When Regent began developing and managing ASCs seven years ago, it was rare to find many hospitals interested in participating as a minority partner. Now, about 40 percent of Regents business includes hospitals in partnership with physicians. This report examines two joint venture ASCs with Regent, physicians and hospitals that Regent has successfully helped turnaround, the Surgery Center of Reno in Reno, Nevada and Knightsbridge Surgery Center in Columbus, Ohio. The three-way partnership model has been quite successful, so successful that St. Marys, the hospital partner at the Surgery Center of Reno has asked Regent to replicate the model for another ASC that they currently own and manage in the nearby community of Galena. It is expected that the partnership will be formed by the end of 2008.
In early hospital-physician joint ventures, if the ventures existed at all, hospitals owned the majority of the shares and maintained controlling rights while the physicians retained a minority share of the ASC. Over the past ten years, the ASC management company model took hold and many of these hospital-managed ASCs suffered; most were dissolved. Doctors opened their own ASCs with 100 percent ownership or partnered with ASC management firms such as Regent Surgical Health. Now the market is shifting again toward a partnership that includes hospitals, but as a minority owner in a joint venture with physicians and a corporate partner.
We believe that the marketplace is growing significantly, providing opportunities for hospital owners to participate in physician and corporate partnership relationships where they do not have controlling interest, and they readily give up intent to manage the facility themselves, says Jeffrey Simmons, president of Regents Western Region. Hospitals do a great job of managing hospitals, but ASCs are a different business and should be complemented by companies that manage ASCs for a living. Among Regents partnerships are large not-for-profit hospitals, individual for-profit hospitals and large hospital systems. All of these businesses are limited liability companies with each party having a proportional financial risk depending on the amount of ownership, with the ownership models for hospitals ranging from a high of 51 percent to a low of 12 percent.
The Surgery Center of Reno exemplifies an effective joint-venture benefiting all three partners. A few years ago, St. Marys owned more than 90 percent of the ASC on its campus and was the general partner. In 2006, Surgery Center of Reno, while performing 500 cases a month, was losing money and not attracting doctors to the hospital campus for inpatient work or surgeries.
St. Marys sold the facility to Regent and 19 local surgeons, many of whom practiced at the competitors hospital. The hospital retained a minority share and one seat on the seven-member board. Two-and-a-half years later, the outpatient center is the most clinically and financially successful ASC in Reno with key specialties in ENT, orthopedics, spine, pain, gastric banding and urology. Many of the partner doctors have moved their practices to St. Marys campus, which resulted in an increase in activity by these physicians at the hospital as well.
An ASC operates differently than a hospital OR and most hospitals do not possess the expertise to run an outpatient center as well as a management partner does, says Michael Uboldi, St. Marys president and CEO. Regent brought a special skill set to operate our ASC with efficiency and high quality, which was acknowledged by patients and doctors alike. The Surgery Center of Reno was losing money prior to Regents involvement, and now it is one of Regents most profitable centers. St. Marys has shared in the financial benefits as well as seen physician support for the hospital become very positive.
Traditionally, hospitals and physicians have been reluctant to partner with each other in ASCs because of issues relating to control. The time has come for hospitals to decide if they are willing to lose all or retain a percentage though partnerships. St. Marys partnered with Regent and is experiencing great success.
Ive found Regent to be honest and committed and to run a quality business with key values consistent with an excellent organization. This arrangement has been so successful that St. Marys has asked Regent to replicate this model at another ASC it owns away from the hospital campus, says Uboldi. With St. Marys, Regent will develop a new ASC in Galena, Nevada. The facility is scheduled to open in 2008 or early 2009. The new endeavor is farther from the hospital in a competitors neighborhood. We are looking to grow our market share in the area. It has great upside potential.
While the model that places primary ownership with the physicians and provides a minority share to Regent and the hospital works great in Reno, it is not the only arrangement that has proved to be successful when all three parties are involved. The once physician-owned ASC, Knightsbridge Surgery Center, is now managed by Regent, and controlling interest is in the hands of OhioHealth, the largest healthcare provider in central Ohio. Knightsbridge Surgery Center opened in Columbus, Ohio, in 2001 as a physician-owned ASC. Despite high volume of cases, the ASC was not profitable and the owners replaced their management company with Regent in 2004. Within six months the center was profitable and has continued to make monthly distributions. In 2007, OhioHealth approached Knightsbridge with a partnership offer to buy controlling interest.
Joint venture partnerships fit our hospital systems overall strategy of physician alignment, says Keith Zimmerman, OhioHealth vice president of physician partnerships. OhioHealth believes in formal partnerships that allow for greater and more intimate relationships with physicians. Knightsbridge fit our criteria for a joint venture because of the high quality of care and character of the physician investors. Regent offers a unique leadership perspective in governance and operations of a surgery center and has done a great job yielding a successful turnaround. We are confident in the companys management ability.
Large hospitals can bring unique advantages to the partnership that the other partners cannot. OhioHealth can help weather the storms on the healthcare horizon. The healthcare provider enhances revenue by primarily providing access to new payers through its managed care contracting. Through OhioHealths group purchasing contracts, Knightsbridge can reduce expenses by obtaining lower prices for equipment and instrumentation purchases.
Three-way partnerships make sense. Each partners expertise benefits the relationship through cost savings, quality of care, excellence in clinical and financial operation, physician recruitment or growth strategy. While a hospital with ASC ownership may get the greatest reimbursement benefit, partnerships are valuable for other reasons too, such as alliances or additional capital resources. A three-way joint venture shares risks and profits and offers greater long-term benefit when partners agree on quality of care, excellence in management and efficiency of operation.
Regent values both physicians and hospitals as partners in joint ventures and attributes much of the success to the qualities and expertise each party offers. With everyone benefiting from the cohesive partnership, and the ability to better serve the community, Regent will continue to pursue similar opportunities.
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