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11 Transactions and Joint Venture N o two ASCs are quite alike, nor should any partnership be. For ASC leaders that decide a hospital joint venture is the strategic route for their center, they must first consider the ramifications of each ownership structure option. Minority ownership Minority hospital interest, 49 percent or less, is less common than majority interest, but it is still a viable partnership structure. Potential benefits 1. Physician control. Most ASCs were opened by physicians and have long been considered ve- hicles for physician independence. Selling major- ity control to a hospital can be a difficult decision for physician owners; it can feel like selling that hard-earned autonomy. Minority hospital owner- ship can lend an ASC many of the benefits of a joint venture without impacting the level of phy- sician control at the center. With majority owner- ship, physicians will retain the ability to hire and fire staff as they see fit, make all clinical decisions and shape the center's overall future. 2. More room for physician investment. Mi- nority hospital ownership allows physicians a larger share of the center, which in turn engen- ders commitment. "If you have 30 surgeons and only 49 percent of the company available, that limits the skin the game they have," says Vivek Taparia, director of operations with Regent Sur- gical Health. Additionally, future physician in- vestment is vital to an ASC's survival. The less a hospital owns, the more shares available for new physicians, without extreme dilution of existing physician stakes. 3. Improved hospital relations and mar- ket position. Hospitals interested in minor- ity ownership may want to dip a toe into the ASC industry waters, but are not prepared invest a large amount. "There could be a situa- tion in which a hospital wants to minimize its capital investment," says John Newman, senior vice president and general counsel of Con- stitution Surgery Centers. "They may make a small investment in a freestanding facility, so that the ASC won't align with a competitor. It's a defensive play by the hospital, but that is an exception, rather than the rule." This be- ing said, such a hospital could still leverage its community standing to benefit the center and outplay its competitors. The ASC could also see more cases and benefit from affiliation with a well-recognized and respected hospital. ASCs in different lifecycle stages have different reasons for looking to hospitals. A hospital part- ner, even a minority partner, is a great benefit to a de novo ASC. "If it is a new ASC, sometimes it needs that hospital partner because of the certifi- cate of need process," says Mr. Taparia. "Hospital sponsorship in a CON meeting makes a big dif- ference." The ASC has an improved market posi- tion simply through public hospital backing. Potential disadvantages 1. Lack of managed care contracting clout. Access to hospital negotiated reimburse- ment rates is one of the more attractive possibili- ties a joint venture has to offer, but this boon is no guarantee, especially when a hospital has less than majority ownership. "A hospital and its counsel may be uncomfortable with managed care con- tracting on an ASC's behalf if they have too small of an investment," says Mr. Newman. Though managed care contracting aid is not a giv- en, minority hospital ownership does not preclude the possibility. "A hospital with 49 percent owner- ship and certain majority rights could represent it- self to payers as a controlling stakeholder," says Mr. Taparia. What exactly a hospital will bring to the table in terms of reimbursement negotiation will be a key point of discussion before moving forward with a joint venture. 2. Hospital disinterest. While a minority hos- pital owner can be active and helpful, it can be the case that the resources follow the money; a hospital with minimal investment may feel little need to spend time and resources on the center. "Hospitals are only as committed as much as the skin they have in the game," says Mr. Taparia. Majority ownership Hospitals and health systems are increasingly looking to the ASC industry as inpatient utiliza- tion declines. Outpatient healthcare is becoming a cornerstone strategy, rather than an afterthought. Majority ownership in an ASC partner is one of the ways a hospital can, and often prefers, to ex- pand its footprint in the outpatient arena. Potential benefits 1. Managed care contracting support. "At the end of the day, it should be a question of math. You could be getting the same or better distribu- tions because of hospital managed care," says Mr. Taparia. However, just taking on a hospital partner doesn't guarantee a managed care rate bump. The hospital needs leverage with the payer and com- mitment to the ASC to make a rate increase work. Hospitals are more likely to negotiate improved rates on the ASC's behalf if they have a majority stake in the center. 2. Access to additional hospital resourc- es and branding. While payer relations are a significant consideration, it is not the only door hospitals can open for ASC partners. "Hospitals have relationships with physician networks and access to community partnerships. These can all help an ASC into the limelight through hospital marketing and branding," says Mr. Taparia. ASCs may even find improved contracts with vendors, housekeeping, biomedical and more. Branding can be a noteworthy perk of a joint venture, particularly if a hospital or health system has an excellent reputation. A hospital's majority ownership lends an ASC to identifying with the brand, while it may be more difficult to do so if the hospital only has a nominal stake. Hospital Minority vs. Majority Partner: Which Makes More Sense for Your ASC? By Carrie Pallardy John Newman "The hospital is coming to the table because they are interested in working with physicians, and there is a rich history of hospitals being receptive to reformulated deals if they are presented with a well-prepared message." — John Newman, Constitution Surgery Centers