Physician owners often consider hospitals as potential joint venture partners to both realize financial benefits of a sale but also to help improve ASC ongoing financial performance.  

Hospital relationships do have the potential to improve reimbursement levels, but hospital collaborations do not automatically guarantee improved revenue cycle. ASC owners need to be sensitive to potential revenue cycle impacts of a joint venture. ASC leadership should consider steps to minimize the risk of negative consequences.  John Newman, Senior Vice President and General Counsel of Constitution Surgery Centers identified the following as some of the key issues that warrant consideration.

Managed care contracting
Superior managed care contracting is one of the most often sought operational benefits from a hospital affiliation, but it is not a certainty. A hospital does not automatically affect rates for an ASC.  First, a hospital must be brought into a joint venture on terms that allow it to be involved in rate negotiations for the ASC under applicable legal requirements. Mr. Newman stresses the need for counsel experienced in antitrust and health care regulation to be involved in structuring the terms for any hospital investment in an ASC. Aside from these structural issues, parties to a transaction need to asses the hospital’s own market performance and positioning in dealing with payers.

While hospital affiliation with an ASC doesn’t in and of itself guarantee increased reimbursement from payers, on the other side of the coin managed care contracting issues have the potential to create a major operational stumbling block for parties. Lack of alignment between a hospital and an ASC, such as significant differences in payer mix, suggest the possibility for a rocky transition period. “If your biggest, most profitable payer is one the hospital has a tempestuous relationship with, you could be headed for a major blip in revenue cycle,” says Mr. Newman. “Depending on the shifts in your fundamental payer profile, you have to think about short term consequences.” The ASC also needs to be mindful of the fact that its own payer contracting strategy needs to dovetail with the overall institutional plans of the hospital system. Comparing ASC and hospital payer alignment is one simple step that will allow ASC leaders to predict some significant issues and help assess a hospital’s value as a potential partner.

Successful joint ventures do not happen automatically.  They are the product of careful due diligence and good communication between he parties leading to a clear, shared vision of future objectives and the necessary steps to achieve those goals.  For an ASC, part of this process is to assess what resources the hospital has to employ in support of ASC operations and how the hospital envisions working with the ASC. . ASC leaders can gain a basic understanding of a hospital’s payer contracting simply by asking. Independent third party financial advisors can often provide valuable analysis and insights as well. “Hospitals need to demonstrate the real capacity to bring added value in managed care contracting, as well as in other aspects of an ASCs operations” says Mr. Newman.

OON to in-network
Many ASCs continue to have a significant out of network profile.  By contract, hospitals tend to have participating provider agreements with a larger number of payers and often are obligated by the terms of these agreements to include affiliated entities such as an ASC  in contract participation.  OON volume and reimbursements are significant considerations in joint venture partnerships.  As noted above, hospitals in many instances not only actor out of network levels into their valuations of ASCs but also push post closing for a more in network operating model.. The transition can strain ASC revenue cycle.  At the same time, for ASCs in markets wherein an out of network profile ay be problematic, a hospital partnership may facilitate the ASCs conversion to a participating provider profile on more palatable terms, “There is the general sense among many ASCs that the OON model is not a long-term strategy for them,” says Mr. Newman. “A hospital may be able to bring an ASC to in-network participation at more attractive rates or in a more orderly manner.”

Billing system, support services and staffing changes
No one hospital partner will behave the same in an ASC joint venture. Some may have a hands-off approach, while others may instigate wholesale changes. “Hospitals may want to centralize processes and revisit any number of operational issues from medical record management to supply chain to billing.  In some instances hospitals may want to replace ASC billing staff with their own or downsize administrative staff at the center,” says Mr. Newman. Such actions can produce disturbances in ASC operations and can materially impact the revenue cycle.  

“Hospitals are very good at running hospitals,” says Mr. Newman. “They are not necessarily conversant with ASC operations.” The best way to avoid major disruptions ad disagreements between the parties is to educate hospital leaders well in advance of the transaction as to the ASCs requirements for successful operations, the ASCs strengths that should not be disrupted post-closing. Explain issues such as:

•    Staff responsibilities
•    Staffing levels
•    Supplies
•    A/R and billing cycle
•    Cost of billing

“An ASC is successful for a reason,” says Mr. Newman. “You need to articulate the strengths of the organization and the necessary tools to produce those positive results.  This not only helps support an appropriate purchase price, it avoids needless disruptions and helps position your new hospital partner to support orderly ASC operations. If you demonstrate all this, a hospital will be more inclined to step back and support that success.”

The road to a seamless transition
“In the ideal situation, you have brought the hospital into the fold of operations well in advance of the closing,” says Mr. Newman. All possible issues influencing the revenue cycle would be discussed and agreed upon well in advance.

Joint venture partners come to the table to discuss the terms for the transaction, but they do not always look past the closing with an eye towards operational matters. “You have to be forward-thinking when structuring these arrangements,” says Mr. Newman. An experienced management company partner can serve as an effective means of facilitating good communication between the parties and helping each party to understand the requirements for a successful partnership.

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