A Key Strategy for New And Continued Success For ASCs As we begin to partake in or observe yet another change to our health care system, including significant changes to reimbursement, it is clear to us at Regent that hospitals, which once controlled all health care activities, will once again increase their activity as major “players” in providing outpatient services throughout the U.S. For a long period of time hospitals tended to be uninterested in sharing management, control and profits with doctors, which resulted in the loss of many of their outpatient cases to independent doctor-controlled facilities. Today, however, we see endless opportunities and interest from hospitals to share income with surgeons in an ASC, allow outside management firms to operate the facility, and give up most if not all control of the day to day clinical and operations decisions to both doctors and managers. It has been my experience in more than 30 years on the business side of health care that most folks respond more favorably to “fear of loss” than “opportunity for gain.” Hospitals are no different. When doctors first asked hospitals to share control and wealth and the hospitals had most of the control and wealth, it was rare that this occurred. Now, more than a decade later, when many of the high profit outpatient cases have left hospitals, oftentimes by surgeons opening their own independent ASCs, smart, forward thinking hospital CEOs are trying to bring these doctors back to their campus by implementing joint ventures (JVs) with “their” surgeons. I have also noticed that hospitals who used to only implement JVs with doctors if they managed the operations themselves, have come to the conclusion that, while they manage inpatient care well, they are not equipped to be excellent managers of outpatient facilities, especially those that are not within the “skin” of the hospital building. This in turn has favored ASC management companies who are especially skilled in managing the day-to- day operations and fast “flow” of patients and surgeons in an ASC. Surgeons should not consider a hospital partnership if they are looking primarily for money to fund their enterprise. All entities should be able to agree on a common goal for such a joint venture whether the need is for better contracting rates, recruitment of new physicians into a practice or to gain a competitive edge. In addition, while most doctor/hospital joint ventures are borne out of personal relationships, oftentimes, while the surgeon stays in the community for most of his/her professional life, the hospital CEO or CFO may not stay in their job as long. Thus, it is imperative that both entities select the best legal counsel to draft documents that withstand “changes of time” so that key issues such as control, operations, clinical decision-making, adding new partners, and selling the facility can be clearly spelled out and last for the duration of the partnership. In fact, it is our experience that if a proposed joint venture is thwarted, it is because clear language in the Agreements is not approved by one of the two parties attempting to implement the partnership. There shouldn’t be any surprises during this process, or worse, after the partnership is completed. Regent Surgical Health is one of a hand full of ASC management firms that has as a priority the creation and operation of joint ventures with surgeons and hospitals. We have implemented numerous models that allow for maximized reimbursement (even with reductions in certain ASC cases by the government and payers), and day- to- day control of facility operations and clinical decisions by surgeons. We have developed ASCs that have been opened with hospital joint ventures and have also worked with existing independent facilities to negotiate the purchase of 35% or more of the business by a local hospital partner. A few years ago, none of the Regent partnerships included hospital partners. Today, eight (8) of our Seventeen (17) partnerships also include Hospital partners. Within Regent facilities, hospitals own between 12 and 51% of the business. We expect to see models in the future where hospitals will own between 35 and 51% and have certain controlling rights; although we expect that in most of our facilities the surgeon investors and Regent will continue to control the day- to- day management and clinical activities of the facility. Many large hospital systems have already established these types of partnerships, while independent hospitals are now considering such endeavors. We believe that this trend will continue as health care organizations continue to consolidate, with the financial “winners”being those that form successful joint ventures in the next few years.