4 things executives should know prior to a hospital-ASC joint venture

All parties in a hospital-ambulatory surgery center joint venture stand to benefit in many ways. Hospitals may gain new relationships with physicians while ASCs could receive a bump in reimbursement and gain access to the hospital's insurance product and additional capital.

 However, just because the potential benefits are plentiful that does not mean that a joint venture will be easy to set up or run smoothly once established. Hospital executives in particular need to be fully aware of what a hospital-ASC joint venture entails. Here are four things hospital executives should know before pursuing such a venture.  

1. Financial situation. It is imperative that hospital executives have a good grasp on their hospital's financial situation before moving forward with an ASC joint venture. According to Brent Lambert, MD, co-founder of ASCOA, his team has run into executives who were not fully aware of their hospital's financial condition. This lack of knowledge could cripple the joint venture.

"If you build a surgical center and you are a part owner, it requires you to be able to put up money to build out the surgical center, to equip it and to have working capital. It's important the hospital have the capacity to do that," says Dr. Lambert.

If a hospital can't contribute money toward the surgery center, many times the discussions end there. "Each party has to ante up for their equity portion. They have to be aware that it is going to cost them money." says Dr. Lambert.

2. Capacity of operating rooms and case volume. Hospital executives need to have detailed knowledge of the hospital's operating room capacity and case volume so they know whether they are operating at or near capacity, says Dr. Lambert. One of the prime reasons hospitals seek a joint venture with an ASC is due to a capacity problem: They do not have enough OR capacity to accommodate their staff and their surgical needs. A joint venture is an extremely attractive option to deal with that issue.

"It is always surprising to me to find that CEOs are not really sure about the hospital's operating room capacity. They need to check on that," says Dr. Lambert. "If they are looking to decant some cases to an ASC, they need to have a clear understanding of their operating room capacity and what it looks like in years to come so there are no surprises down the road."

3. Strategy. It is imperative for a hospital CEO to have a clear understanding of the hospital's strategy, especially in relation to the hospital's competition. This is because the goal of a joint venture is to generate high profits and help a hospital retain as well as attract highly valuable surgeons, says Dr. Lambert. "[In addition], if done strategically, [a joint venture] can increase market share and expand service area," he says.

Be aware of the competition
Realizing what the competition is doing is a key part of a hospital's strategy in the ASC-joint venture arena. According to Dr. Lambert, if a hospital realizes it is losing out to its competitor, then it can strategize how to use a joint venture to gain a leg up.

"For example, [ASCOA] met with a hospital whose competitor had recently built a new hospital exactly two miles north of its facility, and by doing so, had effectively cut off the whole northern county [of its service area]. In effect, the hospital we met with was only getting cases from half of the county," says Dr. Lambert. "I said 'let's put an ASC center north of the competitor's new hospital. Then we would be the first stop in terms of surgical care for people in the north.' Those kinds of considerations are useful, especially if the hospital CEO has thought strategically and tactically about how [to] beat the competition."

If executives get wind that a competitor is trying to recruit physicians for an ASC, it's a signal to them: they need to get going because they can't have a "me too" element to their physician recruitment, says Dr. Lambert.

Know the physician landscape

Knowledge of the physician landscape around a hospital is closely tied to competitor awareness: Hospital executives need to understand the physician landscape in great detail in order to set up a successful ASC.

"Executives need to know who their valued surgeons are, what surgeons are available in the community and what surgeons are with the competitors. Those are the ones you want to highlight and go after when you do a joint venture," says Dr. Lambert. "Executives need to understand [their] market place in great detail so they can place the ASC in the most propitious place that will play into the hospital's long-term strategy."

4. Each party's responsibility. The hospital, the ASC company and any other party involved in the joint venture needs to be fully prepared to fill their role. According to Dr. Lambert, the primary function of the hospital in the joint venture is to increase reimbursement over and above what an ASC could achieve on its own. On the other hand, it is the responsibility of the ASC — the company and/or the physicians — to run operations in a highly efficient way.

"Each equity partner — the hospital, the ASC company and the physicians — have to do their part. If so, everyone is happy. If one of them shirks their responsibility, then it's a mess," says Dr. Lambert.

A hospital-ASC joint venture can be profitable for each party involved. However, success is not guaranteed. Hospitals need to be aware of the four elements above in order to benefit from the deal. Just because a deal has potential does not mean it is guaranteed.

More Articles on Hospital-ASC Joint Ventures:

8 Insights Into Successful Hospital-ASC Joint Ventures
Competition Between ASCs and Hospitals: 4 Statistics
Seton Medical Center Harker Heights Opens Through Joint Venture

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