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ASC Turnaround Tactics for 2012 and Beyond: Thoughts From Regent Surgical Health

In an April 5 webinar titled, "ASC Turnaround Tactics for 2012 and Beyond: New Best Practices to Increase Revenues and Beat the Competition," Jeffrey Simmons, Nap Gary and Anastasios Pantelidis of Regent Surgical Health discussed strategies for partnering with hospitals and negotiating managed care contracts to increase ASC profitability.

The state of the industry

Mr. Gary started the webinar by discussing the current state of the ASC industry. He explained that the surgery center industry has matured, increasing in number to approximately 5,200 surgery centers in 2012.

Of today's surgery centers, around 90 percent have some degree of physician ownership, and 20 percent have a hospital partnership. In recent years, surgery centers have increasingly sought out hospital partners due to the potential for positive impact on reimbursement and market share. As the number of surgery centers has grown, the discrepancy between the surgery center and the hospital outpatient department has grown with it. In 2003, Medicare reimbursement for surgery centers was at 87 percent of HOPD reimbursement; today, ASC reimbursement stands at 56 percent of HOPD reimbursement.

Despite downward pressures on reimbursement overall, Mr. Gary said some specialties have fared well in the last few years. Orthopedics and ENT have seen significant increases from Medicare, as well as general surgery and OB/GYN. GI and pain, on the other hand, have experienced decreases in reimbursement, prompting some physicians to take those cases into the office setting.

Hospital partnership: pros and cons
Partnering with a hospital can be a wise strategic decision for a surgery center looking to increase reimbursement rates, gain market share and stave off the competition. Mr. Gary said hospitals can be good partners if they have a history of successfully contracting with payors and do not require control of the clinical/operational side of the ASC.

In setting up a joint venture, Mr. Gary said physicians should draw up an operating agreement that allows for physician control of the operational aspects of the ASC. Mr. Simmons outlined the following situations when partnership with a hospital is a good idea:

• The hospital can increase surgery center reimbursement rates. If the hospital has a history of successful contracting and has higher contracted rates than the surgery center, a joint venture can benefit the ASC by increasing reimbursement by at least 30 percent.

• No local surgery centers have partnered with a hospital yet. If a surgery center is the first to partner with the dominant local hospital, it can benefit from a strategic competitive alliance with the facility. The second or third surgery center to partner is at less of an advantage because of non-compete issues, Mr. Simmons said.

• Hospitals are buying practices in the community. A hospital partnership can protect a surgery center against losing physicians to hospital employment and acquisition. Surgery centers are increasingly suffering due to physician shortages and market saturation.

• Surgery center profitability is flat or declining. Surgery center physicians should never sell their ASC while profits are still increasing, Mr. Simmons said. ASC leaders should know whether the facility has matured; if profits are flat or decreasing, it may be time to sell to increase profitability.

Hospital partnership model
According to Mr. Simmons, Regent Surgical Health promotes a hospital partnership model that divides ownership of the surgery center between two holding companies. The first holdco is owned 80 percent by the hospital and 20 percent by the management company, and the second holdco is owned 100 percent by the physicians. The two holdcos then split ownership of the surgery center, with the first holdco (hospital and management company) owning 51 percent of the surgery center and the second holdco (physicians) owning 49 percent.

This set-up works because it allows the hospital to have technical control over the surgery center without actually owning the majority of the surgery center. The board seats are then divided up so that the hospital has two board seats, the physician group has four and the management company has one. This structure allows the management company and physician group more control over operations.

Mr. Simmons said Regent also asks the hospital to assign the CEO or CFO to sit on the surgery center's board of directors. He said it gives the physicians a sense of more open communication with the hospital administration.

When does the three-way model work?
Mr. Simmons said the Regent Surgical Health model works best in the following circumstances:

• The physicians trust the local hospital. There must be a high level of trust — and little historical animosity — for this partnership model to work.

• The market is oversaturated. Too many facilities makes it difficult for the surgery center to recruit new physicians.

• Out-of-network is no longer feasible. Surgery centers have been forced in-network by payors and are experiencing decreases in reimbursement.

• The hospital is accustomed to partnering with physicians. Be more wary if the hospital has never partnered with physicians before — it's not a definite dealbreaker, but ideally the hospital will have completed successful joint ventures before.

• The hospital wants to partner with physicians. Sometimes hospitals pursue joint ventures for the wrong reasons — bringing cases back to the hospital by controlling the surgery center, for instance. Make sure hospital leadership truly wants to work with physicians to run the center.

Strategies for successful payor contracting
Hospital partnerships aren't the only way to increase ASC profitability; surgery centers can also increase revenue through improved payor negotiations, Mr. Gary said.

Though surgery centers cannot negotiate to increase Medicare rates, they can be strategic about costs to make sure reimbursement covers all expenses. For example, Mr. Simmons pointed out that cataract surgery profitability is heavily dependent on labor costs because physicians perform the cases so quickly. GI profitability is heavily dependent on volume and the cost of relatively expensive disposables, for example. Podiatry can be profitable in the ASC setting if the ASC avoids non-covered implants and the physician can perform the procedures relatively quickly.

In terms of payor contracting, Mr. Simmons recommended building a relationship with the payor and providing data on unique services the surgery center provides to the community. "If you can provide a unique service, you'll get higher rates," he said. He also recommended renegotiating annually and avoiding multi-year contracts to make sure reimbursement is in line with market changes.

Learn more about Regent Surgical Health.

Access the presentation of the Regent Surgical Health webinar here.

Access the audio of the Regent Surgical Health webinar here.

Related Articles on Surgery Center Turnarounds:
40 Benchmarks About Orthopedics in Surgery Centers
Southern New England Surgical Center Praised for Efficiency, Cost Effectiveness
13 Essential ASC Benchmarks & How to Stay Ahead of the Curve

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