7 keys to successful physician hospital joint ventures · successful physician hospital joint ... a...

7KeystoSuccessfulPhysicianHospitalJointVentures

EdHetrick,PresidentandCEOFacilityDevelopmentandManagement

ChristianEllison,VicePresidentHealthInventures

Agenda

•   Historyofphysician‐hospitaljointventures•   Futureofphysician‐hospitaljointventures•   Stakeholders’motivationforpartnering

•   Processforputtingtogetherajointventure•   7keystosuccessfulphysicianhospitaljointventures

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History

•   Physiciandrivenindustry–   Seekingcontrol–   Operationalefficiency–   Incrementalincome

•   Hospitalshavebeenonthesidelineuntilrecently–   Lostmarketshare

–   Erodingmedicalstaffrelations–   Newmarketcompetitors

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APhysicianDrivenIndustry

Source: InforMed Healthcare Media, LLC 2007

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Future

•   HospitalsmoreactiveseekingASCpartnershipswithphysicians–   UsuallythroughacquisitionofexistingphysicianownedASCs

•   PhysiciansmoreactivelyseekingouthospitalsaspartnersinASCsthanhistorically

•   WilllikelybethemostprevalentownershipstructurefordenovoASCdevelopmentgoingforward

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PhysicianMotivationDeNovoDevelopment

•   CertificateofNeed(whereapplicable)

•   Sharecapitalcostandrisk

•   Don’tnegativelyimpacthospital(mostlyrelevantinsmallermarkets)•   Accesstohospitalpayorcontracts

•   Avoidcompetingwiththehospital

SaleofExistingASC

•   Liquidatesomeoftheirassetswhilevaluationsarehighandcapitalgainstaxratesarelow

•   Eliminateacompetitor•   Accesstohospitalpayorcontracts

•   Abilitytoattractmorephysicianinvestorsovertime

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HospitalMotivationDeNovoDevelopment

•   Increasemarketshare(newphysicians,newmarket,splitters)

•   Retainmarketshare

•   Sharecapitalcostandrisk•   Improvephysicianrelations

•   Physicianrecruitmentandretention

•   Keepnewcompetitorsoutofthemarket

PurchaseanExistingASC

•   Eliminateacompetitor•   Increasemarketshare

•   Regainmarketshare

•   GainneededORcapacityatmorereasonablecost

•   Improvephysicianrelations

•   Physicianrecruitmentandretention•   Keepnewcompetitorsoutofthemarket 7

MotivationforAll

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Physicians •   More control over day-to-day

operations •   Efficient/productive surgical

environment •   Recruitment tool •   Incremental Income

Patients •   More convenient

 Easier scheduling  Better locations  No “bumped procedures”

•   Improved outcomes •   Less institutional environment •   Less expensive than acute care hospitals

Payers •   Better patient outcomes •   Less expensive than acute care hospitals

Hospital/Health System •   Solidify/improve physician relationships •   Retain/gain market share •   Recruitment tool •   New services delivery component

JointVentureFormationProcess

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•   Determinephysicianinterestlevelandobjectives

•   Developpreliminarybusinessplanandfinancialprojections,includinghospitalimpactanalysis

•   Assesslegal,reimbursementregulatoryandtaxrequirements

•   Formphysician/hospitalsteeringcommitteetoagreeonlegalstructureandbusinessterms

•   Prepareandrefinetermsheet

•   Planforcorporateandregulatoryapprovals

•   Obtainnecessaryvaluationsofhospitalcontributedassets

•   Finalizeprojectionsandfinancingoptions

•   Draftdefinitiveagreements(OperatingAgreement,Lease,AssetPurchaseAgreement,ManagementAgreement)

•   PreparePrivatePlacementMemorandum(PPM)andplanforphysicianoffering

•   Completeoffering;organizeinitialownerandboardmeetingsandcloseontransactionagreements

•   Acceptphysiciansubscriptions

1-2 months 1-2 months 2-3 months

7KeystoSuccess•   Good,thorough,up‐frontplanning

•   Workwithanexperiencedoutsideprofessionalswhohavedonethisbefore–   ASCmanagementcompany

–   Independentlegalcounsel–   Valuationfirm,wherenecessary

•   Strongphysicianleadership•   Active,committedhospitalpartner

•   Openandhonestcommunication

•   Dealstructurethatbestaccommodatesstakeholderneedsandanticipatesfutureevents

•   Makedecisionsforthelong‐term,notshort‐termgain

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Planning

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Planning•   Nothingdrivesastrongjointventuremorethansuccess

•   Effectiveplanningsignificantlyenhancesthelikelihoodoffuturesuccess

•   Planningshouldbeledbyasteeringcommitteeofkeyphysicianleadersandhospitalexecutives

•   UtilizinganASCmanagementcompanywillenhancethelikelihoodthatyourassumptionsaresound

•   Yourfeasibilityassessmentshouldaddress:–   Physicianandhospitalobjectives–   Volumeandcasemixbasedonlocalpracticepatterns,notjust“demographics”

–   Right‐sizedfacilityforprojectedvolumesandlocation

–   Organization/ownershipoptions,includinglegalriskandreimbursementanalysis

•   NotallASCsarefeasible,don’tbeafraidtowalkaway

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Planning:KeyConsiderations•   Choiceofpartners

–   Attractexpandedphysiciannetwork;donotneedtotakeeveryone–   Securekeyconstituentstobesteeringcommitteemembers–   Identifyandselectthemanageroftheventure

•   Locationandservicesmix;realestateissues–   Knowthemarket;locatetocapturemarketgain–   Physicianconvenienceiscritical

•   Capitalrequirementsandfinancingoptions–   Secureearlyreturns,quickrampupwithoutexcessoverhead

•   Financialimpacttohospital•   Timelineforimplementation

–   Createspeedtomarket:securejoint‐ventureownershipassoonasstrategyisdeveloped

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EngageExperiencedProfessionals(Ringmasters)

•   Independent,unbiased,leadershipfortheproject–  What’sinthebestinterestofthenewventure?

•   Don’trecreatethewheel–   Shortentheprojecttimeline–   Learnfromtheirpositiveandnegativeexperienceselsewhere

•   Ensuretheyareagoodculturalfitandshareyourvaluesystem

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StrongPhysicianLeadership•   Steeringcommitteeshouldhavephysicianswhoareleadersamongtheirpeersandcanrepresenttheinterestofyourtargetphysicians

•   Physicianshavetobecommittedtothisventure–   Appropriatenon‐competeshavetobeinplace–  Meaningfulinvestmentrequirement

•   Vestedphysiciansarethebestsalespeopleamongtheirpeers•   Theentity’soperationsmustbephysicianledinordertomaximizetheASC’sperformanceandmeetthephysicians’efficiencygoals

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CommittedHospitalPartner•   Hospitalshouldbeactiveingovernancebutleavetheoperationalmanagementtothemanagementcompanyandphysicians

•   Hospitalshouldacknowledgephysicianleadership•   Hospitalrepresentativesonthesteeringcommittee/Boardmustbekeyleaderswhoareempoweredtomakedecisionsforthehospital

–   Showscommitmenttotheventurebythehospital–   Bestrelationshipbuildingopportunitywithkeyphysicians

•   Hospitalneedstoshowcommitmenttothesuccessoftheventureanddemonstratethatitisinthisfortherightreasons

•   HospitalneedstodowhatitcantofacilitatetheASC’ssuccess–   Payorcontractingsupport–   Vendorrelationships–  Marketing–   Physicianrecruitment

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OpenandHonestCommunication•   Dealwiththetoughissuesupfront,workingthroughthemcreatessignificanttrustamongthepartners

•   Lookforwardratherthandwellingonthepast

•   Therecanneverbeenoughcommunication

•   Thisisaboutbuildingsuccessfulpartnerships

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OpenandHonestCommunication•   Ensureaclearunderstandingoftheexpectationsofeachpartyandthevalueeachpartybringstothetable

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Physicians •   Clinical Skills & Knowledge •   Surgical Volume •   Existing Medical Relationships •   Entrepreneurial Spirit •   Investment

Hospital •   Community Presence •   Brand Name •   PCP/ Payer network •   Long-term Commitment •   Financial Strength

Management Company •   ASC Operations

Experience & Expertise •   ASC Culture •   Joint Venture Experience •   History of Successful

Businesses •   Industry Knowledge

EffectiveDealStructure•   Hastoaccommodatethestakeholders’objectives,workwithinthelegalandregulatoryframework,andeffectivelyaccommodatefutureeventsaffectingthepartnership

•   Documentwillrarelybereferencedifyouhaveastrongpartnershipcreatedthroughdealingwiththeissuesthroughtheventureformationprocess

•   Keyissuesthatneedtobeaddressedinclude:–   Ownershipandcontrol

•   Hospitaltaxexemptissues•   Anti‐trustrelatedtopayorcontracting•   Physiciangoals/expectations

–   FraudandAbuseandStarkLawconsiderations–   Capitalstructure–   Eligibleinvestors–   Non‐competeprovisions–   Unittransfer(buyin/buyout)–   Redemptionterms–   Capitalcalls 19

ManagingtheBusinessLifecycle

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ASCChallenges

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Year: 1 2 3 4 5 6 7 8 9 10

$0

Net Revenue

< 20% of ASC’s will have steady growth

@ 50 % will experience slow decline

@ 25 % will lose significant physicians

@ 20 % will have significant reimbursement impact

ASC Performance

Source: Value Management Group

Long‐termDecisionMaking•   Decisionshavetobemadeinthebestinterestofthelong‐termviabilityofthebusinessratherthanshort‐termneedsoftheindividualstakeholders

•   Challengeswillbedifferentthroughouttheventure’slifecycleandhavingacommunitybasedpartnership,suchasaphysician‐hospitaljointventure,helptofocusthestakeholdersonmaintainingaviablecommunityasset

•   Trustbuiltamongstakeholdersintheup‐frontprocessfacilitatesconstructivedecisionmakingthroughouttheventure’slifecycle

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“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”

-- Charles Darwin

7KeystoSuccess•   Good,thorough,up‐frontplanning

•   Workwithanexperiencedoutsideprofessionalswhohavedonethisbefore–   ASCmanagementcompany

–   Independentlegalcounsel–   Valuationfirm,wherenecessary

•   Strongphysicianleadership•   Active,committedhospitalpartner

•   Openandhonestcommunication

•   Dealstructurethatbestaccommodatesstakeholderneedsandanticipatesfutureevents

•   Makedecisionsforthelong‐term,notshort‐termgain

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Questions?

ContactInformation

•   EdwardP.Hetrick President/CEO FacilitiesDevelopmentandManagement DD:(845)770‐1883ext.153

ehetrick@facdevmgt.comwww.facdevmgt.com

•   ChristianEllison VicePresident HealthInventures DD:(720)304‐8948M:(720)273‐7449

cellison@healthinventures.comwww.healthinventures.com

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