February 8, 2006
In an environment characterized by continued revenue constraints and cost increases, hospitals and health systems must consider the pursuit of all strategies that offer the potential for improved market and financial performance. The latest Financing the Future II report, developed by HFMA in partnership with GE Healthcare Financial Services and Kaufman, Hall & Associates, Inc., examines the strategic use of joint ventures, particularly in situations involving large initiatives, intense competition, limited capital, or significant risk.
Working with Physicians to Improve Vascular Services
Baylor Health Care System opened a full-service heart hospital in 2002 through a joint venture partnership with physicians. It was the first dedicated heart hospital for BHCS, which consists of a network of hospitals, primary care physician centers and practices, rehabilitation clinics, senior health centers, and affiliated ambulatory surgery centers serving the Dallas/Fort Worth area.
The product of the joint venture -- the Baylor Jack and Jane Hamilton Heart and Vascular Hospital -- specializes in short-term, minimally invasive surgical procedures and is located on the campus of Baylor University Medical Center at Dallas. The 176,000-square-foot freestanding facility houses heart and vascular specialty care units with 50 beds, four operating suites, three electrophysiology labs, six cardiac catheterization labs, and recovery units for interventional, diagnostic, and surgical patients.
Lydia W. Jumonville, BHCS's senior vice president and CFO, describes the strategic development process: "Over a multi-year period in the 1990s, we explored various hospital-physician joint venture models as we searched for the one that would support our mission; add value to the community in terms of patient care, access, and quality; comply with laws and regulations; and provide mutual benefits, such as improved quality of services, joint decision making, aligned economic incentives, and increased efficiency."
Balancing the Ownership Model
The result was a model with 51 percent ownership by BHCS and 49 percent by physicians. "The element of control not only reduces tax and regulatory risks, but also gives Baylor the opportunity to offer other advantages, such as our employee benefits program, economies of scale in equipment/supplies purchasing, and managed care contracting," says Jumonville.
The heart and vascular hospital is connected to the medical center's main patient tower, which houses the catheterization labs, which are also operated by the joint venture. "Locating the facility on our medical center campus has allowed us to avoid duplicating expensive services and better coordinate the delivery of cardiac care, which is central to our model," says Jumonville.
Benefits of Partnering
Testifying before a U.S. Senate committee hearing on the competitive effects of specialty hospitals, John T. Thomas, BHCS's former senior vice president and general counsel, noted, "Partnering with physicians not only brings capital to help finance the response to community needs, but more importantly, economic investment motivates physicians to bring their time, energy and talent to the design, operation and governance of more effective and efficient healthcare facilities." Thomas cites dramatic improvements in cost reduction and efficiency in the heart and vascular hospital's first year of operation, including more than $12 million in cost savings resulting from better physician alignment with the selection and purchase of supplies and more efficient utilization of supplies.
Building on Success
BHCS's board recently approved the development of another joint venture heart hospital, the Texas Heart Hospital of the Southwest, which is scheduled to open in January 2007 in Plano, Texas. This $106 million venture with 87 cardiologists and cardiovascular surgeons who practice in North Texas will have 68 beds and is located on the campus of the Baylor Regional Medical Center at Plano. "By building the heart hospital on our Plano campus and leasing the facility to the joint venture, Baylor retains future flexibility to maximize our care model since we own all of the real estate," notes Jumonville.
SOURCE : Joint Ventures with Physicians and Other Partners , the fourth report in the Financing the Future II series
Additional Information
If you have questions or comments about HFMA Wants You to Know, contact editor Laura Noble at lnoble@hfma.org.
HFMA Wants You to Know ISSN: 1540-0697. Volume V, Issue 3. Copyright 2006, Healthcare Financial Management Association. All rights reserved.