Stricter Health Dept. Rule Hikes Cost for New Walk-in Surgery Centers

New enforcement of previously overlooked legal requirements could significantly raise costs for physicians seeking to establish or expand small outpatient surgery centers. The Washington State Department of Health recently limited exemptions in its Certificate of Need Program, which regulates how health care providers can build or expand facilities and offer new services.

Obtaining a certificate of need can be an expensive, complicated, lengthy, and uncertain process. Between the $20,427 application fee, consult costs, and attorney fees, even a simple application may cost $40,000 or more. To get one, applicants must show a need in the community, financial feasibility, improvements in health care they would bring, and cost containment. The application process can take a year or longer. One existing two-room ambulatory surgery center’s certificate application took more than a year and resulted in a 32-page decision. Thus, it is easy to understand why people try to fit within an exemption to the certificate of need requirement.

Historically, DOH has issued favorable exemptions to the certificate requirements for facilities in the offices of private physicians and dentists under certain conditions if the privilege of using the facility is not extended to physicians or dentists outside the group practice. See WAC 246-310-010(5). Specifically, the exemption has required:

• The applicant must be a private physician office. For example, this would exclude a recreation and fitness sports club. See DOR 17-06. This would also exclude a physician practice controlled by a management service organization. See DOR 17-17.
• The facility must be within the same legal entity as the physician practice and must be physically located in the offices of the physician practice. See DOR 17-16 (denying an application for a free standing facility in Gig Harbor when the clinic was located in Tacoma).
• The facility can only be used by physicians in the group practice. This means physicians using the facility must be owners or employees (not independent contractors) of the applicant, spend 75% or more of their time working for the applicant, and must provide their full range of services through the applicant. See DOR 17-02, fn 4.

However, starting in January 2018, DOH imposed a new requirement on the private physician office exemption: the facility must operate “primarily for the purpose of performing surgical procedures.” See interpretative statement, CN 01-18. Although not specified in the statement, “primarily” probably means that the facility must spend more than 50% of the time operating as a clinic.

DOH imposed this requirement because the underlying statute says all ambulatory surgical centers, as defined in the statute, require a certificate of need. An ambulatory surgical center is defined as “any distinct entity that operates for the primary purpose of providing specialty or multispecialty outpatient surgical services in which patients are admitted to and discharged from the facility within twenty-four hours and do not require inpatient hospitalization (emphasis added).” See RCW 70.230.010.

Fortunately, DOH has stated that this new requirement will not affect previous determinations of reviewability granted under the private physician office exemption, unless the existing owner relocates the facility, adds operating rooms, or adds specialties. The department has also stated that a new owner must apply for an exemption or certificate of need if the facility transfers ownership. It is unclear if a transfer of ownership means a “change of ownership” as defined in the licensing statute (which, generally requires a change in tax identification number) or if the department intended a broader meaning. See WAC 246-330-010.

DOH has provided limited relief to the certificate of need application process if an existing facility loses its grandfathered status and has to apply for a certificate, but the practical benefits of this relief seem minimal and remain untested. The interpretive statement suggests approval may still happen if there is no numerical need for operating rooms and waiving the two operating room requirement for previously exempt facilities.

In short, physicians seeking to avoid certificate of need requirements when establishing a new ambulatory surgical center or modifying an existing one need to pay careful attention to the new requirements.