Co-Management Relationships of HOPDs: 5 Things Your ASC and Hospital Should Consider Plus Legal Commentary and Key Concerns

Many hospitals are looking to buy up ASCs from physician-owners and convert them into hospital outpatient departments that command higher reimbursements than ASCs. Other hospitals are seeking to have HOPDs operate like ASCs. While physicians cannot directly own HOPDs, they can forge co-management relationships with the hospital to ensure they still have some control over operations and that these facilities remain efficient. Here are some suggestions on how co-management should be structured.

1. Hospital needs to commit to an efficient HOPD. The goal is that the HOPD should continue to function as much as possible as it did when it was a freestanding ASC, says John Smalley, a principal and co-founder of Healthcare Venture Professionals in Franklin, Tenn. "Make sure hospital officials are willing and able to minimize the red tape that tends to make hospital operations less efficient than an independent, physician-run operation," he says.

The agreement with the hospital should ensure the facility operates in an efficient, effective manner, with high quality and an excellent patient focus in such areas as scheduling, registration, pre-certification, product standardization and capital equipment selection, he says.

2. Create an oversight committee that includes physicians. An operations committee that includes physicians who use the facility should oversee the HOPD, Mr. Smalley says. The committee should be the de facto governing body of the HOPD, with representation about evenly split between the hospital and physicians. It should be involved in a wide array of issues involving the HOPD, including clinical, quality and peer review activities.

Joan Dentler, managing partner at ASC Strategies in Austin, Texas, says physicians cannot own the HOPD because CMS requires it to be an extension of the hospital to qualify for hospital reimbursement, but the committee should have the ability to choose equipment and advise on hiring staff.

3. Limit hospital services the HOPD uses.
The requirements of various hospital departments such as human resources, purchasing, healthcare IT and general policies and procedures, can make the HOPD less efficient, Mr. Smalley says. He asks: "Is the hospital willing and able to minimize its inherent bureaucracy and red tape so that the ASC continues to function like a freestanding ASC to the extent possible as an HOPD?"

For example, Ms. Dentler says some hospitals are burdened with "IT overkill," when there are so many IT requirements that it slows down the operation. "These requirements impact efficiency without adding value," she says. While some IT functions need to stay in place, the HOPD may be able to remove quite a few of them, she says.

4. Give physicians a say in staff selection. If staff members are brought over from the hospital, Ms. Dentler advises making sure they understand the importance of physician satisfaction and are dedicated to ensuring a quick turnaround time for the ORs. "Can they work in a fast-paced environment or are they volunteering for the HOPD just to escape night and evening shifts?" she asks.

The same applies to anesthesia services. Sometimes the hospital has an exclusive agreement with an anesthesiology practice, but in many cases "the hospital has an opportunity to refine what is delivered and handpick which anesthesiologists will work there," Ms. Dentler says.

5. Measure performance using benchmarks for freestanding ASCs.
Measuring the HOPD's performance using metrics from freestanding ASCs will ensure the facility keeps the "efficient mindset" of a freestanding ASC, Ms. Dentler says. The benchmark for turnaround times may vary from 30 minutes for HOPDs to 15 minutes for freestanding facilities, she says.

To apply these metrics, Ms. Dentler advises hiring a consultant from the world of freestanding surgery centers rather than a hospital-based consultant. "An outside consultant will challenge the usual hospital status quo and keep it from being run like another department of the hospital," he says.

Mr. Smalley says when HVP comes in as a consultant, "we will typically do formal and informal education with key players at the beginning of the process. This allows us to proactively raise most of the issues that may subsequently arise and answer most questions before they're asked."

Legal commentary and concerns — 5 key thoughts

Scott Becker, partner at McGuireWoods and publisher of Becker's ASC Review, provides the following legal commentary and concerns on co-management of HOPDs.

1. Medicare pays HOPDs about 60-70 percent more than ASCs for the same procedures and the gap is often greater with commercial payors.

2. Hospitals have been seeking ways to align with physicians and not give up this higher payment level for procedures. This can mean not having true equity joint ventures in the ASC itself.

3. Until recently, some hospitals and physicians used "under arrangements" models to align interests while still billing as an HOPD.  This model has been deemed no longer permitted under the Stark Act.  

4. Some parties have now moved to co-management ventures, in which a physician group or a group of surgeons with a hospital partner manages the HOPD.  

5. Several key legal questions that need to be addressed in each venture include:

  • Are the management services provided by the physicians truly needed? Or are they just a way to lock up referrals?
  • Do the physicians have clear and well defined responsibilities?
  • Are the physicians qualified to serve as managers? What qualifications do they have?
  • Will payment be based on fair market value? Is it fixed and thus in a kickback-safe harbor? Or is it variable? Does it meet the legal tests as not being related to the value or volume of referral needs? Does it align the doctors and hospital on volume, which can cause concerns? Is there a third party valuation for the services and for all financial relationships?
  • Will the hospital still have sufficient control to bill for the services as "provider based" under the Medicare rules?

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