Joan Dentler is president of ASC Strategies. She provides consultancy services related to outpatient surgery to hospitals and health systems, including facilitating ambulatory surgery center and hospital outpatient department partnerships and acquisitions.
Q: You recently suggested, in the column "14 Achievable Goals for Surgery Centers Before Year's End," for ASCs to try to arrange a meeting with the CEO of their local hospital. Can you elaborate on why you think it is a worthwhile goal for ASC owners to meet with the hospital?
Joan Dentler: Hospitals and ASCs need each other now more than ever. While hospital reimbursement for outpatient surgical procedures is still greater than freestanding ASCs, it is shrinking as hospital operational costs are skyrocketing with demands for things like increased technology.
At the same time, the growth of ASCs is stagnant and centers are scrambling to increase caseloads month after month; in many communities, the available outpatient OR capacity far exceeds the need. This is resulting in smaller bottom lines and reduced — or non-existent — distributions to partners.
These realities, coupled with the Affordable Health Care Act's emphasis on physician/hospital alignment, data and service integration and consolidation of services, mean that this is a perfect time for physician-owned ASCs and hospitals to sit down and talk about ways to work together.
Q: Why would hospitals be interested in working with ASCs now?
JD: After hemorrhaging outpatient surgical cases (and revenues) for many years, successful hospital CEOs and CFOs clearly understand the need for physician involvement in surgical service line operations. The success of the ASC industry has shown hospital leaders that it does make financial sense — not to mention operational sense — to allow surgeons to have input and control around supply and staffing decisions, which impact the costs of cases.
At the same time, payors have seen that elective surgery for healthy patients is best provided in an outpatient setting that is not burdened with the high — and often unnecessary — costs of a typical hospital. Does a patient really need robotics, a cafeteria and a gift shop if you are only having a minimally invasive procedure where you're in and out in less than an hour? Payors don't think so.
Q: Why should an ASC want to work with a hospital now?
JD: The method of healthcare delivery is changing every day, but one thing is certain: affiliations and consolidations are going to happen. This is one time when you really don't want to be a lone wolf as ACOs start forming.
The result of starting a dialogue with your local hospital may only be an agreement to co-exist peacefully, but there are many levels of alignment you should be willing to consider. Stay open-minded! Hospital leaders are often looking for ways to decompress their ORs and increase available OR time for their surgeons. Many times the cases an ASC would find valuable are the cases that are money-losers for a hospital, taking valuable OR resources that could be better used for higher acuity inpatient cases.
This type of congenial working relationship benefits both hospital and ASC and may be a first step towards more detailed discussion that could end up resulting in — if you're interested — a well-funded exit event for the ASC owners, through a partial to complete acquisition of equity.
Q: How does an ASC go about arranging such a meeting with hospital leadership?
JD: Every situation is different. Prior to initiating discussions, the ASC board should hold a partnership meeting to discuss the changing relationships happening around the country related to ASCs and hospitals and assess how a closer relationship with one — or more — hospitals in its community would be received by the partners.
I usually recommend it is best to take a direct approach: senior level to senior level, board president to CEO. But it would also depend on what the relationship between the surgeons and the hospital has been in the past. If the relationship has been extremely adversarial, which was the case with many of the ASCs formed with developer/managers in the early days of the industry, then it may be better to have an independent third party or a new physician partner who wasn't involved in the initial ASC formation be the one to approach the hospital. In many cases I am seeing the hospitals approach the physicians first, so be prepared.
One point of caution: A lot of the discussions are being instigated by ASC managers as a strategy the ASC could use to combat declining reimbursement, especially for those ASCs that have relied on out-of-network payments and are now being pressured to sign contracts. But I strongly caution ASC owners to not come across as though their only reason for approaching a hospital is to increase the ASC's payor contracting rates. This is not received well in the C-suite. Remember that hospital leadership is concerned about integration and alignment, not your payor problems.
Q: What do you see as the possible results of a first meeting?
JD: Initially, ASC owners should simply offer to explore to mutually beneficial ways to work together in the changing healthcare environment. There should be no expectations or commitments made by either party. The focus should be on how an affiliation or a partnership or an acquisition would benefit the community.
There are many different models being used to formalize relationships between hospitals and physician-owned ASCs: informal affiliations, joint ventures, co-management agreements. It is important to run financial models on each one and candidly discuss the pros and cons for both parties.
Q: What are the key questions ASCs will want to ask of the hospital C-suite?
JD: I would try and find out quickly what the hospitals "non-negotiables" may be related to physician partnerships. For example, find out if the hospital has a requirement for majority ownership and/or governance. It is important to get these deal points out in the open early.
Q: What information should ASCs bring to the meeting?
JD: There is absolutely no need to share case volumes or financial information at this point. But I would be prepared to speak to your center's ability to take on more cases. Is there available block time? Do you have shelled OR space that could be operational quickly?
The bottom line is that hospitals and ASCs will be working together in the future; it is inevitable. The most successful ASC owners will be the ones that are proactive — just as they were when they formed their ASC initially.
Learn more about ASC Strategies www.ascstrategies.com. Contact Joan Dentler at jdentler@ascstrategies.com.
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