“All start out with varying levels of misunderstanding and even some acrimony,” says Todd Flickema, senior vice president of development and operations at Surgical Management Professionals.
But as the healthcare market becomes increasingly difficult to survive in, “We’re going to see more three-way partnerships with hospital systems, physicians and management companies,” says Kenny Hancock, the chief development officer at Meridian Surgical Partners. “It’s part of an evolution of thought, as it relates to the administration of healthcare systems; you absolutely have to have a motivated healthcare system that recognizes the need to partner with physicians, and vice versa. Otherwise, you waste a lot of time.”
So how can tensions be eased and true partnerships formed so that physician-hospital joint-ventured ASCs can flourish? Here are four tips from the experts on making this model succeed.
1. Understand the parties’ commitment.
“There must be a common goal for success,” says Tom Mallon, the CEO and founder of Regent Surgical Health. “The worst thing that can happen is having a hospital in the project under duress and doing everything it can to kill the project from the beginning. You must assess the hospital’s motivation and willingness to join a project.”
Bill Southwick, the president and CEO of Healthmark Partners, agrees.
“On the physician side, you need to understand if the hospital is undertaking the project as part of an offensive or defensive strategy,” he says. “If it’s offensive, they’re likely looking forward to it and solidly committed from day one. If its defense only, there’s sometimes not a commitment on the front end, which can strain the very same physician relationships they may be trying to preserve.”
It’s not that a deal can’t get done if the strategy is defensive, just that it usually will take more work on the front end to get both parties on the same page.
“Find compatible partners — those on physician side who can do a good job representing the physicians’ interests in a constructive, non-combative way, and those from the hospital that are also well-respected by the medical staff and have a good deal of experience with physician relationships — and have them be the lead players and be dedicated
to driving the process forward,” advises Mr. Southwick. “It’s important to get the baggage (i.e. the must haves and the can’t-live-withs within the deal), so to speak, on the table quickly, and without unpleasant meetings or hard feelings that delay and can cause further division.”
Adds David Hall, the chairman of Titan Health Corporation: “If you don’t have a relationship, you don’t get a deal structured. I’ve been in a lot of situations where the relationship with the hospital and surgeons has the potential of becoming increasingly contentious and our involvement as a third party expert provides the bridge needed to craft a successful venture. There’s a lot of money at stake, and both doctors and the hospital have their reputations at stake with those who refer to them and in the community at large. It’s a big decision, no doubt. That’s why you must establish trust.”
2. Acknowledge each others’ strengths and needs.
One good way to do that is to understand what each party brings to the table, and what each needs to get out of the deal.
Hospitals first and foremost need to understand the types of cases that are in the pro forma, so they can budget for their surgical departments.
“It will be somewhat cannibalistic to their business, and they need to think about staffing, how to deal with the change in volumes, those kind of backside repercussions,” says Mr. Southwick. “It’s reasonable that the physicians should understand the financial repercussions to the hospital of any decision before moving forward.”
At the same time, the hospital should not begrudge physicians for wanting to establish a center or be too quick to perceive cherry-picking by physicians in the cases they will bring to the center.
“Yes, it happens to some extent, but the ASC will still take all comers,” says Mr. Southwick. “The practice patterns of some physicians may need to change, flexibility in surgical scheduling is an important early issue to address so as to avoid challenges later and ensure a successful partnership.”
Physicians need to have input into the design process of the facility, and in the capital and governance structures, says Mr. Southwick.
“They need to not be outsiders coming in, but rather insiders from the get-go,” he notes.
“A lot of physicians say they just need efficiency, so they can make it through all of the requirements of their surgical day,” says Mr. Flickema. “Others just want to have dinner with their families and catch the last inning of the T-ball game. It’s a lifestyle choice.”
In either case, control is often at the fore for surgeons.
“While some physicians would like to augment their incomes, they want even more, to get control of their time,” he says. “Because that’s their most precious resource — their issue is, how can they get control of their schedule, and do two cases or more in one hour at the ASC versus two in five hours at the hospital? From my perspective, it is rarely an economic issue for physicians in and of itself.”
Because hospitals are focused on the whole realm of healthcare activities in a different type of regulatory environment, they may tend to view out patient focused surgeons as a small — albeit significant — part of their overall business strategy, says Mr. Hall. A hospital needs to understand that the advantages of a partnership with surgeons extends beyond the outpatient surgery center and can serve broader strategic objectives such as expanding a hospitals market footprint in both geography and service.
“Hospitals have historically had a hard time with manpower reports — that they’re going to need X orthopedic surgeons, X general surgeons — and physicians have been reluctant to recruit others because they may feel they’re helping cut up the pie and diminishing income,” says Mr. Flickema. “The ASC can help convince physicians that a surgeon they recruit will be somebody who works at the center and brings in cases, and they become more engaged with those manpower recruiting reports.”
Further, a good relationship between a hospital and physicians is a powerful recruiting tool for the community.
“Especially in a metropolitan community, aligning in a joint-venture ASC project with independent physicians and in some cases even employed physicians has the ability to sway physicians to feel like, ‘This hospital is my partner, and I’m going to help them,’” says Mr. Flickema. “[The partner hospital] is where higher-acuity-level outpatients and inpatients are going to go, and whose specialists are going to get referrals.
“The hospital will win almost every race it runs with its competitors for physician loyalty because of the positive relationships created.”
A strong partnership in which physicians, now running their own center and seeing the impact of capital equipment on the bottom line, can also help end the game hospitals and physicians play when it comes to such purchases: Physicians ask for far more than they need, knowing they’re probably not going to get it; hospitals assume physicians are asking for too much and trim the list. In the end, physicians generally get what they do need, but this chicken-and-egg situation — did outlandish requests or assumptions of excess come first? — is not collaborative and doesn’t contribute to a positive relationship.
“Once in a joint-venture ASC, however, when they sit down to buy equipment, they prioritize and come to reasonable conclusions pretty quickly without the gamesmanship,” says Mr. Flickema. “It can be a wonderful catalyst for other equipment and supply issues at the hospital as well. For example, there might be an implant the hospital is currently buying from three companies and can’t negotiate very good prices on; eight surgeons from the joint-venture ASC will say, ‘You’re right, let’s start looking and see if we can’t shrink to two or one and get some bargaining power for controlling costs.’ It makes some of those other things physicians might not have contemplated before come to the forefront.”
The big question surgeons have, says Mr. Hall, is, “What does the hospital bring to the table?”
Plenty, say the experts.
“One-third of our projects have hospital partners, and these are some of the most successful,” says Mr. Mallon. “The hospital gives a sense of stability and validation to the project. These are often on the campus, which is more convenient [for physicians]. Hospitals want to build bridges to their medical staffs in any way they can to enlist their help in controlling costs and increasing efficiency.”
Mr. Flickema lists several fronts on which the hospital can be a boon from the physician perspective:
- If there’s a contract negotiation problem, the hospital might “get involved and say, ‘This is an extension of our business,’ even if it doesn’t do the negotiating itself.”
- The hospital and ASC can coordinate on supplies to leverage buying power for both entities.
- The hospital’s presence can help politically within the community. “While there is sometimes a misunderstanding regarding the for profit status of a surgical center,” he says, “when the hospital is a partner, that aspect seems to be better understood. The hospital can bring legitimacy to the venture that may be characterized differently if a partnership doesn’t exist. If the hospital is aligned, it’s easier to understand by some that this is what’s best for the community.”
- The hospital’s resources and presence can facilitate the process in states that require obtaining a certificate of need.
- Competitiveness with the hospital that might otherwise be counterproductive can be eased. “They don’t have to think, ‘Who’s watching my back?’” says Mr. Flickema. “Most physicians I know went into medicine for a love of science and a compassion for human beings, and they got swept up in politics and business. Diminishing competitiveness between hospital and physicians because of a good working center is very attractive.”
There will likely always be, on some level, the feeling that the two sides have disparate interests, but “as we talk about the future of the center, the gap shrinks,” says Mr. Flickema. “They are surprised for a minute, then it just makes sense to them that they should have many of the same goals and priorities. The tension diminishes even more once the center opens, and they see it works and that everyone is pulling in the same direction.”
With healthcare dollars increasingly limited, it’s easy to look at a for-profit entity like an ASC and paint it as pure greed. It’s also easy for the parties involved to view it as a money-maker, an investment like a stock or bond. On both sides, that’s the one mistake you can’t afford to make.
“One of our mantras is that, if you’re only going to do this to make money, you’re probably going to fail,” says Mr. Flickema. “If you work to elevate the science, increase efficiencies, enhance quality and improve lifestyle, you and the hospital partner will be successful.”
3. Establish a plan everyone can stick to.
There are several major components to this.
- Define a timeframe. “The initial coming together to form a partnership creates a lot of excitement on the physician side,” says Mr. Southwick. before an ASC project can really get rolling. That’s understandable to us as third-party managers, but it’s harder for physicians to understand, so we try to set realistic expectations of how long each step is going to take — and make sure things stay on track. Delays can be an irritant to physicians, or they might suspect that the hospital doesn’t want to do it; that’s usually not the case, so the timeframe must be laid out up front.”
- Agree on location. There are several considerations, and both on-campus and off-campus ASCs offer their own benefits and drawbacks.
An off-campus location might “pose the opportunity for other physicians in the marketplace who may not be owners in the ASC to own the real estate, which can unite the complicated politics of a medical community, especially in smaller towns where the need for physician participation is greater,” says Mr. Southwick. Further, “many hospitals have been at the same location for a long time, which may not be where a new growth corridor is. An off-campus location can serve both physician and patient convenience by being closer to where people work and live for added convenience, or can help the hospital expand into new markets and capture new physicians who may not be part of the core medical staff.”
However, one major consideration is that, “unless the ASC is within 200 yards of the hospital campus, the ASC and hospital can’t share a contracting relationship,” reminds Mr. Hall.
“And, in some communities, surgeon offices are mostly located on the hospital campus, and they want to be within walking distance to the ASC,” says Mr. Southwick. “Convenience for physicians will dictate volumes and, therefore,
success associated with the center. If the core group of physicians you’re counting on for volume is on campus, then that might be the best choice.”
A third, lesser-used (for cost and logistics reasons) option is also out there.
“If you collaborate on your plan up front, you may find there’s an opportunity for two different centers, the mothership on campus and a satellite surgery center that may attract physicians who aren’t members of the hospital staff,” says Mr. Southwick. “It’s all market-driven, so it’s important to look at and understand what the market needs in a new ASC, in addition to what the physicians and hospital want.”
- Differentiate between ownership and control. “Perhaps the biggest issue is control,” says Mr. Hall. “You find hospitals want 51 percent of the ownership, and the rationale is they must have control for various issues, especially with non profits as it relates to their charitable mission.”
However, control and majority ownership are different things, and you can accommodate ownership, charitable mission alignment (as defined by regulatory bodies) and control with the right
operating agreement.
“It really comes down to how much of the ownership lies in surgeon’s hands, how much in the hospital’s, how much in a company’s, and what each entity does that brings value,” says Mr. Hall. “The hospital and management company might have 51 percent, but the board is 50-50, or decisions require a super-majority, so the physicians feel like they have a strong voice in decision-making and feel as if they’re getting the most out of the 49 percent available for physician investment.”
Mr. Southwick notes that Healthmark Partners generally facilitates similar agreements.
“In our arrangements, the hospitals end up being a non-controlling partner,” he says. “That way, they aren’t perceived as taking advantage of the minority shareholders (a common physician fear), but also can maintain their charitable intent.”
4. Engage a mediator.
Given that some level of hostility likely underlies physician-hospital relations, even at the best of times, it’s probably a good idea to bring in a third-party management company to guide the process, moderate meetings and mediate relations as issues inevitably pop up.
“Sometimes you need someone who’s not going to take things personally, who can act with maturity and at a high confidence level,” says Bob Zasa, MSHHA, FACMPE, one of the founders of Woodrum/Ambulatory Surgery Development. “A corporate partner can make the tough calls while helping to keep the lines of communication open.”
And communication is the key to maintaining relationships between both sides of a joint-venture, so the project can move forward without a hitch.
“It generally falls on us when there is some friction to communicate what each side is thinking and why, so there’s no beating one’s chest,” says Mr. Southwick. “Needs and wants coming indirectly from a third party manager allows for a softer sell on difficult issues and often is better received by both sides. You’ve got to be able to bring the psychology together, because no one can really afford a
failure — anytime you put a foot in that water, you want it to be a success. There’s a lot of lose-lose potential if the venture isn’t established correctly.”
It’s the corporate partner’s job to make sure interests stay aligned so the venture is done right.
“The hospital often views us as an ASC company that will side with the doctors, but we’re there to be an arbiter and an advocate for the best interests of the project,” says Mr. Zasa. “We’re hired to make money and make the ASC successful, and not get involved in previous baggage. The physicians and the hospital want the same thing, really: someone who’s not anti-them or pro-the other side, somebody who’s going to work with them and appreciate what they’re all bringing to the table. A corporate partner can bring that stability.”
The experts recommend working with a corporate partner that is experienced, has worked with a project like yours (whether de novo or an existing ASC where one party or the other buys in), and that can provide plenty of references — both hospitals and physicians.
“In a successful project, occasionally, the hospital or the physicians may be upset about something and we as a management company tend to take the heat — it goes with the territory,” says Mr. Flickema. “At the end of the day, however, we work to make sure the hospital and physicians aren’t divided, and that’s what’s most important. It’s a community effort, and we work for the center’s best long-term interests. There’s no sense getting involved in something this complicated if it’s going to be short-lived.”
Trending up
A joint-venture is not simply a transaction; it’s an extension of practice. Done right, it should be a sustainable entity that both pays dividends to the physicians during their careers and is still going strong 20 years down the line, perhaps with different physician-partners. In short, it can be a win-win for both sides, which makes it an appealing prospect that will be an increasingly popular model in the future, predict the experts.
“Hospitals are smarter competitors than they used to be with ASCs,” says Mr. Southwick. “There are too many positive attributes of ASCs in terms of quality, cost and efficiency, and ASCs aren’t going away. Hospitals recognize that they can either continue to fight, or they can be part of it, and in the process solidify physician relations and increase
market share.
“With declining reimbursement and a more challenging regulatory and legal environment, physicians are seeing the opportunity have a partner with a lot of that expertise while being able to decide when they work more and when they see family more, lifestyle issues remain important.”
It’s not that either side is failing in the ways they’re currently operating, just that it’s possible they could do better together.
“I really do believe that hospitals do the best job they can with the efficiency of their surgical departments,” says Mr. Flickema. “It’s hard to stay at the same high level as an ASC when the surgical team is going from a knee scope to a trauma that the helicopter just brought in. There are huge swings in time and efficiency when you do a trauma, an outpatient case, an inpatient, a trauma, and three outpatients in the same OR.
“There’s starting to be a realization that there is a better model, one that’s better for physicians, staff, patients and even the hospital. Joint-ventures aren’t easy to structure and manage, but we truly believe they are a good choice for many communities and a wise investment for the progressive hospital/system and its surgical staff.”
Contact Stephanie Wasek at stephanie@beckersasc.com.
