Key Issues Plaguing Physician-Hospital Joint Ventures

In a presentation at the 9th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago on June 9, Brent Lambert, MD, FACS, principal and founder, and Luke Lambert, CFA, CASC, CEO, ASCOA, discussed troubled physician-hospital joint ventures and strategies to fix them.

According to Mr. Lambert, nearly half of surgery centers in the country are struggling, meaning they are losing money or close to breaking even. While many struggling ASCs believe partnering with a hospital means an automatic improvement in performance, Mr. Lambert noted many ASCs experience little to no performance improvement after partnering with a hospital.

He attributed this largely to the fact that in more than 90 percent of hospital-physician joint ventures, hospitals have a larger ownership stake than physicians, and he claims hospitals have less impetus to make the center as efficient as possible than may be present under a physician-controlled model. "Other than for reimbursement, there is no reason for hospitals to be in control," he says.  Although he adds, hospitals can be helpful in physician recruitment.

However, there are situations when hospital control may be necessary, including:

•    Certificate of Need required — In CON states, a hospital partner is likely to improve the center's chances of receiving approval for construction of a new facility.

•    "Bump" in reimbursement needed — Because hospitals have more leverage than ASCs, allowing the hospital to contract for the center may lead to improved payment rates with commercial payors. Most payors require hospital control of the ASC in order to include the center in the hospital's overall contract. However, Dr. Lambert cautions that because ASCs are not core facilities for the hospital, contracts often fall short. He encourages ASCs considering a hospital partner to ask outright what specific percent increase in reimbursements they can expect and to be cautious of a partner that can't provide a definite answer.

While majority-hospital ownership may be needed to address these issues, the most successful joint-venture ASCs limit the percentage of hospital ownership to no more than 51 percent, says Mr. Lambert.

Additionally, many successful joint-ventures centers are managed by physicians or an ASC-management corporate partner as opposed to a hospital, which may not have experience managing a freestanding ASC, says Dr. Lambert.  

Dr. Lambert suggests troubled hospital-physician ASCs find ways to increase physician-control in the center and consider bringing in a corporate partner experienced at running freestanding ASCs in addition to traditional improvement measures such as renegotiating payor contracts, recruiting new surgeons, reducing staffing costs to 21 percent of collections and reducing supply costs to no more than 20 percent of collections.