The ASC-Hospital Partnership Paradox: 6 Ways for Physicians to Stay in Control

As independent physicians become more and more rare, ambulatory surgery centers are increasingly seeking hospital partnerships to gain strength and stability.

However, physicians often worry about their ability to maintain clinical and managerial autonomy in the face of a joint venture partnership. Is it possible for physicians to maintain a seat at the table after a joint venture takes place?

Wayne J. Miller, Esq., is a healthcare transactional and regulatory attorney and founding partner of the Los Angeles-based Compliance Law Group; Nap Gary is the COO of Regent Surgical Health; and Joe Zasa is the cofounder and principal of ASD Management.

All three men have extensive experience assisting with ASC hospital joint ventures. Here are six ways physicians can approach the joint venture negotiation process to get the best possible outcome in maintaining the practice freedom.

1. Create a negotiating committee of physicians. At the beginning of a joint venture negotiation process, individual physician investors should organize themselves either formally or informally to present a united voice to the hospital or management company, Mr. Miller says. A committee of physician representatives can be helpful in fully communicating the physicians' desires and requests for various aspects of the joint venture. It can also get the physicians engaged in the joint venture process and provide an avenue for communicating addressing input from all of the investors.

Physicians should strive to meet on a regular basis, elect representatives and communicate among members various information about the deal, including any concerns that come up along the way.

2. Attend negotiating meetings & make intentions clear. If physicians are individually investing in the new joint venture center as opposed to as a group, they can easily be a part of negotiation discussions by attending the meetings between both parties.

"Physicians could still assign one or two people to be 'mouthpieces' or they could hire an outside party, such as an attorney or consultant, to come and speak on their behalf," Mr. Miller says. "It doesn't hurt to have as many people participate as possible, whether actively or passively, if they will maintain confidentiality. This allows all interested players to put in their two cents."

To be completely clear about what they are looking for in a joint venture arrangement, physicians are advised to develop a deal concept proposal and ultimately a letter of intent as a collective approach to discuss issues such as levels of ownership, investor qualifications and obligations, ways the center will be managed, minimum interest offered to each individual, pricing and more, Mr. Miller says.

3. Clarify both management and ownership division. Ownership structures can be complex and vary among every joint venture. All three men advise physicians to have experienced representation from a management company or lawyer to make sure the proposed extent of ownership and management involvement by physicians is agreeable.

Both parties should also consider what type of operating entity the ASC will be, such as a limited liability corporation or limited liability partnership. LLCs and LLPs tend to be more preferred by physicians because these types of organizations may maintain a more informal management structure, Mr. Miller says. This can be less costly to implement than, for example, a corporate structure, and also allows more flexibility in the management hierarchy and in decision making.   

When working with a not-for-profit hospital, it's helpful to remember the hospital does not need to have a 51 percent majority ownership of the ASC. Also, even ASCs that do have a hospital ownership majority can still have physicians that exercise autonomy within the day-to-day operations of the center and the delivery of care, Mr. Zasa says. A majority ownership does not always mean a majority management stake. Mr. Miller adds that there are regulatory considerations to address, such as fraud and abuse and Stark Law constraints, if the percentage ownership interest held by physicians doesn't result in an equal percentage voting interest in management matters held by physicians.

One major safeguard to build into an operating agreement is assuring physicians veto rights or some sort of supermajority vote control over the areas of the ASC that matter the most to them — clinical oversight of the facility, choice of administrators and key personnel and choice of a management company, Mr. Gary says. Also, state "corporate practice of medicine" laws may dictate that physicians also have final say over additional issues such as center care protocols, medical equipment and licenses personnel hiring decisions, Mr. Miller says.

"Surgery centers are attractive to physicians in part because of the opportunity to exercise administrative and clinical control," Mr. Gary says. "Physicians often worry about losing that ability with hospital partners."

Building in such safeguards allows managerial control involving clinical oversight to rest with the physicians or, at the very least, gives physicians some approval rights before big decisions move forward.

4. Only join with likeminded organizations. Joint ventures will only be successful when goals of both parties can be aligned. ASC physicians and lay owners should do due diligence before bringing in a hospital partner to ensure that the hospital's objectives are consistent with those of the surgery center, Mr. Gary says.

"There is so much to gain from those kinds of relationships between physicians and hospitals when the hospital recognizes the value," he says. "If the hospital is doing this for defensive purposes primarily, it's good to get a sense of that early on."

The hospital may also be looking to make the ASC less competitive with the hospital's surgery services or to gain ownership of the ASC so it can cover services the hospital does not currently cover. Both parties can talk about alignment interests and incentives, but sometimes the parties will just have totally different goals, Mr. Miller says.

"Clearly the problem is even though the physicians come in with goals in mind, these may conflict with the hospital's objectives," he says. "However, that doesn't mean the physicians have to concede. That's the start of the discussion. Early on each party's goals have to be put on the table with both sides approaching them honestly."

A good hospital partner must understand that ASCs operate differently than hospitals; the joint venture agreement will have challenges if the hospital culture is transferred to the surgery center; rather, the venture should strive to incorporate best practices from the hospital while establishing an ASC culture at the surgery center, Mr. Zasa says. Involved physicians equal successful joint ventures. When committed physicians work with a "can-do" hospital team, the results are exemplary for the patients, families, hospitals and physicians.
Both parties should strive for equitable ownership and governance that reflects the goals of the joint venture, Mr. Zasa says.

5. Replicate successful JVs. Often the best place for physicians to start when trying to embark on a positive joint venture is look at other joint ventures a hospital system has done before to get an idea of how future partnerships may go, Mr. Gary says.

"If the system itself has been able to join with an ASC successfully previously, it's easier to judge how your joint venture may turn out," he says.

If the system you are considering a partnership with has not done any previous joint ventures, it can be helpful to look at other successful ventures in your market to replicate aspects.

"Look at the successful ones," Mr. Zasa says. "See what they did well. Hospital-physician joint ventures are some of the most successful ASCs. Hospitals can bring a lot to the table. The trick is to take the best things a hospital has to bring and integrate the best ASC practices and get the physicians to embrace the culture and the mission."

6. Have a joint operating committee. The creation of a joint operating committee with members from both hospital and physician partners can be put in place early on to address concerns that might come up down the road. Physicians and owners can use the committee as a forum to address grievances or problems with how interested parties are being treated or how the facility is being run.

"That kind of committee might be the place to start for an aggrieved physician participant who does not have read access to the governing board," Mr. Miller says.

In the absence of a formal committee, he says, physicians could also address problems informally to avoid from getting disenfranchised in the operation of the ASC. For example, attending board meetings as a guest can be an avenue for giving input and having grievances addressed immediately. Also, the physician managers or designated representatives can serve as contacts and ultimately lightning rods to address physician concerns.

More Articles on Turnarounds:
5 Recent Ambulatory Surgery Center Acquisition Agreements
New York Methodist Hospital Plans Outpatient Surgery Center
40 Statistics on Surgery Center Staff Salary & Hours Per Case

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