1. Hospitals must commit to the project. "These joint ventures can’t be half baked," says Mr. Southwick. "Hospitals often do ASCs as a defensive or offensive move, but cannot be passive partners or just pay lip service. They must be engaged from the onset."
2. Work together to achieve the best payor rates. Mr. Southwick says that hospitals are already existing providers in their markets.
"This usually means they have some leverage and the ability to make introductions to enhance the likelihood of greater negotiating success at the ASC level," he says, pointing out that fair reimbursement rates are vital to the ASC’s success.
3. The operating agreement is critical. Both sides need to negotiate fair and balanced rules in the operating agreement. He says physicians must understand that hospitals have legal obligations in adhering to IRS laws governing not-for-profit organizations and hospitals need to understand physician concerns about hospital majority ownership and not be too heavy handed.
4. Jointly recruit physicians. If there is a need for certain physician specialist in the market, the ASC partners should jointly recruit. Mr. Southwick says many specialists won’t come into a market without the opportunity of ownership.
"Having the ASC helps woos doctors from other markets or doctors just completing their residency or fellowship," he says.
Frequently if a hospital offers a subsidy to a doctor it recruited, the hospital’s non-compete clause would preclude the physician from ownership in competing entities.
"If there is such a specialty need, hospitals can sometimes meet the legal test that would allow a hospital to offer a subsidy to help the doctor begin a practice," says Mr. Southwick. "
But that non-compete clause should not preclude ownership in a surgery center that the hospital co-owns.
"Physician recruitment can be very tricky because hospitals are both competitors and partners," he says. "They shouldn’t trap the ASC with existing owners only, but should offer new shares available to new doctors to allow the ASC to grow and expand and offer opportunities to newly recruited physicians. If they block that they’re blocking future role of the ASC."
5. Consider partnering with a third-party developer or manager. Mr. Southwick says that hospitals and physicians often can create and operate an ASC without third parties.
"It can be done, but it often takes more time and money and usually presents new challenges to both," he says. "It’s often very difficult for a hospital to operate both a hospital and an ASC. Hospitals and physicians inherently don’t trust each other. And it can be a risky proposition because if there’s a bad outcome, it could dramatically affect the hospital’s future.
"Third party companies that build and manage ASCs can mediate and keep everyone on task; all we do is establish, manage and operate surgery centers," Mr. Southwick says. "Most hospitals haven’t had much experience in doing that. ASCs exist because of efficiencies that are very different animals from hospitals."
6. Hospitals must help drive the ASC financing process. He says hospital co-ownership of an ASC offers considerable advantages.
"Financing and credit tend to come easier with physician/hospital joint ventures because of the financial strength and clout that hospitals bring," Mr. Southwick says.
7. Hospitals should regard ASC joint venturing with physicians as a growth opportunity. "I advise hospitals to look at it as an offensive play," Mr. Southwick says. "In markets without high ASC penetration, the hospital joint-venture ASC might well be on the front end of it. If hospitals put their best physician groups in the ASC, they will be successful in recruiting physicians to the surgery center and those doctors will use the hospital for outpatient and inpatient services."
He says the ASC can help the hospital garner market share and even expand its outreach because some big physician groups staff offices in other parts of city and county where the hospital may not have much of a presence.
Mr. Southwick (wsouthwick@healthmarkpartners.com) is president and CEO of Nashville-based HealthMark Partners, firm that develops, owns and operates ASCs in 11 states with physicians and sometimes hospital partners. Prior to joining HealthMark Partners in 1996, Mr. Southwick operated Southwick Financial, managing more than $100 million in investments. Learn more about HealthMark Partners.
