Channel Sponsor - Turnaround

Sponsored by ASCOA | turnaround@ascoa.com | (866) 982-7262

The alternative ambulatory surgery center management model: 6 things to know

There are a number of different functional management models for ASCs, and they each have their merits.

One of the more prolific models is the physicians/management company joint-venture ASC, which is frequently seen in new facility development, operationalization, licensing and accreditation. There are three iterations of this model:

1) The management company owns a greater than 50 percent equity position in the ASC, essentially has control over operations and receives its portion of distribution of profits made to the partnership. Additionally, the management company receives a management fee, which is usually a percentage of revenue or net collections. The management fee usually covers a list of services provided to the ASC without regard if those services are actually needed.

2) The management company owns a minority equity position in the ASC and receives a management fee. In these first two iterations, the physician owners have relinquished equity for any number of reasons (e.g., reducing risk, diversifying physician investments, gaining access to capital, assistance with management care contracting, physician recruitment).

3) The management company does not acquire equity in the ASC. Rather, it provides management services for a management fee. The fee is often a slightly higher percentage of net revenue than the first two iterations of this model; however, in this model, the management does not participate in any profit distributions. Additionally, the list of management services provided is usually not negotiable and the fee is paid even if the services are not provided or required by the ASC.

Another ASC management structure is the physicians/hospital joint-venture ASC, where the hospital manages the ASC. This option may help attract physician investors and improve third-party payor contracts and case volume. The ASC might also benefit from accessing the supply purchasing volume discounts of the hospital. However, from an operational standpoint, managing the operations of a hospital and an ASC is quite different. As such, the ASC may lose some of the benefits and expertise of a well-managed ASC.

The three-way joint venture ASC — involving physicians, a management company and a hospital or health system — has become more prevalent. It may help improve management and access to managed care contracts while reducing physician recruitment tension. An additional benefit is having ASC management experience. Ownership in this model can be structured in several different ways, with varying percentages of each party being determined by the joint venture agreement. However, they are usually set so that no party holds a majority ownership interest in the entity.

A totally different type of management structure is the independent ASC management model. In this model, physicians may own 100 percent of the ASC or they may have a hospital partner; however, the physicians maintain complete control of the facility's operations management and receive a management fee.

Finally, there is the one model often overlooked that has the potential to deliver many of the benefits sought in the different models described above. In this hybrid of the independent self-management model, the ASC contracts with an individual(s) or company with extensive knowledge in ASC financial management and clinical operations. These contracts are usually limited to those specific management-related services needed by the ASC.

Here are six things to know about this alternative hybrid management model.

1. Flexible services. Under this model, the ASC only pays for the management services it needs. If the ASC is struggling with meeting financial benchmarks due to inexperienced staff, the contracted manager with significant financial management experience can provide insight on how to meet those benchmarks and training in the areas where staff requires education.

If an accreditation survey is approaching and the ASC's management is concerned about the facility's ability to achieve a successful survey, the contracted manager with extensive accreditation experience can work with staff to identify gaps in standards compliance and implement processes to address them.

If an administrator needs assistance with physician recruitment efforts, the contracted manager with recruitment experience can help identify non-affiliated physicians to target and assist with outreach efforts.

Flexibility is also helpful for a new ASC. When developing an ASC, there is a substantial amount of work to accomplish, and having an experienced contracted ASC expert can prove very beneficial. However, the longer the center operates, the more experience the administrative team will gain. This typically reduces the need for the management company. As such, the ability to expand or reduce contracted services will be a substantial benefit to the owners.

Ultimately, this hybrid of the independent self-management model allows ASCs to only pay for services in those areas where help is required without paying for any unwanted or unneeded services. The physicians maintain full control of the ASC operations and can benefit from the observations and recommendations of a contracted expert.

2. No equity. In the hybrid self-management model, no equity is required to secure the services of the contracted management. The ASC's owners retain 100% of the ownership. If more services are needed, they can be requested and contracted for. If fewer services are needed, the contract can be renegotiated and scaled back.

While there are certainly reasons ASC owners may want to sell some equity in the organization, a few of which are detailed above, retaining 100% equity allows owners to maintain autonomy. The ability to sell equity in the ASC can be used to attract new physician owners. Further, maintaining control of equity allows only physicians who are generating the revenue for the ASC to reap the benefits of the profits.

3. No percent of net revenue fee. Not only is no equity required in many of the hybrid self-management models, but the contracted manager may not require payment tied to net revenue — even if assistance is provided relating to billing and collections.

If financial improvements are achieved, all of the improvements go directly to the bottom line.

4. Accountability. When an ASC enters into a joint-venture partnership, exiting that partnership can be difficult, requiring the involvement of legal counsel and taking a significant amount of time.

If a contracted manager fails to deliver on expectations, the ASC can choose not to continue working with the individual(s) or company. While there may be some notice required, as is typically the case with outsourced services (e.g., housekeeping, linen services, outsourced billing and collections), removing a contracted manager is likely to be much easier and a shorter process.

5. Services on demand. The ASC industry is going through constant changes, such as those relating to regulatory and reimbursement issues. It can be difficult for an ASC's leadership to keep up with these changes and understand what is required to adapt to them to ensure the ASC maintains compliance and profitability

With the hybrid self-management model, if an ASC encounters a new development or challenge and is unsure how to address it, a contracted manager can be brought in to solely provide education on the issue and assist staff with any related questions or projects. These "on-demand" services allow the ASC to pay for the help it needs, when it is needed, without having to pay for services not required.

6. Representation. Throughout its lifetime, an ASC will be involved in some, if not many, negotiations. These can include negotiations with third-party payors, service providers, recruited physicians, management staff and even prospective partners such as management and development companies and hospitals. If the current ASC's staff does not have extensive experience with these types of negotiations, the ASC can be at disadvantage before negotiations even begin.

A contracted manager can serve as a representative of the ASC during these negotiations. Considering the experience a contracted manager can bring to the table, the ASC's negotiating team will likely be in a better negotiating position with that expert at their side. The presence of an industry expert can play a significant role in the ASC receiving or making a fair offer.

Consider the hybrid self-management model

All of these benefits are making the independent hybrid model an increasingly more attractive, viable and cost-effective model for today's ASCs. As with any type of management model under consideration, it should be closely researched and reviewed for compatibility with the ASC owners and the short- and long-term business plan for the ASC.

Jessica Nantz (jessica@outpatienthcs.com) is president and founder of Outpatient Healthcare Strategies, a consulting management services firm focusing on operational improvement and efficiencies for hospital outpatient departments, hospital perioperative services and ambulatory surgery centers.

The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.​

© Copyright ASC COMMUNICATIONS 2017. Interested in LINKING to or REPRINTING this content? View our policies by clicking here.

 

Top 40 Articles from the Past 6 Months