Physician-owned ASCs have more options for corporate partnership than ever, and those partners are themselves changing hands. St. Louis-based Ascension completed its $3.9 billion acquisition of AmSurg in June, growing its ASC network from 58 centers to more than 300 across 34 states. In October, an affiliate of Cincinnati-based Bon Secours Mercy Health agreed to acquire Surgery Partners for $5.7 billion.
Those deals put new weight on the operating agreements physicians sign when they bring in a capital partner, whether private equity or a health system. Terry Bohlke, CEO of Franklin, Tenn.-based Keystone Surgical Partners, walked through the terms physicians should scrutinize, starting with ownership.
“Another thing that a lot of these companies will tell the physicians is that they need 51% ownership,” Mr. Bohlke told Becker’s. “And honestly, the 51% ownership requirement’s a myth.”
Physician groups that negotiate payer contracts together must stay within federal antitrust law.
“They’ll say we need 51% to negotiate managed care contracts, but no, they don’t,” Mr. Bohlke said. “The contracting is governed by antitrust law, and antitrust law does not require majority ownership. That’s just not one of the hurdles, and there are a few controls that’s required to negotiate contracts as a group under antitrust law, but they have nothing to do with 51% ownership.”
Financial consolidation, the accounting treatment that lets a corporate partner report an ASC’s results as part of its own financial statements, comes with its own set of rules.
“The financial consolidation is all governed by accounting standards, and same thing. They don’t require majority ownership,” Mr. Bohlke said. “It doesn’t have anything to do with it, but there are controls that need to be in place. But it just simply requires the parent [company] to control the activities that most significantly impact the ASC’s economic performance.”
“In my experience on these conversations, physicians expect their ASC manager to manage and be in control of the economic activities of the ASC,” Mr. Bohlke continued. “Which is why they hired you in the first place. Physicians are bringing the cases, so they should hold the majority of financial ownership,” he said. “And I don’t think a lot of physicians realize that financial ownership is negotiable; and physicians should really negotiate from that position.”
Ownership percentages are only one part of the operating agreement. The governance section sets out who sits on the board and how decisions get made.
“The board makes most of the real business decisions, and there’s a lot of things in that that really can make or break the relationship, and just definitely make or break the physician’s ability to still have some control over their center,” Mr. Bohlke said. “One thing is how many board seats do the physicians have, and I always tell them they should push for 50-50.”
Many operating agreements also reserve major decisions for a supermajority vote.
“They need to check the supermajority board rights and what those rights are, and then probably more importantly, what is the definition of a supermajority?” he said. “It’s usually contained in the definition section at the beginning of an agreement. If it says the corporate partner plus one physician, that’s not a real big supermajority, and it’s usually pretty easy for them to sway one their way.”
Physician owners should also ensure consensus on the quorum requirement for meetings to ensure a physician voice is represented when leaders are making key decisions and codify that oversight into the operating agreement.
“Honestly, the ASC patients belong to the physicians, not the ASC, and we are privileged to care for their patients, but the patients belong to the doctors,” Mr. Bohlke said. “And so for that reason, the doctor should lead the medical executive committee, and all clinical and quality issues should go through that physician body, and that should clearly be stated in the operating agreement.”
Those protections matter more as the largest ASC management companies change ownership.
“The partner that you choose today in your ASC may not be your partner tomorrow,” he said. “Without that proper protection in your operating agreement, you could wake up some day and find you are partnered with someone you don’t like and don’t want to be partnered with. There’s nothing you can do about it.”
Some risks fall outside what any contract can cover.
“Trust isn’t really anything you can fully address in the operating agreement But still, a partner should be able to tell you exactly where their interests could diverge from yours,” Mr. Bohlke said, “and then show you how that they’ve ruled those situations out.”
At the Becker’s 32nd Annual Meeting: The Business and Operations of ASCs, taking place October 29-31 in Chicago, ASC leaders, surgeons and healthcare executives will explore strategies to drive growth, enhance operational performance, navigate reimbursement challenges and prepare for the future of ambulatory surgery. Apply for complimentary registration now.
