Hospital pitfalls with joint ventures

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

My company has been putting hospital and physicians into a joint venture in ambulatory surgery centers (ASCs) for well over a dozen years. Consequently, we have learned a few things that never change.

We are all familiar with the expression "hospital bureaucracy" and "hospital mentality." Well, often, there is truth to those terms. With the big rush for hospitals to build freestanding surgery centers, and an even greater rush to do them with their physician staff, I thought I would offer a few tips to help others avoid the mistakes many hospitals currently are making today.

Setting expectations. If you talk about doing something with your surgical staff and discussed it with them, you have set the expectation that something is going to happen. I don’t know how many times we have heard the expression, "They [the hospital] talk, and talk, and talk about doing an ASC. We got tired of waiting and are doing it ourselves."

Schedule on a time line

The key here is to move forward as quickly as you can or tell the physicians why you cannot do it as quickly as they may want. Put together a "time line" for them so they can see progress or understand the lack of it.

Be realistic. Do not build a six-room surgery center for 3,000 cases per year. You are not going to fill it overnight, and you and every investor will pay for each square foot that isn’t utilized. Use the following as a rule of thumb: One well-managed operating room can handle between 850 to 1,500 cases per year per operating room. Obviously, if all your cases are short and uncomplicated vs. long and detailed, it would be a different situation. Remember that most pain management cases don’t even need an operating room; they can be done in the recovery room.

Conversely, don’t build a three-OR center for 5,000 cases. Yes, it will probably be profitable, but it is going to cause problems later when your investors don’t have posting time. Define the size and the scope of your project as well as you can early. It is a major expense driver for your investors.

Don’t do your own equipment planning. Equipment planning for a surgery center is an art and a thankless, detail-oriented, time-consuming, horrible job! Even if it goes absolutely perfect — and it will not — it is expected. Leave this job to the professional equipment planners. We don’t even do it; we hire others to do this chore. If you are asked to "put together the equipment list" for a surgery center, run away, very fast.

Let the facility purchase its own supplies. Many hospitals think they have the best prices in town when it comes to disposable goods. Truth is, most surgery centers get better, significantly better pricing. If a not-for-profit hospital were to purchase supplies for its for-profit surgery center, it would have to take the higher cost supplies and then mark them up before it could sell them to the center. Hardly a profitable situation for the ASC.

Further, if the hospital marks up the supplies, it is now, theoretically, making a profit on the transaction. That doesn’t work either. Just giving the supplies to the facility is enticement to the physicians — and on it goes. Bottom line: Get a surgical tech or RN to do all the purchasing for the facility. It is much less complicated, and techs and RNs do a better job.

Don’t staff the center like the hospital. As a consultant, this issue is right up there with why you don’t want 6 a.m. meetings. (Think about it.) We spend too much time trying to convince hospital management (usually OR directors) that you do not need the same staffing levels in an ASC for the same number of cases as you do in the hospital. Smaller areas, healthier patients, and hand-picked, highly motivated, and high-energy personnel work better in smaller numbers.

The best way to deflate a good surgery center is to overwhelm it with people. Start small and add up. Never go the other way around, if you can avoid it.

Keep meetings small and short. What is the deal with all these meetings? I won’t go there, but be mindful that the smaller the group and the shorter the meeting, the more you will get accomplished. Enough said. Some things cannot be changed.

Don’t manage your own center. This is especially true if you have a joint venture with the doctors. You, as the hospital, just cannot win here. You will have to face the investors every month at the profit and loss meetings and explain each line item to your physicians. Do you really want to try and tell them why you are paying $135 for an intraocular lens that the rest of the world is paying $50? Try to explain why you are over budget on payroll, and you have three managers to run a four-room surgery center.

These are things to think about. There are many more areas that you need to consider. Let me know if you want to hear more.

(Editor’s note: Earnhart can be reached at Earnhart and Associates, 5905 Tree Shadow Place, Suite 1200, Dallas, TX 75252. E-mail: World Wide Web: