ASC Turnaround Group Case Study

Interview With Nap Gary of Regent Surgical Health

As seen in Becker’s ASC Review In 2003, a group of physicians owned and operated a surgery center in Marietta, Ohio, just across the river from West Virginia. Like many surgery centers, the well-intentioned project suffered from a lack of operational planning and staff support. Payor contracts had been poorly negotiated, and the center was receiving 110 percent of Medicare from one of its largest commercial payors — including payment for anesthesia! The center had been losing around $100,000 a year for the past five years. In addition to the center’s operational problems, the administrator was diverting drugs, and clinical issues were endangering the facility’s accreditation. When Regent Surgical Health arrived at the center in 2004, the company quickly replaced the old administrator and worked with the new administrator to improve clinical processes and achieve AAAHC accreditation. Regent also recruited a pain physician to join the orthopedic practice, an addition that substantially boosted case volume and center profitability. Expanding operations Once Regent and the physicians had stabilized the center’s finances, the management company decided to open a second operating room on a period basis. At the time, the center depended primarily on out-of-network reimbursement. “Procedures were paid very well, and for a small center, it was producing very good financial results,” Mr. Gary says. Unfortunately, the center lost a substantial revenue stream when the main physician practice and the pain physician decided to part ways. Recruitment was difficult in a town the size of Marietta, and most physicians were already tied into their existing affiliations. At the same time, the payors in the local market were coming down on out-of-network providers, and contracting opportunities were limited. “The reimbursement we’d been seeing — plus the volume from the pain procedures — were going away,” Mr. Gary says. “We found ourselves in a situation where profits varied from month to month depending on who was on vacation.” Pursuing a hospital partnership As they determined how they would address these issues, Regent started having conversations with the local hospital, Marietta Memorial Hospital. “We were trying to stake out what their interests were and what our interests were, and we found there were very few areas where our interests were in conflict,” Mr. Gary says. The physicians were open-minded about the possibility of a joint venture, and the administration for both parties agreed that both facilities would benefit from a partnership. The hospital acquired a majority interest in the surgery center, giving the hospital control and allowing the ASC to benefit from hospital-negotiated payor contracts. Once the hospital had partnered with the surgery center, payor contracts improved dramatically. “Reimbursement per procedure was dramatically increased by virtue of being affiliated,” Mr. Gary says. “Economically, what the doctors gave up in equity was more than offset by receiving liquidation and the much better return through partnership with the hospital.” The hospital also staffed an orthopedic surgeon with whom the center had never been able to build a close relationship. “He and our guys were both willing to look at sharing OR space in the same surgery center, and at the end of the day, they found they worked very well together,” Mr. Gary says. “Everyone has benefitted from having another orthopedic surgeon in the mix that we never would have recruited.” The partnership with the hospital has improved the ASC’s access to physicians because previously-unavailable providers can now show interest in the center through the hospital. The partnership in the surgery center also strengthened the working relationship between Marietta Memorial and the surgery center’s founding orthopedic surgeons, who perform many of their inpatient cases at a hospital facility. Mr. Gary says a key component of the joint venture’s success has been clear communication with the hospital. From the first conversation with hospital administration, the physicians or management company should try to determine the hospital’s reasons for pursuing the venture. In some cases, the hospital will want to add the center as a true partner to further its strategic plan; in other cases, the hospital may simply want to remove a competitor from the local market. Mr. Gary says the relationship between the hospital leaders, the physicians and Regent Surgical Health has been essential to the venture’s success. “The guys at the hospital have been excellent partners to work with,” he says. “Some joint ventures are never successful because the hospital approaches it purely in a defensive way. That’s not the approach here — they’ve been a very good partner.” Reproduced with permission from Becker’s ASC Review. © Copyright ASC Communications, 2011