Hospitals are at risk of outpatient surgical volume declines with the threat of surgeons seeking Ambulatory Surgery Center (ASC) investment opportunities. Managed care payors are driving outpatient volume to free-standing ASC to reduce cost. Patients are becoming more aware and sensitive to out-of-pocket costs and as a result self-direct to free standing ambulatory surgery centers. Finally, there has been a marked increase in Accountable Care Organizations (ACOs) sending an increasing number of patients to independent, free-standing outpatient surgery centers.
Yet within this there is opportunity. Joint Ventured ASCs (JV ASC) between a hospital and physician(s) are a popular strategy in the ASC industry to provide a method for retaining current cases while also paving a path to gain new market share. A JV ASC offers hospitals a strategic alignment to targeted physicians while, at the same time, offering the physicians an opportunity for a long-term partnership with the hosptial. Defining the right balance of hospital/physician ownership percentages can be somewhat of a challenge. It is important for all investors to have fair representation in the long-term strategy of the ASC. Therefore, it is almost as equally important to negotiate the governance structure when modeling the JV ASC.
Why Joint Venture with Physicians or a Physician Group?
Physician partners sit at the epi-center for the patient. They are responsible for patient referrals plus offer for a strategic alignment to the hospital which otherwise might not exist. However, Hospital partners do not like giving up ownership majority because it limits their ability to ensure alignment between Hospital Strategy and ASC Strategy.
Why Joint Venture with a Hospital?
A Hospital partner can be advantageous for recruiting additional case volumes, assistance with rate negotiations, and potential access to cash. However, Physician partners are skeptical of a hospital-majority ASC because of the stigmas associated with dealing with a complex multi-specialty hospital.
Four Advantages of 51% Hospital /49% Physician Ownership
- Allows use of the Hospital’s leverage to gain the best possible payer contracts from the beginning.
- Takes advantage of the Hospital’s existing agreements for group purchasing and other outside services as laundry & linen, bio-med, maintenance, security and more.
- Sends a clear message to the community that the ASC is associated with the hospital and enjoys instant “brand awareness”.
- Physicians are partnering with a deep pocket partner highly motivated to continue recruiting more surgeons to utilize the ASC.
Four Advantages to 50% Hospital /50%Phsycian Governance Model
- Equal voting rights between Physicians and Hospital at the Board Level
- Aligned authority and accountability for making decisions. Empowers those closest to the patient to make as many decisions as possible;
- Decision making is transparent and inclusive
- Builds the group’s culture and physician engagement
Striking the Right Deal
At HVP, we believe in fair representation for all investors while maximizing the business potential for the ASC. “Allowing a hospital to be majority owner can be very advantageous. We want to form an organizational structure that emboldens growth strategies and maximizes the ability to capitalize on market opportunities.” says Evans Smith, Senior Vice President of HVP. “However, we believe that the Governance Model should be split equally 50/50 between the hospital and the physicians.”