Common Ground
By David Jarrard And Martin Brown
Hospitals, Physicians and Outpatient Centers
Hospitals commonly view physician-owned ambulatory surgery centers (ASCs) as the enemy, luring patients, physicians and, ultimately, income away. Physicians perform at least seven million surgeries each year in the country's 3,900 ASCs, and that number is projected to grow by 3 percent a year, according to the Federated Ambulatory Surgery Association (FASA).
Rather than falling prey to the trend, some hospitals have decided to answer market demand and capitalize on it. The thinking is that it may be better to meet patient demand, maintain some, if not all, of the market share and control some of the ASC strategy, rather than miss the opportunity altogether. As one hospital CFO put it, "We decided to follow the old adage, 'If you can't beat 'em, join 'em.'" Hospital boards and management are now realizing that ASCs should be viewed, not as competitors, but as complements to the hospital's patient services.
What It's All About
As the name implies, ambulatory surgery centers are facilities where patients go for surgical procedures that do not require full-service, expensive inpatient care. These facilities are attractive to physicians and patients because they typically provide a more cost-effective, convenient and less stressful environment than a traditional hospital. While approximately 51 percent of ASCs confine their services to one specialty, such as ophthalmology or gastroenterology, the other half comprise a more diverse range of specialties, including orthopedics, otorhinolaryngology (ENT), gynecology and plastic surgery. Patient satisfaction with ASCs is high, primarily because of convenient locations and scheduling.
Much of ambulatory surgery centers' growth can be charted through Medicare. The Medicare program began paying for surgeries performed in ASCs in the early 1980s. At that time, only 200 procedures were approved for reimbursement; today that number is more than 2,400. Over the past 10 years, Medicare payments to ASCs have grown from $610 million to $2 billion.
About 85 percent of all ASCs are Medicare-certified, and approximately 40 states require that ASCs be licensed. ASCs are accredited by reliable, well-recognized authorities that set the standards for the field: the American Osteopathic Association; the Accreditation Association for Ambulatory Health Care; the Joint Commission on Accreditation of Healthcare Organizations; and the American Association for Accreditation for Ambulatory Surgery Facilities--all have "deemed status" (i.e., their accreditation can be substituted for Medicare's). Even in light of potential reimbursement changes, industry reports indicate that ASCs will continue to perform strongly in the coming years. Following is the story of one hospital's decision to leverage the opportunities of an ASC.
Partnership in the Making
Located just south of Nashville, Tenn., Maury County's population and its need for health care services soared in the early to mid-1990s. Unfortunately, 275-bed Maury Regional Hospital (MRH), which had a 50-year track record of providing quality service to area residents, began to see case volumes from its outpatient surgery department and its customer satisfaction scores deteriorate.
While the hospital recognized the importance of its outpatient surgery services, its only possible location in the hospital was inconvenient and offered no designated parking. Increasingly, the hospital's physicians needed this department to perform routine and noninvasive procedures in order to maximize scheduling efficiencies and convenience for their patients.
Meanwhile, a group of orthopedic and opthalmology specialty physicians had already made the first move, opening a surgery center across from the hospital and obtaining a Certificate of Need (currently required for all ASCs in the state) in conjunction with the purchase of their building.
The choice was clear. "[We could either] forge a partnership with physicians [who had not yet invested in the new ASC] and open a distinct ambulatory surgery center or continue to lose patients and revenue to other freestanding facilities," says Robert Lonis, MRH's corporate director of finance. The hospital decided to partner with its remaining surgical staff to prevent further erosion of market share and revenue, focusing on general and plastic surgery, pain management and gynecologic and urologic procedures. It took time for them to approve the detailed plans and amass the required capital investment, and then the project was further delayed when state regulators initially opposed the hospital's request for a Certificate of Need.
Eventually they succeeded, and the hospital built an adjacent outpatient pavilion with one floor dedicated to ambulatory surgery. The remainder of the pavilion is used for hospital and some cardiology services. However, hospital management realized that building the new facility alone did not necessarily meet all patients' needs. Management and the board determined that it made the most sense to partner with experts who knew how to manage and operate an ASC efficiently.
"Running a hospital and running a surgery center are two different worlds," Lonis say. "You need experts in both."
A list of potential companies eventually led to a partnership with Symbion Inc., based out of Nashville. By providing a dedicated physician relations representative, Symbion moved quickly to lay the groundwork for a successful physician partnership. The outpatient center at MRH is a joint venture, limited liability company. All three parties--MRH, the physicians and Symbion--are financially invested in the ASC's success and share equal membership in a separate board dedicated to the ASC.
"Obviously, a hospital is little without its physicians, and physician relations have always been an utmost priority," Lonis says. "Having someone represent our position, as well as being fully knowledgeable of and representing the physicians' interests, has proven invaluable." He adds, "We got excellent responses from physicians with our first investment offering, and a second offering is in the works."
The center is available for any hospital physician's use, and both clinician participation and the revenue the ASC has generated have surpassed expectations in its first year of operation. By retaining 51 percent of ownership (i.e., control), the hospital remains tax exempt as long as the ASC operates in conjunction with its charitable mission (i.e., treats all types of patients). The joint venture's taxable profit flows to its other owners, the partnering physicians and Symbion.
"Many hospitals are reluctant to "share the pie" by opening ASCs in partnership with physicians," Lonis says. "However, we have found that even though we are [doing that] with Symbion and our physicians, our success and cost efficiencies in this outpatient sector are greater than in the traditional hospital-based setting."
Lonis adds, "Physicians are more likely to use a center in which they have an interest. The standard of care improves greatly in a cooperative environment, and the cost efficiencies and technological investment available by partnering with a company such as [we have done] are enormous. "
David Jarrard is president of The Ingram Group, a Nashville, Tenn.-based health care marketing firm. He can be reached at (615) 254-0575, or at david@ingramgroup.com. Martin Brown is a partner with Pershing Yoakley & Associates, a health care consulting firm headquartered in Knoxville, Tenn. He can be reached at (865) 673-0844, or at mbrown@pyapc.com.
This article 1st appeared in the December 2099 issue of Trustee Magazine.
To respond to this article, please click here.
