As you build a business, you look for “ah ha” moments – moments when you begin to recognize an unexpected pattern of success. Our hospital partnerships have truly been “ah ha” moments throughout the last few years. Over time, we have developed a strong model of partnership. Initially, this model represented combined ownership with physicians enjoying the controlling interest of the center. Typically, physician-owned ASCs wouldn’t dream of partnering with hospitals, let alone giving them controlling interest, but in some joint venture cases you have to take a risk to get ahead. We broke the traditional rules of physician ownership and began partnering with hospitals in a range of scenarios. Our hospital joint ventures have varied from case to case, and even from state to state. For example, Illinois is a Certificate of Need (CON) state, so in order for a center to be approved, a hospital partner is preferred by the regulators. When we decided to develop several centers in the Chicago area, our objective was for Regent and the hospital partner to own a maximum of 25 to 30 percent on a combined basis so the physicians could maintain a majority interest in the center. Unfortunately, it is quite difficult to accomplish this ownership structure in a state where we are strongly encouraged by regulation to partner with a hospital. At our Midland Surgery Center in Sycamore, IL, we agreed to partner with Kishwaukee Hospital having 30 percent interest in the center, and it has proven to be quite successful. In Ohio, we broke another rule – we gave the hospital majority interest, and not in just one case, but two. Unlike in Illinois, we were not encouraged by regulation to partner with a hospital, instead we partnered out of necessity. Fighting out-of-network battles our strategy was limited, and, while the Ohio facilities were profitable, there was much untapped potential. Ohio is a state with incredible payer consolidation, Anthem and United control more than 60 percent of the commercial lives, and their contracted rates did not cover our costs. In Dayton, the payers refused to contract with us at any rate, due to pressure by the dominant health system. So, if you can’t beat them, join them – we sold controlling interest to our health system partners, Ohio Health and Kettering Health System. Ohio Health owns 49 percent of Knightsbridge Surgery Center in Columbus, and Kettering Health System owns 50 percent of Medical Center at Elizabeth Place in Dayton. Through our partnership with these health systems, we now enjoy acceptable, and in some cases excellent, contracts with the major payers. In several other cases, we entered a situation in which hospital partners already had controlling interest of the center, and the center was unsuccessful. Medical District in Las Vegas, Surgery Center of Reno in Reno and Palos Surgery Center in the Chicago area are examples of ASCs that had a hospital partner owning more than 90 percent and were not thriving. Once we stepped in and broadened the ownership to more, and often busier, physicians, these centers soon became three of our best performers. Now, these hospital partners own between 12 and 40 percent of the facilities. All of them receive dividends for businesses where they used to only write checks. One constant that we see in all of our partnerships; the hospitals ask us to manage the facility, removing them from the “hot seat” with the doctors. Also, they ask the physicians to retain clinical control. This allows us to provide the efficient, safe, and high quality clinical environment that the physicians want and need today. While each partnership arose from unique circumstances, there has been one constant across all of these cases – our hospital partners are great partners. They are not greedy or power hungry. They are simply quality partners that consistently contribute to the success of the center. This was one “ah ha” moment that I couldn’t be more thrilled we experienced. At Regent, we hope to pursue more successful joint ventures with hospitals, not necessarily because the law requires us to do so or out of necessity, but also to take advantage of our common interest in providing quality care to patients each and every day.
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