From the CEO
One of the biggest challenges facing physicians and health systems today is finding ways to work together to protect market share and profitability. Physician-health system joint ventures can be the segue toward future growth in a community and the improvement of how healthcare is delivered. This approach is particularly useful if employment is not acceptable to the group of physicians and they have a strong vision.
In one large southwestern city, a physician who was frustrated by the options for care in a fast-growing suburb had a vision to build a community hospital that would provide a new level of patient-centered care. After identifying and enlisting support from other physicians, he retained a management company to recruit a hospital partner, which he believed was going to be essential to the project's success.
In other markets, this same approach has been utilized with the hospital taking the lead. They have pursued development of surgical centers and satellite hospitals using the same joint venture approach.
In this case, the physicians' primary goal was to raise the level of care available in the area to meet the health care needs of a steadily increasing population. They wanted to create a healing environment that would result in better patient outcomes. But it was more than just their vision: there was strong community support for new and better healthcare options, which would help in the long-term success of the project.
Establishing Joint GoalsAs the development process began, the physicians and hospital formed a steering committee to establish joint goals for the facility. To support the ultimate goal of delivering better healthcare than was currently available in the community, the committee members decided to redesign the care process to create a more healing environment that would reduce the number of people leaving the community for their healthcare needs.
They also wanted to expand the scope of services available locally. That meant developing a community hospital, rather than a surgical specialty hospital. Because of the difference in scope, making this decision at the beginning of the project was critical.
Their shared goals provided the framework for development of the new hospital. Consistent with those goals and to make the project attractive to as many potential physician investors as possible, the committee decided to make the facility a multi-specialty hospital that would be the anchor for a healthcare campus with a medical office building. Separate joint ventures were created for the operations and the real estate, giving physician-investors two opportunities to benefit from the project's ultimate success. As a result, more than 20 physicians, including primary care doctors, invested in the project.
Management Company Role
The management company team worked with the physician leaders and the hospital to clearly define project objectives, establish an ownership framework, attract additional investors post closing of the offering, and manage the development and construction of the project.
The management company also helped the partners negotiate with governmental entities for infrastructure development, tax increment financing, expedited permitting and development approvals, and other public sector issues.
Overcoming Potential RoadblocksDespite continuing legislative efforts to restrict physician ownership, it remains a viable option. A lot has been written lately about physician ownership of surgical facilities, so it is important that physicians interested in ownership options have the facts:
- The proposed ban on physician ownership of surgical hospitals that was included in one version of the recently passed federal SCHIP legislation did not make it into the final version of the bill, and ASCs were never targeted by the draft legislation.
- If direct physician ownership is prohibited at some point in the future, there are other ways in which physicians could continue to benefit from the facilities in which they have invested or are providing service.
- While credit is tight for many industries, securing financing in the healthcare industry still remains strong because the dynamics are so different than in other industries. Unlike opening a small business where the owner has to develop a business plan that requires a great deal of marketing to attract customers, the physician already controls the utilization of the facility, which makes the venture less risky. Lenders recognize the impact this has on cash flow and profitability, so even in this economy they are still willing to provide financing for physician-owned facilities.
Physician-health system joint ventures offer a strategy for protecting market share, attracting new physicians into a community, expanding the healthcare services available in a community, and providing a more affordable and efficient healthcare delivery option.
For more information on physician-hospital joint ventures, please contact Nick DeGennaro, Senior Vice President at Nueterra Healthcare at (913) 387-0652 or via e-mail at ndegennaro@nueterra.com.