Becker's ASC Review

21 Transactions & Joint Ventures K nightsbridge Surgery Center in Columbus, Ohio, opened its doors as a physician-owned ASC in 2001. Six years later, the surgery cen- ter became a joint venture between the physician partners, Regent Surgical Health and OhioHealth. Herb Riemenschneider, MD, the initial spark behind the center's inception, administrator David Moody and COO of Regent Surgical Health Nap Gary illustrate the process of entering a joint venture, describe the benefits and stumbling blocks and offer their advice to ASCs considering taking on a joint venture partner. Knightsbridge Bridge Surgery Center was initially conceived as a single- specialty urology center, but is now a multispecialty center. Before the center had one shovel of soil turned, Dr. Riemenschneider approached OhioHealth with the idea of a partnership. The health system, well-re- spected and far-reaching in Ohio, viewed the ASC as a competitor; a rival it ultimately hoped would not be successful. Knightsbridge Surgery Cen- ter underwent a turnaround with Regent Surgical Health, added a group of neurosurgeons and exhibited excellent profitability by 2006. "We were taking dollars out of their operating rooms," says Dr. Riemen- schneider. OhioHealth's leadership began to reexamine its strategy and the door opened to begin negotiations for creating a joint venture. First Steps: Building a strong foundation • Develop a clear-sighted strategy. A successful joint venture will begin with the right intentions. "I have seen a lot of joint ventures formed primarily for defensive purposes. Ultimately, that does not work well," says Mr. Gary. ASCs and potential partners of a productive joint venture will work to align goals and refrain from rushing into a partnership out of a sense of fear. • Gain commitment from physician partners. "A business isn't going to flourish without commitment from its core group of people," says Dr. Riemenschneider. "If the physicians are committed, their abil- ity to endure and be productive is unmatched." • Find the right management company for your ASC. Knights- bridge Surgery Center had a relationship with a management company prior to Regent that did not work. A management company that aligns with an ASC's needs is an important advocate and partner during the process of becoming a joint venture center. CEO of Regent Surgical Health Tom Mallon took the lead on creating the Knightsbridge Sur- gery Center and OhioHealth joint venture, lending a hand that both Mr. Moody and Dr. Riemenschneider say was of the utmost impor- tance. Attend industry events to network and interact with several com- panies to find a fit. • Hire the best possible internal leadership. "Hire good people for your center. Consider this as much as the outside management com- pany decision," says Dr. Riemenschneider. A stellar administrator and staff will be vital to making the road to the partnership a smooth one. • Consult with legal counsel. As large entities with equally large market clout, hospitals and health systems can easily muscle their way into dictating the terms of a joint venture. "It is very important to have a good attorney that is familiar with joint ventures," says Mr. Moody. An experienced attorney will aggressively negotiate on an ASC's behalf and ensure the center's terms are brought to the table. Creating the Partnership Agreement Questions to ask. Depending on the market, surgery center leaders may have potential joint venture partners to choose from or there may be one logical choice. Either way, ASC leaders need to be prepared to learn about their potential partner and ask the right questions. "Do as much home- work on the system as possible, know its objec- tives," says Mr. Gary. • What does the health system or hospital ex- pect to gain from the relationship? • Will the hospital or health system be a sup- portive partner? • How will the balance of power shift after the joint venture agreement is made? ASC physician-owners are accustomed to autonomy and will want to retain a certain balance of power with the larger partner. "Striking that balance is sometimes difficult," says Mr. Gary. "The most significant prin- ciples need to be hammered out beforehand." Mistakes to avoid. A joint venture relationship is, in theory, intended to benefit both partners. Assuming this to be the case can lead to prob- lematic joint venture agreements. "Be as involved as you can in any of the negotiations. If you can't be physically present, at least be represented," says Mr. Moody. Active involvement is the best way to gain an accurate picture of how the relationship will work. Access to superior managed care contracting is one of the major motiva- tions behind an ASC's decision to become a joint venture facility. Leav- ing a discussion of contracting details for after an agreement is struck can lead to an unpleasant surprise. "Don't assume a hospital system will have great outpatient surgery contracts," says Mr. Moody. ASCs may have better contracts than hospitals or health systems that have little to no experience in the outpatient surgery arena. Final results Balance of power. Knightsbridge Surgery Center's physician partners and Regent hold a 51 percent stake in the center, while OhioHealth holds a 49 percent stake. During negotiations, it was agreed that the physicians of the center held the expertise to run the center successfully. "Physician control is one of the main reasons the ASC industry has flour- ished," says Mr. Gary. After the partnership transition, the ASC's physi- cians still hold the reigns. The benefits. The OhioHealth partnership has served Knights- bridge Surgery Center in one of the most sought-after results of a joint venture ASC. "As an affiliate of OhioHealth, the center has been able to leverage market power and outstanding managed care con- tracting expertise to negotiate much more favorable agreements with payers," says Mr. Gary. Knightsbridge Surgery Center: An Inside Look at Crafting a Productive ASC-Health System Joint Venture By Carrie Pallardy Nap Gary Dr. Herb riemenschneider

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