4 Options for Physician/Hospital Partnership: Thoughts From Dr. Chuck Peck of Health Inventures

Hospitals and physicians are increasingly looking to partner in the face of healthcare reform, reimbursement reductions and market saturation. Here Chuck Peck, MD, CEO of Health Inventures, discusses four options for hospital/physician partnership.

1. Hospital/physician ASC joint venture. An increasingly common model of physician/hospital partnership is the surgery center joint venture, in which a physician group and a hospital each own a percentage of the ASC and benefit from its profits. Physicians are partnering with hospitals in order to gain negotiation leverage with payors and vendors, prepare for changes through healthcare reform and gain amenities such as electronic medical records. Hospitals are looking to partner with physicians on surgery centers to build relationships with local physicians, expand their market share and move appropriate cases to a high-quality, low-cost environment.

The division of ownership varies in hospital/physician ASC joint ventures. In many cases, the hospital prefers to own a majority of the surgery center, which generally benefits the surgery center's reimbursement rates and vendor contracts. Industry experts warn surgery center leaders to include clear guidelines on ASC operations in the contract: Physicians may want to maintain control over hiring staff, purchasing supplies and other operational decisions.

A joint venture that includes a hospital, physician group and ASC management company can benefit all three parties by providing hospital clout along with management company expertise. This type of joint venture generally starts with the formation of a separate company — a "holdco" — that is 51 percent owned by the hospital and 49 percent owned by the management company, or a 50/50 split, Dr. Peck says. The holdco then owns the majority of the surgery center, and the physicians own the rest. This allows the hospital to maintain majority ownership of the surgery center while giving most of the operational control to the management company and physicians. Alternatively, the management company can invest directly in the ASC alongside the hospital and physicians.

2. Clinical co-management of a service line.
Clinical co-management means that independent physicians contract with a hospital to jointly manage a clinical service, such as an orthopedics service line. "It's typically what I would call a dyadic management structure, with the physicians driving the clinical quality initiatives and achieving economic benefit through achieving quality results," says Chuck Peck, MD, CEO of Health Inventures. In this situation, the physician group acts as a sort of "general contractor" for the hospital and is paid a pre-determined amount based on fair market value, rather than receiving distributions from the service line. The physicians may also negotiate a bonus structure that rewards them monetarily for meeting quality targets or improving satisfaction.

Management and operation of the service line is then divided between the physician leaders and some staff from the hospital. "They're paired with an administrator and manager, and the service line includes the inpatient and outpatient sides," Dr. Peck says.  This model could also include a management company to provide some of the required administrative services.

3. Physician employment. Physician employment is becoming increasingly popular as hospitals seek greater control of their referrals from physicians. Younger physicians, on the other hand, are often looking for more stability than an independent practice can provide, and hospitals that can provide attractive salaries are likely to scoop up those providers from the market. Dr. Peck says there are certain hospitals and health systems that allow employed physicians to have an arrangement with the surgery center that allows them to receive distributions, though this model is uncommon. "Most hospital systems basically take the position that if you're my employee, you're not going to receive income from another source," Dr. Peck says.

In some cases, however, he says physicians have pushed back and the hospitals have allowed a joint venture arrangement. In this case, the joint venture ownership and any related expectations would be included in the physicians' employment contracts.

4. Physician administrative services company. In this situation, the hospital or health system offers services to an independent medical practice for fair market value. "For example, an independent practice might desire the billing services or electronic medical records that an independent practice doesn't want to be bothered with or can't afford to implement," Dr. Peck says. "This model allows physicians to remain independent but access the professional services they will need to survive and thrive."

Under this model, the hospital benefits by strengthening its relationship with its physicians through the support it provides the practices. It can also be a great forum through which to implement clinical integration. Dr. Peck says a further step would be to include the physicians and, potentially, a management company in the ownership of the services company in order to create aligned incentives among all the stakeholders without the physicians have having to become employed.

Learn more about Health Inventures.

Related Articles on Transactions & Valuation:
10 Surgery Centers Planned, Developed or Acquired by Hospitals
Laser Cataract Surgery of New York to Operate at Dutchess Ambulatory Surgery Center
What to Expect When Selling Interest in ASCs

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