Impending Death of Hospitals

Physician Opportunity: Hospital CFOs Freak Out Over Failed Business Model

It’s not quite like life imitating art, but it’s probably as close to it as I’m going to see today.

I just read a puff piece sponsored by Bank of America, pricey click bait for hospital CFOs, that supposedly features a roundtable “conversation” among (oxymoron warning) forward-looking hospital CFOs.

Apparently, these CFOs have just realized that even the largest and, supposedly, best run hospitals and health systems are suffering from financial distress. The hospital-centric business model is broken. Ya think? [Read The Impending Death of Hospitals, on Amazon or, as a complimentary download.]

Their suggestion, after more than a decade of spending billions of dollars acquiring and otherwise “aligning” physicians, and then, as an industry group, blocking physician investment in hospitals, is that hospitals push into the outpatient/ASC world. (Attention hospital CFOs: this is not “forward-looking.” It is still looking into the rearview mirror to explain why hospitals are in decline.)

The problem of course, is that when hospitals thought that the future of healthcare would be hospital-centric, they convinced physicians that they needed the hospital. However, in the world as it’s become and is becoming even more so, that is, the outpatient, ASC (and not hospital outpatient department) centric world, physicians don’t need hospitals as partners. Oops.

For physicians, the unfolding world of independent outpatient care offers tremendous opportunity. Yes, it’s riddled with compliance landmines (and sure, the hospital industry will lobby for more restrictions faster than they can charge $15 for a single Tylenol), but most can be overcome. And, if I have to reverse social justice brainwashing, there’s nothing wrong with profiting legally from your referrals and healthcare investments.

Choose your partners wisely. Find those who’ll work with you, support common goals, and not seek to control you. Document deals properly up front — the expense will pale in comparison to that of undoing a poorly designed deal or of the first few months of litigation.

And, if you actually need a hospital partner for a joint venture, let the hospital compete for the deal. (Tell them you’re considering sending out an RFP. They used that ridiculous process to beat physicians down, and maybe I was wrong about their uselessness: I never considered them as a way to have fun.)

And, one final, free piece of advice for hospital CFOs: You should “forward look” back to elementary school: The time to ask Billy for an invitation to his party wasn’t after you stole his lunch.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

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Hospital-Physician Owned ASC Sues Freedom Loving Physician Entrepreneurs for Competing

The Sioux City Journal reported last week (on 12/29/17) that a hospital-physician joint venture ASC, Pierce Street Same Day Surgery, filed suit to enforce covenants not to compete against a number of current and former physician investors.

Pierce Street is also suing the medical group, Tri-State Specialists, owned by some of the individual physician defendants.

The flashpoint is the defendants’ development of a competing ASC, Riverview Surgical Center.

That’s the straightforward news. But, what’s really going on? And why should you, probably not a surgeon in Sioux City, care? Keep reading. It will become clear, really clear.

Pierce Street, a joint venture between physicians and UnityPoint Health – St. Luke’s hospital, is located in Sioux City, Iowa, a Certificate of Need (“CON”) state. Pierce Street alleges that the defendant doctors signed agreements that bar them from being involved in a competing ASC located within 30 miles of Pierce Street, both while they are owners and for a year after.

Tri-State Specialists and the defendant physicians are developing their competing facility in Nebraska, just across the Missouri River, the state boundary, from Sioux City. That site is 4 miles away from the Pierce Street ASC.

Here’s what’s interesting for any physician, for any ASC, and for any hospital administrator, whether you’re in Sioux City, Scranton, or San Francisco, or anyplace else.

1. I haven’t seen the underlying agreements and so I can’t tell you if I think the specific covenants not to compete are enforceable or not, but either way, physicians that sign them and facilities that demand them must understand their limitations and their obligations. They may be BS (I’ve worked with a number of physicians on their escape from unenforceable provisions). They may be enforceable, in which case the damages could be severe. But either way, those that demand them are often serious about attempting to enforce them . . . whether they are ultimately enforceable or not . . . and the transaction costs of that battle can be staggering.

2. Nebraska is a non-CON state. Facilities located in a CON state, like Iowa, may think that they’ve blocked competition, but if they’re located anywhere near a border with a free state, the protection is illusory.

3. More telling of the future, and while I can’t get into the heads of the competing physicians or of the Tri-State Specialists’ medical group CEO, but I’d guess that they realized that they didn’t need a hospital partner to run an ASC. Pierce Street alleges that it will lose 60% of its volume to Riverview, and that’s sure to put a pile of profit into the Riverview physician-owners’ pockets. As a regular reader of the blog, you know that that’s one of my main points: hospitals are dying and, so, too, are hospital-affiliated ASCs. Hospitals are becoming anchors around the feet of entrepreneurial physicians.

4. Riverdale is being built next to an existing Marriott hotel, with the intention that patients and their families can stay right next door. That’s a low-cost twist on my concept of the Massive Outpatient Clinic™ (watch the related Success in Motion video), in essence, a “non-hospital hospital” campus. Just as physicians no longer need a hospital to partner in an ASC, you no longer need a hospital to partner in what is nearly equivalent to a hospital.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

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