Are Joint Ventures With Hospitals Beneficial to Surgery Centers?
Best-case scenario: Both sides gain
EXECUTIVE SUMMARY
Ambulatory surgery centers (ASCs) can benefit from a joint venture with a health system, depending on how it is structured.
- The main reason to partner with a hospital system is to get access to more payer plans.
- The joint venture also could boost an ASC’s negotiating power in purchasing supplies.
- Health systems seek joint ventures to prepare for a future when more Medicare-covered surgeries move to the ambulatory setting.
From a surgery center’s perspective, the question about joint ventures should be: “How will it benefit us?” There might not be a simple answer. It all depends on how the joint venture is structured and why the ambulatory surgery center (ASC) and other organizations, such as a health system, want to engage in this arrangement. Certain industry trends complicate the issue further.
“The main reasons that ASCs partner with hospital systems is for assistance in getting access to various payer plans,” says Luke Lambert, MBA, CFA, CASC, chief executive officer of Hanover, MA-based Ambulatory Surgical Centers of America (ASCOA), which is physician-owned.
In some markets, the health system dominates the market and controls an important payer. A surgery center might not have access to that payer’s patients because the ASC is excluded from the plan, Lambert explains.
“So, they might partner with the hospital to get access to those plans,” he says.
Hospital-ASC joint ventures primarily are with nonprofit hospitals, although it can work with for-profit organizations, too, says Robert Zasa, MSHHA, FACMPE, managing partner with ASD Management, a consulting firm that develops and manages surgery centers for clients.
Joint ventures with ASCs started before the current trend of health systems’ hiring physicians, Zasa notes. Hospitals often approach ASCs about forming a joint venture because they are drawn to the surgery center’s success, such as in orthopedics, Zasa explains. (See story in this issue on strategies to improve a joint venture partnership.)
The hospital knows Medicare and other payers are approving more surgeries for the ambulatory setting to save on cost. Surgeons might perform a total joint replacement, for example, only as an inpatient procedure for Medicare patients because of Centers for Medicare & Medicaid Services (CMS) rules. But health system leaders know that this is changing. Soon, ASCs will receive these Medicare cases, so administrators should prepare for this shift, Zasa adds.
“They think, ‘We’ll lose those cases at the hospital, and orthopedics will do it on their own at their own surgery center,’” Zasa says. “It’s a defensive move. A lot of hospitals are seeing that the more lucrative procedures are coming out of the hospital to an outpatient setting.”
As employers increasingly turn to self-insured plans to reduce healthcare spending, they are steering patients to providers who can save them money. This has made ASCs particularly attractive to health systems in recent years. Health systems want to maintain contracts with big insurance carriers, but their own surgery centers could be too costly. Through a joint venture with an ASC, they have a lower cost option to offer carriers. The lower cost is shared by the hospital joint partner. The hospital also can reduce its own in-house staffing pattern and costs.
“Physician-hospital employment models have become bigger in the marketplace. We’re seeing more of them,” says Tracy Hoeft-Hoffman, MBA, MSN, RN, CASC, administrator of Heartland Surgery Center in Kearney, NE.
Hospital-employed physicians will bring cases to ASCs that are engaged in joint ventures with the hospital, she adds.
Another big benefit to a joint venture is that the health system has the clout ASCs lack when negotiating with payers. Sometimes, an area’s biggest employer is the health system that controls its own health plan and steers its patients to providers that are either part of the health system or have an agreement with it.
“Doctors are looking and saying, ‘The hospital has very strong relationships with Blue Cross and Aetna, and if we do the joint venture with them, then we may get a little higher fee,’” Zasa says. “That is driving it from the doctor’s side to seek or be open to more joint ventures with health systems.”
Hoeft-Hoffman has found in her experience with a joint venture that a good joint venture agreement likely will result in better payment rates.
“If you have a good joint venture partner, they will help you negotiate to get a better rate, a percentage of billed, as opposed to a fee schedule,” she says.
As an ASC that counts orthopedics as half its business, it’s very important to know what carriers will pay for implants, she cautions. “If you have a good joint venture partner, they would be able to negotiate some of that.”
Heartland Surgery Center is jointly ventured with CHI Health Good Samaritan in Kearney, NE. The ASC asks managed care companies to give the surgery center the same rates as the joint venture partner.
“The goal is to get a percentage of billed charges with implants in managed care contracts,” Hoeft-Hoffman says. “CHI will get contracts and send them to us to see if we agree or not, and if we say, ‘no,’ they go back and renegotiate on our behalf.”
For example, in one recent case, the insurer proposed a contract that would pay for implants that cost more than $5,000, but the ASC rarely performed implant procedures that were higher than that amount, she explains.
“We have 500 cases a month and 50% are orthopedics,” she says. “If they didn’t allow implants in the contract, then we wouldn’t be able to bill for them.”
The ASC let its joint venture partner know that the contract was not acceptable. The end result was the ASC and insurer went back to the previous contract, which was a percent of billed plus implants, Hoeft-Hoffman adds. ASCs also can benefit from the health system’s purchasing volume.
“Sometimes, we get a better contract rate on purchasing,” she says.
For example, with a health system’s purchasing power, an ASC could obtain better prices on supplies, Hoeft-Hoffman says.
“I think it gets harder and harder to do this on your own without a partner,” she adds. “There’s hardly a new ASC opening that is not part of a joint venture with a hospital or healthcare management company.”
Ambulatory surgery centers can benefit from a joint venture with a health system, depending on how it is structured.
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