When Hospital-Employed Physicians Own a Joint Venture ASC: 4 Points From Dr. Thomas Miller of Carilion Clinic Orthopaedics

Thomas K. Miller, MD, serves as the medical director and a physician owner of Roanoke Ambulatory Surgery Center, a 50/50 joint venture project of Carilion Roanoke Memorial Hospital and what had been a number of independent physician practices. While surgery center joint ventures are increasingly common, the set-up for this ASC is rather unusual: According to Dr. Miller, about half the physician owners at the surgery center — including Dr. Miller — are employees of the corporation that owns Carilion Roanoke Memorial Hospital. In April 2010, Dr. Miller's former practice, Roanoke Orthopaedic Center, merged with hospital-employed physician group Carilion Bone and Joint to form Carilion Clinic Orthopaedics. The employed physicians still maintain ownership in the surgery center, with the other surgery center investors remaining independent and performing their hospital-based cases elsewhere.

According to Dr. Miller, there was some initial concern about whether the employed physicians' ownership would be contrary to the Clinic's mission and structure, as the original hospital group did not have access to supplemental income streams in addition to their hospital incomes. However, Dr. Miller says the arrangement has provided an efficient setting to perform outpatient cases and has decompressed the hospital's issues of insufficient OR access and case backlogs. Here he discusses four points on owning interest in an ASC as a hospital-employed physician.

1. Current OR capacity in the community dictates the relationship between employed physicians and ASCs.
According to Dr. Miller, the feasibility of this model depends largely on the current OR capacity and wait times in the community. "If you're in a community where the OR access is maxed out, the process is completely different than in a community where there is excess OR capacity," he says. When the surgery center started as a 50/50 joint venture between the hospital and local physicians, the hospital was at capacity and was suffering from a backlog of cases. The community was primed for a new surgical facility, and it was in the hospital's best interest to move outpatient cases to a lower-cost, high-efficiency setting. The surgery center was originally owned by solely independent physicians, but when Dr. Miller's group decided to merge with the hospital-based group, physicians moved to system-based employment while maintaining ASC investment.

Dr. Miller says issues with OR capacity at the hospital make the arrangement feasible. If the hospital ORs were not full, he says the hospital would likely object to losing cases to the surgery center. As it is, the surgery center simply provides a location for the "run-off" cases. "The hospital system might be losing cases to this surgery center, but if they don't have anywhere to do the cases — or if they have to do them after hours at increased cost — the patients are going to go somewhere else anyway," he says. "It's better for all involved to have patients cared for efficiently by the employed physicians than to see patient care delays or loss to other facilities and providers."

2. Employed physicians must have production targets.
Dr. Miller says the clinic providers' contracts are structured to include production targets that determine their base salary and total income. "It's a pretty common perception that when you transition to hospital employment, you don't have to work as hard because you have a guaranteed income," he says. "In at least the short term where we are, we have a base salary and then a production-based bonus program, so we are incentivized to be productive and efficient."

He says the clinicians are also incentivized to hit budget targets every year, creating an environment similar to an independent practice because physicians' actions directly impact their compensation. He says this creates an incentive for physicians to work to improve hospital profits just as they work to improve ASC profits. "If you have a system with a guaranteed salary and no incentive for the provider to use your facility, it won't work," Dr. Miller says.

3. Investment arrangements may not be able to continue long-term.
Dr. Miller says while the arrangement with the hospital works for the time being, it might not be realistic in the long-term. "The hospital has raised the question of whether new hires should be allowed to invest in the surgery center, and I understand that point completely," he says. "How do you apply that equitably to other providers who are willing to take fiscal risk with other systems? It's a very valid question on their part, and the answer is that long-term, I don't think you would see an arrangement like ours continue."

He says in the long-term, he thinks there will be a "transition strategy" that moves physicians away from surgery center investment after they reach a certain number of years of employment. He says the group is currently in a "pleasant limbo" because while the surgery center takes cases from the hospital, it also serves as a valuable resource: a test bed for pilot programs at the hospital and an example of how to improve efficiency.

4. Physicians at the surgery center must be treated equitably, regardless of employment.
Not all the physicians at Roanoke Ambulatory Surgery Center are employees of the corporate umbrella of the hospital — in fact, many of them use a different primary hospital base in town. "It's kind of an interesting arrangement that we have providers who take call at a competing hospital, who use a surgery center co-owned by a competing hospital," Dr. Miller says. When the surgery center started, he says the center offered all outpatient surgery providers access to the facility as investors, and that policy has continued despite his group's move to employment.

He says a policy of equal treatment has been essential to the surgery center's success. "Even though we have become employed, they still maintain their block times," he says. "We made sure nobody was going to get squeezed, and that everyone was going to be treated equitably. Open access was not going to be based on whether a physician was employed or not employed." He admits the ownership model is a work in progress: As medical director, he sits down with the non-employed investors and hospital system on a regular basis to hash out surgery center policies and discuss any problems.

Related Articles on Hospital Employment:
5 Observations on Physician Employment & Recruitment From Dr. Richard Kube
How Hospital Employment Affects Surgery Centers: Q&A With Dr. Joseph Banno of Peoria (Ill.) Day Surgery Center
Op-Ed: Hospital Employment Means Higher Spending, Less Patient-Physician Communication

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