ASC Impending Death of Hospitals

Hospital Abandons Physician ASC Partners

December 2, 2019

Earlier this year, I read a news piece on a health system in Memphis called Methodist Le Bonheur Healthcare that had announced that it would be closing the joint venture ASC that it operates in concert with over one hundred physician partners.

The hospital system announced that it no longer made sense to perform outpatient surgery via a joint ventured ASC.

That leads to the question: it no longer made sense for whom?

Let’s try to unpack this. I have no inside track on this, but did it make sense for a hospital to run a joint venture? Well, what are its options?

One option is it doesn’t run a joint venture ASC, it runs an on-campus facility as a hospital outpatient department. If it runs a hospital outpatient department, it will receive higher fees, not only because the outpatient department is 100% hospital owned, but also because the fee for each procedure will be higher than that on the ASC fee schedule. That’s because it will be paid for pursuant to the richer hospital outpatient fee schedule.

However, the writing is already on the wall that HOPD fees will be cut down to the ASC level sooner or later. While it might provide some sort of short-term benefit to the hospital, it’s not a very effective long-term strategy.

Or, was it the hospital’s decision at all? Perhaps it was the decision of the physicians that they no longer needed a hospital partner to operate an ASC?

After all, what do hospitals add to joint ventures?

They add demands for control. This is especially true of non-profit hospitals who claim that control is essential to maintain their non-profit status – but that isn’t true.

They generally add layers and layers of hospital administration, which is completely out of touch with running an efficient and efficacious ASC.

Other than putting some money into the deal which can easily be borrowed or raised from physician partners in the deal, there’s very little that a hospital can add, which leads to a few points.

1.) If you’re in a position like those joint venture physicians were of having a hospital partner, you have to question whether hospitals will see the writing on the wall and sooner or later pull out, either in an attempt to reap some remaining benefit from the HOPD fee schedule, or because they simply realize that they’re going to be cut by the physicians sooner or later.

2.) You must question whether you need not only a hospital partner at all, but any equity-based developer of your surgery center. There are tremendous opportunities for physicians to completely own surgery centers whether these are solo facilities or whether these are facilities owned by many physicians. Whether they’re single-specialty or multi-specialty, the analysis turns on the same factors each time and that is whether you have a sufficient number of cases with CPT codes that generate sufficient cash flow to make the operation a success.

The place to start is asking questions and performing that initial analysis, and then you go from there.

If you’re not asking the question, you’re never going to know.

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