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 on the outpatient will be higher than that on ASC fee schedule. It will be paid for on the hospital outpatient fee schedule, at a significantly higher level.

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 efficient long-term strategy.

Was it the hospital’s decision at all? Or was it 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, that demands for control be based on their non-profit status, which isn’t true.

They generally add layers and layers of hospital administration, which is completely out of touch with running and 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 form 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 non-fee-based or any other equity-based developer of a 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- or multi-specialty, the analysis turns on the same factors each time and that is whether you have a sufficient number of cases with sufficient 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.

Whether that means going from there is going forward and building or you at least know that’s not the right thing for you.

But not asking the question means you’re never going to know.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

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