Successful physician-hospital joint venture (JV) ambulatory surgery centers (ASCs) should be built on foundations of alignment that allow both parties to reap the benefits of the partnership. Physicians seek greater autonomy, efficiency, convenience, and potentially more favorable contracts while hospitals (or health systems) want to expand or maintain their relationship with area physician groups. Hospitals recognize their service continuum must include outpatient strategies to maintain a well-balanced customer base while physicians appreciate the stability and potential leverage health care systems can bring to the project. Both parties seek to provide quality care at an affordable price and a reasonable return on their investment.
Entering into a JV relationship can be fraught with difficulties. However, when executed well, both parties can be pleased with the end result and maintain long term satisfaction. Here are eight building blocks that place JVs on the path to success.
Secure professional help. Find an independent third party with a successful track record of developing and managing joint venture ASCs who will provide the expertise necessary to avoid pitfalls in the start-up process as well as in the ongoing operations of the JV. An independent organization provides a neutral voice devoid of the politics that may exist between physician groups, specialties, and/or health systems. They are also able to verify data and information gathered during the initial planning stages – and later on during operations – that JV parties can rely upon to make sound business decisions.
The JV should also secure the services of an experienced health care attorney to draft operating agreements and other organizational documents that will allow the group to avoid potential conflicts.
Set clear expectations. Make sure the JV partners set clear expectations not only for the final project, but also for the process of completing the project. First, the group should select members to participate in a steering committee. While these individuals may not end up being the final governing board, they should be able to commit to attending meetings and conference calls. They should be entrusted with voting on key topics when necessary. Decision making time frames should be agreed upon upfront to ensure none of the involved parties is under the impression that others are dragging their feet.
Determine the ownership and governance structure. Is there a compelling reason for one group to have more ownership than another? Is the ownership split in such a way that the attorney and regulatory bodies will not take issue with the proposed structure?
Identify the hospital’s or health system’s role in the project. The role of the hospital or health system should be thoroughly discussed and clearly determined. What will their contribution be to the project? Are they contributing capital, land, a building, access to controlled lives, purchasing power, leasing of staff, services, and/or payor contracting/relations?
Define the goal of the project. It is also important to discuss the goal of the project. Is the JV ASC the end all result? Or, is it the beginning of a larger initiative to create closer alignment between all stakeholders?
Perform a thorough feasibility analysis. If the JV still seems feasible and advisable after these steps have been taken, a thorough feasibility analysis should be conducted. DO NOT ASSUME IT WILL WORK! This is one of the biggest mistakes groups make. They do not thoroughly vet the concept before proceeding. The feasibility analysis should leave the potential participants with a business plan, payor reimbursement assessment, and a complete financial pro forma. This information can be used to obtain philosophical buy-in from investors, tell the steering committee they need to go back to the drawing board, or scuttle a bad project.
Pare down the size of the steering committee. If the project still looks like a go after these stages, reduce steering committee membership down to a more manageable size. This smaller sized steering committee – which may end up being the ASC’s governing body – is necessary to streamline decision making and set deadlines that will be adhered to. These individuals should be able to commit to timely communication either in person or electronically.
Avoid common joint venture pitfalls. Unclear expectations can leave some participants disappointed. Others may feel the project did not turn out as expected or is not meeting their needs. One group may feel they have been taken advantage of if incentives are not properly aligned among the project participants. Poor contracting, an over- or under-built facility, poorly staffed, poorly equipped, or poorly capitalized project can leave investors questioning the financial modeling that was performed.
Lastly, the primary cause of problems is poor or non-existent communication. Surprises are fine, but not when they impact your livelihood or finances. Not every, but many, of the issues in your joint venture project can be avoided with clear, timely communication.
The benefits of entering into a joint venture ASC are plentiful. The difference between a successful JV and one that limps along or is full of strife is often tied to the planning that occurred upfront. If you get that right, you’ve won half the battle!
Robert J. Carrera – President and CEO