Recapturing and Growing Your GI Business

Hospitals have endured an undeniable decline within their GI outpatient procedural volume in the past 10-plus years as physicians sought alternate settings to perform their cases. This migration of GI procedures from HOPDs to ambulatory surgery centers (ASCs) and GI professional practice settings typically results in a dramatic decline in the overall GI service line market share once enjoyed by local hospitals. In addition, the loss of these outpatient procedures has a ripple effect within the hospital delivery system— numerous other ancillary services traditionally provided by the hospital, such as pathology and radiology, frequently disappear as physicians select alternative providers when their historical referral pattern (and loyalty) to the hospital is loosened.

The good news is that as ASC and office-based settings continue to experience increased regulatory pressures — as well as significant reimbursement challenges — many physicians now seek a relationship with their local hospital. Hospital-physician joint ventures, once the exclusive domain of multispecialty ASCs, are now increasing within the single specialty GI market. As a result, now may very well be the critical time to implement such a relationship within your market.

In May 2007, a terrific example of just such a hospital- physician endoscopy center joint venture opened its doors. Historically, the GI outpatient department at Montefiore Medical Center (Bronx, N.Y.) performed more than 7,000 ambulatory GI procedures. The 10 to 12 voluntary physicians on staff at Montefiore historically performed more than 6,000 office-based endoscopy procedures within their various professional practice offices, outside the hospital setting. These physicians had left the hospital over the past several years for a variety of reasons, thereby converting much of their GI procedural business to office-based endoscopy units within their own professional practice spaces.

The joint venture between Montefiore and these physicians is called the Advanced Endoscopy Center.

In 2008, the Advanced Endoscopy Center expects to perform more than 10,000 GI procedures within its four-room unit located a few minutes from the hospital campus. Within the next several years, the volume is expected to grow to more than 14,000 procedures annually. Two of the board members of the facility help us understand why this project made sense to pursue.

Why the joint-venture makes sense: The hospital point of view
"As we evaluated the concept of joint venturing with our voluntary physicians, we identified three primary reasons to move forward with our project,"says Don Ashkenase, executive vice president at Montefiore, whose single-specialty GI ASC opened in May 2007.

1. Identifying core competencies
"Our hospital needs to focus on developing, enhancing and profiting from certain medical specialty core competencies,"says Mr. Ashkenase. "After a comprehensive fiscal analysis, we made the strategic decision that our GI outpatient service is one area that can be effectively managed as a freestanding unit off the hospital campus."

2. Limited capital budgets
"Our current GI unit's physical plant needs serious modernization,"he says. "On our urban campus, capital improvements are extremely costly, while developing space off-campus can save significant money."

3. Enhanced physician loyalty
"GI physicians in the Bronx (as is true anywhere in the country) can effectively convert the vast majority of their outpatient caseload to their existing professional practices,"Mr. Ashkenase says. "'Office-based' endoscopy in the New York City area is highly prevalent. This had already happened right here in the Bronx within our voluntary GI physician group. By developing a freestanding endoscopy center in partnership with our local GI physicians, we effectively align our goals and objectives directly with the physicians in a true partnership arrangement. In this case we regain a portion of the profits from the outpatient procedure business while enjoying increased utilization of our pathology department and other spin-off ancillary business from the facility."

Why the joint-venture makes sense: The physician point of view
"Although many members of the voluntary staff at Montefiore Medical Center historically performed a significant volume of office-based procedures in their practices, many of us felt that developing a high quality state-of-the-art endoscopic ASC would best serve the needs of our patients, while in the longer term ensure reasonable financial stability for ourselves,"stated Robert Sable, MD, who serves as the comedical director at the Advanced Endoscopy Center. There were three primary motivations to develop a joint venture expressed by the physician coalition:

1. Reduced personal risk
Setting up and equipping a quality office-based endoscopy unit is becoming more and more expensive every year. By joining a state-of-the-art endoscopy ASC, physicians can spread their financial risks across a broader spectrum of participants — not just themselves.

2. Reduced personal headaches
Managing an office-based unit takes time and energy, both of which are often in short supply in a busy GI professional practice. By developing a joint venture, using outside expertise as a guide, physician time commitments are reduced.

3. Enhanced relations with the hospital
The traditional physician versus hospital challenges don't have to exist. In a properly structured joint venture (with the right business terms), everyone can coexist in harmony. Aligned incentives are a wonderful concept. In the case of Advanced Endoscopy Center, an outside management company was chosen to assist in the process, which creates a natural buffer between the hospital and the physicians — an independent third party focused on what is best for the ASC.

The Montefiore joint-venture endoscopy center demonstrates several important areas that are critical to developing a highly successful joint venture.

  • First and foremost, the ownership of the new facility was strategically designed so that all participants had aligned incentives. In this case, the aggregate equity of the individual voluntary physician coalition was set at the same level as that of the hospital — each had 40 percent ownership, with the remaining 20 percent minority ownership held by the outside management company tasked with making the venture come together.
  • Governance is aligned. Both the physician coalition and the hospital hold two board seats, with the fifth seat held by the outside management company. No single party has effective control over the facility, a point which gives both the hospital and the physicians much comfort.
  • Each party brings value to the table.The voluntary physicians bring the vast majority of cases to the facility — in 2008, this is projected as approximately 8,000 procedures. The hospital brings strong value to the venture as well. Hospital-employed GI physicians are expected to perform 2,000 cases at the center in 2008. In addition, the hospital's managed care professionals, working with the outside management company, were able to use the hospital's leverage during third party payer negotiations for the new facility. The end result is the center's average collections per procedure is more than double what had been projected in the original business plan.
  • Medical leadership recognizes the two very different types of physicians using the facility. A co-medical director was selected by both the voluntary physician coalition and by the hospital employed physician group. In this way, the unique needs of both groups are recognized so that the center works for all users.
  • There is opportunity for physician buy-in. Today's GI physicians coming out of fellowship programs are looking to buy-into endoscopy centers as part of a hiring package. In many cases around the country, income from the endoscopy center distributions exceeds that of the GI practice, primarily due to the declining professional fees within the practice. Although recruitment of new GI physicians was not a primary aspect of the Montefiore joint venture because of the existing GI fellowship program at the hospital, it is very important to many community hospitals. For instance, at Saint Vincent's Medical Center in Erie, Pa., hospital administration recognized the need to recruit new GI providers into the community as their existing physician base grows older. Accordingly, once the new St. Vincent's Endoscopy Center opens in autumn 2008, the facility will provide an important tool for the hospital to attract new GI talent to its staff — the opportunity to buy into the new single specialty GI center.
  • The GI specialty is an in-road to the healthcare system. GI physicians are typically double-boarded, both in gastroenterology as well as in internal medicine. As a result, a tremendous amount of radiology, pathology, laboratory services, oncology, and a fair number of inpatient admissions, are generated by a typical coalition of eight to 10 GI physicians annually. This is the reason that an increasing number of hospitals are establishing joint venture single-specialty GI ASCs in tandem with their GI physicians, many of whom may not currently consider the hospital their "home"institution. A joint-venture project can bond a physician coalition to the parent hospital, thereby benefiting the hospital through the capture (or in some cases the recapture) of this GI spin-off business.

A parting question to consider: Which would you rather own — 100 percent of the GI outpatient business — which is subject to serious erosion over time as physicians move out of the hospital — or a 40 to 50 percent position in a thriving and growing jointventure business in partnership with your GI providers? This is the question many in hospital administration are asking in today's evolving marketplace. Now is the time to evaluate your strategy as you proactively plan for the future. The benefits of the joint venture are many, and the downside is minimal if structured and planned carefully.

John Poisson serves as executive vice president and holds a minority ownership position in Physicians Endoscopy, a national development and management company focused exclusively on single-specialty GI ASCs. The company currently operates 15 endoscopy centers with another five projects in various stages of development. Six of these 20 facilities are hospital-physician joint-ventures. He can be reached at (215) 589-9003 or jpoisson@endocenters.com for more information. Learn more about Physicians Endoscopy at www.endocenters.com.

 

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