12.01.2008 Establishing ASCs Dedicated to Eye Surgery Under Virginia’s COPN Laws
Editor Devine, Patrick C., Jr.The following article was published in the Fall/Winter 2008 edition of 'Vision,' The Virginia Society of Ophthalmology newsletter. It is reprinted here with their permission.
Introduction. Freestanding ambulatory surgery centers (“ASCs”) dedicated to ocular surgery are a preferred setting for eye surgery for surgeons and for patients for several logical and well-documented reasons.
Single specialty surgery centers improve access by facilitating the scheduling of surgery and introducing competition into the market. They enhance quality by permitting allied professionals to specialize and focus on a single type of surgery and by avoiding the need for the center to compete with more profitable surgical specialties for the capital resources necessary to procure and maintain state-of-the-art equipment. They result in lower charges and lower costs to patients and payors due to their enhanced efficiency and lower cost structure and because ASCs are reimbursed at a lower level for the same procedure than hospitals or outpatient hospital departments (“OPHDs”). Finally, patients and surgeons enjoy the greater convenience, ease of scheduling and shorter surgical turn around time which an ASC dedicated to eye surgery affords.
While the advantages of ocular ASCs appear indisputable, Virginia requires that such a facility first obtain a certificate of public need (“COPN”). The COPN process can be expensive, time consuming and uncertain. The Virginia General Assembly has initiated several efforts to repeal or streamline the process, and the efficacy of the COPN system as an appropriate planning tool has been criticized by the Federal Trade Commission and the Virginia Department of Planning and Budget.1 Nonetheless, the issuance of a COPN continues to be a prerequisite to the establishment of a licensed ASC, and Virginia ophthalmologists wishing to establish or expand an ASC should understand the process and develop a strategy for demonstrating the need for and benefits of the project. This article summarizes the Virginia COPN system and presents an approach for successfully navigating the process.
The COPN Process.2 COPN applications are divided into seven “Batch Groups” depending on the type of project involved. ASCs are included in Batch Group B, and are considered during separate bi-annual batch review cycles, with the initial filing for the next two cycles beginning on December 30, 2008 and July 02, 2009.3
The application process is commenced by the applicant filing a simple letter of intent with the regional health planning agency (“HPA,” formerly called a “health systems agency”) and the Department of Certificate of Public Need (“DCOPN”) in Richmond.4 The letter of intent identifies the applicant, the type of project and its expected size and location. Approximately 30 days later, the applicant must file the more detailed COPN application with the HPA and DOCPN in order to be included in the next review cycle.5 The applicant also must notify all of the other surgical facilities in the region of the proposed project.
Within ten days of the application filing, DCOPN and HPA staff presents the applicant with a list of “completeness review” questions. The applicant has approximately three weeks to respond to those questions, to update the application and to pay the application fee.6
The local HPA then schedules a public hearing for the project (and for any competing projects in that HPA), and the applicant may modify the application up to the public hearing date. The public hearing is conducted much like a municipal planning commission meeting, and the applicant and other witnesses are permitted to testify in favor of or against the project.
Following the public hearing, HPA staff prepares a report which analyzes the project (and any competing projects) and typically includes a recommendation for approval or denial. The HPA Board of Directors then meets and considers the HPA staff report, the public hearing testimony and the applicant’s presentation before making a recommendation to the Commissioner of Health (“Commissioner”) to approve or deny the project. Within approximately two weeks of the HPA Board meeting, DCOPN staff issues its own report analyzing the project and recommending approval or denial.
If either the HPA Board or the DCOPN recommend denial or conditional approval of the project, the DCOPN may require or the applicant may request an Informal Fact Finding Conference (“IFFC”) in Richmond. An IFFC may also be required if a successful application is challenged by a competitor for “good cause” or if a competing application is recommended for denial.
An IFFC is a mini-trial before an impartial adjudication officer and is usually conducted at the State Corporation Commission courtroom in Richmond. The applicant presents testimony and evidence, as may DCOPN and HPA staff and any competing applicant. The adjudication officer issues a report to the Commissioner who makes the final ruling. There is also a process for appealing the decision of the Commissioner to circuit court; however, the standard for review is extremely deferential to the Commissioner.
Successful Strategic Considerations. In determining whether an applicant has demonstrated public need for a project, the Commissioner must evaluate the “21 Considerations” set out in the COPN statute against the assumptions and standards of need, costeffectiveness, capacity and accessibility outlined in the State Medical Facilities Plan (“SMFP”). While many question whether there is an inherent bias in the COPN process against physician owned projects, physicians can substantially improve their opportunity for success by carefully documenting the need for and benefits of the project. The following six strategies should help:
1. Develop Your Case. As mentioned earlier, key benefits of a dedicated ASC include: (i) improved access, (ii) enhanced
quality, (iii) lower costs and charges and (iv) greater convenience. To succeed, it is critical that physicians carefully develop the evidence needed to document objectively those factors and other relevant considerations.
Letters and public hearing testimony from patients who had to reschedule because their surgery was bumped or who had to schedule a second cataract surgery on a different day help document access problems. Supporting evidence may also include letters to multi-specialty facility competitors confirming denial of additional block time requests, particularly for the desirable early morning slots, or letters and testimony from other surgeons who need the limited time which the applicant’s eye surgeons currently have at a multi-specialty center.
Industry articles and letters from dedicated eye surgery centers in other markets can demonstrate the ASC’s enhanced efficiency and patient satisfaction, improved quality of staff and ease of acquiring state-of-the-art equipment. Letters to the existing multi-specialty centers where the applicant’s surgeons currently hold privileges confirming surgical delays and difficulties maintaining experienced staff and obtaining the latest equipment and supplies will serve that purpose as well.
Explanation of benefits (“EOB”) forms from patients who received care at a competing multi-specialty facility can show the proposed ASC’s charges will be lower, and a tabular summary of the reduced Medicare reimbursement paid to ASC, versus OPHDs, will document the dedicated center’s lower costs to patients and payors.
The successful applicant will begin early on the process of gathering the necessary evidentiary support. The letters, EOBs, industry articles, and economic and demographic analysis should be included in the application to help HPA and DCOPN staff understand the applicant’s “story” before they begin preparing their staff reports. Similarly, brief presentations by local community leaders, physicians, patients and experts at the local HPA public hearing can have a positive impact on the ultimate decision, particularly if their testimony is unbiased and not repetitive.
2. Tame the Resistance. The applicant must send notice of the proposed project to all facilities in the PD, so it is important to anticipate and address potential resistance. The most logical source of opposition is from the facilities where the applicant’s surgeons currently practice. Strategies to reduce the likelihood and vigor of any opposition from such facilities may include: (i) talking directly to the facility’s administrator or having its medical staff leadership or influential Board members intercede,7 (ii) timing the submission of the application so it coincides with a period when the other facility is distracted by its own COPN battle or strategic concerns, (iii) obtaining letters in support from other competing facilities, (iv) proposing a continued call coverage commitment for the incumbent facility and (v) involving the competing facility in the ASC project through a joint venture or management agreement. Being creative and proactive is the key.
3. No Cherry Picking. The most compelling argument against physician ownership of ASCs (or other projects) is the allegation (usually false, but often hard to prove) that the physician owned center will “cherry pick” the good cases and send the poorly reimbursed ones to the struggling community hospital. The argument does not, and logically cannot, hold true for eye surgery for three reasons.
First, most eye surgery cases are covered by Medicare, a notoriously poor payor. As a result, the eye surgeon already has, by virtue of his or her specialty, selected a disproportionate level of low paying cases for treatment at the ASC. It should also be noted that this frees up time at the competing multi-specialty center for the more favorably reimbursed cases which other specialists perform. Second, most eye surgery can be profitable only if it is performed in high volume at a single setting over significant blocks of time with efficient use of staff, equipment and supplies. It is counterintuitive to think that an eye surgeon would interrupt his or her ASC block time to travel to the community hospital to handle an indigent case where scheduling is problematic and the staff and equipment may be lacking. Such a situation never happens. Finally, because all COPN approvals will require the ASC to perform a level of charity care consistent with the average provided by area hospitals, the ocular ASC has a built-in financial incentive to keep all of its indigent cases.
The applicant can also help deflate this argument by demonstrating his or her professionalism and historic commitment to caring for the less fortunate. Correspondence and testimony from local free clinics, health departments, mission programs, patients who have been served without charge and other professionals who know the reputation and experience of the applicant’s surgeons can serve this purpose. While every applicant will be required to accept a charity care condition, the successful applicant should be able to document that its surgeons do not come by their commitment to care for the less fortunate either casually or recently.
4. Available Operating Rooms. Part of the COPN analysis turns on the capacity of existing operating rooms (“ORs”) in the community to handle the volume anticipated by the new center and the potential harm to an incumbent which may result from an increase in the number of ORs in the Planning District (“PD”). Under the SMFP, an OR is deemed to be at capacity when it is in use for 1,600 hours per year for surgery and turnaround time. Existing facilities report their utilization and capacity annually to Virginia Health Information, Inc. (“VHI”).
Even if the PD has excess ORs based on the SMFP’s numerical standard, the applicant can still demonstrate need by showing that many of those ORs are not practical alternatives for eye surgery. For example, ORs may fairly be excluded where they are dedicated to trauma care or cardiac surgery, do not have the necessary equipment or staff to perform eye surgery or, though located in the applicable PD, would require substantial travel time to access. Likewise, carefully documented population growth and aging projections can help prove that existing capacity soon will be inadequate.
5. Project Cost Estimates. In the early years of COPN, most facilities were reimbursed by payors on a cost plus basis. As such, there was a logical connection between the cost of developing a facility and the ultimate cost of that facility to the health care system, and good planning favored facilities which had lower overall development costs. Although payors no longer reimburse directly based on the cost of the procedure, the COPN process still retains a bias against higher cost projects.
Under current COPN analysis, the cost of the facility plays two important roles.8 First, the applicant should be able to document that the anticipated surgical volume and reimbursement will permit it to fund the operating costs and to achieve profitability within approximately three years. On the other hand, it is important not to underestimate the project’s cost in the application, because if the actual costs exceed the estimate by more than 10%, a significant change request may be required. If the costs are more than 20% over budget, it may be necessary to file a new application, although the Commissioner may approve costs exceeding 20% so long as the applicant demonstrates that the increase is reasonable and necessary and does not result from any material expansion of the project. Thus, it is important to be accurate, though conservative, in your cost estimate.
6. Recruitment of Additional Surgeons. The successful applicant should be able to demonstrate both that it will achieve profitability within a two or three year period and that it will realize or approach utilization capacity (1600 hours per year) within a similar time frame. Those projections are typically documented by estimating the current surgical volume of physicians who have committed in writing to utilize the center, and extrapolating that over a several year period with reasonable growth assumptions. For that reason, it is generally helpful for the applicant either to be surgeons in a large group practice or to involve several competing surgeons who have determined to pursue the ASC jointly. In practice, it may prove easier to recruit competing surgeons to join a centralized ASC if the applicant is organized as a separate limited liability company (so the competing surgeons can own an equity interest) and if the ASC is located in a “nondenominational” setting where it does not appear to the public to be associated with any particular eye surgeon or practice.
Conclusion. The COPN process in Virginia presents several hurdles and opportunities for eye surgeons who wish to establish a single specialty ASC in order to provide state-of-the-art, high quality, efficient and cost-effective care to their patients. From its recent favorable rulings, the Commissioner appears to recognize that eye surgery is best provided in a free standing single specialty setting, and a diligent and well-organized applicant who carefully and objectively documents the benefits of and community need for its project can expect a reasonable probability of prevailing.
1 Fed. Trade Comm. Statement before the Fl. State Senate (April 2, 2008) and Va. Dept. of Planning and Budget, Economic Impact Analysis of
12 VAC 5-230 (August 11, 2004).
2 The COPN process is described on the Virginia Department of Health website. See www.vdh.virginia.gov/OLC/COPN.
3 The “batch review cycle,” which is important for many of the technical timing issues under the COPN statute, actually begins 70 days after the
letter of intent is due.
4 There are five HPAs in Virginia, and each is composed of one or more Planning Districts designated by state law. Typically, the COPN analysis
is conducted on a Planning District basis.
5 The application sections include: (i) facility organization and identification; (ii) proposed architecture and design; (iii) data regarding the
services provided and the expected staff levels; (iv) justification for and identification of the specific need for the project within the community;
and (v) detailed financial data regarding capital and construction costs, source of funds, debt service and a two year pro forma.
6 The application fee is 1.0% of the project’s proposed cost, up to a maximum of $20,000.
7 Most busy multi-specialty facilities would actually benefit if most eye surgery was performed at another center due to the high volume and low
profitability of such surgery. The same could not be said for orthopedics and other more profitable surgical specialties, and it is the exodus of
those surgeons that hospitals truly fear. Thus, while existing facilities may feel compelled to object to any physician owned project, their
objection to an ASC which commits only to perform eye surgery is often more about avoiding precedent than it is about economics.
8 The projected cost is also relevant to the application fee calculation.