1. Understand the risk of failure. “You see a lot of failed joint ventures with ASCs because the agreements were not done properly,” Mr. Zasa says. “Both sides tend to talk past each other and don’t connect on key issues.” The key issues include governance, specialty mix, choosing the right payors, issues of control and how to exit the joint venture if it does not go well. Both sides should develop strategies that address these situations.
2. Put yourself in the physician’s shoes. “The physician-owner of the ASC is first and foremost concerned with his practice,” Mr. Zasa says. “He is asking questions like, ‘How do I grow my practice if I align with someone like a hospital?'” Physician-owners see the ASC as a mechanism to increase practice volume and professional fees. As shareholders, they also want higher facility fees, which can be enhanced through hospital involvement.
3. Put physicians at ease. “Doctors are apprehensive because they don’t do deals,” Mr. Zasa says. Make sure you explain the process to them step-by-step. “Doctors want to understand the whole process,” he says. “They’re used to working with protocols, which are processes.”
4. Put yourself at ease. Even as hospital executives move ahead with the joint venture, they may still suspect the center will take cases away from the hospital’s own ORs. In fact, the venture will likely have a synergistic effect. Overall volume usually increases because outside surgeons sign up for the ASC. Also, hospitals can save money through reduced costs per case, because physician-owners are more prudent using supplies and drugs.
5. Choose your words wisely. Hospitals should be careful not to say it is “acquiring” an ASC. The word is offensive to the physician-owners. Instead, the partnering hospital must stress that it is “complementing” what the physicians already have done and back that claim up with actions. “This is a joint venture rather than an acquisition,” Mr. Zasa says. “Acknowledge what the surgeons have done and stress that the hospital now wants to take it to the next level.”
6. Set expectations on the front end. Both parties need to be honest with themselves and each other regarding their concerns about the business. Openly communicate goals and objectives that are likely to cause disagreements. Set down specific responsibilities and align incentives accordingly.
7. Don’t promise too much. One key reason physicians link up with hospitals is to gain market power and higher reimbursements. Sometimes payors do award higher reimbursements. “I’ve seen it happen once, in the case of a hospital with huge market clout,” Mr. Zasa says. “The ASC got a 15 percent bump in rates with a private payor.” But when a small system with 1-2 hospitals partners on an ASC, “I question how much rates would go up,” he says.
8. Sign up with a third party. To make the deal work, the hospital typically needs an outside consultant who can be a neutral a third party. “Even if the hospital is paying the consultant, that person should be working for both parties to make it a true joint venture,” Mr. Zasa says.
9. Streamline decision-making. Come up with a very clean decision-making process for the ASC. “Get a decision-making structure that is lean and mean and can go quickly,” Mr. Zasa says. Physicians expect this. “They are used to functioning in their practices and ASC, which are small businesses that typically make decisions quickly,” he says. The hospital, on the other hand, tends to be “more process-oriented.”
10. Agree on an implementation timeframe. Implementation of the structure and of the legal documents should take 8-10 weeks or 12 weeks at most. “The danger is that if the deal gets stale, the doctors will get sour and withdraw,” Mr. Zasa says. Choose a consultant, lawyer and valuation company, develop a list of the key things to decide on and commit everyone to a defined timeframe.
Learn more about ASD Management.
Read more insight from Robert Zasa:
– Benchmarking Ambulatory Businesses
– Growing Your ASC: Q&A With Robert Zasa of ASD Management
– Trends in ASC Valuation: Q&A With Robert Zasa of ASD Management
