Chuck Peck, MD, FACP, is president and CEO of Health Inventures.
Q: Health Inventures uses the management-only model in some of its ambulatory surgery centers –– an approach that some people think is dying off. What do you say to that?
Chuck Peck: Health Inventures is actually a hybrid company. We have management-only contracts with some ASCs and take an equity share in others. But we definitely believe the management-only model is viable. Even when we do have equity stake, it's small –– never more than 10 percent. Many of our equity stakes in newer arrangements are just 4-6 percent.
I don't think there are many ASC companies that have used the hybrid model we have. Most management-only companies are small, with less than 10 centers. And because they are small –– not because they are management-only –– they are going to have difficulties as reimbursements tighten in the coming years. Small companies don't have economies of scale and they haven't been able to raise capital. They don't have a financial partner, as we do.
Q: When you don't have an equity stake, how are you paid?
CP: Most of our arrangements use fixed fees or a percentage of revenue. We're going to charge whatever we believe is required to bring superior value to patients, physicians and the hospital partner. We tend to have long-term contracts with many ASCs because we view successful and sustainable physician and hospital partnerships as our core competency. We are not into buying centers and then flipping them –– that is, selling them to someone else after a couple of years.
Q: How can you manage on a fixed fee?
CP: You have to behave as if the maximum reimbursement you're going to get in the future will be tied to Medicare or Medicaid rates. For this to succeed, you have to really be focused on efficiency and quality. Running a very efficient operation is going to be essential in the future because I believe reimbursements are going to decline, perhaps by 10 percent or more. There are some potential ways to lower expenses without affecting patient care, such as centralizing the business office. That can bring substantial savings.
Q: Is there anything wrong with companies that take a large equity stake in an ASC?
CP: None per se, but many of these companies don't plan for long-term relationships, which mean they are focused on short-term financial gains exclusively. Many companies keep their ASC partners for just 3-4 years, but we have had relationships with ASCs lasting more than 10 years. If you are in the race for the sprint and not the marathon, you may make short-term decisions that impact quality and patient safety.
Some of these companies are for-profit ventures that have to satisfy investors. I have worked at two for-profit companies, so I know what it's like. The analyst call every quarter is what drives company behavior. To make a 15-20 percent return on a center, you may cut back too much. You may start asking, "Do we really need that additional nurse tech?" or, "Do we really need to upgrade that equipment?" We believe that most of the dollars should remain in the local economy with the hospital and physician-partners.
Learn more about Health Inventures.
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