Frequently Asked Questions

As more and more industry observers foresee a widening gap between Ambulatory Surgery Center (ASC) rates and hospital outpatient rates for the same procedures, more and more ASC investors, including hospitals and health systems, are considering the merits of converting their ASCs into hospital-based sites. Below are 10 frequently asked questions regarding such conversions, with short answers. The answers are not intended to be legal advice and should not be relied on as such, but rather they are intended to help an ASC make a more informed decision whether to pursue conversion to hospital-based status.

How do you convert an ASC to a hospital-based site?

The first step in conversion is to structure a surgical facility management arrangement between the operating entity for the ASC and a hospital that satisfies the Medicare criteria for a hospital outpatient department, and then to de-certify the site as an ASC.

Is it illegal to increase a facility’s Medicare reimbursement by converting an ASC to a hospital-based site?

There is no federal statute or regulation that prohibits an ASC or its investors from converting its facility to a hospital-based site as long as the facility satisfies the regulatory criteria for a hospital outpatient department. A hospital may, but is not required to, obtain a formal determination from the Centers for Medicare and Medicaid Services (CMS) that the surgical facility satisfies the regulatory criteria for a hospital outpatient department.

How difficult is it for an ASC to qualify as a hospital-based site under Medicare rules?

Generally, it is not very difficult, and any doubt can be resolved by seeking a formal determination from CMS.

Is there any risk under federal law associated with converting an ASC to a hospital-based site?

The conversion creates a new compensation arrangement between the ASC’s operating entity and a hospital, and the ASC’s physician-investors are now making referrals to the hospital, not the ASC. Consequently, as with any direct or indirect financial arrangement between a hospital and referring physicians, the arrangement should be evaluated for risk under the federal physician self-referral or Stark law, the federal health care program anti-kickback statute and the federal civil False Claims Act.

Is it possible to resolve any doubts about whether the conversion violates the Stark law and/or the anti-kickback statute?

Perhaps; ASCs may request an advisory opinion from CMS and/or the Office of the Inspector General (OIG).

Is state law implicated by converting an ASC to a hospital-based site?

State certificate or determination of need laws, and state licensing laws, bear on the facility’s ability to recharacterize itself as a hospital-based site.

Have any commercial payors refused to pay a hospital, or refused to pay a hospital its contracted hospital rates, when the hospital starts billing for ambulatory surgeries formerly billed by the ASC?

Not to our knowledge.

Does the hospital have to control the surgical facility?

The hospital will contract with the ASC’s current operating entity to manage the facility, but, if the surgical facility is located off the main campus of the hospital, the hospital must:

Directly employ (not lease) the non-physician clinical staff
Have final responsibility for administrative decisions, contracts with outside parties, personnel actions, personnel policies (such as fringe benefits or code of conduct) and medical staff appointments
Manage the management contract for the surgical facility
How does Medicare define "campus"?
A "campus" includes the main hospital building and other structures within 250 yards of the main hospital building.

How far from the hospital’s main campus can a hospital-based surgical facility be?

The surgical facility must generally be within 35 miles of the hospital’s main campus (as the crow flies), but the surgical facility can be even more distant from the main hospital campus if certain criteria are met evidencing that the two facilities serve the same patient population.