Hospital Joint Ventures: The New ASC Physician Succession Plan?

JoeZasaAmbulatory surgery center physician-owners have many reasons to consider entering a hospital joint venture: a calculated defensive strategy to weather the changes in healthcare or an offensive play to outstrip competing ASCs among the most common.

With an aging physician population, many ASC owners may have a further-reaching strategic vision for a hospital joint venture: a succession plan. Rather than reach retirement with no map for an ASC's future or struggle to find young independent physicians prepared to take the reins, physicians are partnering with a hospital as a way to make a gradual, and graceful, exit while leaving behind the legacy of a strong center. Joe Zasa, managing partner of ASD Management, describes how physicians can create this plan with hospital partners and its potential benefits.

A succession plan would be defined in the joint venture operating agreement. If physicians in an established joint venture decide to go this route, the operating agreement would be adjusted to reflect the change in the center's future. "They [the physicians] should amend their operating agreement to set forth conditions such as death, disability or retirement," says Mr. Zasa. "A formula is usually the best and easiest way to determine the selling price."

The timeline from the inception of the joint venture to the point of sale, when physicians would relinquish their stakes in the center, need not be set in stone. "The parties would sit down and discuss a timeline and develop a letter of intent covering key aspects of the venture," says Mr. Zasa. "Then they would determine the time to consummate [the deal]."

Physician-owners may be attracted to this strategy because it allows the center to exist, even after they no longer remain active. If some partners remain, the succession plan leaves behind a strong capital partner with the ability to negotiate favorable contracts.

Hospitals are more frequently casting an eye on the outpatient setting for the promise of cost-savings and efficiency. Many hospitals could be interested in partnering with physicians to learn how to effectively run an ASC and eventually take control.  "[Hospitals] could see it as a strategic play to take out a competitor, or to keep another hospital from competing in their territory," says Mr. Zasa. "They could see it has a way to better partner with physicians."

More Articles on Transactions and Valuation Issues:
10 High Impact Factors for ASC Valuation
5 Recent Ambulatory Surgery Center Acquisitions & Facility Moves
Financial Risk & ASC Valuation: 25 Statistics

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