The U.S. ambulatory surgery center market has never been more competitive. With more than 5,000 ASCs nationwide, many U.S. markets are saturated with outpatient facilities. Adding to the challenge, the ASC reimbursement rate is less than 60 percent the hospital rate for identical procedures, and shrinking out-of-network reimbursements in many markets are making it increasingly difficult for facilities to turn a profit. Successfully navigating this complex, ever-shifting landscape requires hospitals to reimagine how ASCs fit in their overall business strategy. It also means bringing together the right partners to ensure success. If well executed, however, the opportunities can be significant. Consider this: 80 percent of ASCs in the United States today do not have a hospital partner. Meanwhile, if fully contracted, the average reimbursement for an independent ASC is between $1,200 and $1,700 per case; for hospital-affiliated ASCs, the average reimbursement is as high as $3,000 per case. Reimbursements are just one advantage of this innovative approach. Joint-venture ASCs also provide an inherent competitive advantage over other local, independent ASCs. There are opportunities for greater economies of scale and non-compete clauses among the parties that limit the possibility of future market-share erosion. For these reasons and more, joint ventures among hospitals, physicians and management companies today represent the best opportunity to achieve higher patient satisfaction, achieve physician alignment and position providers for long-term success. In developing these facilities, Regent emphasizes the following four key factors during the planning process:
Putting the right framework in place for selecting patients for ASC-based surgeries is critical to the success of a facility. Clinicians use a variety of methods for assessing a patient’s fitness for same-day surgery, including the American Society of Anesthesiologists’ six-level scale and criteria established by the Agency for Healthcare Research and Quality. Selecting patients, however, is an ever-complex process that requires a uniform framework as well as considerable room for physicians to exercise discretion. Writing for the American Society of Anesthesiologists, Dr. Alan Romero described the nuances of this decision-making process: “Clearly, identifying a patient suitable for an ambulatory procedure is a dynamic process that depends on the complex interplay between patient characteristics (e.g., coexisting medical conditions), invasiveness of the procedure (e.g., need for postoperative observation, blood loss requiring blood transfusion, need for parenteral therapy, including analgesics), anesthetic technique (e.g., local/regional versus general anesthesia) and post-discharge factors such as ability to manage pain and availability of a responsible caregiver. In addition, it is necessary to consider the ambulatory setting (i.e., office-based, free-standing ambulatory surgery center, hospital-based ambulatory surgery center or short-stay), as it will influence the ability to manage complex patients based upon the availabilities of personnel and equipment. Although it may be difficult to quantify, appropriateness of patient selection may also depend upon the experience and skill of the surgeon and the physician anesthesiologist. Therefore, attempts to address individual factors without consideration of others is fraught with flaws.”
According to RSMeans, a construction data firm, the average price tag for building an ASC in the United States is $5.2 million. Of course, that’s just for the structure. Once the walls are in place, substantial equipment investments must be made. Typically, orthopedic facilities require roughly $600,000 in upfront equipment expenses, spine facilities about $370,000 and total joint ASCs about $130,000. Acquire too much, or too little, equipment and the ASC will likely struggle financially. Likewise, a facility that doesn’t match local patient demand can be a very costly error, as can overestimating physicians’ books of business. The American Academy of Orthopaedic Surgeons recommends using the following planning checklist for launching an ASC joint venture:
- The parties need to agree on precisely what the business activity will be (as well as what it will be limited to).
- Joint ventures are typically implemented to generate positive cash flow, so the next questions that need to be resolved are (a) Is the business model fundamentally sound; (b) Are the forecasted financials realistic (see the Feasibility Analysis section below); and (c) What do the various stakeholders expect in return for their investment?
- Ownership and control need to be agreed upon at the outset, before any agreement is executed.
- It is important to determine in advance who will be allowed to participate in the venture.
- Participants in a joint venture must decide in advance what reserved powers and guarantees will be given.
- Partners must recognize that the venture may be subject to public scrutiny.
- If the venture were to fail, it may have to be “unwound.”
- Participants must agree to how they are going to assign a value to the assets.
- A project implementation timeline must be established.
In addition to working with a management company, ASC joint ventures also should look to partnering with home healthcare agencies, therapy providers and other outside firms that can enhance the patient experience, expand the types of surgeries an ASC provides and create new revenue opportunities. For example, Medicare recently approved the following codes that may present new business opportunities for ASCs, but also many new challenges for successful patient recovery:
- Neck spine fuse&remov bel c2(22551)
- Neck spine fusion (22554)
- Lumbar spine fusion (22612)
- Neck spine disk surgery (63020)
- Low back disk surgery (63030)
- Laminotomy single lumbar (63042)
- Removal of spinal lamina (63045)
- Removal of spinal lamina (63047)
- Decompress spinal cord (63056)
Hospital executives have many understandable concerns about entering into ASC joint ventures. Allaying those fears is a very important part of the planning process and a critical piece to getting any new project off the ground. The AAOS developed the following list of the benefits for hospitals in entering an ASC joint venture with physicians:
- Inpatient and outpatient market expansion, enhanced working relationships between the hospital and physicians.
- Increased awareness of physicians about cost management and efficiency.
- Increased physician loyalty.
- A strong governance/organization structure.
- A coordinated approach to serving the needs of the community.
“Hospitals should realize that partnering with physicians gives them a competitive advantage with third party payers and stops the proliferation of freestanding, physician, and/or conglomerate-owned ASCs,” the AAOS concludes. Still, developing these arrangements is often easier said than done, which is why less than 20 percent of hospitals are partnered with physicians. Most hospitals historically only wanted to partner with surgeons if they could own most of the ASC, control it and manage it. These expectations are changing rapidly today and Regent is the recognized leader in developing these new strategies. For more information on hospital/physician joint venture partnerships, please contact firstname.lastname@example.org.