Same-Day Surgery Manager: Your pressing questions on joint ventures

By Stephen W. Earnhart, MS
President and CEO
Earnhart & Associates
Dallas

I write and speak often on the topic of physician-to-physician joint ventures, hospital and physician mergers, and similar arrangements. I have put together several of the more common questions that I have been asked for this month’s column. Enjoy!

Question from an orthopedic surgeon: Our hospital is proposing that we consider a joint-ventured surgery center. Quite honestly, it is attractive to us because we probably cannot afford to do it by ourselves and we do not want to give equity or ownership to some corporate entity. What is going to be our biggest obstacle with the hospital?

Answer: The biggest obstacle to hospitals and physicians getting into business together is summed up in one word: Trust. I see more physician groups shoot themselves in the foot because they do not feel they can trust the hospital leadership. The physicians will cite example after example why they cannot trust the hospital leaders. They will say they have been "used" before, and there is no way they are going to be manipulated again. They go on about how the hospital leaders will have the attorneys write language into the documents of the partnership that is bad for the physicians. They will explain how the accountants for the project will change the numbers around so the investors get no profits.

I get so tired of hearing this rhetoric. To think that independent outsiders are going to risk their license, abandon their ethics, and risk imprisonment just to "get the doctors" is ridiculous. In a legal and binding joint venture, the hospital and physicians are equally at risk. Since profits are paid out based upon ownership percentage, the hospital would not receive profits either if it somehow were coercing the management team to alter the numbers. I have seen many a surgery center never get off the ground because of failure to trust the other party. Such a waste!

Question: A group of us [surgeons] are going to start our own surgery center. Are there any potential problems we will face that we are not expecting that could cause this joint venture to fail?

Answer: Yes. Where does the greatest potential of failure come from? Greed! Greed is responsible for more failed surgery centers than most people realize. When independent physicians come together without clear guidance and sense of purpose, look out! Physicians are very independent, rugged individuals. They rarely take prisoners!

Unlike joint ventures with hospitals, in which the hospital usually is the unfair target of frustration for the physician partners, physicians tend to find fault with each other that is counterproductive. For example, one or more busy surgeons who use the center as it was designed to be used will come down heavy on a partner who does his or her cases elsewhere. This is particularly common if that surgeon uses the local hospital because it is more convenient than coming over to the surgery center.

This practice quickly becomes an irritant that festers on the more active surgeons over a relatively short time (months, not years).

What typically happens in this situation is that the more active surgeons will pull out of the partnership and start their own surgery center. This action not only brings down the original surgery center, but the second center typically is not as profitable as the original could have been.

Question: A group of us [surgeons] are going to join the local hospital in a joint venture with its existing surgery center that is owned and run by the hospital. The center already is up and running, as the hospital has owned it for years. We are in the process of changing ownership of the center, and the issue of staffing has come up.

Our consultants are telling us that we should not hire the current hospital staff because they, the consultants, have their own people that they want to come in and run the center. As surgeons who have used this surgery center and the current staff for the past four years, we are balking at this. What is the right answer?

Answer: If there is one thing you want when your center opens its new doors, it is competency! Like any other job profession, there are great staff members, and those who just do enough to get by. You want as much continuation of great staff members as possible in your new center. Terminating the staff as a whole is silly, expensive, rude, unprofessional, and speaks poorly for the new partnership.

Often, to conform to the regulations and dictates of the surgery center board, the existing staff may have to resign "en masse" only to reapply for their current positions. This often is the only way to terminate existing retirement plans and other benefits under the hospital employment that may be different under the new ownership. Now, will all of the staff be invited to come back in to the new center? Maybe. If they are an asset to the hospital surgery center, they should be an asset to the new partnership. Only you can determine their value.

Question: Is that any regulation that requires the hospital to have the majority of ownership in a surgery center that is joint-ventured with surgeons?

Answer: No.

(Editor’s note: Earnhart & Associates is an ambulatory surgery consulting firm specializing in all aspects of surgery center development and management. Contact Earnhart at 5905 Tree Shadow Place, Suite 1200, Dallas, TX 75252. E-mail: searnhart@earnhart.com. Web: www.earnhart.com.)