December 2020

PRACTICE MANAGEMENT

Motivators behind the rise of physician-hospital joint venture ASCs


by Stephen Sheppard, CPA, COE, and Robert McCarville, MPA

“As the benefits of ASC systems become more widely understood and the industry conforms to the value-based care model, physician-hospital joint venture ASCs are a trend that will continue to grow in popularity. ”

Today, there are nearly 6,000 Medicare- certified ambulatory surgery centers (ASCs) nationwide, outnumbering hospitals. The majority of these ASCs are physician-owned, but as ASC care systems evolve, there are more and more hospital and larger healthcare systems getting involved. In fact, both physician and hospital interest in ASCs is at an all-time high in 2020.
With so many great minds thinking alike, physician-hospital joint ventures have also been growing in popularity. This has been the case for several years but is especially relevant now due to COVID-19’s effect on patient and provider mindsets. What has been steadily driving physicians and hospitals to seek out these ASC partnerships? There are two sets of potential motives to consider, as well as the influence of the public’s changed perception of “safe care.”

Factors motivating hospitals

In the past, hospitals have remained on the sidelines while physicians dominated the ASC industry. Today, hospitals are embracing ASC joint ventures for several reasons:
Stabilize medical staff. Turning physicians, within or outside of the hospital, into business partners may help to stabilize the hospital’s medical staff. It creates the opportunity to cultivate better relationships with physicians, potentially preventing poaching, incentivizing physicians to stay, facilitating recruitment, and limiting new competition.
Retain revenue. In addition to improving relations with physicians, partnering to develop or buy into existing ASCs allows hospitals to retain a significant percentage of the revenue that may have otherwise been going only to physician-owned ASCs.
Economically expand OR space. Hospitals are becoming increasingly more bureaucratic with regulations due to the need to care for infectious patients. These across-the-board regulations contribute to hospital effectiveness but also create inherent inefficiencies. For example, hospitals are required to comprehensively clean an OR the same way, regardless of which procedure was just performed in that space or which is scheduled to follow it.
ASCs, on the other hand, are by design both effective and efficient. Experts estimate that approximately half of the procedures performed in hospitals could be transferred to ASCs. Not only can they be transferred to ASCs, but studies have shown that the mean turnover, ancillary time, procedure time, exit time, and non-operative time within in an ASC are all shorter than in a hospital. By performing less acute cases in an ASC, the hospital frees up operating room hours to devote to more high-ticket procedures. For hospitals, investing in joint venture ASCs may serve as a more economical alternative to investing in the development of additional OR space.
Shrinking insurance payments to hospitals. Several large insurance companies have instituted max “ASC payment rates” for some high-volume procedures. This means that even if the procedure is done in a hospital outpatient department (HOPD), the reimbursement will be at lower levels typically seen in the ASC.

Factors motivating physicians

As mentioned, physicians have been gravitating toward ASCs for years, dominating the market. The following are some of the most common reasons physicians are choosing to partner with hospitals instead of competing:
Avoid certificate of need issues. Physicians interested in ASC development are required in certain states to acquire a certificate of need (CON) before they receive approval to build a facility. Designed for the purpose of protecting existing hospitals and patients’ access to care, there are those within the industry, and several studies, dedicated to determining whether the CON process actually hampers competition by favoring hospitals, giving them leverage over physicians looking to develop an ASC. To avoid these issues, some physicians elect to a partnership.
Access insurance contracts. Negotiating insurance contracts can take time and persistence. Teaming up gives physicians the benefit of hospital leverage that can assist with gaining access to insurance plans or improved reimbursement rates they may not otherwise obtain.
Access stable funding. More reliable funding is perhaps the most obvious benefit to partnering with a hospital. Backed by a larger resource, the ASC may seek out the most effective technology and more qualified care providers, optimizing both patient results and experience and increasing revenue.

Shared motivators, including COVID

Aside from lower operating costs that make care more affordable for patients, an improved patient experience is often a reason to shift procedures to an ASC. Physicians and hospitals both stand to gain from happy patients.
ASCs attribute improved patient satisfaction to greater accessibility, an often smaller, less confusing facility, and a patient environment designed for comfort, speed, and specialized care. An ASC offers a more relaxed environment compared to an intimidatingly large hospital full of acutely ill patients, especially in 2020 when COVID-19 has changed the way many patients feel about safety during healthcare appointments.
While there is still very little published research available to confirm that patients prefer an ASC setting, feedback collected from patients of our ASC clients, as well as talk at virtual industry meetings, suggests that the prevailing attitude toward hospitals and healthcare environments is caution. Patients are hesitant to venture into buildings where many people congregate and the risk of COVID exposure is perceived to be higher despite enhanced safety procedures. In ASC facility reviews, patients express appreciation for safety procedures related to appointment scheduling that limits the number of people in the building at one time, stating they feel safer. There is no way to predict how long this cautious attitude will last, but for the hospitals looking to invest in existing or de novo ventures and the physicians looking to collaborate, it is important to acknowledge patients’ increased interest in ASCs.

ASC joint ventures going forward

As the benefits of ASC systems become more widely understood and the industry conforms to the value-based care model, physician-hospital joint venture ASCs are a trend that will continue to grow in popularity. However, no matter what their motivation, both parties should keep in mind that mutually beneficial ASCs must be developed under the right circumstances to deliver those benefits. Before investing or partnering, seek out a financial feasibility study and consult with an ASC development and management expert to ensure those potential gains are worth the cost.

About the authors

Robert McCarville, MBA

Managing Principal and Consultant
Medical Consulting Group
Springfield, Missouri

Stephen Sheppard, CPA, COE
Managing Principal
and Consultant
Medical Consulting Group
Springfield, Missouri

Motivators behind the rise of physician-hospital joint venture ASCs Motivators behind the rise of physician-hospital joint venture ASCs
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