Joint venture cautiously — How to approach complex ASC-hospital partnerships

As the trend moves toward hospital alignment and joint ventures, physicians and ASCs may be faced with complicated partnership proposals.

Partner up
With the threat of narrow networks, independent physician groups want to avoid being the odd ones out of the game.  

"The way healthcare is going, it's massive consolidation as a reaction to payer/patient-driven margin pressure. 'Bigger is better' is one prevalent strategy," says Michael Stroup, senior vice president of acquisitions at United Surgical Partners International, one of the largest owners/operators of more than 250 ASCs and 19 surgical hospitals. "So, hospital CEOs and physician ASC owners are wanting a more powerful voice and inclusion in narrowing networks — Gotta have a chair when the music stops."

For ASCs considering a joint venture strategy, physician owners should understand their referral sources and the preferred local payer efforts to address costs. "Many ASCs are electing to JV with their preferred hospital rather than continuing to go it alone, in a world of declining referrals from employed/partnered PCPs and tougher negotiations with aggressive payers who, at least for now, are still more concerned about their hospital relationships than any one local physician group."

Mr. Stroup suggests physicians research the likeability of a hospital in a partnership role, understanding the hospital's physician employment strategy and its payer strategy. If these strategies don't align with the ASC's overall philosophy, there may be complications down the line. For instance, some hospitals allow employed surgeons to bring cases to the center while others do not, and some "hospitals can go to bat for the ASC in payer managed care negotiations while others either aren't as aggressive or effective."

Although he believes some large multispecialty ASCs will be able to survive independently, Mr. Stroup says the best bet is often still through the hospital. "It makes perfect sense to think that the payers would or could develop a direct-to-MD strategy of creating high-value, narrower networks. But the large hospitals remain the core network hub in the payer strategy, probably because payers need the macro dots in their networks to attract enrollees. And that’s still where all the money is, in payments and potential savings."

Joining forces successfully
To be successful, a joint venture must receive full commitment from both parties involved. If the interests of the joint venture trump the interests of individual parties it has the potential to thrive, explains Tom Mallon, founder and CEO of Westchester, Ill.-based Regent Surgical Health, a developer, manager and owner of 21 ambulatory surgery centers.

Mr. Stroup adds, "It's about culture, expectations, and communication and ensuring all parties are on the same page." He emphasizes the importance of clarifying strategies.

"It's not just about the initial liquidity event, but who provides the strongest foundation for the future. Doctors are getting smart about that — they're asking the right questions."

Strong joint ventures offer physicians a respectable hospital brand name on their facility as well as place them under its contracting umbrella. By entering a joint venture, a hospital may increase its market share and develop a stronger relationship with physicians. This tie to physicians may result in more inpatient OR referrals to the hospital.  

Physician groups and ASCs seeking hospital partnership may want to consider hospitals' capabilities.  

"Sometimes [hospitals] promise contracting help, but they're in a very competitive market and they can't deliver it," explains Mr. Mallon. Before entering a joint venture, he suggests an ASC illustrate clear roles for itself and the hospital. 

"If the hospital looks at [the joint venture] and says, I just want to protect my outpatient cases to the detriment of the ASC, that is another way it fails," says Mr. Mallon. The second or third hospital in a community may not make the best partner, as the market fosters too much competition for it to successfully move contracting rates.

What's in store
Each individual market dictates the best partnership opportunity for different ASCs. Healthcare continues to evolve, and it's difficult to predict the state of the healthcare landscape in five years.

But ASC leaders can look to the past to help prepare for success going forward. The biggest surprise Mr. Mallon's seen this year is the pricing power of independent sellers when negotiating with national insurance plans. He attributes this to the local hospitals developing competing products.

When navigating this unpredictable industry, Mr. Mallon recommends physicians "have their eyes open and listen and talk and understand what's happening in their communities."

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