G.I. / Endoscopy Centers - A Single Specialty Joint Venture Opportunity?

Driven by a rapidly-aging and better-informed population, together with expanded reimbursement (e.g., Medicare payment for screening colonoscopies), the demand for endoscopic procedures continues to increase dramatically. Current estimates show between 14 and 15 million outpatient endoscopic procedures being performed in the U.S. on an annual basis. Some experts predict that this volume will continue to increase at an annual rate of 20% to 30%.

While a majority (75% to 85%) of outpatient endoscopy is still being performed in a Hospital-based setting, there is a growing trend for such procedures to move to a freestanding/ambulatory care or office-based setting. This creates an excellent opportunity for Physicians and Hospitals to collaborate by creating a formal business Partnership to provide outpatient Endoscopy through a G.I. Center Joint Venture (JV).

Several immediate questions may come to mind: From a Hospital perspective, why not leave G.I. procedures where they are (i.e., do nothing) or build our own outpatient facility? From a Physician perspective, why not build our own facility (either a freestanding or an Office-based center) vs. working with the Hospital? Any one of the above alternative approaches could be taken – the result being that one party (either Hospital or Physicians) will ultimately benefit at the expense of the other. Should this occur, a potentially successful Partnership opportunity may instead result in a competitive or even adversarial relationship between parties.

The underlying theory behind a Physician-Hospital Joint Ventured G.I. Center is that both parties want to collaborate as a way to further strengthen traditional relationships.

Benefits to both Physician and Hospital under this scenario include proportionately sharing in construction/capital costs and financial risks; on the “up side”, the JV Partners share the potential improved financial result due to the increased efficiency and effectiveness a freestanding G.I. Center should produce. The Hospital frees up Operating or Procedure Room space which can be put to other revenue-producing purposes; the Physician gains the ability to share (based on ownership percentage) in the Facility component of Center billing as well as retaining the entire traditional Professional component. Higher quality service and enhanced proficiencies should result due to the focused provision of single specialty services in a higher volume fashion. Physicians also become more productive under this scenario and gain valuable schedule time to devote to additional professional/income growth or to personal activities.

The Patient’s perspective regarding a freestanding G.I. Center JV is clear: a needed service is received in a more efficient, effective and lower cost setting; lag time between scheduling and procedure performance is much less; the freestanding Center should be more convenient, comfortable and accessible (vs. a Hospital setting) due to its design and location. The Patient is ultimately much more satisfied as is typically reflected in Patient Satisfaction scores for freestanding Centers. The Community in general is also more satisfied and supportive of this collaborative approach when compared with the alternative competitive/adversarial relationship between Hospital and Physicians.

HVP is also hearing another more recent question: Haven’t the recent changes to Medicare ASC facility reimbursement for G.I. procedures made it very difficulty to have a successful freestanding G.I./Endoscopy Joint Venture? Clearly, G.I. is the Specialty being “hit” the hardest by the new Medicare payment system that began a 4 year phase-in period in 2008. Estimates are that Medicare G.I. reimbursement to ASC’s will decrease, on average, by 14% to 17% over this 4 year period. This is not surprising since this is where (along with Ophthalmology and Pain Management) Medicare spends most of its freestanding ASC dollars. Despite these significant payment decreases, HVP believes that a freestanding G.I./Endoscopy Center can still do well under the new Medicare system. The key to this success will be even greater attention to thorough business planning, effective facility design and excellent management leading to the achievement of all possible operational efficiencies.

The Hospital-Physician Joint Ventured G.I. Center may present a special opportunity. When properly developed and managed, the Center can offer services in a manner that emphasizes high quality, low costs and exceptional Patient satisfaction. Physicians, Hospital and Patient all stand to benefit greatly under this collaborative approach.

Healthcare Venture Professionals (HVP) can help Physicians or Hospitals get started with developing and operating a G.I./Endoscopy Center Joint Venture. To request more information, contact HVP at 615-457-1848 or visit our website at www.hvpros.com.

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