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Editor's Page
The Rise of the Joint Venture
Dan O'Connor
Publish Date: October 10, 2007

Dan O It's quite an unlikely pairing, the hospital and the surgeon meeting at the altar to exchange vows and join hands in holy joint-venturedom.

Dan O Once sworn enemies, once bitter rivals, more and more hospitals and surgeons are now getting into the outpatient surgery business together. By one unofficial count, there are about 800 to 1,000 ASC JVs, with lots more to come, perhaps twice as many 51-49 ventures where the only thing left to fight over will be who controls the hyphen.

It feels as though we're on the cusp of a slight shift in the ambulatory market and that the JV model could emerge as the shape of things to come - the powerful-but-plodding hospital tethered to the nimble, quick surgery center.

"Hospitals don't do ambulatory surgery well because they're focused on their inpatient product," says a surgeon negotiating a JV. "But if you take a powerful hospital that focuses its resources on the inpatient side and lets the outpatient side be truly outpatient, that model may survive."

Here's a look at a few factors that might explain why hospitals and surgeons have stopped fighting and started coupling.

  • Favorable laws. The regulatory landscape has been paved for more JVs. In South Carolina, for example, health officials who control CONs have proposed "special consideration" to physician-hospital joint ventures, which "are more likely to result in a positive situation for the overall local healthcare system."
  • Pumping the breaks on new ASCs. This year might mark the first that significantly fewer new ASCs are built than in the preceding year. In 2003, Medicare certified 356 new ASCs. In 2004, the number of new ASCs projected to open is 188, a 47-percent drop. Is it the declining reimbursements, barriers to entry or competitive pressures? Or is supply simply catching up to demand? Right now, there are nearly as many freestanding ASCs (4,400) as there are U.S. hospitals (4,500) that offer surgery.
  • Hospitals are vulnerable. Hospitals have had to swallow a lot of pride and suffer a lot of bad financial statements to admit that they simply can't compete with facilities built to do outpatient surgery. The rise of the JV could be a classic case of "if you can't beat them, join them." Surgery is a growth market, and most of that growth is taking place in alternate-site facilities.

In a sense, many hospitals who joint-venture are outsourcing their outpatient cases to their surgery center partners so they can free up their beds and their ORs for inpatient cases. In those terms, these partnerships make perfect sense.