South Carolina ASCs Have a Number of Changing Regulatory Requirements Pending – Stakeholders Should Take Notice

In May of 2023, the South Carolina General Assembly unanimously passed S. 164 and the Governor signed the legislation into law as Act 20 (the Act). The Act partially repealed the state’s Certificate of Need (CON) program and removed ambulatory surgery facilities (ASCs) from the requirements of the CON program. Additionally, since the Act was signed into law, DHEC has proposed a set of amended regulations that update the requirements for ownership and operation of ASCs in South Carolina. In early May 2024, the South Carolina General Assembly approved by joint resolution DHEC’s proposed amendments to Regulation 61-91, Standards for Licensing Ambulatory Surgical Facilities (the Licensing Standards). On May 21, 2024, the Governor signed the amendment into law. The amendments will take effect upon publication in the State Register, which we anticipate will occur on June 28, 2024.

The repeal of CON requirements for ASCs removes a significant barrier to entry for developing, owning, and operating new ASCs in South Carolina. In the last year, our team has already observed an increase in strategic investment into ASCs from healthcare providers throughout the state, and we expect that to continue in the coming years. According to DHEC licensing records, there are currently more than 80 licensed ASCs in South Carolina. We expect that this number will continue to trend upwards. Despite the Act’s removal of the CON barrier, there are still several important regulatory considerations applicable to opening and operating a new ASC in South Carolina that healthcare providers and investors should be aware of.

State Licensing for ASCs

ASCs in South Carolina must be licensed by DHEC as “ambulatory surgical facilities” and must be in compliance with the Licensing Standards prior to opening a licensed facility and at all times after opening. The Licensing Standards in Regulation 61-91 include comprehensive requirements for ASCs operating in South Carolina, including, but not limited to, requirements related to an ASC’s design and construction, control of operations, staff, clinical services, administration and staff supervision, infection and environmental control, and patient records. For example, Section 503 of the updated Regulation now requires licensed ASCs to “have a governing body designated in writing by the Licensee that assumes full responsibility for determining, implementing, and monitoring policies governing the Facility’s total operations.” Further, the ASCs:

governing body must ensure [that a] quality improvement program: (1) is defined, implemented, and maintained by the Facility; (2) addresses the Facility’s priorities and that all improvements are evaluated for effectiveness; (3) specifies data collection methods, frequency, and details; (4) clearly establishes its expectations for safety; and (5) adequately allocates sufficient staff, time, information systems, and training to implement the quality improvement program.

S.C. Code Ann. Regs. 61-91 § 1601.C. Thus, the Licensing Standards must be considered from the very inception of an ASC project, including with respect to its design, construction, and overall governance structure.

For stakeholders that plan to offer cardiovascular care services within an ASC, the updated Licensing Standards impose additional requirements beyond what is described in the general licensing standards. Newly added language in Section 807 of Regulation 61-91 requires facilities “establishing or offering invasive cardiac procedures, including cardiac catheterization services… to [apply] for and be in the process of obtaining accreditation for such services from the American College of Cardiologists, Accreditation for Cardiovascular Excellence, or other nationally recognized accrediting organization[s] approved by the Department...” Any facility providing these services must “obtain accreditation within two years from application unless otherwise approved by the Department.” In the event a facility offering cardiovascular care services is denied accreditation or has its accreditation revoked, the facility must notify the Department in writing and may not offer cardiovascular care services until they obtain accreditation or are re-accredited. Additionally, Section 807.B now requires facilities offering cardiac catheterization services to maintain written protocols “ensuring immediate, efficient, and safe transfer of patients to the nearest hospital with onsite cardiac surgery in the case of an emergency.”

Uncompensated Indigent Care Requirements for ASCs

In addition to the general licensing requirements discussed above, the Licensing Standards now include uncompensated indigent care requirements applicable to ASCs licensed after the partial repeal of CON. Under the new indigent care requirements, in order to be licensed by DHEC (DPH after July 1, 2024), any ASC established or constructed after May 16, 2023 must provide indigent or charity care after it has been operating for two calendar years. For ASCs that provide care to Medicaid beneficiaries, the amount of uncompensated indigent or charity care provided must be 2% or greater of the ASC’s adjusted gross revenue. For ASCs that do not provide care to Medicaid beneficiaries, the amount of uncompensated indigent or charity care provided must be 3% or greater of the ASC’s adjusted gross revenue. The new provisions of the Licensing Standards that will soon take effect include a non-compliance provision that imposes monetary penalties for ASCs that fail to comply with the indigent care requirements. Section 103.N.2.c of Regulation 61-91 states that “[n]on-compliance with Section 103.N.2.a or b shall result in a monetary penalty in the amount of the difference between the services which the Facility is required to provide and the amount it actually provided.” To avoid non-compliance with these requirements, owners and operators of ASCs in South Carolina should have systems in place to closely monitor and track the amount of uncompensated indigent care they are providing at their ASC.

Abolishment of DHEC and Creation of Department of Public Health

Healthcare providers and other stakeholders looking to own or operate an ASC in South Carolina should also be aware that per Act 60 signed into law by the Governor in the fall of 2021, DHEC will be abolished on July 1, 2024, and its responsibilities will be split between two new agencies. The Department of Public Health (DPH) will oversee the state’s public health and healthcare quality programs, which includes the Licensing Standards for ASCs, and the Department of Environmental Services (SCDES) will oversee all environmental programs. As a part of this transition, there will no longer be a DHEC Board. Both new agencies will be led by Directors who will report directly to the Governor. 

Federal AKS Implications for ASCs

Despite the fact that the Act removed a significant barrier to entry by pulling ASCs out of the CON program, the Act did not impact the importance of federal healthcare regulatory compliance for owners and operators of ASCs in South Carolina. Healthcare providers and investors looking to own or operate an ASC in South Carolina should understand the relevance and requirements of the federal anti-kickback statute (“AKS”) and its safe harbors.

The AKS makes it a federal criminal offense to knowingly and willfully offer, pay, solicit, or receive any “remuneration” to induce or reward referrals of items or services reimbursable by federal healthcare programs. Any financial return on an ownership interest in an ASC to an ASC owner/investor who generates referrals or business for the ASC likely constitutes “remuneration” to such owner/investor that implicates the AKS. Thus, the ASC and any such owners/investors should consider structuring the ASC ownership arrangement in a manner that satisfies the requirements of the AKS safe harbor for ASC investments. While arrangements that implicate the AKS but do not satisfy an applicable safe harbor do not automatically violate the AKS (rather, they are subject to a facts and circumstances test to determine whether they violate the AKS), meeting the ASC investment safe harbor substantially mitigates AKS risk for owners of an ASC.

The AKS’s ASC safe harbor requires, among other things, that patients referred to the ASC by an investor are fully informed of the investor’s interest, and that the ASC meet the standards of one of the following four categories: surgeon-owned ASCs, single-specialty ASCs, multi-specialty ASCs, and hospital/physician ASCs. While each of these ASC types have their own requirements, the requirements are very similar and there are several common elements among the four types, including the following:

1. The terms on which an investment interest is offered to an investor must not be related to the previous or expected volume of referrals, services furnished, or the amount of business otherwise generated from that investor to the ASC.
2. The ASC or any investor must not loan funds to or guarantee a loan for an investor if the investor uses any part of such loan to obtain the investment interest.
3. The amount of payment to an investor in return for the investment must be directly proportional to the amount of the investor’s capital interest.
4. All ancillary services for federal health care program beneficiaries performed at the ASC must be directly and integrally related to the primary procedures performed at the ASC, and none may be separately billed to Medicare or other federal health care programs.
5. The ASC and any hospital, surgeon, or physician investor must treat patients receiving medical benefits or assistance under any federal health care program in a non-discriminatory manner.

Our healthcare team and Maynard Nexsen has in-depth experience helping owners, operators, and investors in ASCs navigate and comply with the foregoing regulatory requirements, among others applicable to ASCs. Our firm more broadly has extensive experience assisting ASCs with legal matters critical to the success of an ASC in South Carolina and beyond, including real estate, corporate, employment, and transactional matters.