Tom Yerden, owner of TRY Health Care Solutions in North Fork, Idaho, offers eight observations about physician-hospital joint ventures.
1. Trend has reversed. Until recently, hospitals were pursuing ASCs. "Most joint ventures were initiated by hospitals," Mr. Yerden says. "Now ASCs are knocking on the hospitals' door. That puts a whole different complexion on the relationship." ASC owners are now pursuing hospitals because they are worried about the future of independent centers.
2. Independent ASCs are in decline. Mr. Yerden thinks independent ASCs are in decline due to three trends. First, the number of unaffiliated surgeons is falling, making it difficult to sustain volumes. Second, ASCs' reimbursements have been falling and are likely to continue to do so under healthcare reform. And finally, physicians don't have the spirit to meet these challenges. Young physicians seek employment while older physicians have "less appetite for risk," Mr. Yerden says. "They took a big hit in their investments when the stock market collapsed in 2008."
3. Hospitals, management companies will rise. Physicians will continue to sell their independent ASCs to hospitals or management companies. "Management companies' and hospitals' share of the pie is going to grow tremendously in the next few years," Mr. Yerden says.
4. The window won't stay open for long. Hospitals are aggressively pushing ahead with acquisitions because they want to build networks for accountable care organizations. If they are not buying ASCs, they are buying surgery practices and bringing surgery volume in-house. "Hospitals' acquisition mode will continue over the next few years, but when they feel they have enough ASCs for their needs, they will close the door," Mr. Yerden says. Since it takes about a year complete an ASC sale, physician-owners will need to act soon, he says.
5. Break-even ASCs are good candidates. Surgery centers that are breaking even and don't think have strong chances of making it on their own in the future are "excellent candidates" for a joint venture with a hospital, Mr. Yerden says.
6. Successful ASCs should weigh options. A successful ASC does not need to have a hospital-partner if it is operating at 60-70 percent of capacity, has robust earnings and has diversified or orthopedic-focused cases. But owners need to assess the future to make sure those numbers will last. Could some surgeons become employees of the hospital, taking away a significant part of the volume with them?
7. Failing centers need a turnaround first. A failing center has no value to a hospital, but it would gain value if it could turn itself around. Improve operations that would appeal to the hospital.
8. Physician-owners resist selling. Physicians often resist selling to a hospital, even when it is in their own best interests. To get the higher HOPD rates available to hospitals, the physician has to give up all of his investment. "It's an enormous shift for the physician," Mr. Yerden says. "He sees it as an emasculation. When he owned the ASC, he was an entrepreneur; now he is a caretaker." But if his co-management relationship with the hospital is structured well, it can be a promising relationship.
Learn more about TRY Health Care Solutions.
Read more about ASC joint ventures:
- New $3.1M North Carolina Surgery Center Under Development in Randolph
- Structuring a Joint Venture for an Endoscopy Surgery Center: Thoughts From Jon Vick of ASCs Inc.
- Setting Standards for Your Hospital-ASC Joint Venture: 15 ASC Benchmarking Statistics