Hospital outpatient strategies — The future is here

After launching as a company focused on helping physicians build de novo ambulatory surgery centers, Ambulatory Surgical Centers of America saw an opportunity in the market to expand: turning around failing ASCs and working with hospitals on joint venture centers.

"Opportunity is driving our company into hospital joint ventures," said ASCOA Chief Development Officer Jeffrey E. Peo. "Hospitals are coming to us to find out how we can partner and add our outpatient strategy to their centers. There are a lot of changes in healthcare right now and hospitals are looking for ways to firm up their strategy."

Mr. Peo gave a presentation titled "Revisiting Your Outpatient Strategy: Being Prepared for When the Music Stops" at the Becker's Hospital Review 6th Annual Meeting. Traditionally, hospitals purchased ASCs and converted them into hospital outpatient departments where they could achieve higher reimbursement rates. The hospital maintained relationships with the physicians and began acquiring primary care physicians, which gave them control over the referral network. But now, payers are challenging the higher rates at HOPDs and employed physicians aren't always as productive as they were during independence.

"In Pennsylvania, I saw hospitals buying ASCs and converting them to HOPDs and then the payers said they wouldn't pay HOPD rates," said Mr. Peo. "But the hospital just spent a bunch on purchasing the center and converting it to an HOPD. That's not a comfortable situation."

The strategies hospitals are looking at for joint venture ASCs include:

1. Moving outpatient cases to the lower cost setting where payers are willing to pay.
2. Increasing capacity for truly inpatient cases.
3. Hospitals working with the ASC to keep these patients within their network.
4. Hospitals trying to gain physician loyalty so the ASC owners also bring inpatient cases to their facility.

Mr. Peo described an interesting case study where a hospital purchased two successful ASCs and turned them into HOPDs, and then opened a de novo ASC. With 100 percent ownership of the ASCs, the hospital had the former owners sign co-management agreements with no-competes for a five-year period. But, now the five years is coming to an end and since the hospital is in a state without certificate-of-need, the physicians could independently open a new center.

"When the no-compete is up, he might not have any cases," said Mr. Peo. "One of the ASCs is in the competition's back yard and the physicians are ready to build an ASC of their own. It takes them longer to do their cases at the current ASC and they aren't getting the same efficiency as when they ran the ASC. They also aren't getting any of the revenue. They aren't thinking like owners anymore; they're thinking like users of a center and they're more concerned about convenience."

Solutions offered in the session were:

1. Bring in competing physicians to perform cases at the center.
2. Convert the center back from an HOPD to an ASC.
3. Strike a new ownership agreement with the physicians.

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