Hospital Tactics – Fifty People to Know in the “Friendly ... · compete with physician-owned facilities as ... 1,400 physician-hospital joint venture ASCs in the U.S. There are

By Scott Becker and Alison Vratil Mikula

Physician-owned surgery centers andsmall hospitals are increasingly pro-viding an attractive alternative for

care to patients in many communities. Notsurprisingly, many hospitals are attemptingto fight back and compete with these alter-native facilities. Generally, hospitals takeone of two courses of action. This articledescribes both the alliance-based, or“friendly” strategies that hospitals use tocompete with physician-owned facilities aswell as certain of the more aggressive tacticsadopted by hospitals in an effort to under-mine their physician competitors. Each ofthese strategies carries different legal con-cerns, some of which are presented below.

This article aims to identify and analyzesome of the strategies we have observed. It isnot intended as an endorsement of or legalopinion regarding any particular approach.

I. Alliance Strategies

1. Provider Joint Venture. Hospitals, inmany situations, are attempting to developtrue joint ventures with physicians. Thisapproach involves joint ownership of aprovider of services by a hospital and physi-cians. There, the actual joint venture entityholds the license and Medicare providernumber. The joint venture strategy is mostcommon with respect to ambulatory surgerycenters (“ASCs”) and whole hospital jointventures. There are approximately 1,200 –1,400 physician-hospital joint venture ASCsin the U.S. There are also approximately 20 to30 whole hospital joint ventures owned byboth hospitals and physicians.

2. Shared Services or Infrastructure JointVenture. Physicians and hospitals are alsoexamining the development of and imple-menting “shared services” joint ventures.

1. Joseph Banno, M.D. – Dr. Banno is thefounder of a very successful surgery centeras well as the Vice President of the AAASC.He is driven and smart and a tireless work-er on behalf of his community and the ASCindustry.

2. Tom Bombardier, M.D. – TomBombardier is an ophthalmologist and afounding member of Ambulatory SurgicalCenters of America, where he serves as theChief Operating Officer. His past experienceincludes establishing ambulatory surgerycenters as well as being a successful realestate developer. He is a bright and giftedleader in the industry.

3. Brett Brodnax – Brett Brodnax has dis-tinguished himself as one of the ambulatorysurgical center industry’s leading develop-ment executives. He is Executive VicePresident and Chief Development Officer atUnited Surgical Partners. Due to his leader-ship, efforts and integrity, Brett has madeUnited Surgical Partners one of the fastestgrowing ambulatory surgical chains, with aportfolio of nearly 100 surgical centers andseveral surgical hospitals. He accomplishedthis through a mix of acquisitions of smallsurgical center chains, individual surgicalcenters and through the development of jointventures with hospital systems.

4. Kathy J. Bryant – As the ExecutiveDirector (now Executive Vice President) ofFederated Ambulatory Surgery Association(“FASA”) for approximately the past sevenyears, Kathy Bryant has developed FASAinto the leading ambulatory surgery centertrade association. Representing more than1,500 surgical centers, FASA, with Kathy atits helm, has done a tremendous job of advo-cating for surgery centers in Washington,D.C. and effecting important changes in fed-eral reimbursement and coverage policy.

5. Robert J. Carrera – Rob Carrera is thePresident of PINNACLE III, an ASC design,development and management company.He has over twenty years of healthcare expe-rience and has spent the last fifteen yearsdeveloping and managing free standingASCs, as well as physician/hospital ASCjoint ventures, physical/occupational reha-bilitation centers, and diagnostic imagingfacilities. Rob has been very active in statelegislation regarding ASC issues in Colorado,Minnesota and Utah.

6. Pat Churchwell – Pat is a Senior VicePresident with Surgery Consultants ofAmerica and Surgery Center Billing. She isextremely smart, works tirelessly, and is agreat advisor to surgery centers on anational basis. She works extensively withboth physician hospital joint ventures andwith physician only surgery centers. Shehas a great understanding of the financialissues relative to surgery center manage-ment and is a tremendous asset to SurgeryConsultants of America.

7. Ryan Daniels – Ryan Daniels is the coun-try’s premier ambulatory surgical centerindustry research analyst. As a research ana-lyst at William Blair and Company and a reg-ular speaker at ambulatory surgical centerevents and conferences, he has proven tohave a terrific understanding of the ASCmarket and its relationship to Wall Street. In

July/August 2006Vol. 2006 No. 4

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INSIDE2 Letter from the Editor

12 Unlocking Value in Your ASC

18 Question and Answer

Fifty People to Know in theAmbulatory Surgical Center Industry

SEE PAGE 10 FOR INFORMATION ON THE

2006 FALL CONFERENCE.

Hospital Tactics –“Friendly” and“Not-So-Friendly”Competition

2 visit www.beckersasc.com

Letter from the Editor

RE: Recent Healthcare Investment Trends and ASC Events and Highlights

This letter highlights recent investment activ-ity in the Health Care sector as well as certainrules relative to investment in health care.This letter also notes certain ASC events andpublications.

A. HealthCare Market Investment Activity

We are continuing to see substantial invest-ment in healthcare businesses and healthcarefacilities. As the second half of the year develops, we are witnessing the following:

1. Continued interest in investing in ambula-tory surgical centers and ambulatory surgicalcenter chains. There continues to be substan-tial growth in ambulatory surgical centers.Here, this is evidenced in part by the investment of nearly $75 million in MeridianSurgical Partners. On the flipside, Surgis(funded by New Mountain Capital) exits itsinvestment by selling to United SurgicalPartners.

2. We are seeing renewed interest in develop-ment of specialty hospitals. Here, we are see-ing a rapid development of some smallerchains such as Cirrus Health. We are also see-ing the development of a certain number ofhospitals poised to move forward as themoratorium on the development of specialtyhospitals ends.

3. There seems to be continued tremendousinterest in healthcare real estate. I.e., compa-nies such as REITs which are buying medicaloffice building ASC and hospital real estate.Multiples remain high and capitalizationrates seem low. We are expecting some soft-ening in this sector.

4. The massive amount of infusion of invest-ment in hospital companies over the last fewyears seems to be now being digested as theresults of the acute care hospital companiessoften. This is particularly true as the markettries to determine where the long term futureof the hospital industry lies.

5. We are seeing continued strong investmentin dialysis chains. Dialysis continues to be agreat cash flow investment. We recently sawthe investment of nearly a half a billion dol-lars in a private equity funded purchase ofover 100 dialysis facilities. The acquiringcompany there was a company called DSI.The acquisition was led by private equityfund Centre Partners.

6. There is a great deal of interest in health-care ancillary and healthcare lite businesses.These are often businesses that are not direct-ly involved in the provision of healthcare butprovide services to healthcare providers andother parties. Five of the types of investmentsthat we are witnessing include the invest-ment in a revenue cycle management compa-ny, the development of a healthcare financ-ing-leasing company, the investment anddevelopment of a prescription benefit man-agement company and the renewed growthof companies that are in the business of man-aging physician practices and physicianrelated companies. These range the gamutfrom companies that manage hospital basedpractices to dental management practices toother types of practices.

In addition to witnessing the development ofdifferent types of investment in healthcare,we are seeing several different investmentrules that seem to apply to healthcare.Certain of these are as follows:

1. Reimbursement is critical to profits. Like inmany businesses, there is only so much costcontainment that can be done. Cost contain-ment is critical. However, at the end of theday, once cost containment is achieved, profitability is largely dependent upon reim-bursement as well as numbers of procedures.Reimbursement tends to be the great uncon-trollable variable in many situations.

2. When investing, entities often don’t over-pay for great reimbursement. In essence,with great reimbursement seems to come sig-nificant risks that reimbursement will notcontinue to be stable. Hence, we often do notsee substantial overpayment (i.e., excess mul-tiples) for great reimbursement.

3. There tend to be certain reimbursementmoats. These are often found in smaller tomid sized communities where there is not aconcentrated portfolio of payors and there isnot a substantial employer that is pushinghard to control costs.

4. The regulatory rules and the targets of thegovernment are often changing. Here, twoconcepts evolve. First, once in a while, amacro economic healthcare change kills anindustry. This has happened before periodi-cally e.g. to the home health industry, theSNF business and the home infusion indus-try. It continues to threaten the specialty hos-pital industry. Second, more often, there areregulatory changes and reimbursementchanges that can be managed. Here, ratherthan having a crystal ball as to what industrymay or may not get hit by a macro change, itis often as valuable to have great manage-ment to help you manage through and adoptto changes that do come up.

5. The physician management business isagain becoming a real business. There are sev-eral factors that are driving this. Today manyof these entities’ efforts provide a real serviceand are more than a financing game. We areseeing increased physician managementbusinesses which thrive in specific niches.

B. 13th Annual Ambulatory Surgical Center Conference on Improving Profitsand Developing Surgery Centers. Thiswill be held in conjunction with FASA at theHilton Hotel in Chicago on Michigan Avenuefrom October 26th to 28th. To join FASA,please call 703-836-8808. At the JuneOrthopedic, Neurosurgery and PainManagement Driven Ambulatory SurgicalCenter Conference, there were nearly 360attendees. The fall conference is generally alittle larger. Should you have an interest inthe fall conference, we will shortly send outinformation and post information at the web-site at www.BeckersASC.com regarding thesame. Also, please feel free to call me or Michelle Freeland at 858-565-9921 [email protected] regarding thesame.

C. Healthcare Private Equity Event.McGuireWoods LLP will be hosting itsAnnual Fall Private Equity Event at theFour Seasons Hotel in Chicago on October4th. Should you have an interest in thisevent or a suggestion for a company orfund speaker for the event, please contactme at 312-750-6016 or Amy Nolan at 312-849-3687. We have a very good mix onspeakers for this event. We are specificallyseeking two more fund speakers, one todiscuss the anatomy of an investment in ahealth care company, and one to discuss, asa case study, the successful investment andsale of a health care company.

D. ASC Review Updates. We have posteda digital edition of the ASC Review atwww.BeckersASC.com We also welcometwo new advertisers to the ASC Review.First, we welcome Matt Sweitzer and AlpineSurgical. Alpine Surgical is a leadingprovider of equipment and supplies toASCs. Second, we welcome Marilyn Lyonsat (203) 348-2886 from MediProducts.Finally, we thank CIT Healthcare, our firstfull page annual advertiser in the ASCReview. Please contact Anthony Mai [email protected] or 201-750-5155.

E. Ambulatory Surgery Centers Legaland Regulatory Issues 3rd Edition. Werecently, with Amber Walsh, MelissaSzabad, Ron Lundeen and Elissa Koch,completed the third edition of this book forthe American Health Lawyers Association.This is a non royalty publication (i.e., we donot get paid for it). Nevertheless, you can

3visit www.beckersasc.com

buy the same through the AHLA by calling 202-833-1100.

F. Allegiance Leasing Company, LLC.We congratulate Dave Young on the founding of Allegiance Leasing. Dave can bereached at 708-246-7228. His company willfocus on lending to ASCs, MRIs and practices.

Should you have suggestions for speakers or ideasfor the ASC conference or the private equity event, or if we can assist you in any way, please contact me at 312-750-6016 or at [email protected].

We hope you enjoy this issue!

Very truly yours,

Scott Becker

These are alliances in which the parties joint-ly own the underlying assets needed to fur-nish services, such as the facility and/orequipment. However, typically each partyprovides the services itself utilizing the assetsof the joint venture. This approach is mostcommonly used with imaging joint ventures.There are several legal risks associated with“shared services” ventures, whether they areoperated on a per-click or block lease basis.In these shared services ventures, the hospi-tal often operates the services as providerbased during certain hours and days of theweek. Then, different group practices mayoperate services during other blocks of time.Each practice often must operate per theStark Act In-Office exception.

3. Under Arrangements. Another strategy,which resembles the true joint venture modelin some respects, but strives to capitalize onthe higher reimbursement rates available tohospitals, is the “under arrangements”model. Here, a hospital forms a joint venturewith physicians to own the underlying assetsnecessary to furnish services. Then, ratherthan having the joint venture itself obtain aprovider number, the hospital buys services“under arrangements” from the venture,which is to say that it purchases, on a per-

service basis, the facility component of serv-ices provided by the joint venture using theequipment, staff, and other assets of the jointventure. The hospital then bills payors underits own provider and tax identification num-bers. While hospital outpatient services aregenerally covered by Medicare when provid-ed “under arrangements” in the hospital, thisapproach involves several risks related tobilling, Stark Law and Anti-Kickback Statutecompliance, and tax-exempt status.

4. Service Agreements. As an alternative toentering into any sort of joint venture, hospi-tals frequently attempt to persuade physi-cians not to compete by offering them man-agement agreements and medical directorpositions. Often, these arrangements involvehigh compensation and are very lucrative tophysicians. In all situations, the parties musttake care to ensure that such arrangementsare legitimate, and not disguised efforts toinduce or reward referrals. These types ofarrangements tend to raise substantial con-cerns from a kickback standpoint. In a well-known case involving a Kansas City hospitalthat engaged two local physicians to serve asmedical directors, key hospital executives aswell as the physicians themselves werecharged with, and ultimately convicted of,

Hospital Tactics – “Friendly” and “Not-So-Friendly” Competition continued from page 1

The ASC Review is published 6 times per year. It is distributed to approximately 12,000 personsper issue with distribution of 20,000 issues for each the May–June issue and theSeptember–October issue. For informationregarding advertising or subscribing, pleasecontact Ken or Michelle Freeland at 858-565-9921or by email at [email protected] [email protected]. continued on page 4


violating the federal anti-kickback statutebased on the excessive nature of the compen-sation relative to the medical director servic-es rendered. U.S. v. McClatchey, 217 F.3d 823(10th Cir. 2000).

Here the parties must be able to defend theamount of money paid to the physicians andoften the rationale for choosing the physi-cians, rather than an experienced manage-ment company, as the service provider.

5. Medical Office Buildings. Anotherincreasingly common type of joint venturestrategy relates to the joint ownership ofmedical office buildings and equipment. Thisprovides physicians rental income but doesnot allow them to actually own interests inthe provider itself. By way of example, in theDenver, Colorado metropolitan-area bothLongmont United Hospital and HCA haveteamed with local physicians to own anddevelop medical office buildings to housevarious physician practices and other healthcare facilities.

6. Gain Sharing. Finally, in the wake of sev-eral favorable OIG Advisory Opinions,“gain sharing agreements” between hospi-tals and physicians on their medical staffshas become more prevalent. Gain sharingrefers to efforts by hospitals to involvephysicians directly and substantially in cer-tain cost-containment endeavors, and toshare with those physicians the resultantsavings. These programs must be carefullystructured to avoid any inference that a pur-pose of such gain sharing efforts is to induceparticipating physicians to refer patients tothe hospital, or to reward such referrals.One recent gainsharing program, imple-mented by St. Francis Cabrini Hospital ofAlexandria, Louisiana, aimed to reducehealth care supply costs through informa-tion sharing and alignment of hospital andphysician financial incentives. The reportedcost savings from the program, which wasput into place in early 2006, total $900,000.

The key legal issues related to the alliance-based efforts discussed above vary by thetype of project. Generally, though, compli-ance concerns relate primarily to the federaland state anti-kickback statute, the StarkLaw relating to self-referral by physicians,issues related to a hospital’s tax-exempt sta-tus, and antitrust laws.

II. Combative Efforts

Hospitals, in addition to attempting to co-opt physician competition, through hospital-physician alliances, are alsoengaging in aggressive efforts to fightphysician competitors. Strategies that are

more aggressive in nature include the following:

1. Exclusive Privileges. Hospitals areincreasingly offering exclusive privileges tocertain physicians that are deemed loyal tothe hospital, and cutting off the privileges ofother physicians. Over the past few years,hospitals have began extending exclusiveprivileges to surgical specialties and not justwithin traditional hospital based specialties.Courts have more often than not recognizedsuch contracts and actions as valid andenforceable. However, there are situationsin which physicians have prevailed in theirlegal actions.

2. Conflicts Policies. Hospitals are alsoadopting conflict of interest policies, whichpreclude physicians from maintainingprivileges, or any other position, at the hos-pital if they have a financial interest in anycompeting facility (i.e., a “conflict of inter-est”). These policies have generated agreat deal of litigation in recent years.

A recent lawsuit illustrates the potentiallydestructive effect that conflicts policies canhave on physician-hospital relations andhospital results. In 2003, CommunityMemorial Hospital in Ventura, Californiaunilaterally imposed conflict-of-interestpolicy on its medical staff, prohibiting anyphysician with a competing financial inter-est from serving as a medical staff officer orcommittee member or voting on a medicalstaff matter. The policy spurred litigationbetween the medical staff and the hospital,and case volumes at the hospital sufferedas the dispute played out.

In another reported controversy, West AllisMemorial Hospital and the medical staff atWest Allis Memorial Hospital in Milwaukee,Wisconsin area overturned its medical staff’selection of a local cardiologist to serve aschief of the medical staff based on thatphysician’s investment in a competing for-profit specialty hospital, which WestAllis Memorial characterized as a pervasiveconflict of interest. Many physiciansinvolved viewed the hospital’s action as ameans of punishing and deterring investment in competing facilities.

The “Conflicts” provisions are almostalways upheld when limited to preventingdoctors with competing interests from having a hospital leadership position.

3. Exclusive Contracts. Hospitals haveattempted to use exclusive provider con-tracts with commercial payors to excludephysicians from having the ability to usetheir facilities. This strategy is intended to

cut off the supply of patients to competitorfacilities.

4. Political Efforts. Hospitals are attempt-ing to drive change at the governmentlevel, primarily by petitioning their legisla-tures to enact laws that preclude physicianownership of hospitals and tighten licen-sure restrictions, making it more difficultfor physicians to develop and operate facil-ities. For example, many hospitals havecontacted federal legislators, both directlyand through trade associations such as theAmerican Hospital Association and theFederation of American Hospitals, in aneffort to pass of legislation aimed atrestricting the development of physician-owned specialty hospitals and banningphysician self-referrals to limited-servicehospitals. For example, the State ofCalifornia may pass a bill, AB 2212, thatwould place a moratorium on develop-ment of physician owned specialty hospi-tals. Specifically, one current advocacyagenda item identified by the AmericanHospital Association 2006 is to make per-manent a ban on physician self-referrals tonew limited-service providers.

5. Recruitment of Competitors. Hospitalsoften recruit staff physicians’ competitorsto key leaders of physician efforts in aneffort to put pressure upon the physicians.The idea is to recruit competitors and makeit more difficult for the medical staff physi-cians to retain economic strength in thecommunity and their project. Here, forbusiness and regulatory compliance rea-sons hospitals must be careful to not over-pay such new competitors.

6. Economic Credentialing. Hospitals areincreasingly adopting economic credential-ing policies, which generally prohibit aphysician from maintaining staff privilegesat the hospital unless he or she performssome minimum number of procedures atthe hospital. The objective underlying suchpolicies is to prevent a physician from eco-nomically benefiting from having privilegesat a facility unless that physician will alsoprovide economic benefit to the facility.This strategy is legal in some states, but notin others. Courts have generally upheld theability of private hospitals to take economicfactors into consideration when making cre-dentialing decisions; however, some stateshave expressly prohibited such economiccredentialing policies.

7. Litigation. Hospitals increasingly look atlitigation options as a means to financiallyharm a competing facility. Much of this litigation may be groundless, but because

Hospital Tactics – “Friendly” and “Not-So-Friendly” Competition continued from page 3


physician-owned facilities are often devel-oped with minimal financial resources it is atactic that often can cause great harm.

8. Public Relations Campaign. Some hospitals have attacked physician competi-tors through extensive public relationscampaigns aiming to portray the physi-cians as greedy or self-interested and dis-courage patients from using physician-owned facilities. To the extent these campaigns successfully deter physiciansfrom joining such facilities or discouragingpatients from using the physician-ownedfacilities, they harm such facilities.

9. Employing of Physicians. Much like in the1990’s, hospitals are again pursuing effortsto own primary care physician practices asa way to lock up referrals that could other-wise go to competing specialists.

10. Certificate of Need. In states with certificate of need (CON) laws applicableto hospitals and surgery centers, hospitalsoften challenge the efforts of physicians toobtain a CON. They also oppose the loosening of CON requirements. Further,some states such as Indiana andPennsylvania have looked to bring backCON laws. Certain state hospital tradeassociations have prioritized the issue ontheir lobbying agendas. For example, theKentucky Hospital Association’s published2006 legislative priorities identifies legisla-tion to “level the playing field” betweenhospitals and their freestanding surgerycenter and diagnostic center competitorsthrough CON standards relating to charitycare and hours of service. The trade groupalso actively opposes legislation exemptingfreestanding facilities from the CON standards.

11. Fragmentation. Hospitals often attemptto “divide and conquer” a physician-driven competitive effort. This can includemaking efforts to alienate valuable physician participants, “buy” the loyalty ofkey physicians, and various other tactics.

Many of the legal issues surrounding thesetypes of strategies are similar to thoseimplicated by alliance-based, or joint ven-ture, strategies. Certain issues relating toantitrust law and medical staff bylawsoften are also very significant where hospi-tals employ such aggressive tactics.

Should you like to discuss any of these strate-gies, or their legal ramifications, please feel freeto contact Scott Becker at 312-750-6016 orAlison Vratil Mikula at 312-750-8911.

SAVE THIS DATE FOR A 2006 ASC CONFERENCE —

October 26-28, 2006Chicago, Illinois

ASC COMMUNICATIONS WITH FASA PRESENT

The 13th Annual Ambulatory Surgery Centers Business and Legal IssuesConference–Improving, Establishing and Joint Venturing ASCs.

For information, please contact Michelle Freeland at 858-565-9921, [email protected].

Scott Becker at 312-750-6016, [email protected]; or Ken Freeland at 858-565-9921, [email protected].




particular, Ryan gained his fine reputationmonitoring ambulatory surgery companies,such as Amsurg, and accurately reporting ontheir financial health.

8. Richard E. Francis, Jr. – As President,Chairman of the Board, CEO and a Directorof Symbion, Inc., Richard Francis has helpedtransform Symbion into one of the country’sleading surgical center management anddevelopment firms. Under his leadership,Symbion has become a publicly held compa-ny and an ambulatory surgical center chainwith nearly 90 successful surgical centers.

9. E. Timothy Geary – Timothy Geary is aco-founder, Chairman and CEO of NationalSurgical Care. Prior to founding NationalSurgical Care, Timothy was the Chairman andCEO of National Surgery Centers, a publiclytraded ASC company, until its sale in 1998 toHealthSouth for nearly six hundred milliondollars. His experience, skill and knowledgeof the ambulatory surgery industry are vast.

10. Brett Gosney – Brett Gosney is afounder and the CEO of Animas SurgicalHospital. He is a leading advocate on behalfof physician ownership of surgical hospitalsboth nationally and in his home state ofColorado. He also serves on the Board of theAmerican Surgical Hospital Association asthe Secretary and Treasurer.

11. James T. Grant – Jim Grant is the COOof National Surgical Hospitals and thePresident of the American Surgical HospitalAssociation (“ASHA”). In his role asASHA’s President, he has overseen a nearlyfive year battle to prevent limits and prohi-bitions on physician ownership of specialtyand surgical hospitals. Prior to his positionat National Surgical Hospitals, Jim was anexecutive at Quorum Health Group andTalus Health Systems. His leadership, devo-tion, experience, intelligence and energy inthe ambulatory surgical hospital industryare unparalleled.

12. Donna Green – Donna Green is the VicePresident of Corporate Development atNational Surgical Care. She is a leader at thecompany and has been a tremendous asset inhelping to strengthen the company’s devel-opment and acquisitions. She has extensiveexperience in the healthcare industry, whereshe has served in a executive capacity at several healthcare providers and has overseen the development of hundreds ofhealthcare centers nationwide.

13. Molly Gutierrez – Molly Gutierrez is theExecutive Director of the American SurgicalHospital Association (“ASHA”). Her profes-sional efforts at the helm of ASHA have dra-matically improved the organization’s impor-

tance and presence in theindustry. She tirelesslyworks and advocates onbehalf of surgical and physi-cian owned hospitals.

14. David Hall – DavidHall has a long and success-ful career as a health careinnovator and business-man. Currently he isChairman at Titan HealthCorporation, an ASC man-agement company; Directorof Radiant Research, a clinical trials company;and Director of CogentHealthcare, a hospitaliststaffing company. In thepast, he has served as:President and CEO of ASCNetwork, an ambulatorysurgery center company;Executive Vice Presidentat Medical Care America,then the country’s largestoperator of outpatient surgery centers; and thePresident and CEO of two acute care hospitalcompanies.

15. Thomas Hall –Thomas Hall is the CEO

and President of Novamed. Novamed isprobably the fastest growing publicly trad-ed ASC company. Previously, Mr. Hall wasthe CEO of Matria Healthcare. He is adynamic leader.

16. Kenneth N. Hancock – KennyHancock is the President and ChiefDevelopment Officer of Meridian SurgicalPartners, a venture capital-funded firm thatis actively acquiring ambulatory surgicalcenters and small hospitals. He has overtwenty years experience in the healthcareindustry and is a co-founder of both SurgicalAlliance Corporation and OrthoLinkPhysicians Corporation. OrthoLink was soldin 2001 to United Surgical PartnersInternational in a stock transaction valued atninety-two million dollars. With a wealth ofexperience and as one of the country’s firstspecialty hospital developers, Kenny has aunique knowledge of the industry.

17. Richard Hanley – Richard Hanley is theCEO and founder of Health Inventures.Richard has held leadership positions atHealth Inventures for the past twenty years.He also is a FASA Board Member and leading national advocate for ASCs.

18. Allen Hecht – Allen Hecht is the CEOand President of Health ResourcesInternational. He is also the President elect ofFASA. He is one of the pioneers in the ASCindustry and an extremely astute and likableleader. He adds great value to FASA and tothe organizations he works with.

19. Marc Jang – Marc Jang is President andCEO of Titan Health Corporation. Marc hasheld executive positions in healthcare for 16years, including serving as Vice President ofFinance for Sutter Surgery Centers, Inc. andRegional Vice President for ASC Network,Inc. He has vast experience in finance, merg-ers and acquisitions, and development andoperations as they relate to the ambulatoryservices industry.

20. Craig Jeffries – Craig Jeffries is theExecutive Director of the AmericanAssociation of Ambulatory SurgeryCenters (“AAASC”). Under his direction,AAASC has become an important voice forthe industry at the national and state leveland a leader in the ASC industry. He hasdone a tremendous job of developing theorganization, and advocating for and edu-cating AAASC’s members.

21. I. Naya Kehayes – I. Naya Kehayes isthe founder and CEO of Eveia HealthConsulting & Management (formerlyMillennium Health Consulting). She is anationally recognized expert in the area ofreimbursement and managed care andinsurance contract negotiations for ASCs

Fifty People to Know in the Ambulatory Surgery Center Industry continued from page 1

and surgical practices. She is equally profi-cient in ASC operations and financial man-agement and serves as a financial advisor toseveral national ASC corporations. She isintelligent, has a wealth of experience andhas made (and continues to make) her markin the healthcare sector by helping herclients dramatically improve their managedcare contracts and reimbursements.

22. Mike Karnes – Mike is the ChiefOperating Officer of Regent Surgical Health.He is a gifted executive. He has a hands onnature and is extremely effective at workingthrough problems related to financing andother issues relative to surgical centers andsurgical hospitals.

23. Michael Kulczycki – Michael is theExecutive Director of Ambulatory CareAccreditation for the Joint Commission. Inhis role, he has greatly expanded the importof the JCAHO with respect to ambulatorysurgical centers.

24. Brent Lambert, M.D. – Brent Lambertis an ophthalmologist and founder ofAmbulatory Surgical Centers of America, acompany owning nearly 30 ambulatory surgery centers nationwide. He is responsiblefor business development at the company.With his Harvard and Columbia Universitymedical education and vast experience devel-oping his own ambulatory surgery centers,Brent is well known as one of the country’sleading experts on a variety of issues relatedto ambulatory surgery center development.He is also a FASA Board Member.

25. Luke Lambert – Luke Lambert is theCEO of Ambulatory Surgical Centers ofAmerica. He has a background in equityresearch and management consulting. Withhis experience and his MBA from ColumbiaUniversity, he is a regular speaker at ambula-tory surgical conferences and brings a wealthof experience and knowledge to the industry.

26. Jeff Leland – Jeff Leland recentlyfounded Blue Chip Surgical Center Partners,a company that manages and develops spinedriven ambulatory surgical centers. Heserves as managing partner and brings abroad range of experience to his business.His prior experience includes working indevelopment at Ambulatory SurgicalCenters of America, serving as ExecutiveDirector of Lutheran General Medical Groupin Chicago, and acting as a senior level exec-utive at Advocate Health Care in Chicago,HealthSpring Medical Group and WesternOhio Healthcare. In addition, he holds anMBA from Harvard.

27. Tom Mallon – Tom Mallon is thefounder and CEO of Regent Surgical Health, acompany specializing in helping to turn

around ASCs and with regard to surgery cen-ter development and management. Tom isone of the most gifted manager leaders in theASC business. Prior to founding Regent in2001, Tom was a founding member of a venture-capital fund. Notably, in 1994 he co-founded Same Day Surgery, and in fouryears grew the two million dollar ASC andphysician management company into a twen-ty million dollar enterprise. As an experi-enced executive leader with an MBA from theHarvard Business School, Tom is widelyrespected throughout the entire ASC industry.

28. Ajay Mangal, M.D. – Ajay Mangal is thefounder, CEO and a Board Member of PrexusHealth Partners. He is also an ear, nose andthroat physician. As a hands on executive atPrexus, Ajay has been instrumental in devel-oping surgery centers and assisting existingcenters and hospitals to prosper. He isbecoming a major force in the ASC industry.

29. Mark Mayo – Mark is the ExecutiveDirector of the Illinois Association ofAmbulatory Surgery Centers and theSecretary of AAASC. He is an extremelyeffective advocate for the ASC industry. He isalso a very skilled administrator.

30. Thomas A. Michaud – Tom Michaud isthe founder, Board Chairman and CEO ofFoundation Surgery Affiliates. A larger thanlife individual and an intelligent business-man, Tom has developed a great number ofsurgery centers and surgical hospitals. He isalso heavily involved in a project to developbariatric hospitals.

31. Amy Mowles – Amy is the owner ofMowles Medical Management. Amy is thenation’s premier expert with respect to painmanagement services provided in practicesand provided in surgery centers. She isthoughtful and also has strong opinions forwhat works and what does not work. She isvery smart and a talented advisor to painmanagement physicians.

32. Tom Mulhern – Tom Mulhern is theexecutive director of Limestone MedicalCenter, a large medical office building com-plex and ambulatory surgical center inDelaware. He has been a leader in the devel-opment of ambulatory surgical services andan advocate for the industry. As a member ofDelaware’s health planning commission, hehas been instrumental in the development ofDelaware’s health planning, as well as healthplanning on a national level.

33. Allen Pierrot, M.D. – Allen Pierrot hasbeen one of the great leaders in the surgicalhospital industry. He is also an orthopedicsurgeon. After being one of the first develop-ers of an ASC which became a surgical hospi-tal, he founded the American Surgical

Hospital Association (“ASHA”). While he isnow partially retired from his work withASHA, Allen was instrumental in ensuringthe survival of the organization and the indus-try as a whole. His efforts are to be applauded.

34. Thomas J. Pliura, M.D. – Tom Pliura isa doctor, lawyer and the founder and manag-er of several ambulatory surgical centers.Additionally, he is the founder of zChartEMR, an electronic medical records relatedcompany. In addition to these accomplish-ments, he is an incredibly inventive andinteresting individual.

35. John Poisson – John Poisson is theExecutive Vice President and StrategicPartnerships Officer of PhysiciansEndoscopy, the leading ASC industry com-pany specializing in the development andmanagement of freestanding endoscopicASCs. He has over fourteen years experi-ence in the healthcare field, most of whichis specifically focused on medical serviceoutsourcing. He also has extensive experi-ence in information technologies, practicemanagement, and contract management.Remaining actively involved post-develop-ment, John regularly assists providers meetor exceed their targets.

36. Karen Sablyak – Karen Sablyak is theCFO and Executive Vice President ofManagement Services at PhysiciansEndoscopy. With ten years experience inhealthcare finance and operations, Karen’sleadership skills and financial acumen haveresulted in tremendous results in reportingand management at Physicians Endoscopy.She has particular expertise in billingprocesses, the development of policies andprocedures, and the analysis and interpreta-tion of healthcare financial data.

37. Caryl Serbin – Caryl Serbin is thePresident and founder of SurgeryConsultants of America, Inc. and SurgeryCenter Billing, LLC. She has developed atremendous team and provides credible andhard working leadership for her company.She provides consulting services for a varietyof ASCs including orthopedic, ophthalmolo-gy, gastroenterology, pain management, urol-ogy, and multi-specialty. She is one of the bestexecutives in the ASC industry and a leadingwoman executive in the business. Recently,one client commented on Caryl’s efforts asfollows, “Her team has been very hard work-ing and has dramatically helped us turnaround our center.”

38. Jeff Simmons – Jeff Simmons is on theBoard of Directors of Regent Surgical Health.He is a leading developer of surgery centersin the country and extremely gifted at tryingto keep centers focused on its core goals. He


has long term experience in the surgical cen-ter industry and hospital industry and is aterrific advocate of physician interests.

39. Barry Tanner – Barry Tanner is thePresident and CEO of Physicians Endoscopy.Prior to joining Physicians Endoscopy, Barrywas the co-founder, CFO and COO of NavixRadiology Systems, Inc. of Miami, Florida,where he helped build the company into aseventy-five million dollar enterprise.Additionally, Barry has worked for and suc-cessfully turned around several other health-care companies. His knowledge, success andexperience are held in high esteem.

40. Daniel R. Tasset – Dan Tasset is theChairman and CEO of Nueterra, Healthcare,a company that manages, develops andowns interest in many ambulatory surgicalcenters. He founded Nueterra with a goal ofempowering physicians to gain more controlof their practices. Under his leadership,Nueterra expanded its services to includemedical real estate, physical therapy, imag-ing, financial services and joint venture surgi-cal centers. His long and esteemed career inthe ambulatory surgical center businessmakes him a leader in the industry.

41. Larry Teuber, M.D. – Larry Teuber, aneurosurgeon, is the founder and PhysicianExecutive of Black Hills Surgery Center, LLP,one of the country’s most successful smallsurgical hospitals. Due to his dynamic skillsand knowledge, Larry transformed the own-ership of that hospital so that now it is a pub-licly held company that is partially owned bythe Medical Facilities Corporation, where henow is President. Larry is also the founderand current managing partner of The SpineCenter in Rapid City, South Dakota.

42. John T. Thomas – John Thomas is thePresident, Chief Development Officer andBusiness Counsel of Cirrus Health. Cirrus,under John’s leadership, has quickly becomeone of the country’s leading companies inASC and specialty hospital development.

43. John Vick – John Vick is a leading con-sultant in the ASC industry and is renownedfor matching corporate partners with physi-cians and matching buyers and sellers of surgery centers. John’s career in the industrystarted with his development of anendoscopy chain.

44. E. Michele Vickery – Michele Vickeryis the Executive Vice President of Operationsat NovaMed. Over the last seven years,NovaMed has become one of the leadingpublicly traded companies in the ambulatorysurgical center business. Michele has earnedthe industry’s respect for her tremendouswork helping NovaMed strengthen its coreoperational efforts and value-added servicesto its existing surgery centers. Prior to joiningNovaMed, Michele was an executive special-izing in surgery center management atSurgical Care Affiliates.

45. David Woodrum – David Woodrum isone of the founders and a Partner ofWoodrum ASD, an ASC management anddevelopment company. In this role, he pro-vides clients with consultations in the areasof planning, management, finance, loss pre-vention, marketing, physician group practicemanagement, executive recruitment, andJCAHO compliance. David brings a wealthof experience to his position as he previouslyserved as executive vice president and COOof the American Hospital Association.

46. Thomas R. Yerden – Tom Yerden is theCEO and founder of TRY Health Care


THETHE 13THTH ANNUALAMBULATORY SURGERYAMBULATORY SURGERYCENTER CONFERENCECENTER CONFERENCE

Ambulatory Surgery Centers improving the profitability, joint venturing and establishing ASCs.

For information on theconference, contact

Michelle or Ken Freelandat 858.565.9921.

Email [email protected]

Or contact Scott Beckerat 312.750.6016 or

[email protected]

This conference is hosted byASC Communications, Inc. and FASA.

HILTON CHICAGO Michigan Avenue

October 26 – 28, 2006 ■ Chicago, Illinois

Solutions, LLC. Previously, he founded andserved as the CEO of Aspen Healthcare. Inhis roles, he has developed many ambulato-ry surgical centers and has become a leaderin the industry. Tom is also a FASA BoardMember.

47. Joe Zasa – Joe Zasa is a Partner ofWoodrum ASD, where he is a smart, effi-cient and diligent leader who is extremelyactive in forming physician-hospital jointventures. Joe also specializes in raisingcapital to finance his client’s ambulatorysurgery centers.

48. Robert Zasa – Robert Zasa is afounder and Partner at Woodrum/ASD.He is experienced in all phases of businessdevelopment in multiservice ambulatorycare facilities, group practices, ambulatorysurgery centers and hospitals. That experi-ence includes management, development,expansion, acquisition, ownership struc-turing and marketing. He is a founder andformer executive of Premier AmbulatorySystems, Inc. and a long time advocate andleader in the ASC business.

49. Billy Webb – Billy Webb, as a Senior VicePresident at Symbion, Inc. has headed up oneof the most successful teams in the ASCindustry. His company went public approxi-mately two years ago. Largely due to hisefforts and the leadership of his team, it hasbecome one of the leading publicly tradedcompanies in the ASC business.

50. Michael Weaver – Michael Weaver isone of the strongest development executivesin the ASC industry. He is smart and drivenand has helped Symbion to grow into one ofthe largest ASC chains. He currently servesas an Executive Vice President at Symbion.


By Jon Vick

Jon Vick is founder and president of ASCs Inc.(www.ascs-inc.com), a consulting firm that special-izes in strategic partnering–helping physicians findthe right partners and negotiate the best deals fortheir ASCs, performing valuations, and providingother merger and acquisition services as needed.

Most surgeons are either already part-ners in an ASC (center) or are seri-ously considering becoming a part-

ner in a new or existing center. The one topicthat is almost never fully explored when plan-ning a center is the “exit” strategy, and howthe senior partners will benefit from the finan-cial and other risks they took in starting up thecenter. In other words, how will the partnersextract value from the facility they have devel-oped when they want to take some money offthe table or retire. Fortunately, a competitivemarket for these facilities has developed thatresults in attractive valuations for ASCs.

Today, more than 40 corporate partners(management companies) are actively com-peting to partner with good quality, physi-cian-owned ASCs with growth potential.The range of corporate partners currentlyavailable coupled with an ongoing trend

toward consolidation in the industry has created a “seller’s market” that makes this anideal time to explore the advantages of corporate partnership for your center.

Why would ASC owners want a corporate partner?

The most common reasons for selling aninterest in a physician-owned center to a cor-porate partner include:

■ Improving financial performance. ASCswith corporate partners have higher utiliza-tion rates and average more revenue per casethan independent ASCs. Additionally, manyindependent centers fail to fully utilize theirORs and procedure rooms (PRs), whichresults in less than optimal revenue. Acorporate partner will find ways to increaseutilization, often by bringing in new usersand enhancing case scheduling. They alsogenerate more revenue per case, often bycharging more appropriate fees for the proce-dures performed at the center.

■ Professional management results in higher profits. Management companies usesophisticated benchmarking techniques tomeasure the performance of one centeragainst others. They can tell when a center is

performing below average and will takesteps to correct that situation. Profits typical-ly increase as a result.

■ A strategy to buy-out non-productivephysician partners and add new physicianpartners. A management company will pay afair price to buy out the non-productivephysicians and will recruit new users andnew partners who will buy into the center.For physician-owners of a center, this processis usually very difficult, but for a manage-ment company, this process is considered aroutine part of the job.

■ An exit strategy. One of the most commonreasons owners seek a corporate partner is tofacilitate an exit strategy for the senior own-ers. Corporate partners typically buy sharesat market-rate multiples while other physi-cians frequently expect to buy-in at a substan-tial (e.g., 50%) discount. A management com-pany buying either a minority or majorityinterest will typically pay a fair market valuewithout a discount thus returning the sellingphysicians a much higher price than if theysold to other physicians.

■ A safety net to guarantee a buy-out at apredetermined price in the event of adverse

Unlocking Value in Your ASC

ASC center legislation. The moratorium onsurgical hospitals and discussions about thepropriety of physician ownership of ASCshas created an atmosphere of greater risk forphysician-owners of ASCs. Some manage-ment companies are willing to guarantee abuy-out price in the operating agreement inthe event of adverse legislation that limits orprohibits physician ownership.

What is your center worth?

ASCs are usually valued as a multiple ofearnings before interest, taxes, depreciationand amortization (EBITDA), minus long-term debt. The range of valuations is typical-ly between four and six times EBITDA forsingle specialty centers, and five to seventimes EBITDA for multi-specialty centers.For example, a multi-specialty center withtrailing 12-month EBITDA of $1,000,000 andwith $500,000 in long-term debt would havea valuation of $6,000,000 less $500,000 or$5,500,000, if valued at 6 times EBITDA. If thephysician-owners sold 40% of this center to acorporate partner, they would receive$2,200,000 in cash and would retain owner-ship of 60% of the center. Higher valuationsmay be offered for ASCs with a solid recordof sustainable profitability, good growthpotential, a pool of available new physicians,certificate of need (CON) approval (whererequired), an attractive payor environment,etc. Higher prices have been realized wheremultiple companies are bidding for a center.

Before seeking purchase offers, owners canemploy a number of strategies to increase thevalue of their center. These strategies includeidentifying new potential medical staff,adding new cases, contracting for additionalcases at higher fees, and projecting the finan-cial growth that will result from these efforts.

What are your choices for a corporatepartner?

Center owners have three choices of corporatepartnership models. Each model offers somedistinct advantages depending on your goals.

For-Profit ASC Management CompanyPartnership. For-profit ASC managementcompanies will purchase a 20% to 60%minority or majority interest in your center.The popularity of this partnership model hasescalated in the last five years, and now morethan 40 management companies are seekingto partner with independent centers.

Pros – Management companies offer theirphysician-partners reduced physician risk,syndication of new physicians, investmentsecurity, professional management and man-agement systems, higher revenues and prof-its, contracting and recruiting expertise,increased case volume and facility fees,access to capital without personal guaran-

tees, and performance benchmarking. Inaddition, professionally managed centersgenerally enjoy expedited turnover timesand higher facility fees than independentcenters. Corporate-partnered centers tend tobe the most profitable of all of the ownershipmodels due to management expertise andthe focus on utilization and profitability thatthe corporate partner brings to the center.Corporate-managed centers are managed forefficiency and productivity. Physicians canfocus on surgery and their office practicesand are not forced to be center managers.Corporate partners also facilitate exit strate-gies for senior partners.

Cons – As in most joint ventures, control willbe shared. Generally the corporate partnermanages the business and the physiciansmanage the medical decisions. In addition toshared control, profits are also shared.Management companies tend to be verybusinesslike and bring a business productiv-ity and profit-oriented culture to the center.

Hospital Partnership. At long last, hospi-tals are climbing on the ASC bandwagon andmore centers are being approached by hospi-tals that want to partner with them.Hospitals often require at least a 51% owner-ship interest and management control to pre-serve their 501(c)(3) tax-exempt status (or sothey say). Some hospital-physician joint ven-tures contract with management companiesfor their management services.

Pros – Typically, hospital joint ventured cen-ters are conveniently located near a hospital.This model facilitates supply and servicescontracting, access to the hospital’s payorcontracts, hospital capital, and access to aCON, if needed.

Cons – Some hospitals may resist paying fairmarket value for a center and, when theyassume an ownership interest, may want tocontrol and run the center as if it were a hos-pital. Additionally, if competing needs forcapital arise, the physician-owners may haveless control and leverage than the hospital inthe final decision-making process.

Three-Way (Physician/ ASC Company/Hospital) Partnership. These joint venturemodels are typically managed by the ASCmanagement company. The most popularthree-way model incorporates equal or near-equal ownership amongst all three parties.These partnerships work best if the physicianpartners engage initially with the manage-ment company to collaboratively determinethe best strategic structure into which thehospital partner will be added. As a result,engaging the management company beforeapproaching the selected hospital is the recommended first step in facilitating thedevelopment of an optimum three-way joint

venture partnership. This strategy leaves thecontrol of the process in the hands of thephysicians and their corporate partner andresults in a stronger position from which todeal with the hospital. If the hospital isbrought in first, the hospital often wants tocontrol the organizational structure and thedecisions that are made may not always be inthe physicians’ best interest.

Pros – This model provides a balance ofinterests between the physicians, the hospi-tal, and the corporate partner and is thus lessadversarial. In this partnership model, themanagement company typically providesprofessional management to the center so itis managed like an ASC and not like a hospi-tal. Three parties provide capital, and risk isspread between them. Facility fees tend to besimilar to the corporate partner model, sig-nificantly higher than independent centers.

Cons – In this partnership model, profits aresplit three ways and physicians have lessownership and less control than they wouldhave in either of the other two modelsdescribed above. This is a more delicate part-nership structure that requires a more com-plicated decision-making process becauseeach partner typically has different priorities.For this model to work well, the hospitalmust enhance the profitability of the businessby providing access to attractive payor con-tracts, a CON, supply services, etc.

How do physician-owners go aboutadding a corporate partner?

To identify and negotiate a partnership thatmeets the goals of the physicians, the follow-ing steps are recommended:

■ Clearly specify the goals and objectives ofthe physician-owners.

■ Identify the type of partner that best suitsthe goals of the physician-owners. For example, owners of a very profitable centerwho want to sell a majority interest as an exitstrategy would want to solicit offers fromwell-capitalized companies that are seekingthis type (size, location, specialties, etc.) ofcenter. Owners of a relatively new independ-ent centers with plenty of growth potentialmay want to solicit offers from companieswith outstanding track records in buildingnew business. They may also be interested inpartnering with a management companythat is willing to buy a minority interest, orthat would agree to buy more later or consid-er reselling their interest in the future.

■ Identify the potential partners that willenable the owners to achieve their goals.While ASC owners have more than 40 com-panies from which to choose, about 20 ofthose companies are start-ups that don’t havea long track record or are just at the point of



seeking capital to make acquisitions. Todecide which company is the right partner, theowners must know who the potential buyersare and which ones would be best for them.

■ Interview several potential partners. Centerowners frequently interview and solicitpartnership proposals from several man-agement companies so they can comparebusiness approaches, meet a variety of man-agers with a variety of management styles,and receive alternative proposals they canuse to compare offers.

■ Check references to confirm that the poten-tial partner has a successful track record.Most importantly, speak to physician-part-ners at several centers to see if the corporatepartner is accomplishing the agreed-uponobjectives. The goal for an independent cen-ter is to do better with a corporate partnerthan it was doing or can do on its own. Theowners need to make certain that the poten-tial partner with which they are speaking hasa track record of producing better resultsthan the owners can achieve on their own.

■ Once the owners of an independent centerand their potential partner reach the Letter ofIntent (LOI) or Term Sheet stage of theirnegotiations, the owners should engage ahealth care attorney who has expertise inASC transactions to review the documentsrelated to the potential partnership.

What questions should you ask?

To arrive at the best partnering alternatives,here are some questions that should beanswered early in the search.

■ Which partner(s) has/have the track record needed to meet the unique needs of our center?

■ Which companies will value our center at the highest multiple?

■ How much is our center worth?

■ How do we get the best terms and value for our center?

■ Should we sell a minority or a majority interest?

■ What level of control will we retain?

■ What will be the relationship between ownership and management at our center?

■ Does the potential partner have other ASCs in the state or market?

■ Can our potential partner document the financial performance of its other centers before and after forming its partnerships with them?

■ Will our potential partner agree to non-compete terms in the same market that our center serves?

■ Who will employ and manage the employees at our center?

There are corporate partnering opportuni-ties for most surgery centers, and pros andcons of the various models. If your goal isto improve the financial performance ofyour center, or to have an exit strategy, apartnership with one of the corporate partners with a proven track record is astrategy worth considering.

Jonathan C. Vick, the founder and Presidentof ASCs Inc., has assisted in development, merger, and acquisition transactions for over150 physician-owned ambulatory surgery andendoscopy centers (ASCs) and surgical hospitals since 1984. He founded and was a principle shareholder of SurgiCenterDevelopment Corporation (90 ASCs) in1984 and Endoscopy Center Affiliates (20Endoscopy Center Partnerships) in 1994. Heparticipated as a general partner for a nationalnetwork of Medicare certified surgery andendoscopy centers that he sold in 1995. Hehas extensive experience in ASC sales, develop-ment, business planning, operations, valuations,and mergers & acquisitions. ASCs Inc. can bereached at 760-751-0250; Fax 760-751-0263.

More information can be obtained at website:www.ascs-inc.com


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Question: We are considering joint venturing with our hospital to develop anASC. The model being discussed is a management arrangement. We are awarethis model has some significant potentialliability. What are the important things wewill need to address to insure we remaincompliant?

Answer: The most important aspect of a management arrangement includes assuring that the fee paid for managementservices is fair market value, and that theservices are actually fully needed and rendered. In many situations, hospitalshave attempted to engage physicians in amanagement model such that the hospitalwill continue to own the entire enterprise.The physicians then receive a managementfee. However, the management fee must bean appropriate fee for services rendered asthe manager. It cannot reflect the type ofvalue that the physicians would otherwisereceive if they had owned a part of the

surgery center or endoscopy center.Further, the physicians would actuallyhave to provide the management services,and the parties should attempt to be able todemonstrate why the physicians are anappropriate choice for management services. We are particularly concernedabout situations where physicians are paida management fee and then turn aroundand hire another management company toprovide the actual services. There, thephysicians may render very little servicesbut be able to keep the difference betweenwhat they receive and what they pay to athird-party management company.

Question: We are thinking about developing an ASC on the hospital’s cam-pus. The lease price per square foot seemshigher than other sites off the campus.Doesn’t the hospital need to charge fairmarket value?

Answer: Yes, the lease rate should be fair

market value. It should not take intoaccount the volume or value of any refer-rals that you may receive from the hospitalor that you may receive by being part of thehospital campus. In essence, the lease rateshould be a true fair market value amount.

Question: We are thinking about buyingcertain support services from our hospitalsuch as payor contracting negotiations andbilling and collection services. What is thefair price for these services?

Answer: For billing and collection services, we typically see a price of 6-10%of collections. For payor contracting services, we often see these types of servic-es provided at a flat-fee annual basis or foran hourly rate. We would be concernedwith situations where a party is simplypaying a “license fee” for the opportunityto serve on the payor’s contracts or receivethe rates. This could raise antitrust andother issues. It could also raise antitrustissues where a potential competitor is actually performing managed care contracting services for your center.

Question: If a hospital has an equity posi-tion in our proposed ASC, will we be able topiggyback on their payor contracting rates?

Question and Answer


Answer: The answer to this questiondepends on two different sets of issues. First,the payor contracts the hospital currently hasmay or may not permit “affiliates” to accessthe same managed care contracting rates. Incertain situations, the definition of “affiliate”often depends on the extent of equity that thehospital owns in the center. For example, it ismore likely the case that the managed care con-tract will allow this type of piggybacking whenthe hospital owns 50% or more of the center.

The answer to this question also depends uponantitrust issues. As a general rule, there is moreflexibility as to this type of behavior when thehospital owns a great percentage of the centerand also has substantial control of the center.In certain situations, with the right level ofownership or control, the parties are consid-ered “one” party for purposes of antitrust lawsand thus not capable of violating certainantitrust laws related to price fixing. In con-trast, where the hospital owns a small portionof the ASC, and has minimal control over man-agement, they are generally considered twoparties, and this type of piggybacking in somesituations could be considered a violation ofthe antitrust laws.

Question: We have heard of economic cre-dentialing. What is actually meant by econom-ic credentialing?

Answer: Economic credentialing relates tothe ability to not allow somebody to have priv-ileges at a hospital or surgery center based oneconomic reasons and not based on quality reasons. In practice, it most often gets discussed today as it relates to “conflict-of-interest” policies. Usually, this is the policy bywhich a hospital says that a person cannot haveprivileges at their hospital if the person is aninvestor in a competitive facility. Case law andthe statutory law on the ability to use economiccredentialing vary from state to state.

The second manner in which economic creden-tialing is often used relates to the concept ofnot allowing somebody to have privileges at acenter or hospital if their performance of casesat the hospital or surgery center is likely tolead to losses. This type of economic credentialing is often used to not allow some-body to have privileges who may use veryexpensive supplies or take a very long time forprocedures. It also is often used to not allowsomebody to maintain privileges that doesonly a small number of cases per year at aninstitution. Again, the law on such issues isevolving and is not settled in most places.

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Hospital Tactics – Fifty People to Know in the “Friendly ... · compete with physician-owned facilities as ... 1,400 physician-hospital joint venture ASCs in the U.S. There are