Mature joint venture management issues to continue to enhance value of an ASC

The following content is sponsored by ASD Management.

The surgery center market in the U.S. is a mature one. Many surgery centers were developed in the 1980s and 1990s, and strong growth continued throughout the decade beginning in 2000.

Though this growth was excellent for management companies in a position to develop centers, the new challenge is to continue to manage mature centers. Many of these experience a problem with lack of enthusiasm after the initial investors gained significant economic benefit from their initial low investment. Now many of the older centers have large accounts receivable and a robust profit. This raises the level of the investment significantly for new physicians who are essential to the continued growth of the center. 

Strategies for continued growth
The challenge for management is to develop growth strategies after the first 3 to 5 years. Several areas need to be focused upon to do this. The first is to develop a new market strategy to differentiate the center from others in the market and make it attractive for new investors. 

Secondly, in developing the market strategy, new technologies or services that can be added to the center need to be investigated. For example, many centers launched spine programs and retina programs in an effort to expand services and attract a new group of physicians. Surgery centers are now able to do both of these types of procedures in a cost-effective way, and are being encouraged by payers to reduce the price of these services compared to those charged by hospitals.

Thirdly, management must investigate new physicians that have come to the community. Center leaders also need to attract and have dialogue with the newer partners of existing physician practices in order to attract increased volume. As these new physicians come into the surgery center, they replace the patient volume of some of the physicians who have retired or slowed down in their practices.

Fourth, surgery centers need to offer services that will benefit the physicians' practices and not just the surgery center. They need to provide "glue" to the surgery center that continues to make participation in the center very attractive. Many centers extend their group purchasing contract to physician offices. At ASD Management, we've extended all the contracts that we can for the surgery center to physician partners' practices. We are saving physician practices significant amounts of money on service contracts and supplies. 

In developing these new market strategies, the current board of managers needs to be very involved with the process. They need to review adding physician specialties that are highly profitable. They need to bond with a large medical groups and independent practice associations that can drive new business to the center. They also need to perform a regional market analysis to find "ambulatory services holes" in the market, such as cardiology, retina or spine. These should be conducted formally every few years, but can also occur 'on the fly' to identify possible new opportunities.

Marketplace shifts
Several shifts in the national marketplace are occurring. First, hospitals are now actively joint venturing more often with physicians and physician groups. Some are desiring majority ownership of the surgery center, while others are using a minority share approach as a strategy to bond closer to their inpatient physicians.

Secondly, some older partners may be contributing less to the center as they wind down their hours and look toward retirement. I have not bought out these partners for various reasons. Younger physicians cannot buy in at an attractive price; we have also seen younger partners leave an established center (and wait out their non-compete) to develop their own centers, typically smaller ones with lower overhead but with the capacity to increase cases. The financial play is to add other newer physicians (who buy in at a higher price than the founding physicians) and increase the return to the original partners. Then, after two or three years, the physicians will look to sell all or part of their stake in the center to a health system, further increasing the return on their original investment.

When planning for growth, analyze new services from a strategic point of view. What are the top three strategies on new service development or new physician recruitment that may fit best in an existing facility to maximize its use in profit? Many profit and loss projections should be developed to identify the most profitable growth strategies. Strategies should be vetted for profitability, contribution to the organization's growth, suitability of the existing space and best strategic fit. Look for complementary services that can utilize existing staff and ORs.

After the two or three strategies are identified, create a formal business plan that describes the services and reviews competition, as well as reimbursement and regulatory factors related to the services. Identify key critical success factors along with financial projections should be accomplished. 

Finally, given the significant changes in the managed-care environment in the U.S., narrow networks need to be investigated within the market area. There's a lot of new IPAs, direct contracting and accountable care organization activity going on in many areas of the country. This varies by geographic location, but it certainly is a significant trend and will continue to grow. There will be some resistance by some employers to maintain wider networks to give patients more choice. However, it is clear that the trend toward driving volume to preferred providers that provide good value and quality of care will certainly continue as a trend.

Finally, surgery centers have typically only recruited positions due to compliance and regulatory issues. However bonding the surgeons at the surgery center to large primary care groups will be essential going forward in order to continue uninterrupted referrals. Most referrals will continue to occur due to a surgeon's professional reputation among referring physicians. However, it cannot be ignored that there is a growing trend toward developing truly preferred providers based again on quality and price and contractual arrangements between providers and provider networks. 

Managers of mature surgery centers must keep all of these factors in mind as they continue to grow their centers. Not growing means that one's business will experience financial atrophy. 

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