6 Points on Building an ASC Joint Venture With an Academic Medical Center

Regent Surgical Health recently entered into a joint-venture agreement with an academic medical center — a departure from the traditional three-way joint-venture model of an acute-care hospital, management company and physician group. Under its agreement with Robert Wood Johnson University Hospital in New Brunswick, N.J., Regent will help move the hospital outpatient department to a freestanding surgery center, for which ownership will be divided between the management company, the hospital and private practice physicians in the community. Regent and the hospital will collectively own 51 percent of the center and the physicians will own 49 percent.

According to Jeffrey Simmons, Regent's chief development officer, this partnership is the company's first with an academic medical center. "What's unique about it is that the doctors that work there will be a combination of faculty doctors from the medical school and private practice doctors," he says. He outlines six factors he expects will affect the joint venture, as well as offering some advice about operating a successful partnership.

1. The academic medical center will be able to strengthen ties with private practice physicians. According to Mr. Simmons, Robert Wood Johnson is pursuing the joint venture in part to strengthen its relationship with private practice physicians in the community. "A lot of private practice doctors work in the hospital but have not participated much in partnerships with the hospital," he says.

He says while private practice physicians would traditionally have to set up a partnership at another surgery center to benefit from distributions, they can now expand their relationship with the hospital to include participation in a hospital-sponsored surgery center.

2. The hospital will take a reimbursement cut in order to build relationships and provide discounts to payors.
According to Mr. Simmons, the surgery center is currently 100 percent owned by the hospital as a hospital outpatient department. Since the center is an HOPD, Medicare payments are almost twice as much as they would be for a freestanding surgery center. Private payors often follow Medicare's lead by paying more for surgeries performed in the HOPD than they would for an independent surgery center. When the HOPD changes to an ASC, the rates will decrease significantly, Mr. Simmons says. "We're going to be lowering rates to both governmental and private payors because this will be a freestanding surgery center," he says. "The cost to everyone will be less."

He says Robert Wood Johnson should be applauded for accepting a reduction in reimbursement rates. Instead of receiving more robust reimbursement from the HOPD, the hospital will receive only a portion of a lower reimbursement rate because part of the revenue will go to the physician-owners. "They're taking a reduction in payment in order to partner with private practice physicians in the community," he says. "That's what makes this a very unusual project."

3. Efficiency at the surgery center should increase under a management company.
Mr. Simmons believes the academic medical center's ASC will benefit from the presence of a management company, which can provide expertise in ASC operations that a hospital might lack. "Our job is to get the doctors in and out of the facility as quickly as possible so they can either go back to their clinic or to whatever other pursuits they have," he says. "Companies like ours are in business to make the experience for the doctors more efficient, the turnover times less and the scheduling easier."

He says other processes, including equipment requests, should be easier when Regent is managing the surgery center. "Previously, the doctors had to go through hospital committees and compete with other hospital needs," he says. "This is a separate business entity that will make its own capital decisions." He says physician satisfaction should increase once these bureaucratic hurdles are removed.

4. Private practice physicians and faculty physicians will work together at the center.
One of the greatest challenges for the Robert Wood Johnson surgery center will be the combination of private practice physicians and university faculty physicians in the same facility, Mr. Simmons says. He says the schedules, concerns and priorities of physicians can be very different depending on whether they own their own practice or work directly for the hospital. He says Regent will promote partnership between the two physician groups by treating everyone fairly. "You can't play favorites based on whether someone's an owner or not," he says. For example, equipment requests will be weighed equally regardless of whether the request comes from an owner.

He says the physicians have also agreed to work together at the surgery center and pursue the common goal of quality patient care. "The private practice doctors who are joining us in this facility are unique in that many of them used to be on the faculty," he says. "All the doctors have agreed to live by the same standards and priorities of care that would be expected of any doctor, whether they were private practice or faculty."

5. Management companies must be transparent with hospitals to make a joint venture work.
Regent Surgical Health has developed about 15 hospital partnerships, and Mr. Simmons says the company has learned a great deal along the way about how to operate a joint venture. "You now have a partner — a hospital that has many more interests and constituents than just the doctors," he says. "You have to be transparent with them and get their advice and make sure you're not doing things that are harmful to hospital operations."

In the case of Robert Wood Johnson, he says the hospital is already accepting a slight financial reduction in order to foster private practice partnerships. This means the management company has to be cognizant of how equipment purchases and staffing affect the profitability of the center. "Most surgery centers operate in a vacuum, but when you have a hospital partner, you have to consider their needs," he says. He says the management company and physicians must also keep in mind that the surgery center is on the hospital campus, so it's important to keep staffing benefits and parking fees consistent.

6. This transaction may open the door for more partnerships with academic medical centers.
Mr. Simmons says Regent is hoping this partnership will open the door for other, similar academic medical center transactions. "We'd like to see more transactions that combine the needs of faculty medicine with private practice doctors on a major hospital campus," he says. He says partnerships with academic medical centers are still relatively uncommon for physician groups and management companies, but this could change as research facilities look to gain market share by building relationships with private practice physicians.

He says this type of partnership can also benefit faculty physicians because of the efficiency and predictability of a surgery center schedule. "Hopefully it's more efficient for the faculty doctors than waiting for a case that could be bumped for a trauma case," he says. "Decisions can also be made very quickly because it's a small group of doctors making the decision versus a large medical institution."

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