How to Structure a Great Joint Venture
According to Mr. Gary, Regent Surgical Health has employed the third party model at a number of its facilities to maintain healthy revenue streams. The third party model is a joint venture between physicians or an ASC, a management company and a hospital. Regent has employed this joint venture strategy with many of its facilities. Of 24 facilities, 17 have hospital partners, according to Mr. Simmons.
First, Mr. Gary discussed a structural reason for ASCs to pursue this joint venture format. "Bringing a hospital into a joint venture as an owner can change Medicare reimbursements. This is the most immediate reason to do this format. Whatever your objective, the hospital's position within the community is beneficial. They may have more leverage with payors," said Mr. Gary.
The reason a hospital partner is likely to raise reimbursement levels is because the hospital could position the ASC as an affiliate and negotiate a rate for the ASC as part of its network.
However, Mr. Gary did emphasize the importance of caution. "When you get into a situation like this joint venture structure, you need to walk carefully with it. You need to determine if it makes sense and what the rates would be. Sharing reimbursement info with a potential partner could be risky. This is where the value of a third party — a management company — is clear," said Mr. Gary.
Before an ASC shares its rates with a hospital — a potential competitor — it needs to be careful on the process to avoid rate fixing. The third party model could overcome this hurdle, since the third part would take rates from the ASC and the hospital to generate a financial model on future returns. This method also prevents antitrust issues. "A third-party takes the financial model to structure a deal that has adequate ownership for the hospital. This assures the hospital has enough control and is able to act in this environment without running foul of antitrust laws," said Mr. Gary.
According to Mr. Simmons, a hospital typically owns 30 to 51 percent of the joint venture for a variety of reasons having to do with antitrust.
Next, Mr. Simmons discussed the "best" time to develop a third-party joint venture. While there are different answers depending on the surgery center or hospital, if revenue is flat, it may be a good time for an ASC to consider this model. "Like any business, an ASC wants to sell or partner before it has reached its peak. If reimbursements have dropped, if physicians are becoming difficult to recruit, you'd be out of your mind not to implement this model," said Mr. Simmons. "You want to be the first in your market to do this because everyone will sign a non-compete agreement."
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