary Services Make Sense for Your Practice? MGMA. http://www.mgma-sl.org/TempImg/images/mgma-stl/MGMAMarchPresentation.ppt. 

THINKING OUTSIDE THE BOX

According to a November 2007 press release, laser treatment can be added to a practice for a fraction of the historic costs and risks. Dermacare Laser Clinic® (DLC), a new franchise model for existing medical practices, is an “add-on” model designed for physicians in a smaller demographic area with populations of 75,000 or less. For a fraction of the investment of the traditional clinic model, physicians will be able to offer laser and injectable services to their existing practice.

“With Dermacare’s 100 percent market share of the physician-based laser and aesthetic franchise market and 25 percent of the overall franchised med-spa industry, this is an ideal partnership for a physician looking to offer laser and aesthetic services to their patients,” the release reads.

“The Dermacare Laser Clinic is the ideal way for physicians to generate extra revenue from cash-based services and it’s a great way to expand their scope of services and area of expertise,” the release reads. “And, because they will simply be ‘adding on’ to their practice, they can very quickly begin offering the new treatments to their existing patients, as well as to their surrounding community.”

Moreover, DLC franchisees will benefit from having custom graphic designing, press releases and support from the Dermacare corporate marketing department. Dermacare currently has freestanding franchises in Alabama, Arizona, California, Florida, Indiana, Missouri, New York, Oklahoma, Tennessee, Texas, Virginia, and Washington.

Source: Dermacare www.dermacare.com 

Q&A with Josh Kaye

Joshua M. Kaye, Esq., partner with McDermott Will & Emery LLP and expert on outpatient healthcare models, shares his views on the feasibility, hot trends and hidden pitfalls of adding ancillary services to an ASC.

TSC: What considerations must an ASC initially take when exploring the feasibility of adding ancillary services?

JK: From a regulatory perspective, ASCs are generally not subject to the Stark law because ASC procedures are not one of the enumerated categories of designated health services under the Stark law. An ASC that incorporates ancillary services, however, could very well become subject to the Stark law. Without proper health law guidance, adding ancillary services could take a surgeon’s investment in an ASC, which is generally considered to have minimal regulatory risk, and create substantial regulatory risk.

TSC: What are the hottest trends in adding ancillary services to an ASC? Is this a profitable avenue to take? What are you seeing being implemented most often?

JK: The ASC reimbursement changes have impacted a number of specialties, none more than gastroenterologists. As a result, a lot of GIs are looking to incorporate other types of ancillary service services. One very hot trend is the addition of virtual colonoscopy. While this may have some ties the reimbursement changes, equally if not more important, it seems to be driven by an advancement in medical care and patient convenience. Also, many physicians are looking to set up arrangements through which to share on the anesthesia revenue generated by the ASC. There are a number of models to do so — some more risk-averse than others from a regulatory perspective, and so careful consideration should be taken prior to implementing any such models.

TSC: What specific pitfalls would you advise any ASC to avoid when looking to add ancillary services?

JK: First and foremost, do the math — if it only adds a little to the bottom line, take due consideration of the regulatory risks and perhaps even corporate restructuring that might be necessary to implement the arrangement. Second, for asset protection and other reasons, it may be worthwhile to structure the addition of the ancillary services through a separate sister entity rather than through the ASC. Third, do not overlook state law. While many healthcare consultants discuss the legality of these arrangements under the two healthcare commandments (the Stark law and anti-kickback statute), most states also have similar state laws that should not be overlooked. Fourth, review the ASC’s commercial payor contracts to determine whether the ancillary services will be covered. 

Josh Kaye can be reached at jkaye@mwe.com

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