Update on South Carolina ASC Moratorium and New Jersey Tax on ASCs

It’s been a cruel summer so far for ambulatory surgery centers (ASCs). Physician ownership continues to be challenged, and now, two recent developments at the state level will prove to be new challenges on top of an already cumbersome agenda for ASCs this year – a state tax on ASCs in New Jersey, and a proposed moratorium on the development of ASCs in South Carolina.

The South Carolina Department of Health and Environmental Control (DHEC) is poised to take action this summer and fall to change the criteria for approval of new ASCs as well as the expansion of ASCs, according to Carolyn Evec, president of the South Carolina Ambulatory Surgery Center Association (SCASCA).

“The proposal, as part of an amendment to the South Carolina Health Plan, would essentially establish a one-year moratorium for the building of new facilities and the expansion of existing facilities,” Evec wrote in late June in a letter to SCASCA members. Evec reports that although the group’s legislative committee recommends that the SCASCA does not take a position on the moratorium, she says, “We do believe this is an excellent opportunity to become a part of the regulatory and legislative process. The key role we can play during the debate of these changes is to better educate the key decision makers at DHEC about our industry. This is one of those times when a change presents a great opportunity, and I want us to avail ourselves of this opportunity.”

Craig Jeffries, executive director of the American Association of Ambulatory Surgery Centers (AAASC), says the industry is marshaling its forces, a process he says began with the creation of state ASC associations.

“The AAASC had the foresight to develop state associations so that there was a ready, available response mechanism for the industry in times like these,” Jeffries says. He adds that the AAASC is working closely with the SCASCA, but a national organization like the AAASC has certain boundaries to observe. “Our plan to support and protect the industry was executed and begun five years ago when we invested heavily in the development of state associations,” Jeffries emphasizes. “It’s the first line of defense. The AAASC has done many things to help states become better equipped to fight their battles; it’s difficult for a national organization to go into a state and say ‘Here’s what you should do.’ Our help comes in the form of providing leadership, strategic thinking, and supporting the state association in its decision making. In the absence of state associations, we might take a different course of action, but we haven’t heard anything happening in a state without an association.”

“It’s recognition that the way our country is structured there is a federal element and a state element. As an industry, we focus so much on Medicare and Stark and federal laws, but for a significant portion of healthcare, particularly for things like certificate of need (CON) and licensure, things are regulated at the state level and that’s why it’s important to have state associations. Every state has its own authority and unique considerations which apply in two different ways. First, it applies to how a state regulates ASCs, and second, it relates to how competitive the marketplace is in each of those states. So, while I am I surprised South Carolina has taken a somewhat neutral position, I am not too surprised. I respect it but don’t necessarily think it’s the best solution for every state.”

Jeffries continues, “There are a number of successful joint-venture ASC projects with hospitals, and that’s probably a positive thing from a national and evolutionary perspective. Obviously, the development of new ASCs will suffer the biggest damage from a moratorium on certificate of need. Certainly, I’ve even heard from some existing ASCs that are 100 percent physician-owned that are in markets with a significant number of surgery centers; they are saying, ‘We are experiencing quite a bit of competition, and having a year to build up more business isn’t such a bad thing for us. It’s selfish, and we don’t necessarily think it’s a good market-driven phenomenon, but it doesn’t work to our disadvantage, either.’ I think the outcome so far in South Carolina is where it is because the association did not have six months or a year to discuss or debate the issue among their own leadership as to what they will do in the event of a challenge. They never had that opportunity for discussion. With the immediacy of the issue and the need to be involved, I think Carolyn and the board has taken a very good approach to making sure the facts are correct when health policy analysts are looking at our sector of the healthcare market. That’s a great place to start. It’s easy to see there are a lot of conclusions not based on fact that are embedded in that South Carolina plan. There’s a huge opportunity to correct that. The plan was written from the perspective of a traditional health system anchored by traditional hospitals. I don’t think it reflected viewpoints brought to the table by entrepreneur physicians involved in ASCs.

State hospital associations are clearly behind most of the initiatives we are seeing in the states.”

South Carolina won’t necessarily set a new precedent; Jeffries says that this year, Maine and Connecticut used CON to restrict ASC development, and that there also was activity in Colorado and Massachusetts. However, he adds that the proposed moratorium in South Carolina sets a bad precedent for other reasons.

“The ban on the growth of ASCs is a bad precedent wherever it happens. But another bad precedent is the facts underlying the decisions for these state actions, based on what I and many others would consider to be a flawed perspective on the role of the community hospital and the protection the hospital should receive -- particularly at the expense of ASCs that provide lower-cost, better, more efficient healthcare. There are many states that have had some action … clearly it’s a bad precedent.”

In 2002, a total of 283,601 outpatient surgeries were performed in either an ambulatory surgery center or a hospital in South Carolina – 66.1 percent of all surgeries – according to the Draft 2004 South Carolina Health Plan produced by the DHEC. The agency reports, “Because of the number of ambulatory surgery facilities (ASFs) which are currently approved but for which licensure has not been obtained and/or utilization data are not yet available, and the adverse impact of ASFs on the viability of hospitals, the department is establishing a moratorium on the review of CON applications for both the expansion of existing ASFs and the establishment of new ASFs. The moratorium shall be in effect for a period of one year from the effective date of the plan. During this time, the DHEC will accept studies from healthcare facilities, physicians, and other interested parties detailing the impact of ASFs on the healthcare delivery system in South Carolina.”

The last day for comments on the DHEC’s draft plan is July 30, 2004, and the agency will meet on Sept. 2, 2004 to review comments and staff recommendations. On Sept. 30, 2004, the DHEC will make its recommended changes to the Draft 2003 South Carolina Health Plan and distribute the plan to DHEC board members. On Oct. 14, 2004, the DHEC will convene a board meeting to consider approval of the 2004 South Carolina Health Plan. For more information, go to http://www.scasca.org/.

The SCASCA will hold a special meeting on Tuesday, July 20 at 12 p.m. at Restaurant 1-2-3, located at 7001 St. Andrews Rd. in Irmo, S.C. to discuss the proposed moratorium and the draft health plan. Individuals interested in attending may RSVP to Suzanne Broome at (864) 482-6000, ext. 5142, or email her at sbroome@nuvox.net by July 13, 2004.

Jeffries says that while the South Carolina moratorium is not encouraging, he adds, “The New Jersey legislation, by contrast, is a much heavier impact on the industry – therefore a much easier opportunity for the state associations to respond and react forcefully.”

The New Jersey Legislature has increased the state's hospital charity-care fund by 53 percent, with ASCs helping to foot the bill. The state has levied a 3.5 percent tax on gross revenue for all ASCs, with a tax limit of $200,000 per center, to fund the charity-care pool. The state's 83 hospitals will share this $583 million fund, which is designed to ensure that every hospital receives at least 43 cents on the Medicare dollar for providing care to the uninsured.

Jeffries says the ASC industry is aggressively organizing to make itself heard on this issue, and that he has heard the state medical society is contemplating possible legal action to challenge the constitutionality of this legislation. “(The legislation) is an attack on organized medicine.”

There is even more news coming from the American Medical Association (AMA) House of Delegates, which recently adopted two resolutions that may affect the debate over physician ownership of ASCs. According to the AAASC, the first resolution (235), which was sponsored by the American College of Cardiology and American Gastroenterological Association, among others, required the AMA to reaffirm existing AMA policy concerning physician ownership and referral, and commit to oppose efforts to repeal certain exceptions to the self-referral laws.  The resolution was advanced to position the AMA to oppose efforts being undertaken by the American College of Radiology that are designed to repeal an exception to the self-referral laws that allows physicians to own imaging equipment and make referrals for imaging services using that equipment, so long as the services are in-office ancillary services and certain conditions are met. 

“While the ACR’s efforts would not directly affect the exception to the Stark laws that allows physicians to make referrals to ASCs that they own, they are nonetheless relevant to AAASC members, because of the nature of the debate surrounding physician ownership of ASCs,” Jeffries says. “AAASC is concerned that any effort, especially one sponsored by a medical specialty society, to persuade Congress to reopen the physician self-referral laws, could create opportunities for the hospital community to advance amendments to the self-referral laws that could limit the ability of physicians to make referrals to ASCs that they own.  For this reason, AAASC supported the efforts of the cardiologists, gastroenterologists and others to have the AMA reiterate its support for physician self-referral so long as ethical and financial protections are satisfied.”

The second resolution (704), sponsored by the American College of Surgeons, commits the AMA to conduct a study on physician ownership of and referrals to specialty hospitals. This study could be problematic, the AAASC asserts. “While the AMA is generally more sympathetic to physician ownership of facilities than other groups studying the issue, such as the Medicare Payment Advisory Commission, the General Accounting Office and CMS, the house of medicine is somewhat divided on the issue of physician ownership of specialty hospitals,” Jeffries says.  “Relatively few physicians actually have an ownership interest in specialty hospitals, and the percentage of physicians in the AMA’s House of Delegates and leadership who are familiar with and sensitive to specialty hospitals is even lower.  This study is expected to be completed at about the same time that the present moratorium on physician referrals to specialty hospitals expires on June 5, 2005.”

In response to this mandate, AMA has issued a call to medical specialty societies and state medical associations to provide input to assist with this study.  The AAASC plans to meet with AMA leaders shortly to provide the ASC perspective.

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