Hospitals usually are downright competitive when it comes to buying physician practices.
But one exception lies in last month's purchase of Kelsey-Seybold Clinic in Houston by a joint venture between St. Luke's Episcopal Health System and Methodist Health Care System.
Rather than engage in a bidding war, the rival systems formed a 50-50 partnership to buy the assets of the 290-physician clinic from MedPartners.
Assembling the joint venture required both hospitals to put aside their egos, but they probably saved some money. More important, it opens the door for further collaboration.
Both are teaching hospitals located on the Texas Medical Center campus in Houston. They spent about 18 months negotiating a merger before the talks fell apart in early 1996.
While Methodist has deeper pockets, St. Luke's receives a substantial 25% of its admissions from the clinic.
A bidding war "would have set us back probably another 10 years in terms of considering doing anything (together) again," said Michael Jhin, president and chief executive officer at 700-bed St. Luke's.
Peter Butler, president and CEO at Methodist, which has three hospitals with a total of 1,226 staffed beds, agreed. "I think we all said that joint ventures are not the easiest thing, but it made a lot of sense to us in the end."
As it turns out, MedPartners received a pretty sum for Kelsey-Seybold, considered its crown jewel clinic. Against other undisclosed bidders, the hospitals paid $150 million for the clinic's assets, including a new building valued at $61 million. It's the largest clinic sale and second-largest divestiture, following the $335 million sale of hospital-based physician contractor Team Health. The sale was part of MedPartners' ongoing effort to dismantle its physician management operations.
The hospitals have pledged not to change the management of the clinic, which has been profitable for years. The joint venture will receive an undisclosed management fee under terms identical to those in place under MedPartners, officials said.
J. Michael Condit, M.D., chairman of Kelsey-Seybold Medical Group, said the physicians are positively giddy about the purchase. For one thing, the clinic will no longer be subject to Wall Street's relentless quarterly financial pressures.
Clinic physicians admit most of their patients to St. Luke's. But for the past year, the clinic has been in discussions with Methodist about collaborating on the hospital's outpatient network; the clinic would help design facilities and select sites as well as lease space.
All three leaders brush off speculation that the joint venture will lead to a resumption of merger talks between the hospitals, but Condit added: "Certainly, we're bringing a lot of understanding among all three of us."
While the hospitals have been competitors, the joint venture could be the start of a closer relationship, Jhin said.
"We are both trying to develop our regional networks, and we both could benefit from a well-established physician component," he said.
Butler was a senior executive at Detroit's highly integrated Henry Ford Health System for five years before joining Methodist in 1997. He said it wasn't necessary to buy the clinic's assets to collaborate with clinic physicians in redesigning patient care. But he said there was a risk that a different buyer wouldn't have wanted to work with Methodist.