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Missed Opportunity? How to Respond to the Prevalence of Physician-Owned Orthopedic ASCs in the Market

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As orthopedic cases migrate to the outpatient setting, health systems are looking to expand their ambulatory surgery center (ASC) portfolio. But some systems are discovering this is easier said than done.

  • Many orthopedic physician practices, due to their relationship with private equity partners or desire to maintain independent, are uninterested in establishing a joint venture (JV) with health systems.
  • The cost of acquiring equity in ASCs can be limiting for health systems, especially after financial constraints caused by the COVID-19 crisis.
  • Furthermore, the investment burden is likely to increase with the high levels of competition for ASC facilities. For example, valuation multiples increased from 2019 to 2020 even as median EBITDA declined, likely driven by private equity companies consolidating physician practices.

Has your health system missed out on the opportunity to develop an orthopedic ASC JV? In this blog post, we’ll explore strategies to help health systems ensure the success of their orthopedic service line without paying a premium to gain a foothold in the local ASC market.

Establish Stronger Ties to Physicians

If your health system still wants to maintain an orthopedic program without an ASC or ASC JV, you’ll need to establish stronger ties to physicians. Service lines are as strong as the physicians leading them, so finding the right physician partners is crucial.

  • Evaluate the local orthopedic landscape and identify potential partners that align with your orthopedic service line strategy.
  • Find creative ways to strengthen this relationship.
  • Formalize a long-term alignment structure that is beneficial to your health system and the physician practice.

Know Your Worth

Although your organization may have a limited orthopedic ambulatory presence, health systems typically control orthopedic access points in primary care, urgent care, and emergency departments, and often through athletic trainers. These referral networks give health systems a vehicle to build their orthopedic brand and the necessary volume to support an orthopedic practice. Furthermore, health systems typically have stronger relationships with payers, stronger electronic medical record systems, and more centralized practice management resources. These resources can make your health system an attractive partner for orthopedic practices.

If your program is not likely to pursue an ASC JV, consider alternative alignment structures that can present material value to orthopedic surgeons when compared to the cash outlay required of independent surgeons to develop an ASC (coupled with the timeline to realize the return on investment).

  • Professional Services Agreement: Implement competitive physician compensation models for the time spent building a program at your hospital to ensure that the program will last.
  • Comanagement: Invite orthopedic surgeons who are on your medical staff to help manage your service line. They understand the needs of your program as well as anyone and would be assets in building a program.
  • Gainsharing: Similar to comanagement, solicit help from your orthopedic surgeons to help bring down costs so your hospital or HOPD operating rooms can run efficiently, like an ASC.

Build Your Own Group

If you’re finding it difficult to partner with well-established orthopedic physician practices, be willing to recruit your own group and develop your own ASC offering. This will involve emphasizing your orthopedic referral network, adjusting your call coverage structure, investing in physician recruitment, and developing creative ambulatory solutions. Furthermore, proving that you are willing to develop your own group will likely put pressure on orthopedic ASCs to consider a partnership with the hospital and your orthopedic service line as a defensive strategy. Although this may be a last resort due to the financial burden of building an orthopedic group, consider this scenario if you’re committed to offering orthopedic services.

Final Thoughts

Ensuring the success of a health system’s orthopedic service line can be more difficult without an ASC JV. The health system will need to be responsive to the current environment in the market, which will likely show that it needs to develop an ASC with a structure that affords employed physicians access to incentives for utilization of the lower-cost ASC site of service in order to realize reductions in the total cost of care.

With the right strategy, it is still possible for health systems to succeed with an orthopedic service line. Health systems must understand their contributions to the orthopedic value chain, identify well-positioned physician partners, and pursue mutually beneficial alignment strategies. Finally, health systems must be prepared to build their own physician practice and pursue a greenfield ASC investment if they committed to offering orthopedic services and are unable to find willing physician partners.

With surgery migrating to outpatient settings, can hospitals still be a destination for orthopedic care?

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