Bill Heath, chief development officer at Practice Partners in Healthcare in Birmingham, Ala., makes seven key points on joint ventures between hospitals and physicians in ambulatory surgery centers.
1. Why hospitals participate. Before hospital executives agree to enter JVs with physicians, Mr. Heath says they need to have gone through a change of heart. Many of them still view physicians as potential rivals, best to be kept at bay. "There can be a lot of resistance," he says. Executives can be thinking, "Why should I build a facility and then let doctors own it?" and, "Why should I give away potential income derived from this facility?"
In contrast to this line of thinking, hospital executives who pursue JVs want to provide incentives for physicians that can lift all boats and improve the entire enterprise. "Their goal usually is to allow for the kind of efficient environment that the surgeons want and to assure they have some level of control as owners," Mr. Heath says.
2. Proceed carefully. Before proceeding on a JV, it's important for physicians and hospitals to think carefully about their existing relationships and what each party's motivations are. For example, is there enough trust between them to make the deal work? Will working closely together ignite old animosities? "Hospitals and physicians can have complex relationships that sometimes don't translate well into business ventures," Mr. Heath says. "A surgery center partnership can further complicate that relationship."
3. Hospital equity stakes vary. Some hospitals require a majority share or even 100 percent ownership. "Every hospital has different strategies, which can be difficult to deviate from, and there may even be shareholder requirements that must be met," Mr. Heath says.
On the other hand, some hospitals actually want a large equity stake on the part of physicians or will allow it after a little negotiation. "If the hospital insists on maintaining control, some physician partners might view the center as the hospital's initiative rather than 'our' initiative," he says. "That distinction could be a deciding factor in physician satisfaction and in the very efficiency of the center."
4. Non-compete clauses are common. "In JV agreements, non-compete clauses are pretty common for physicians, and, in some cases, for hospitals, as well," Mr. Heath says. Such contractual clauses prevent partners who exit the relationship from investing in another center within a specified geographic area over a given period of time, such as two years.
5. Buying a center or building a new one. "The decision on whether to buy or build varies with every situation," Mr. Heath says. It depends on factors such as availability of existing centers that can satisfy the partners' needs, such as location, the condition of the facility and facility size.
6. Joint negotiation with payors may not be possible. For ASCs, having the hospital negotiate payor contracts on behalf of the center would boost their negotiating leverage and possibly improve their payments, but this is not often possible. "There are many reasons why joint negotiation with payors may not be practical or even useful," Mr. Heath says.
Some hospitals simply refuse to negotiate on behalf of another entity unless they own at least a majority equity stake in it. Furthermore, some payors may not budge even under increased negotiating leverage, he says.
7. Management companies often brought in. Hospitals often do not have expertise with managing outpatient surgery centers. "Outpatient surgery is just one of many pieces that make up a hospital," Mr. Health says. "Yes, an ASC can be an important part of a hospital's overall strategy, but it usually isn't its top priority, so managing it is something it might want to delegate out."
One common solution is to develop a three-party JV with a management company as the third leg. "Our partners get the benefit of our experience –– best practices learned from managing multiple surgery centers," Mr. Heath says. In addition, the management company can act as "a buffer between physicians and the hospital, and a balance to make the center successful," he says.
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