The rapid growth of freestanding ASCs and specialty hospitals is of primary interest and concern to anyone involved in the delivery of healthcare today. Nowhere is this more acutely felt than in hospitals and health systems. Do these so-called “niche players” represent a real threat to hospitals' economic viability, or are they legitimate innovations in response to physician and patient demand?
PAST AND PROJECTED GROWTH
ASC facilities arrived on the scene in the early 1970s. The first major impetus for their growth came with Medicare approval in 1982. Based on historical growth rates since 1996, it can be anticipated that the number of facilities will continue to grow by a minimum of 150 per year. The pattern could very well exceed this projection, however, given the continual improvements in technology, surgical technique, pharmacology, and anesthesia. However, with more than 4 million surgical procedures performed annually, the business generated by the freestanding centers represents a significant portion of the healthcare dollar.
NEEDS OF THE PHYSICIAN
Hospital board members and executives certainly have legitimate concerns about their broad inpatient and emergency response obligations. Yet, should not the equally valid concerns of physicians be considered? If professional fees continue to decrease while the costs of operating a practice continue to rise (especially in the form of malpractice insurance), then should not the physician be free to pursue the means of maintaining an independent clinical practice, even if he owns part of the facility? These questions as well as countless others do not lend themselves to easy answers.
PHYSICIAN OWNERSHIP
One contentious dynamic in the development of freestanding ASCs has been physician ownership. It has been estimated that 70% of the freestanding surgery centers owned by independent entities have some physician investment. Ownership in a surgical center usually carries a major stake in governance, and no one denies the presence of a profit motive. Today, however, it is more likely that doctors who undertake ownership in an ASC are attempting to offset real income losses due to reduced professional fees and increased practice expenses. Trying to maintain previous income levels is hardly inappropriate. Additionally, physicians see the ASC as a controllable environment in which quality of care and patient satisfaction are paramount. Physicians often perceive that hospitals create barriers instead of support for their practices. It is easy to castigate the hospital, which, like the physician, is besieged by regulatory and financial pressures. These restrictions have led to myriad rules that physicians consider a hindrance to their practice and their relationship with patients. Meanwhile, patients are demonstrating increasing acceptance of treatment outside the hospital as a convenience and an opportunity for personal attention, which tends to increase in the freestanding facilities. Finally, payers, led by Medicare, are bolstering ASCs by expanding the types of procedures reimbursed in the freestanding setting.
Resistance
Accepting the reality of ambulatory care migration does not leave hospitals and health systems with easy decisions. One approach is resistance, either relying on the vestiges of regulation in jurisdictions where it exists, or manipulating medical staff membership and/or privileging. Regarding the former, technological advancements make it increasingly possible for physicians to offer medical services outside the hospital setting without encountering problems with certificates of need and other regulatory devices. Because surgery and other diagnostic procedures can be safely undertaken outside the hospital, care increasingly becomes an extension of the physician's office and is less tethered to a hospital.The withdrawal or reduction of hospital privileges may in turn cause physicians to give up inpatient practices, including not accepting emergency call.
Joint Venturing
Rather than resist the ASC trend, progressive administrators of hospitals and health systems see cooperation as a better alternative. Cooperation, in this context, usually means joint venturing in selected facilities or services with physicians as partners. Often, this decision occurs when the leaders of the hospital or health system realize that medical staff are seeking to develop their own facilities to improve the economics of their practice and exercise greater managerial control. A proactive response by hospital leadership frequently leads to easier negotiations of partnership terms and to an atmosphere that builds trust where trust may have been strained.
The proactive approach also allows for joint strategic planning to find “replacement” services/revenues within the hospital. Additionally, partnerships often provide a meaningful platform for the joint exploration of cost savings that both the doctors and hospital personnel can embrace. Both considerations are extremely important, as no one denies that the migration of ambulatory care temporarily affects the institution's finances.
Teaming Up
Some hospitals and health systems have found that the offsetting factor in partnering with physicians, particularly in ASCs, is the attraction of other doctors not associated with that organization who want not only to join the partnership, but also to move their inpatient business. Although a surgeon may not be invited to join a partnership with any quid pro quo contingencies, the trust built through the ambulatory partnership often makes the transfer of inpatient business a natural occurrence, not a matter of inducement. At this point, too, the venture clearly moves beyond the reactionary to the strategic.
A hospital or health system may also invite physicians into a joint venture on a facility such as a surgery center when existing facilities become obsolete. Involving physicians on an equity basis will ensure that a competing venture is not already in place while the hospital builds. Hospital leaders can be sure that if they do not involve their physicians during a time of transition, someone else will.
The practical implications of hospitals' alienating the members of one of their principal customer groups, physicians, will not occur without consequence. Similarly, ignoring the market makes little sense, as patients and payers more readily accept services from the freestanding centers due to convenience, personal service, and price. Partnering is undeniably the most sensible alternative.
INTRODUCING A THIRD PARTY
Although partnering with physicians has always been a mantra of the health system, the equity-based risk and reward ventures are still uncharted territory to many organizations. Managing an equity partnership with physician investors is best pursued by those with experience, so many hospitals turn to organizations that specialize in various aspects of ambulatory care investment and management. The result is a three-way partnership with negotiable equity shares and governance arrangements. Also, the flexibility of the ambulatory management enterprise is of key importance, as is its ability to bring the hospital and the physician together. The third-party company usually provides managerial services. Anecdotal experience suggests that those arrangements in which physicians are the majority stakeholders in both ownership and governance have the greatest opportunity for success.
CONCLUSION
These are not easy times for hospitals and physicians, but the two form the bedrock of our voluntary healthcare system. As the population ages and the demand for services increases proportionately, the need for cooperation between physicians and the institutions they make possible has never been greater.
