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ASC & Hospital Partnerships: Weighing the Pros & Cons

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In the past the relationship between ambulatory surgery centers and hospitals was typically adversarial, but as healthcare changes ASC leaders are trading old notions for a new vision of collaborative care.

Many ASC management and development companies are capitalizing on this trend and incorporating this model into their business strategy. Chris Bishop, partner and senior vice president of acquisitions and business development at Blue Chip Surgery Center Partners, and Brent Lambert, MD, founding partner of Ambulatory Surgical Centers of America, examine both sides of the coin: the potential benefits and downsides ASC leaders may see come of a relationship with a hospital. Whether or not a hospital partnership is the right choice for an ASC rests on which side of the scale tips: pros or cons.

Benefits

Chris BishopContinuity of care
Though the future of population health is uncertain, healthcare providers are increasingly seeing motivation to approach one another as collaborators rather than competitors. The ASC joint venture is a concrete step forwards in continuity of care. "In an ideal scenario, we can sit at the table and pull all three parties together to identify the solution that benefits patients and everyone involved in the partnership," says Mr. Bishop.

As hospital interest in the ASC setting grows, relationships may extend to other providers such as ambulatory campuses, imaging centers, outpatient emergency departments and medical office buildings."If a hospital can invest in an ASC that is on the periphery of its service area, it can develop a relationship with a broader population of patients and physicians," says Mr. Bishop.

Regulatory and market clout
Certificate of need states are highly regulated environments. Physicians trying to open an ASC on their own face a number of hurdles that could be more easily cleared with the support and partnership of a hospital.

In non-CON states, many markets can be highly saturated with existing ASCs. "A hospital partner can improve a high-quality ASC's chances for future growth in a market highly penetrated by outpatient surgery centers," says Mr. Bishop.

Managed care contract negotiation
Reimbursement is a major factor driving ASC leaders to seek hospital partnership. "Hospitals are the largest deliverers of care in a community and have the most leverage with payers," says Mr. Bishop. Association and support from the hospital can have a significant effect on reimbursement rates. "When [a hospital] is on your side and going to the payers, LambertBrentyou can expect a lift or bump in reimbursement rates," says Dr. Lambert.

Downsides

Lack of payer leverage
Managed care contract negotiation has the potential to be a significant benefit of hospital partner, but it is not guaranteed. ASC leaders should be careful to select a hospital that has the muscle to back up the promise of improved reimbursement. Small, standalone community hospitals may not be able to deliver.

Reluctance to integrate an ASC model
Hospitals unfamiliar with joint venture relationships may not provide the level of support ASC leaders hope. "Sometimes the hospital isn't used to having a partner that views itself as equal," says Dr. Lambert. Hospitals in this situation may use its weightier leverage to make decisions without consulting the ASC partner or simply fail to use its leverage to obtain the ASC favorable payer contracts.

Loss of physician engagement
Hospitals may require a significant ownership stake, which if not coupled with strong managed care contract negotiation and market influence could lead to a lack of satisfaction on the physician side. "If it is a non-CON state, the physicians who have given up 50 percentof their equity will be unhappy if the hospital disappoint them with the contract negotiation," says Dr. Lambert.

Lack of physician engagement can lead to a negative impact on the center's overall performance. "Physicians need enough material ownership to be truly engaged in choosing what it best for the center and its patients," says Mr. Bishop.

Making the decision
The ultimate decision often comes down to an ASC's market position and whether or not a hospital has the ability to enhance that position. Regardless of the ownership models trending in the industry, surgery centers have the opportunity to survive and thrive. "The future is bright for ambulatory surgery centers. To quote Mark Twain, 'The reports of my death have been greatly exaggerated,'" says Dr. Lambert.

More Articles on Transactions and Valuation Issues:
6 Recent Ambulatory Surgery Center Plans, Openings & Expansions
ASC Ownership Trends: Are Physicians Making the Investment?
2014: A Promising Year for De Novo ASC Activity?

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