Enhancing Your Practice's Revenue - California Orthopaedic ...

share of the market. Thus, hospitals should realize thatpartnering with physicians gives them a competitive advantagewith third party payers and stops the proliferation offreestanding, physician, and or conglomerate-owned ASCs.• Advantages for PhysiciansPartnering with hospitals also has many advantages forphysicians. Partnering allows access to payer contractingsupport while ensuring their hospitals’ viability. (Fewpracticing orthopaedic surgeons, after all, can maintain afinancially viable practice without a hospital for inpatientsurgery.) In addition, partnerships limit market threatswhile allowing access to capital. By partnering with thehospital, physicians share risk but are able to leveragehospital assets with vendors, banks, etc. Finally, jointventures enhance working relationships with the hospitalwhile serving the surgical needs of the community.By helping orthopaedic surgeons increase their income,hospitals improve a practice’s ability to recruit and retainphysicians. Further, third party payers often desire to enterinto global contracts with hospitals for delivery of care. As aresult, a partnership with the hospital can result in the physicianhaving increased access to managed care contracts, aswell as the ability to develop a relationship with a strategicpartner to (a) capture greater market share and (b) deliverlower cost, high quality care.The Planning ProcessAs is often the case with business arrangements,commitment and common sense are paramount. Partnersneed to commit to develop and review their organizations’policies on joint ventures. Physicians and the hospitalneed to identify a joint work group to consider the issuesinvolved. This group needs to develop standard policiesfor the formation of the joint venture. It is imperative thatthis group consider both the hospital’s and the physicians’circumstances and needs as well as their past experience.Negative past experiences need to be discussed and workedthrough.Formation of a new entity often requires approval fromthe hospital board. With physicians as co-investors in aJV, the hospital will have more at risk than just its capitalinvestment. If the venture fails, it may jeopardize the goodwill of the medical staff. A board-adopted policy along witha set of principles to guide hospital participation can helpmaximize the benefits of joint ventures while minimizingthe risk. Finally, it is critical that partners obtain appropriatelegal and business advice to ensure that policies developedmeet complex federal and state legal and businessrequirements.When physicians and hospitals develop a joint venture,they need to work together to address a number of criticalissues.• The parties need to agree on precisely what the businessactivity will be (as well as what it will be limited to).The hospital in particular needs to decide if it is willingto put services that are currently wholly-owned (e.g.,an existing ASC) into the joint venture and if so, underwhat circumstances?• Joint ventures are typically implemented to generatepositive cash flow, so the next questions that need to beresolved are (a) Is the business model fundamentallysound; (b) Are the forecasted financials realistic (seethe Feasibility Analysis section below); and (c) Whatdo the various stakeholders expect in return for theirinvestment? Never forget: no investment vehicle (that is,way of investing money) will make a bad business ventureinto a good one.• Ownership and control need to be agreed upon atthe outset, before any agreement is executed. Willthe hospital accept less than 51% ownership and ifso under what circumstances? Both the hospital andthe physicians need to be aware that if not carefullystructured, revenue generated by the joint venture canput the hospital’s tax-exempt status at risk. Partnersalso need to decide if control will reflect the ownershippercentages. Risk of loss of tax-exempt status to thehospital can be minimized if it retains control of theventure by having a majority representation on the boardof the venture. The downside of that modus operandi,of course, is that physicians’ may not have as muchinfluence in decision-making as they would like.• It is important to determine in advance who will beallowed to participate in the venture. Will all physicianson the medical staff be allowed to invest? How aboutnew physicians who join the staff after the JV is formed?How about non-physicians, e.g., for-profit firms suchas management companies (regulations permitting)?The hospital might want to limit types of investorsto minimize the risk of violating anti-kickback laws,securities laws or Stark laws. [ASC note: primary careor other physicians who would not use the facilitythemselves – but who would be incentivized to referpatients to physicians who do – should not be offeredinvestment interests in the venture as this couldcompromise the ASC’s anti-kickback safe harbor; seebelow.]• Participants in a joint venture must decide in advancewhat reserved powers and guarantees will be given.For example, a Catholic hospital could be required toensure compliance with religious and ethical directivesfor Catholic Health Care Services. The hospital orthe physicians could be prohibited from entering intocompeting ventures. Physicians may want to retaincontrol over clinical standards.© 2011 American Academy of Orthopaedic Surgeons29