CANTON -- The ambulatory surgical center planned as part of St. Lawrence Health System’s new medical specialty facility has been all but abandoned due to a major change in federal regulations.

The first floor of the $23 million project will remain vacant when offices and treatment rooms for orthopedics and sports medicine on the second floor and for medical and surgical specialists on the third floor open in January.

“We are unlikely to pursue placing an ASC (ambulatory surgical center) in the new building in the near future,” said Rebecca J. Faber, Canton-Potsdam Hospital corporate communications director.

That’s because new regulations will limit Medicaid reimbursements for treatment at new ambulatory surgical centers that are not within 250 yards of a hospital.

When asked whether ambulatory surgery services will now be expanded in Potsdam, Faber said hospital officials are “exploring on-campus options generally. It’s in the early stages of planning.”

So the medical campus next to Route 11 Truck and Equipment Sales and Service will now open without the outpatient surgical suites originally planned for the first floor, she said.

The change in plan is due to regulations approved last year that make the outpatient surgery plan uneconomical.

“The hospital outpatient department (HOPD) law radically changes the reimbursement for new off-campus Ambulatory Surgery Centers, making the planned use of the 1st floor financially difficult at this time,” Faber said in an email message.

The higher rates paid to hospitals that own a nearby ASC previous to this bill will not be paid anymore unless the center is within 250 yards of a hospital, Faber explained.

The higher rate had been paid because “hospitals face a markedly different regulatory environment than do private doctors’ offices,” which the extra money was intended to offset.

The law, signed by President Obama a year ago as part of a much larger federal budget agreement, will result in lower reimbursements from federal medical programs for outpatient surgical services at hospital-run facilities that are not at the same site as the hospital.

Unfortunately, plans for the new medical facility were made and announced several months before the law was negotiated, passed and signed in Washington.

“We urged consideration of a carve-out for rural hospitals; however, the law remains unchanged,” Faber said. “We remain hopeful that revisions will be considered. Hospitals across the nation are affected.”

At the time the hospital announced its plans, CEO David Acker said the four outpatient surgery rooms planned for Canton were badly needed because surgical facilities at Canton-Potsdam Hospital were often used to capacity.

Certificates of Need (CON) granted by the state Department of Health prior to construction of new medical facilities remain under review while a project proceeds. The original CON application for the surgical suites was withdrawn when the unfavorable financial outlook from the impact of HOPD became apparent, and new CONs were obtained to define the revised plan for the Canton campus.

What remains before opening the doors to the second and third floor is a round of reviews and inspections by the health department, and finally, official approval to begin providing services.

“We are able to occupy and open our services once we have in hand the Operating Certificate which the DOH provides if we pass the inspection to its satisfaction,” Faber said.

The inspection is expected in December, and they “hope to have the building occupied and open in January,” Faber said.

Meanwhile, Faber says there are no plans to resubmit an application for the outpatient surgical services, but that could change.

“We are still assessing the full impact of the new regulations regarding reimbursement of hospital-owned outpatient departments,” she said.

She said hospital officials would consider trying again if there are new changes in reimbursement regulations. St. Lawrence Health System operates Canton-Potsdam and Gouverneur hospitals.

“That’s likely the only change in circumstances that would see us reconsider the plan. We’re concentrating on the main campus in Potsdam for the time being,” Faber said.

“We’re awaiting the 2017 regs and hopeful that the changes may occur. Until those 2017 regs come out we’re not contemplating anything on the first floor. It remains shell space for now.”

Prior to the new regulations, an off-site hospital-owned ASC facility was reimbursed by Medicare at the same rate as if treatment were done at the hospital, but now any new free-standing centers, hospital owned or not, will not be paid at the previous higher rate.

“As a result, the provision could have a significant impact on the health care community going forward,” said an analysis by international law firm K&L Gates in an alert to its clients.

“The law was intended to address what was mainly an urban issue which was hospitals acquiring free-standing outpatient services which were paid at a lower rate than hospital based services,” Faber said.

Once the free-standing outpatient clinics were acquired – or built -- by a hospital, a higher reimbursement rate would be paid in consideration of the presumably higher standards at a hospital, but that changed with the new law.