Hospital Partnerships: 4 Considerations for ASCs Before Taking the Plunge
Hospitals and health systems are partnering, merging and buying up physician practices along the way. Consolidation is leaving little in healthcare untouched. Many ambulatory surgery center leaders are considering strategic hospital partners as a way to weather the changes in healthcare and maintain a successful business.
Robert J. Carrera, president and CEO of Pinnacle III, sheds light on four thoughts for ambulatory surgery center leaders to consider before finalizing a hospital partnership agreement.
1. Defensive vs. strategic growth. Hospital partnerships appeal to ASC leaders for different reasons. Many partnerships are motivated by a defensive strategy, while others stem from a desire for assertive growth. Determining the strategic reasons for pursuing a partnership allows ASC leaders to plan accordingly. ASC leaders on the defense will consider how hospitals and health systems in the local market control physician referrals and patient population. A partnership could allow these ASCs to tap into a much larger patient market as well as the expertise of a larger health system.
Surgery center leaders less concerned with defense and more with assertive business growth may consider a partnership as a means of obtaining an investor and more business. "Either way is has to be a win-win," says Mr. Carrera. Both the ASC and hospital leaders should know what to expect and must benefit from the agreement for the partnership to be productive.
2. Partnership options. Many markets have more than one hospital or health system for ASC leaders to consider as a partner. After years of sharing the same market and even competing, ASC leaders generally have a good idea of which hospital would be a logical partnership choice. "When considering your partners, decide who brings the most to the table and how much you are willing to give up to get it," says Mr. Carrera.
The next step is deciding whether or not to enter the partnership alone. Some ASCs have found success in involving a management company, either strictly in a managerial capacity or as an equity partner. A management company can serve as a buffer and diplomat between the ASC and hospital. "A management company can operate above the fray and outside the sphere of politics, only concerned with the success of the ASC," states Mr. Carrera.
3. Due diligence. Hospital and health system interest in ASC acquisition is growing, but no matter which entity first broaches the partnership subject, due diligence is a necessary process. Go through the operating agreement with a fine tooth comb and ensure all expectations are concretely defined. "Everyone should know how to behave in that relationship," says Mr. Carrera. "Doing all of the groundwork on the front end ensures nothing is missed that could hurt you on the back end."
Some ASCs rush into a partnership without considering what the relationship will look like beyond the initial affiliation. Leaders can spend years trying to extricate a center from an unfavorable partnership. "If you are going to go down this road, you need to make sure you have the right partner," Mr. Carrera asserts.
As a part of due diligence, ASC leaders can gain an understanding of what type of partner a hospital or system will be by examining its current joint ventures, whether with another ASC, a catheterization lab or some other facility. If there are concerns, they should be addressed. Ask a potential partner how they intend to correct those issues moving forward.
4. Scheduled timeline. Depending on the circumstances, either an ASC or hospital can be responsible for slowing the process of finalizing a partnership. "Do everything in your power to make sure the process doesn't drag on," says Mr. Carrera.
Assembling a small team of individuals is an effective strategy for executing the deal in a timely manner. The team will often include physician-owners of the ASC and a member of the hospital's C-Suite. Many successful processes will include a CEO or CFO. Physician owners feel comfortable communicating directly with the hospital's decision-makers and time is not wasted running questions and decisions up and down the chain of command.
An ASC's leaders have the ability to set an end date at the outset. For example, set a deadline of six months and if potential partnership issues remain unresolved, explore other options.
More Articles on Transactions and Valuation Issues:
2 Illinois ASCs Sell Majority Stakes to Edward Hospital
Consolidation in Healthcare: Should ASCs Join In?
10 Hospitals & Health Systems Opening & Planning Surgery Centers
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