Partnering with both a health system and an ASC management company lends physicians the clout and skill sets of both, while still letting them retain a large ownership stake in their facility.

Tri-party ASC deals benefit all 3 of the transaction's investors — physicians, ASC management companies and hospital health systems. Based on current trends in the surgical industry, they also appear to be here to stay. Here's an overview of how they work, and how they benefit their participants.

The players and the structure
Historically, the major investors in the ambulatory surgery center market have been the physicians who performed procedures in surgery centers and the ASC management companies who specialized in optimizing their operational efficiency.

When hospitals began moving into ASCs in a big way a few years ago, many observers saw this as a death knell for the management companies. After all, what additional value could these corporate partners bring to the table that an established health system couldn't? Surely the management companies would soon become obsolete as health systems rapidly and aggressively took over the ASC market, right?

Well, not exactly. Instead of signaling the end of the management firms, the surge of health systems into the ASC market sparked the tri-party deal, a transaction involving investments in a single surgery center from health systems as well as management companies and physicians, each bringing their specific expertise and skill sets to the table.

United Surgical Partners, a publicly-traded ASC management company, pioneered the tri-party ASC deal, and has since been followed by other corporate partners. Andrew Hayek, president and CEO of Surgical Care Affiliates, says his company had partnered in ASC ventures with 43 non-profit health systems nationwide as of the end of 2013.

There are generally 2 ways a tri-party deal can be structured. In one common arrangement, the health system and the ASC management company establish a "joint venture entity," through which they own a majority of the surgery center. The center's physicians own a healthy minority, usually around 49%. Alternatively, the health system and ASC management company can own their shares in the surgery center individually and directly, as the physicians do, without the formation of an intervening joint venture entity.

What's in it for you?
But how does a tri-party ASC deal create synergy and increased earnings for all the participants? Why should physicians choose to partner with 2 corporate partners instead of just 1? From the physicians' perspective, there are several advantages.

Partnering with a local health system offers your facility the opportunity to align with an established institution in your community, and to take advantage of its branding, market relationships and access to capital. A health system's leverage in commercial managed care contracts often drives these types of deals, since ASCs might then be able to net substantially higher reimbursement rates, provided the arrangement has been carefully structured to comply with antitrust laws.

Partnering with an ASC management company, on the other hand, lets physicians benefit from the company's superior expertise in operating surgery centers as businesses. The firms tend to have less bureaucracy and leaner administrative structures than health systems, faster decision-making abilities and more flexibility, lower overhead, and specialized billing and collection services.

In sum, partnering with both a health system and an ASC management company lends physicians the clout and skill sets of both, while still letting them retain a large ownership stake in their facility.

What's in it for them?
In the past, hospital-ASC joint ventures were relatively limited in number, given hospitals' longtime aversion to the ambulatory surgery industry. Now, though, tri-party deals hold advantages for health systems, too.

Healthcare reform has led health systems to focus on the importance of scale and the delivery of efficient, cost-effective services, which has made the prospect of aligning with ASC physicians much more appealing than competing with them.

Because health systems lack expertise in managing the smaller facilities — which run on an entirely different business model than hospitals do — a simultaneous partnership with an ASC management company lets the hospital outsource the burden of such administrative services as managing physician relationships, supervising governance, overseeing day-to-day operations and other tasks, while still reaping the economic benefits of speedy surgeries.

From the ASC management company's perspective, entering into a tri-party deal with a health system provides it with access to affiliated physicians. This can be particularly valuable if the company and the hospital are forming a joint venture entity that intends to invest in multiple ASCs across a geographical region, as it provides an attractive platform for growth.

If the health system holds favorable managed care contracts and uses its leverage to obtain higher reimbursement rates for the ASC (subject, as mentioned above, to compliance with applicable antitrust regulations), the resulting "reimbursement lift" creates additional revenue for the ASC venture as a whole and for all of its investors, without any corresponding expense or capital outlay. In the final analysis, tri-party ASC deals can be a win-win-win situation.