Joint ventures have become the most common path to developing an ASC. Numerous factors should be considered in preparation for such an undertaking. While it’s important for physicians and health systems to determine if a joint venture is the best option for their market, let’s consider the benefits associated with a joint venture.
Reasons for a Health System to be Involved in a Joint Venture
There are a variety of strategic and economic reasons for a health system to participate in a joint ventured ASC. From a strategic standpoint, health systems may view a joint venture as an opportunity to increase physician loyalty and reduce the risk of physician defection. A well-planned and executed joint venture may create a halo effect thereby improving the relationship with the participating physicians across the entire health system and promoting it as physician friendly.
Another benefit is increased physician satisfaction as surgeons experience the efficiencies of an ASC versus what they may perceive occurs in other environments. A freestanding joint ventured ASC also greatly aids the health system’s ability to recruit new physicians both to, and beyond, the joint venture. While the ASC itself can be used as a recruiting tool for new physicians, the hospital OR time freed up by the removal of the cases to the new ASC can release resources for new physicians or service lines whose access may have been limited in the past due to time or equipment constraints.
Incentive alignment becomes a byproduct of the joint venture. When a health system joint ventures with physicians, there are clear benefits to both parties for alignment in many areas including, but not limited to, service expansion, marketing, and cost reduction.
Beyond the strategic reasons, there are simple economic reasons for a health system to develop a joint ventured ASC. The potential to attract new physicians to the system allows for the opportunity to create referral relationships beyond the joint venture. Freeing up the hospital ORs for more acute cases, without losing 100% of the revenue associated with the less acute cases that have been transferred to the joint ventured ASC, can greatly improve finances for the health system. Operating efficiency is improved by the strategic incentive alignment described above. The efficiencies and cost savings experienced in the joint venture – now familiar to the physicians – allow the health care system an opportunity to monetize them in their own sites of service.
The excellent patient satisfaction scores and comments we receive about our joint ventured ASCs can improve both a system’s reputation and market share in their community. This has become increasingly important with the move toward a more consumer driven health care market.
Reasons for a Physician to be Involved in a Joint Venture
The most prominent strategic reasons for physicians to participate in a joint venture are to secure a strong market advantage, align incentives, and, potentially capitalize on a smoother process to obtaining a certificate of need (CON) where needed.
By partnering with a health system, physicians may gain access to a new patient network or payor which can create an opportunity to increase case volume and revenue. The health system may also have access to a location for the ASC that is advantageous but not otherwise available to the physicians.
Areas where incentive alignments can occur with hospitals are pay-for-performance, allowing surgeons employed by the health system to participate in or use the ASC, bundled payment programs, and participation with risk contracts.
When it comes to obtaining a CON for a surgery center, physicians may have a far easier time working with a health system in a joint venture than going it alone. CON boards may view the working relationship between the health system and the physicians as a positive step toward improving access, quality, and value to the community. Having the system as an advocate rather than a potential adversary is a plus.
From an economic standpoint, the physician’s burden to raise capital and financial risk can be greatly reduced working with a health system in a joint venture. From the credit worthiness of the project to simply spreading the risk across a greater number of participants, having the system as a partner may be advantageous. There may also be means for the health system to help reduce the cost of the overall project through its purchasing relationships with vendors.
The most sought after economic value to the joint venture relationship is in the potential for the health system to improve the managed care contracts or access of the facility versus what it could obtain on its own. While in the past this was more of a given, it has become less of a guarantee over the last few years and needs to be thoroughly vetted as an actual value.
Conclusion
The numerous strategic and economic advantages for both health systems and physicians have led to joint ventures being the most common approach for new surgery center development. While it is important to thoroughly evaluate the merits of this structure within the context of individual markets, it behooves health systems and physicians interested in developing a new outpatient surgery center to explore joint venture opportunities within their community network.
By Robert J. Carrera – President and CEO
