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Physician-Owned ASCs to Lose Licenses
By Paul T. Smith and Gabrielle B. Goldstein
[April 2008]
The California Department of Public Health (DPH) is issuing letters to ambulatory surgery centers (ASCs), owned in whole or in part by physicians, notifying them that they are no longer eligible for licensure by the DPH. The DPH's policy is that it will not issue new licenses or renew existing licenses for ASCs that have any physician ownership. This new policy throws some ASCs into legal limbo, but it may also create opportunities for new business.
The DPH's current position is based on its interpretation of the California appellate court decision in Capen v. Shewry (2007) 155 Cal.App.4th 378. The DPH's policy is set out in an internal memo, referred to as a DOM. Its position is that the DPH has no jurisdiction over any ASC that has any physician ownership. We are aware of at least one ASC, owned in part by physicians and in part by investors, whose license expired earlier this year and who has been told by the DPH that its license will not be renewed.
The DPH will continue to perform Medicare certification surveys on unlicensed ASCs. However, we are told that the DPH will not provide initial certification surveys unless there is a showing of need for beneficiary access. This is a consequence of instructions from the Centers for Medicare and Medicaid Services (CMS) issued last November. The instructions state that ASCs are to receive the lowest priority for initial certification surveys, because they have an alternate route to Medicare certification through accreditation. A list of accrediting agencies accepted by CMS is attached to the instructions.
Unlicensed ASCs that perform general anesthesia will now need to meet the requirements of Health & Safety Code 1248 for outpatient settings. An outpatient setting is a facility (other than a general acute care facility) in which anesthesia (except local anesthesia or peripheral nerve blocks) is used in doses that have the probability of placing a patient at risk for loss of the patient's life-preserving protective reflexes. As a general rule, outpatient settings must be licensed ASCs, or they must be Medicare certified or accredited by an approved accrediting organization (there are other options for specialized clinics). You can find a list of approved accrediting agencies at http://www.mbc.ca.gov/outpatient_surgery.html.
The DOM states that until the issue is resolved, the DPH will permit licensed health care practitioners who are not owners/operators to practice at "a clinic" (i.e., unlicensed ASC) if the clinic otherwise qualifies for exemption from licensure under California law as a doctor's office. The DOM is silent, however, on the status of mixed-ownership facilities (such as joint ventures among physicians and hospitals or investors) that may not qualify under the doctor's office exemption. For the time being, however, it seems the department is not planning any action against such facilities.
The deregulation of physician-owned ASCs may present new opportunities. For example, the department has in the past taken the position that unlicensed physician-owned ASCs operated under the doctor’s office exemption may be used only by owner physicians; the new policy would permit use by non-owner physicians, too. The DPH has also consistently stated that licensed ASCs may not lease out procedure rooms to physicians. It appears now that the department would have nothing to say about this practice in physician-owned ASCs.
We caution, however, that any new arrangements that take advantage of the policy may be short-lived, because it is possible that the DPH may revisit its interpretation of the Capen case or that the state legislature may step in if it does not.
If you have any questions or would like to discuss this issue in greater detail, please contact any of the Davis Wright Tremaine attorneys listed below.
Contact information:
This advisory is a publication of the Health Law Group of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.
Copyright 2008, Davis Wright Tremaine
LLP.
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