Becker's ASC Review

20 ASC Transactions A s the trend moves toward hospital align- ment and joint ventures, physicians and ASCs may be faced with complicated partnership proposals. Partner up With the threat of narrow networks, independent physician groups want to avoid being the odd ones out of the game. "e way healthcare is going, it's massive con- solidation as a reaction to payer/patient-driven margin pressure. 'Bigger is better' is one prevalent strategy," says Michael Stroup, senior vice presi- dent of acquisitions at United Surgical Partners International, one of the largest owners/operators of more than 250 ASCs and 19 surgical hospitals. "So, hospital CEOs and physician ASC owners are wanting a more powerful voice and inclusion in narrowing networks — Gotta have a chair when the music stops." For ASCs considering a joint venture strategy, physician owners should understand their refer- ral sources and the preferred local payer efforts to address costs. "Many ASCs are electing to JV with their preferred hospital rather than continu- ing to go it alone, in a world of declining referrals from employed/partnered PCPs and tougher ne- gotiations with aggressive payers who, at least for now, are still more concerned about their hospital relationships than any one local physician group." Mr. Stroup suggests physicians research the like- ability of a hospital in a partnership role, under- standing the hospital's physician employment strategy and its payer strategy. If these strategies don't align with the ASC's overall philosophy, there may be complications down the line. For in- stance, some hospitals allow employed surgeons to bring cases to the center while others do not, and some "hospitals can go to bat for the ASC in payer managed care negotiations while others ei- ther aren't as aggressive or effective." Although he believes some large multispecialty ASCs will be able to survive independently, Mr. Stroup says the best bet is oen still through the hospital. "It makes perfect sense to think that the payers would or could develop a direct-to-MD strategy of creating high-value, narrower net- works. But the large hospitals remain the core net- work hub in the payer strategy, probably because payers need the macro dots in their networks to attract enrollees. And that's still where all the money is, in payments and potential savings." Joining forces successfully To be successful, a joint venture must receive full commitment from both parties involved. If the interests of the joint venture trump the interests of individual parties it has the potential to thrive, explains Tom Mallon, founder and CEO of West- chester, Ill.-based Regent Surgical Health, a de- veloper, manager and owner of 21 ambulatory surgery centers. Mr. Stroup adds, "It's about culture, expectations, and communication and ensuring all parties are on the same page." He emphasizes the importance of clarifying strategies. "It's not just about the initial liquidity event, but who provides the strongest foundation for the future. Doctors are getting smart about that — they're asking the right questions." Strong joint ventures offer physicians a respect- able hospital brand name on their facility as well as place them under its contracting um- brella. By entering a joint venture, a hospital may increase its market share and develop a stronger relationship with physicians. This tie to physicians may result in more inpatient OR referrals to the hospital. Physician groups and ASCs seeking hospital partnership may want to consider hospitals' ca- pabilities. "Sometimes [hospitals] promise contracting help, but they're in a very competitive market and they can't deliver it," explains Mr. Mallon. Before enter- ing a joint venture, he suggests an ASC illustrate clear roles for itself and the hospital. "If the hospital looks at [the joint venture] and says, I just want to protect my outpatient cases to the detriment of the ASC, that is another way it fails," says Mr. Mallon. The second or third hospital in a community may not make the best partner, as the market fosters too much com- petition for it to successfully move contracting rates. What's in store Each individual market dictates the best partnership opportunity for different ASCs. Healthcare continues to evolve, and it's difficult to predict the state of the healthcare landscape in five years. But ASC leaders can look to the past to help pre- pare for success going forward. e biggest sur- prise Mr. Mallon's seen this year is the pricing power of independent sellers when negotiating with national insurance plans. He attributes this to the local hospitals developing competing prod- ucts. When navigating this unpredictable industry, Mr. Mallon recommends physicians "have their eyes open and listen and talk and understand what's happening in their communities." n Joint Venture Cautiously — How to Approach Complex ASC-Hospital Partnerships By Megan Wood Michael Stroup Tom Mallon

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