Converting hospital ASC to for-profit joint venture
Converting hospital ASC to for-profit joint venture
By Stephen W. Earnhart, MS
President and CEO
Earnhart and Associates, Dallas
Many not-for-profit and even some for-profit hospitals have created in-house ambulatory surgery facilities within the walls of the organization over the past several years. Unfortunately, many are now finding that's not enough.
To remain competitive in a rapidly consolidating market, a separate provider number and phys ician joint venture is necessary. In many areas of the United States, the insurance payer requires an ambulatory surgery procedure be performed by a lower-cost provider than a hospital facility. Often, that facility is a competing surgery center in town.
Stringent regulations don't allow many opportunities for hospitals to joint-venture existing lines of business with physicians; therefore, a separate ambulatory surgery entity must be established. Often, the existing hospital ambulatory surgery center can be carved out as a for-profit sector and, depending upon the situation, can be joint-ventured with the physicians.
Establishing a license for an ambulatory surgery center (ASC) is not as difficult as it may sound. However, it is a different license from the hospital physical plant, and the criteria may be too onerous to accomplish. Check with your state's department of health for ASC licensure. Many issues dealing with smoke partitions, firewalls, square footage, etc., need to be satisfied. A good place to begin is with the architect who built the area.
After you are satisfied that the physical plant can be accommodated or modified to meet licensure requirements, you need to check with the chief financial officer of the organization. Often there are local bond issues that prevent encumbering certain lines of business or reducing revenues (such as a joint venture with physicians could do) that would prevent your ability to move forward. A certificate of need may be required to establish an ASC in your state.
Care and political correctness need to be followed in this area. Often, I have found that people will automatically say it is not possible to joint venture, and only after further research do we find that there is almost always a way to accomplish the goal.
Once that step is behind you, preparing a business plan or conducting a feasibility study to determine the financial validity of such a move makes financial and political sense.
During the course of your feasibility study, you need to meet with the physicians to gather their input and guidance. Determine the following:
· What is the cost of the renovations to the area?
· How are you going to handle the existing equipment?
· What is the capitalization cost of the project?
· What is the best legal structure, and who is in charge?
Your feasibility study will provide many of the answers you will need before you move forward. If you decide to syndicate or sell ownership interest to the physicians, what is the cost of the shares? And what is the return on the investment for the investor?
Do you need to sell interest to the physicians? Well, that should be a major reason you would want to convert the space. If you are not willing to share equity in the center with them, someone else is certainly willing to do that, or the physicians can develop their own center without you.
Once the center is licensed as an ASC and you receive your Medicaid Provider number, you're ready for business. Now is the time to try and recoup some of the revenue. The average surgery center is going to purchase upward of $1 million dollars in goods and services. Many of those services can be contracted legally with the hospital.
At the end of the day, you can have a facility that is cost-effective, legally compliant, and joint-ventured with your physicians. Plan it right, and the increased efficiencies from the new joint venture can bring more revenue into the organization than the original product.
(Editor's note: Earnhart can be reached at Earnhart and Associates, 5905 Tree Shadow Place, Suite 1200, Dallas, TX 75252. E-mail: [email protected]. World Wide Web: http://www.earnhart.com.)
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