5 Ways to Ensure a Healthy Hospital/Physician ASC Joint Venture Relationship

Surgery centers can enjoy tremendous benefits by partnering with a hospital: better managed care contracts, lower prices from vendors, and greater market share. But the road to a happy hospital partnership is not always easy, and miscommunications between the parties can lead to tension and dissatisfaction. Here Robert Carrera, president and CEO of Pinnacle III, discusses five ways to build a solid partnership.

1. Choose a partner wisely. Looking back at his experience in successful physician-hospital joint ventures, Mr. Carrera indicates the most positive partnerships involve hospital systems that want the physicians to drive the project. "When the hospital system wants to be engaged in the facility, but truly understands that the physicians are the ones that will make it or break it, the arrangement is more likely to be a successful one," he says. If the relationship has been strained in the past, there may be problems in the future. The hospital system should be able to "help where it's needed and defer to the physicians on other issues," Mr. Carrera asserts.

To make this decision, it's important to assess the current relationship between the hospital and the local physician community. Mr. Carrera says he wouldn't hesitate to approach a hospital with no history of physician ASC joint ventures — but he would hesitate if there has been a history of animosity between the two groups. "What kind of relationship has been established with regard to hot button issues such as call coverage? What is the overall relationship between the medical community and the hospital system? Those are the questions to ask," he states.

2. Determine why you're pursuing a joint venture in the first place. In order to choose a partner, you need to identify the goals for seeking out a joint venture in the first place, Mr. Carrera points out.  If an existing physician owned facility is stable, it needs to identify what it will gain through a joint venture relationship – better pricing, contracting or market share, for example — in order to adequately assess the benefits and drawbacks of continuing to be independent.  

If you do have a reason to pursue the partnership, you need to know if the hospital will meet that need. For example, in some situations, the hospital is able to provide assistance in payor contracting which may lead to the physicians offering 51 percent ownership to the hospital. In this case, the hospital would be expected to increase contract rates by 15-20 percent, depending on the market.

In other situations, the hospital may not have the ability to improve contract rates because the local area is highly managed by the payors. "There are economic and strategic reasons for any joint venture.  The physicians need to complete their due diligence on the benefits of having a majority or minority interest to make a sound decision," Mr. Carrera says.

3. Understand your current situation. When you approach a hospital partner, you need to have a firm grasp on your current financial and strategic situation.  If your center needs to be "turned around," it may benefit from hospital assistance.  If you are a well-run business, you may simply need the help of a partner with greater clout.

If you need significant help to improve, it makes sense for the hospital to be heavily involved in operations. "Many hospitals become more involved in turnaround situations and take more of a backseat in successful start-ups," notes Mr. Carrera. “Good hospital partners seem to step up in those situations where they're needed, and understand when they need to let the physicians drive the center."

4. Establish your expectations for non-competes. Before entering a joint venture both the physicians and the hospital need to have a thorough discussion of how a non-compete will work for both parties, Mr. Carrera says. For example, he has seen situations where the hospital and physicians are bound by the same non-compete terms with neither party allowed to pursue opportunities with other surgery centers in a defined area.

In other situations, they have non-compete agreements with a clause that if one party involves the other party in another project, they can go outside the non-compete. Other variations hold only the physicians to a non-compete, and in others still, there is no non-compete in place. Mr. Carrera says there simply needs to be thorough discussion and an agreement on the issue in order to avoid, as much as possible, any future bad blood between the involved parties..

5. Bring in a third-party manager. Mr. Carrera states a third-party manager is always useful to smooth out the relationship between the hospital and physicians, serving both as the representative of the center and as a liaison when problems arise. He says the management company must have positive working relationships with the physicians and the hospital to bring up sensitive issues without causing conflict and build consensus between the parties when strong differences of opinion arise.

Learn more about Pinnacle III.

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