Hospitals that cling to higher HOPD reimbursements and resist ASC development risk getting “left behind,” according to Jim Freund, managing partner at Physician Transaction Advisors.
Mr. Freund joined Becker’s to discuss how these hospitals are missing out.
Editor’s note: This interview was edited lightly for clarity and length.
Question: I’ve heard of hospitals still being hesitant to develop ASCs just because of the high reimbursements they get from HOPDs. What would your message be to those hospitals who are still resisting the shift?
Jim Freund: I think you’re going to get left behind. Almost every engagement we go to in market is with groups that have hospitals in their geographic area, and while a lot of them don’t have the understanding of what it takes to run a successful independent surgery center, they certainly understand the pressures that payers are applying to move those inpatient or HOPD cases into more affordable settings. It’s going to either be, “you work with us or you don’t” — either way those cases are going outpatient. Payers are simply not going to pay, or continue to pay, double what they’re paying for that same procedure being done in another location. So they’ve got to work on it.
We see this virtually everywhere: every one of the bigger — and even smaller — management companies and consolidators in the surgery center space have joint ventures with many hospitals and health systems. That’s exactly the reason. They’ve got to weigh what the cost is to do this, what it’s going to cost them to lose that business, and come up with a plan to remain viable while still providing those services.
I’ve known groups who, 20 years ago, started doing hospital JVs, but there were few of them. Now nearly every single one of them does it — and those who are doing it are doing it in a really aggressive manner. Part of it is we see them constantly negotiating with third parties. A hospital will enter into a joint venture with a surgery center management company to help them identify, acquire or develop surgery centers. But on the other side, they’re also working with payers at the same time to say, “Listen, here’s this shift — how are we going to make ourselves viable if we shift all these cases out and lose $5 million in income based on this service line moving to outpatient?”
So there needs to be a working relationship with all parties to come up with a strategic plan that says, “Okay, you are going to lose, but here’s what we’re going to do.” They may have to move people, move services, move equipment — all of that becomes part of it.
But part of it is also an additional opportunity with growth: population growth, migration of patients, what that partnership means, how many more cases are brought in as a result. So you have to weigh all of it. That’s what we see. The organizations who understand they have to make this work — everybody’s got to be involved. It’s not just between the management company and the hospital and the physicians who are going to be part of the partnership; it’s got to be with the payers too, and an understanding that “here’s what we need.” The rate might be this, maybe we could be X-plus, but it’s certainly going to be a lot lower than where it is now. And how does that work overall in the cost of delivering high-quality care?
We see a lot of that in the partnership transactions we’re involved with, and that’s what truly makes it a win-win: with the physicians, with the management company bringing expertise to reduce costs and get better contracts, with the hospitals in that market that have access to patients and physicians and contracts. So it really has to be that kind of approach — because if they’re not thinking that way, and they’re not approaching it in that manner, they’re going to be left behind.
