Management Group's Role in Physician/Hospital Joint Ventures

The following article is written by Michael McKevitt, senior vice president, business development, for Regent Surgical Health.


Simply stated, neither the priorities of the hospital nor the priorities of the surgeons are necessarily the priorities of a surgery center. In developing over 25 physician joint ventures, Regent Surgical Health has learned that a management team's most important role is that of the unbiased third party. It is the management group's job to protect the collective interests of the surgery center; not just any one sector of the partnership. The hospital benefits from the management group's expertise in managing surgery centers; their involvement enables the center to be viewed as completely separate from the hospital's existing book of business, which is essential for it to achieve its full potential. The ASC administrator benefits from the management group's proven systems and processes, purchasing power, quality management program and recruiting expertise. Below are five benefits a management group should deliver to the JV.


Efficiency: Deliver an Outpatient OR Experience

There is a big difference between inpatient and outpatient OR experiences. Performing six procedures back to back with 8-10 minute room turnover is standard operating procedure at an ASC, but unthinkable in an inpatient setting. The success of a surgery center is predicated on increasing individual physician productivity while being convenient and cost effective.

When hospitals try to replicate inpatient protocols, policies, or procedures in the ASC setting, physician productivity usually suffers. There is no reason for physicians to want to affiliate with the surgery center if there is not a dramatic improvement over their current experiences in the hospital's OR.

Decision Making: Protect the Partnership

Operating a hospital is a very difficult job in today's healthcare economy. Hospital administrators need to constantly balance individual physician (or specialty) needs versus those of the larger physician and patient community. With limited resources and increasing clinical demands, it is not uncommon for politics to enter into the decision making process.

The management group should eliminate the politics by making the tough decisions with the best interest of the partnership in mind. As a separate business, with its own mission, governance, and accounting systems, surgery center physicians need never directly negotiate with hospital administrators over matters that could be controversial in nature.

For example, when requesting additional capital for technology the surgery center will base its decision on a benefit cost analysis and what is the best investment for the business. Allocating capital is a bigger decision for a hospital which must weigh not only the benefits of technology but where that allocation ranks on the basis of the hospital's priority to preserve its mission, maintain its physical plant, or best position the hospital in the market. Additionally, the hospital is in the delicate position of deciding what is in the best interest of the partnership, knowing the implications on the hospital's existing service lines such as inpatient and hospital outpatient departments (HOPD).

Staffing: Manage Labor Costs

The long-term financial viability of a surgery center is predicated on its ability to be cost efficient. A key determinate is the surgery center's ability to manage its labor costs. From a cost perspective, if the center is run by the hospital, existing salary and benefit scales could be applicable to the center. Lower reimbursement per case under Medicare and managed care agreements preclude surgery centers from matching the hospital's wage and benefit packages. In addition, daytime hours and the lack of call is attractive to employees in spite of lower pay. An independent management team and standalone surgery center partnership minimizes confusion within the labor force and establishes a clearly defined HR function that is separate and distinct from the hospital.

If the hospital manages the center, it might have contractual obligations under which services are provided to the surgery center, which might not be in the partnership's best interest. For example, the hospital's anesthesia department might have exclusivity in providing services to the hospital which could include the surgery center. Perhaps this is the right decision, but the decision must be made independently and in the best interest of the center as it relates to clinical quality and performance indicators.

Business Development: Engage the Larger Medical Community

It is vital to the success of any surgery center that the management team be able to drive financial performance through expansion of service lines via the introduction of new procedures, or the expansion of the physician referral base. A key deliverable is for an unbiased third party to meet with selected physicians, or specialty groups, who are not affiliated with the sponsoring hospital. Without a managing partner to engage with the larger medical community, it is very difficult for hospital administrators to recruit non-admitting physicians to the surgery center when their actions are viewed as creating competition within the medical staff. This discussion is further complicated when the targeted physicians are not required to take ER calls.

The success of the surgery center is predicated on working with the entire medical community – not just those who do businesses at the hospital. If the specific hospital administration is overly involved, non-admitting specialists may be reluctant to participate.

Liquidity Event: Maximize Value

The role of the management company is to continually increase shareholder value. This is accomplished through the implementation of various programs and services that lower the cost to provide care. Regent invests side by side with its partners and shares in the risks and rewards of ownership. Regent invests for the long run. However, as markets evolve, there could be opportunity for the surgery center to simply sell a portion, or all, of the business. An independent management group would work on behalf of the partnership to maximize the value of the enterprise. As a standalone entity with a defined management structure the due diligence process could be expedited culminating in a possible sale which could be to the benefit of all concerned. Hospital partners often receive "last look" rights so they do not lose control, but the management group ensures the facility is widely marketed and the buyer, whether new to the partnership or the hospital, pays a market price.

In this current economic and regulatory environment, it makes more sense than ever for physicians and hospitals to join forces. Hospitals need surgeons to increase their inpatient and outpatient procedures, surgeons need the hospital to negotiate reimbursement. The management group can keep both sides aligned long term.


Learn more about Regent Surgical Health.


Read more from Regent Surgical Health:


- Rebuilding the Physician-Hospital Relationship — The Joint Venture Opportunity


- Would Your Facility Pass an Infection Control Survey?


- Healthcare Reform: Where Are We Today?

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