Diving Into the Pros and Cons of In Office Surgical Suites

December 22, 2021

In this episode, we welcome back ByrdAdatto partner and series regular Jay Reyero. We share lessons learned from a plastic surgeon who faced difficult issues with his in-office surgical suite when things started to slow down for his practice.

Listen to the full episode using the player below, or by visiting one of the links below. Below is the episode’s transcript which has been edited for readability. If you have any questions or would like to learn more, email us at info@byrdadatto.com.


Intro: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues, simplified through real client stories and real world experiences. Creating simplicity in three, two, one.

Brad: Welcome back to another episode of Legal 123s with ByrdAdatto. I’m your host, Brad Adatto with my cohost Michael Byrd.

Michael: As a business and healthcare law firm it’s important to also focus on the details. This season’s theme is zoom in. Once we know our big picture vision or strategy, we have to roll up our sleeves to get the work done. With each episode this season we’ll have our typical stories and make sure we talk about specific actions to focus on for 2022. But before we get started, we welcome back for today’s episode, our regular and partner, Jay Reyero.

Jay: Thanks guys. Again, always happy to be joining you.

Brad: Yes. And before we begin today’s episode, we first need to [00:01:00] wish someone who’s off camera and off mic, one of our engineers, happy birthday, Riley! She’s off mic, she is smiling and is red faced. She does a ton of work to help with these episodes and that’s why they’re so smooth. Thank you, Riley. Happy birthday.

Michael: Happy birthday. And Brad, thank you for not singing.

Brad: Second for you and Jay, I have some personal questions and Jay, Michael, I don’t want you to hold back. I need honest answers. Have either one of you ever been swimming?

Jay: Yes

Michael: Brad, why are you concerned that I will hold back on this question?

Brad: All right. For the audience, I will note that Michael did not answer the question. He asked a question with a question so I’m going to ask him another question, Michael, how long can you hold your breath?

Michael: I’m pretty confident, Brad, that I can hold my breath one second longer than you. And why do you want to know?

Brad: All right. Do you know the longest time a human [00:02:00] has ever held their breath?

Michael: Well, no, but I do have my assistant Siri and the longest time someone has held their breath was 24 minutes and a little over 37 seconds. Why do you ask?

Brad: Sounds pretty good. So, Michael, have you ever been scuba diving?

Michael: No. I’m guessing you are looking for an end to brag about your scuba skills.

Brad: Yes, you would be correct. I am scuba certified and I did have some awesome dives. One of my deepest ones was when I got to dive off the coast of Florida, go down to a ship that was sunk, a World War Two ship. So pretty cool stuff. But when I was preparing for today’s episode, I was thinking about all the different options this client had when they decided to build a surgery center. In this case, he could have just kind of jumped in and started swimming and that was the fastest route for him to get going, but it limits how deep it can go. And of course, how long he can hold his breath. And if he had slowed down and been [00:03:00] maybe scuba certified like me or got into the scuba equipment, he could have gone deeper but that would have required him, this client to heavily do some future planning.

Michael: Brad I’m very surprised to see with your Louisiana background, your ability to bring the analogy into play there. Well done.

Brad: I can read.

Michael: Jay, I think with that, let’s dive into today’s show. No pun intended.

Jay: Sure. So our client today in this story is a board certified plastic surgeon. So let’s call him Dr. Nip Tuck for today. In the last episode, Brad, you and Michael talked at length about ambulatory surgery centers or ASC’s.

Brad: Yeah. And these are the medical facilities used for day surgeries and they’re generally in this one, in the episode we talked about these were all a licensed facility.

Jay: Right. So plastic surgeons also [00:04:00] routinely use operating rooms. And so as commonly the case, Dr. Nip Tuck in our story, he wanted to have one that was easily accessible and he also wanted to have one that he control. Now he could have gone down the route that Michael talked about joining or developing an ASC, but just like Dr. Spine. In our case, Dr. Nip Tuck decided that he was going to go a different route when he was expanding his practice and he decided to go ahead and develop what’s called an in-office surgical suite.

Michael: We should have put the disclaimer in again this week, as we did last week. One of the challenges with the theme of zoom in, and kind of rolling up our sleeves and getting into the details is it can get kind of boring and heavy. And so we will do our best to really simplify what is pretty complicated stuff and so just [00:05:00] again, if you start kind of waiting in waters that are dealing with these types of issues, if you can just take away that you need to hit the pause button, you’ve accomplished a lot. I think we should pause before we dive in a little more and just understand this whole idea of licensing because we’re going to be dealing with that. It’s usually a state level issue and understanding what is it that gives someone authority to do so obviously if you’re providing a professional service, the government is going to want to protect the public from just anyone doing it. One way that you have the quote license is if a regulating board gives a license to an individual. So a doctor [00:06:00] has a license to practice medicine issued by the medical board that gives a line of authority to do a lot of things, including opening a medical practice.

Brad: In that case, Michael, just as you’re going that medical license of that physician is all he really needs permission to actually open his medical practice. There is no additional medical practice license.

Michael: Exactly. And when the authority is not granted by the medical license, the state sometimes will have specific licensing processes and authority for other types of services. And so this is how often an ASC or ambulatory surgery center is granted and you’ll see non-doctors own it. They’re following some sort of state licensing authority. And so Brad, with that kind of context, I would think you should explain kind of what is an in office surgical suite in comparison to an [00:07:00] ASC?

Brad: Again, getting into detail so stick with us audience. The in-office surgical suite is exactly what it sounds like. It’s a suite inside, generally speaking, an operating room. It’s inside their medical office. It’s used to perform these surgical invasive procedures involving some level of anesthesia where it’s either general or even deep sedation. And for all intensive purposes, the function, it acts just like a regular surgical room in an ambulatory surgery center or in a hospital operating room, which probably most people are familiar with. The biggest difference is the connection. This is in this same medical practice. It’s not some separate building, but to the outside world, it’s great because it creates a more seamless experience for the patients where the schedule is easier because the same practice it’s located in the same place they walked in earlier for their other consults, the same staff, everything feels the same to them. So to the outside world, it’s a great way for them to connect to it.

Michael: Yeah. For those [00:08:00] not familiar, if you go get a treatment and you’re paying for a surgery, you may write a check to the doctor for what the doctor does. You may write a check for the facility, it may be a hospital, it may be a surgery center, and you may write a check for anesthesia. And what Brad’s saying here is the facility part and the doctor part are all under the same business entity, the medical practice. And if they go to an ASC, then the physician will still bill for the professional services and the ASC will bill for the facility and one of the advantages to this is it is more seamless to the patient. So my question to you, Jay, is if it sounds like an ASC and functions like an ASC, how was Dr. Nip Tuck able to go this route? And wouldn’t he still have to get an ASC license?

Jay: And that’s a [00:09:00] great question. So as you and Brad talked about in the prior episode, ASC licensing is a state issue. Every state’s going to be different. Well, in some states when they’re defining what an ASC, they’ll either within that definition or as part of the rule they’ll create this exemption, they will allow for in-office surgical suites to be exempt from the licensing requirement. And so that was the case here. Dr. Nip Tuck was in a state that allowed him to operate in an office surgical suite and not have to get that ASC license because it was specifically exempt. Now don’t get me wrong. There are still rules and regulations that he had to follow, including having the room certified by what’s known as the American association for accreditation of ambulatory surgery facilities. It’s known commonly in the industry as a Quad A certification.

Brad: And thank [00:10:00] God for Quad A because if you had to say that every single time, I mean, the American Association of Accreditation of Ambulatory Surgery Facilities. That is awesome and best at what they do, I mean, that could be the longest title in the history world, quite a certification. It makes a lot more sense. Jay, so at what point where we involved in this point?

Jay: So we actually became involved well after the practice, the surgical suite had been operational. It was a beautiful, nicely built out facility and Dr. Nip Tuck was a distinguished surgeon with a thriving practice to go along with this suite, I mean, everything was going well. The problem, when we came involved with that, COVID hit and Dr. Nip Tuck started thinking about actually slowing down his practice and moving towards retirement. And so this meant, as you can imagine that this beautiful facility wasn’t being used anymore or wasn’t being used as often and was just sitting there basically empty and [00:11:00] unused for most of the day and most of the week

Michael: This is a common issue with our surgeons. You know, if you kind of step back in the beginning, when they’re working all the time it’s not a problem having a facility or a suite that’s put to full use. But at some point something changes and they may find that there are gaps in the schedule. Sometimes it may just be a few hours here and there, but eventually it could be entire days where it’s not being put to use.

Brad: Yeah, I agree, Michael. And as you can imagine, the cost of having these beautiful suites there you have high end customers convinced your schedule is completely full. And when it isn’t, the client, in this case, the doc, they know they’re losing money because people aren’t coming in.

Jay: And that’s exactly where we were brought in. That’s exactly how Dr. Nip Tuck started to feel. And so what he was trying to ask for help with is [00:12:00] what’s the solution to just kind of stop this financial bleeding, what can he do to use this empty facility?

Michael: The most common solution and it seems kind of obvious is to offer outside physicians the ability to use the facility for a fee. And so I’m curious, is this something you guys explored?

Jay: Absolutely. I mean, like you said, that’s the best, the first thing, the easiest thing that anyone considers. And this was definitely the first thing that he considered and kind of the Genesis for why he approached and asked us to jump in was because he wanted to figure out what that looked like cause there were a couple of physicians from different physician groups in the surrounding areas that then kind of started talking to him and had some interest in using the facility. And so there was some mutual interest there. The problem was this wasn’t an option.

Brad: How so?

Jay: So going back to the state laws, [00:13:00] Dr. Nip Tuck, state laws allowed him to have this surgical suite without the laws also though restricted the use of the suite to only physicians that were part of his practice. So going back to what you and Michael were talking about earlier, the difference between an ASC and an in office surgical suite is that it’s an extension of the medical practice, serves a part of the medical practice. Part of that then under the rules, state that only those that are associated with the practice can use it.

Michael: And so we talked earlier about ASCs and how that’s a different license and that obviously if they had that would potentially open the door for other owners. Why couldn’t he, Dr. Nip just have applied for an ASC license at that point?

Jay: Yeah. So that was also a part of their thoughts. And so they had explored that option, but when he started looking into it, when he [00:14:00] found that there was going to have to be some reconstruction, some retrofitting to the suite to get it up to code and meet the standards of a true ambulatory surgery center. And really when you’re developing an ASC a lot of contractors and people in the industry will say that the best kind of way to go about that is to develop it in accordance with the rules for a Medicare certified ASC. And when they started looking into what all that entails it was going to be millions of dollars of an investment just to get it to a point to even be able to apply for a license.

Brad: All right. Jay, if we’re going to back this limitation under Dr. Nip Tuck state’s law, he could have done something different like bringing on a physician to his practice that were therefore they could use it. But given the fact that I think you said in the beginning of this episode, that he was close to retirement, that might not have been an option.

Jay: You’re absolutely the right Brad. [00:15:00] And the arrangements with independent contractor physicians didn’t really appeal to him because of the risk involved in his team. You know, at the end of the day, they were just frustrated with what to do with this empty space. And I remember at one point after we went through all these options and they just didn’t work or they weren’t something that he was interested in, he was just trying to figure out how do we figure out the solution. They were simply asking and saying, well, just help us get rid of this thing.

Brad: And I’m going to pause there. Michael, you said, make pause moments, for our audience if you cannot tell if you have something that you believe is of value in your mail, your main sales option is just get rid of it. The overall value of that asset may be severely impaired

Michael: It makes sense. And I’ll add to Jay, you alluded a minute ago to the fact of bringing in doctors was going to create risks to the practice. And I just want to note [00:16:00] that if you are a practice and you have this in office suite, when someone is operating in your facility, they are part of your medical practice. And so the risk is real that whatever that doctor is doing with those patients, you know, directly impacts the medical practice or in this case would would’ve impacted the medical practices of Dr. Nip Tuck. So with that, Jay, what was the solution?

Jay: Well the writing was on the wall that the thing needed to be sold, but even that at the end of the day wasn’t going to be easy because at the time, the only interested physicians were with unrelated practices, and it was going to be difficult to convince them to purchase something that would be difficult for them to use together in different practices without having to go with the ASC license, which again, it’s going to [00:17:00] cost millions of dollars just to get to that point.

Michael: Well, this is a great cautionary tale of how decisions made early on can impact things into the future. Let’s go into a commercial and on the other side talk about what Dr. Nip Tuck encountered with his in-office surgical suite and other considerations similar surgeons may face

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Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host Brad Adatto with my [00:18:00] cohost Michael Byrd and series regular Jay Reyero.

Michael: Jay, you just told us a story of some difficult issues a plastic surgeon, Dr. Nip Tuck faced with his in-office surgical suite when things started to slow down for his practice. If we take a step back, when a surgeon’s interested in developing an in-office surgical suite, where’s the best place to start?

Jay: Oh, I mean the only real place to start is the state laws relating to ASCs. Going back to what you said earlier, you know, if an in office surgical suite sounds like an ASC and functions like an ASC. So you first have to determine, do you have to go the license route or is there some kind of exemption that allows for these in-office surgical suites? Some states may not care and will require an ASC license regarding and other states are going to be a little bit more flexible and allow for the physician to forego that licensing, just like Dr. Nip Tuck[00:19:00]

Michael: And Brad, I know in California, as an example, it’s actually referred to as an outpatient surgery setting. They’re a facility owned and operated by a physician must only be accredited through one of four agencies that are approved by the medical board, of course Quad A which Jay referenced earlier is one of those.

Brad: And in New York they have something similar. They call it office based surgery, and these are specific office-based surgery laws in place requiring private practice before office-based surgery to be OBS accredited by a designated credit agency, which again, includes our famous Quad A certificate.

Jay: And to kind of round out the examples, Oregon is a state where things can be a little bit more tricky. According to Oregon, an ASC is not an individual or group practice office private physicians that do not contain a distinct area. So there’s one key aspect [00:20:00] that’s used for outpatient surgical treatments on a regular organized basis. So that’s kind of another piece, or that only provides surgery routinely provided in a physician’s office. And this is the key using local anesthesia or conscious sedation. So you can kind of see how there is an exemption, but it’s kind of a limited exemption. You have to kind of fall within it. And so, again, going back to the complexity, you’re going to have to follow the traps to make sure you’re meeting all those different pieces to fall outside the license requirements.

Brad: Yeah, well, we’re here in Texas, shout out to Texas law real quick, but you know, based on Texas law, we’re looking at that it’s a facility that primarily provides surgical services. That’s what they call an ASC to patients that do not require overnight hospitalization or extensive recovery normally referred to as like the 23 hour rule. But this rule in Texas exempts offices and clinics have licensed going back to our medical license, medical license, [00:21:00] for physicians or dentists or podiatrists.

Michael: Yeah. And some states are good about providing the detailed information on what’s needed for this issue like California, New York but other states are more difficult to navigate. And so Jay, once someone gets through that, let’s talk about the next trap they’re likely to face.

Jay: Yeah. So you do all the hard work you get through the dense legal requirements and figure out what to do from a legal perspective. You kind of have the outline to get up and running somewhat but I think we can set aside for this episode, you know, the potentially lengthy process of building out and attaining accreditation and navigating the operational requirements, which are all critically important and required, but these are typically handled by the experienced consultants industry that work a lot with ASCs and in office [00:22:00] surgical suites. So in reality, the trap comes later on much later on. Sometimes when the surgeon or the owner is looking to allow others to use the facility. It could be a couple of docs or types of docs approach them and are interested in using that facility. It could be going back to what Dr. Nip Tuck experienced. Certain situations that have the facility not being used anymore and trying to figure out a way financially to keep it viable.

Brad: And I agree, Jay, you know, we’ve seen this many times over the years where for one reason, the other client approaches us and they want to use our facility for other providers to come in. I know we referenced that in our story of last week and this could be a bigger issue because now you’re trying to figure out, is this a joint venture or is this an integrated practice model, and it could be like where Dr. Nip Tuck faces this [00:23:00] facility is not being used as much so whatever the reason they are there are obstacles that they will face.

Michael: What’s the most common one you’ve seen?

Brad: Well it will go back to the beginning with the general rule, which how you can use an ASC and or accredited facility, it is just not assignable. It is again, issue to that particular person or individual. Again, we talked about this last week. You just can’t lend your license or your accreditation to some other party for them to use. This has lots of consequences when things do go wrong. So the owner of the ASC is jeopardizing their license or other liabilities. Michael, you referenced this, if you have an outside party using your medical practice, the liability can be on your medical practices. So it’s a catch 22, right? So you have the situation where if you own the medical practice and it’s inside of your facility, the physician wants to have other people come in to help offset that costs, but they’re [00:24:00] not sure if they’re willing to assume this additional liability to their medical practice.

Jay: Absolutely, Brad. And let’s add to that a little further, going back to a situation like Dr. Nip Tuck’s, where you’re operating out, you know, within an exception, an exemption from licensing. We are also potentially jeopardizing that so you’re doing an end around of the ASC licensed process, essentially. So for an example, New York is very clear that only those providers who are part of the practice can perform procedures. And the accredited OBS office may even specifically point at an FAQ example that unaffiliated providers can’t get around this simply because they’ve entered into some kind of arrangement such as a lease or sublease to allow them to use the space in an accredited OBS setting, because they know that that’s a frequent type of transaction that people try to do say, well, I have a licensee, I’ll just sub-lease it to you and have you [00:25:00] step into my shoes and in New York, for example, one that has really pointed out that’s not permitted under their exempt exemptions for their license requirement.

Michael: Yeah. So we see these in office surgical suites and the kind of related arrangements that we’ve been talking about often in the elective medicine space, because it’s cash based, but Jay, you and Brad, I’d like to hear your thoughts on this. I’ve encountered this when insurance is involved.

Brad: Yeah. Introducing insurance reimbursements creates a whole other set of complications. It’s very difficult in this setting to really go into it to understand that most insurance payers, when they’re going through a claim, they’re looking at the tax ID associated with the license or the accreditation. And so that’s what they’re looking for. And all of a sudden, other parties show up and they’re using that [00:26:00] same license or accreditation and they are not the party with the license and this brings up issues of submitting false claims from the commercial payers or even over payment demands. And so Jay, what ended up happening with Dr. Nip Tuck’s surgical suite?

Jay: Well kind of going back into the story that really the only logical thing was to sell. So, what they ended up doing is they identified the only logical purchaser for the entire practice, which is going to include the surgical suite. They found that actual surgical practice who could take over and kind of replace them in the equation. So it would be falling under all the same rules and exemptions. And in this case, basically the purchaser could similarly use the space under the same extension and that was really their only option. And they ended up identifying someone who was interested in going down that path. [00:27:00]

Michael: Well, there’s a lot to think about and consider when looking at going the in-office surgical suite route. Jay and Brad, what are the biggest takeaways you guys have for our audience?

Jay: Well, obviously first part is going to be understanding the state laws and what options are available, but really beyond that, I think when surgeons are evaluating their options, they need to consider whether they want to potentially allow others to use the space. Obviously at the beginning, that won’t cross their mind. But the answer to this is key because they can potentially foreclose certain options or it could require them to go down a route that kind of requires a significant capital investment. But I think more importantly, it doesn’t create surprise. So when they’re running into that problem or they’re coming to me to ask for possible solutions, they’re not surprised when, you know, I hate having those difficult conversations that say well [00:28:00] yes, I know you’ve worked out a deal with so-and-so, but you can’t do that because it’d be against your accreditation or your licensing or whatever the case may be. And so at least having those conversations early in planting the seed in their mind will help them be more informed for when the time comes for the issue to arise in future.

Brad: Yeah. And I agree. I mean, having these in-office surgical suites is great. They serve a purpose with our plastic surgeons and cosmetic surgeons, these facilities truly don’t have to be in there are inside their office so they’re not even an extension of their officer in the part of the actual office, this helps tremendously brand awareness. Your medical suite is your office. We talked about the use of the same employees from the patient’s perspective, they’re not going to some new location with new people there that have been dealing with. And so all of that is awesome, but as we noted in this story there are limitations, and Jay, you just walked through a lot of [00:29:00] those limitations and so it is important if you are thinking about doing something like this, to hit that pause button that you referenced in the beginning, Michael, which is to make sure what kind of payer mix you’re going to have. What’s your long-term strategic goal, as far as the sale of this practice, because you don’t want to be in a situation where you just get rid of it. I just don’t really want this dang thing anymore. It’s devaluing what you know what I perceive. So Michael, your closing thoughts?

Michael: Well, I totally agree that knowing at the beginning where you’re trying to go will influence it. I think back to Brad, your analogy, that you set us up with the swimming and you know if you’re only gonna go under and want to hold your breath for one second longer than Brad, then it’s great, it’s fast. You jump in and go its seamless. If you’re trying to swim down to a shipwreck, you probably need to get the scuba certification and put the scuba gear on. So [00:30:00] knowing what you’re going to be doing before you get started makes all the difference.

Brad: Well, Jay, thanks again for joining us. And that closes out this show, but looking forward to next week when we have our good buddy, Larry Keller, joining us to talk about retirement and disability.

Outro: Thanks again for joining us today. And remember, if you liked this episode, please subscribe. Make sure to give us a five- star rating and share with your friends. You can also sign up for the ByrdAdatto newsletter by going to our website at byrdadatto.com. ByrdAdatto is providing this podcast as a public service. This podcast is for educational purposes only. This podcast does not constitute legal advice, nor does it establish an attorney- client [00:31:00] relationship. Reference to any specific product or entity does not constitute an endorsement or recommendation by ByrdAdatto. The views expressed by guests are their own and their appearance on the program does not imply an endorsement of them or any entity they represent. Please consult with an attorney on your legal issues.

ByrdAdatto Founding Partner Bradford E. Adatto

Bradford E. Adatto

ByrdAdatto founding partner Michael Byrd

Michael S. Byrd

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