- Email: [email protected]
Walking Away From a Small Satellite Hospital
MY BEST IDEA/MY WORST IDEA
LAURIE FAJARDO, MD
Joint Venture With a Hospital/Walking Away From a Small Satellite Hospital Paul H. Ellenbogen, MD MY BEST IDEA The year was 1984. We were hospital based and affiliated with a single 934-bed not-for-profit hospital at the time. We were not as yet affiliated with a “hospital system.” We were self-employed, with separate billing and an exclusive contract to provide radiologic services to the hospital. We owned nothing but a few desks and computers in our business office across the street from the hospital. After attending the annual meeting of ARRS, it became apparent that the next “big thing” was almost certainly going to be MRI. A few members of the group discussed whether we should get a scanner and how to get it. We followed the normal pathway and told the hospital administration that we needed an MRI scanner. They said, “What’s MRI, and how much does it cost?” After we answered, they asked, “Why don’t you buy it yourself?” The light bulb switched on, maybe we should buy an MRI, but this was big dollars and too risky. So we went back to the hospital and told them, “Okay, we would like to buy an MRI machine, but we want to buy your outpatient radiology department as well!” We wanted to own radiographic, fluoroscopic, mammographic, and ultrasound equipment (proven successful modalities), as well as an MRI scanner, to limit our investment risk. The hospital thought for a while and then countered with an offer to do a joint venture. They would be the general partner, and we would be limited partners. And let’s invite other doctors on staff to be limited 374
partners as well, they added, obviously to increase the likelihood of referrals. We floated the idea, and it sank like concrete. The referring doctors were unhappy with the administration on several counts and did not trust them at all to run a partnership. So we restructured the deal, making everyone equal (general) partners, with several important caveats. The hospital would own 50% of shares, and doctors would own 50%. A management committee would be composed of 4 representatives from the hospital and 4 representatives from the investing doctors— but the management of the imaging center would be contracted to my group! The referring doctors trusted us, and we would have control of hours of operation, employee hiring and firing, choice of equipment, and so on. The 8-person committee would oversee and advise and would approve or disapprove purchases worth more than $100,000. Our radiology group would hire the administrator for the center, and the salary for that individual would come out of our management contract, paid for by the partnership. The hospital would create a forprofit subdivision to participate. This concept was accepted and resulted in the construction of a large outpatient facility located in a brand new professional building attached to the hospital. Actually, even better, we were situated at the confluence of two existing and one new professional building under construction. We also had an agreement that we would “own” all outpatient imaging in diagnostic, mammogra-
phy, and sonography (with additional negotiations, we later added CT, dual-energy x-ray absorptiometry, and PET/CT), and the agreement stipulated that our outpatient center would provide MRI services for inpatients as well. This provided a built-in supply of patients that grew rapidly over time. We purchased the preexisting (read: old) radiographic, mammographic, and sonographic equipment that was in our hospital’s outpatient imaging area, discounted for wear and tear and depreciation, and bought a single new MRI scanner. Our imaging center lost small amounts for a few years but then took off like a rocket. We added 2 CT scanners and increased from 1 to 4 MRI machines. We enlarged to 5 ultrasound machines, switched to digital mammography, and added PET/CT. The hospital recruited new doctors to fill its professional buildings and to fill its hospital beds and operating rooms. This also increased our referral base. Hospital advertising included our center. The hospital’s representatives to the management committee brought financial acumen and expertise to the partnership. As we added and replaced equipment, we financed most leases and purchases. Having the financial backing of the hospital, as well as our strong track record, afforded us favorable loan rates. We all prospered and shared the profits. When the Stark laws changed in 1994, our radiologists bought out the nonradiologists, so the income was divided, 50% to the hospital and 50% to the radiologists. Then came the Deficit Re-
© 2010 American College of Radiology 0091-2182/10/$36.00 ● DOI 10.1016/j.jacr.2009.11.009
My Best Idea/My Worst Idea 375
duction Act, and the golden goose got thinner, but she isn’t dead yet! MY WORST IDEA As managed care swept like a forest fire through the land, our hospital looked for ways to survive and prosper in a new medical world. First we became a hospital system, adding 2 or 3 tiny, remote hospitals to the large “flagship” facility. Then the system began to build additional small hospitals in the suburbs and beyond. Eventually, the system merged with another, and a mega-multicenter entity (monster?) was unleashed. Our radiology group was present on the day the flagship hospital opened. We were salaried at the time. As the hospital grew, we grew. Over time, we developed some mutual respect and trust, and as the system’s administrators planned and built new hospitals, we were consulted on the radiology departments
in those facilities and asked to provide the professional services. This began in the early to mid1990s. We did not hesitate to become involved, and when the first new hospital opened, we were there. Unfortunately, however, there were very few other doctors and almost no patients. Providing routine radiologic services was not a problem; we hired a new member to the group with many years of experience and ties to the community. Other members of our group covered when necessary. But expenses far exceeded revenues. Night and weekend coverage were really painful. After 18 months, we gave our 60-day notice and walked away from this satellite hospital. What a mistake! A new toll road was built connecting the downtown area of our city with several suburbs, and the road passed right by the new hospital. Over a period of about 2 years, the transformation
from cow pasture to large city was well on its way. Growth continues today, although slowed by current economic conditions. Commercial and residential properties sprang up like mushrooms around the hospital. The hospital went from ghost town to boomtown almost overnight. The number of doctors and professional offices skyrocketed. The number of patients increased accordingly. The hospital has been enlarged and diversified and now rivals the mother ship. I would like to think we made a reasonable decision given what we knew at the time. Teleradiology did not exist. Picture archiving and communication systems were not in use. This aggravated the difficulty of taking call at a remote site. I would like to think that if a similar opportunity were to be offered to us today, we would make a better decision.
Paul H. Ellenbogen, MD, Texas Health Presbyterian Hospital Dallas, Department of Radiology, 8200 Walnut Hill Lane, Dallas, TX 75231; e-mail: [email protected].
LAURIE FAJARDO, MD
Joint Venture With a Hospital/Walking Away From a Small Satellite Hospital Paul H. Ellenbogen, MD MY BEST IDEA The year was 1984. We were hospital based and affiliated with a single 934-bed not-for-profit hospital at the time. We were not as yet affiliated with a “hospital system.” We were self-employed, with separate billing and an exclusive contract to provide radiologic services to the hospital. We owned nothing but a few desks and computers in our business office across the street from the hospital. After attending the annual meeting of ARRS, it became apparent that the next “big thing” was almost certainly going to be MRI. A few members of the group discussed whether we should get a scanner and how to get it. We followed the normal pathway and told the hospital administration that we needed an MRI scanner. They said, “What’s MRI, and how much does it cost?” After we answered, they asked, “Why don’t you buy it yourself?” The light bulb switched on, maybe we should buy an MRI, but this was big dollars and too risky. So we went back to the hospital and told them, “Okay, we would like to buy an MRI machine, but we want to buy your outpatient radiology department as well!” We wanted to own radiographic, fluoroscopic, mammographic, and ultrasound equipment (proven successful modalities), as well as an MRI scanner, to limit our investment risk. The hospital thought for a while and then countered with an offer to do a joint venture. They would be the general partner, and we would be limited partners. And let’s invite other doctors on staff to be limited 374
partners as well, they added, obviously to increase the likelihood of referrals. We floated the idea, and it sank like concrete. The referring doctors were unhappy with the administration on several counts and did not trust them at all to run a partnership. So we restructured the deal, making everyone equal (general) partners, with several important caveats. The hospital would own 50% of shares, and doctors would own 50%. A management committee would be composed of 4 representatives from the hospital and 4 representatives from the investing doctors— but the management of the imaging center would be contracted to my group! The referring doctors trusted us, and we would have control of hours of operation, employee hiring and firing, choice of equipment, and so on. The 8-person committee would oversee and advise and would approve or disapprove purchases worth more than $100,000. Our radiology group would hire the administrator for the center, and the salary for that individual would come out of our management contract, paid for by the partnership. The hospital would create a forprofit subdivision to participate. This concept was accepted and resulted in the construction of a large outpatient facility located in a brand new professional building attached to the hospital. Actually, even better, we were situated at the confluence of two existing and one new professional building under construction. We also had an agreement that we would “own” all outpatient imaging in diagnostic, mammogra-
phy, and sonography (with additional negotiations, we later added CT, dual-energy x-ray absorptiometry, and PET/CT), and the agreement stipulated that our outpatient center would provide MRI services for inpatients as well. This provided a built-in supply of patients that grew rapidly over time. We purchased the preexisting (read: old) radiographic, mammographic, and sonographic equipment that was in our hospital’s outpatient imaging area, discounted for wear and tear and depreciation, and bought a single new MRI scanner. Our imaging center lost small amounts for a few years but then took off like a rocket. We added 2 CT scanners and increased from 1 to 4 MRI machines. We enlarged to 5 ultrasound machines, switched to digital mammography, and added PET/CT. The hospital recruited new doctors to fill its professional buildings and to fill its hospital beds and operating rooms. This also increased our referral base. Hospital advertising included our center. The hospital’s representatives to the management committee brought financial acumen and expertise to the partnership. As we added and replaced equipment, we financed most leases and purchases. Having the financial backing of the hospital, as well as our strong track record, afforded us favorable loan rates. We all prospered and shared the profits. When the Stark laws changed in 1994, our radiologists bought out the nonradiologists, so the income was divided, 50% to the hospital and 50% to the radiologists. Then came the Deficit Re-
© 2010 American College of Radiology 0091-2182/10/$36.00 ● DOI 10.1016/j.jacr.2009.11.009
My Best Idea/My Worst Idea 375
duction Act, and the golden goose got thinner, but she isn’t dead yet! MY WORST IDEA As managed care swept like a forest fire through the land, our hospital looked for ways to survive and prosper in a new medical world. First we became a hospital system, adding 2 or 3 tiny, remote hospitals to the large “flagship” facility. Then the system began to build additional small hospitals in the suburbs and beyond. Eventually, the system merged with another, and a mega-multicenter entity (monster?) was unleashed. Our radiology group was present on the day the flagship hospital opened. We were salaried at the time. As the hospital grew, we grew. Over time, we developed some mutual respect and trust, and as the system’s administrators planned and built new hospitals, we were consulted on the radiology departments
in those facilities and asked to provide the professional services. This began in the early to mid1990s. We did not hesitate to become involved, and when the first new hospital opened, we were there. Unfortunately, however, there were very few other doctors and almost no patients. Providing routine radiologic services was not a problem; we hired a new member to the group with many years of experience and ties to the community. Other members of our group covered when necessary. But expenses far exceeded revenues. Night and weekend coverage were really painful. After 18 months, we gave our 60-day notice and walked away from this satellite hospital. What a mistake! A new toll road was built connecting the downtown area of our city with several suburbs, and the road passed right by the new hospital. Over a period of about 2 years, the transformation
from cow pasture to large city was well on its way. Growth continues today, although slowed by current economic conditions. Commercial and residential properties sprang up like mushrooms around the hospital. The hospital went from ghost town to boomtown almost overnight. The number of doctors and professional offices skyrocketed. The number of patients increased accordingly. The hospital has been enlarged and diversified and now rivals the mother ship. I would like to think we made a reasonable decision given what we knew at the time. Teleradiology did not exist. Picture archiving and communication systems were not in use. This aggravated the difficulty of taking call at a remote site. I would like to think that if a similar opportunity were to be offered to us today, we would make a better decision.
Paul H. Ellenbogen, MD, Texas Health Presbyterian Hospital Dallas, Department of Radiology, 8200 Walnut Hill Lane, Dallas, TX 75231; e-mail: [email protected].