By Bo Hjorth, Vice President, Business Development Hospitals and physicians are both struggling with challenges related to competition, reform and the economy that are difficult to tackle on their own, but are much easier solved working together. Unfortunately, ten years of competing over patients has damaged the essential relationship between these two parties – but not permanently. In many markets, often with the help of an intermediary party, the two sides are putting aside their differences and moving forward together. Both hospitals and physicians have much to gain by repairing the relationship. Surgery Centers: 1. Competition: with more than 6,000 ASC’s today, there is competition in urban, intermediate, and even rural markets. ASCs have reached a mature stage and only those that can manage the competitive and pricing forces will be successful on their own. There is also competition for physicians who can increase surgical volume. However, there is a growing shortage across many physician specialties. We are already seeing the impact of these competitive pressures in many markets across the country as a large percentage of ASCs are not meeting performance expectations. 2. Healthcare Reform: what is clear about healthcare reform is that hospitals will be in a position to integrate not only physicians, but also other revenue producing ancillary services including ASCs. Reimbursements at ASCs over the short term will remain flat or decline along some specialties but long-term will have to decline to serve a growing population. This trend is already playing out with legislation in many states to limit or eliminate out-of-network reimbursement. 3. The Economy: the decline in the economy has impacted discretionary income, which in turn has patients reconsidering the need for elective surgery. This factor alone has put a strain on the average or underperforming ASC. With a tight credit market, many ASCs do not have the ability to obtain short-term financing or refinance long-term debt. In some cases, physicians are facing “cash calls” or even contemplating facility closure. Hospitals: 1. Competition: Hospitals have seen the bulk of their lower acuity cases leave for the ASC. Surgeries that ten years ago could never have been handled in an outpatient setting are now easily performed. Given a choice, patients prefer the outpatient setting for its convenience and ability to deliver better outcomes at a lower cost for care. In short, hospitals that don’t have an outpatient strategy center are playing catch up to generate new revenue sources. 2. Healthcare Reform: Healthcare reform appears to have given hospitals the upper hand, but this advantage means nothing if they cannot repair relationships with local physicians. Hospitals have to be savvy in the customer relations arena or physicians will prefer to start a new relationship with a competing hospital 15 miles away rather than try to repair the damage at the local hospital. The challenges of healthcare reform will test many hospitals ability to survive. It is predicted that the number of hospitals in our country will continue to decline. 3. The Economy: Surgical volume is down and some ORs are empty. Hospitals have spent the last few years lowering costs, but a true turnaround won’t happen until they also grow revenues – that means recruiting more of the markets most productive surgeons. Of course, a successful JV means both sides will need to make some sacrifices. Hospitals may need to give up clinical and operational control of the ASC to the physicians who have spent the last decade proving they are capable of delivering exceptional surgical outcomes, patient satisfaction and return on investment. In markets where the hospital has the power to increase reimbursement by re-negotiating payer rates, physicians will need to give up a majority interest in their center. We have found that a management group is often essential to structuring an agreement that can keep the interests of hospitals and physicians aligned long-term. By acting as an intermediary, the management group can neutralize internal politics and keep the partners happy! As an independent third party, the group can determine a FMV price, and evaluate the ASC operations on the clinical and financial side while working with the hospital to renegotiate rates that increases the ASC’s profitability over the long term. Due to the complexities of healthcare and how it is financed, it is clear that healthcare will continue to see change that will impact all sectors. The winners will be the hospitals that, through a collaborative effort, can partner together with physicians to create strategies that stay ahead of the reform or legislative efforts necessary to refine the healthcare system. Footnote: Currently Regent is an owner and manager in nine hospital/physician joint ventures across the county.