Indiana is one of the world's largest exporters of corn, soybeans, steel, chemicals and heavy equipment. Now, thanks to an Indianapolis health system, it can add ambulatory surgery centers to the list.
Technically, five-hospital Community Hospitals Indianapolis is only exporting its expertise, not the actual ASCs, and is only shipping that knowledge to neighboring states, not overseas. But healthcare dealmakers said while it's not unusual for investor-owned chains to spread their wings to several states, it is uncommon for not-for-profit community hospitals to establish beachheads outside of their market areas hundreds of miles away.
That's what a for-profit subsidiary of Community Hospitals Indianapolis did when it partnered with physicians and two suburban Detroit hospitals about 300 miles away from its home base by exporting its skills in setting up and operating ambulatory surgery centers.
Bryan Mills, chief executive officer of Voluntary Enterprises, a for-profit arm of Community, said the company doesn't market itself or seek new business.
"This isn't part of some strategic plan of ours," said Mills, a former chief financial officer for a Community hospital who's headed Voluntary Enterprises for 16 years. "We're not knocking on doors drumming up business. We have responded to people's phone calls and requests for help. We think we've established a reputation for putting together win-win relationships between physicians and hospitals."
And word has spread. Voluntary Enterprises is receiving inquiries from as far away as New York and is considering requests from Joliet, Ill.
Mills said its ASCs are profitable but declined to release financial data, saying that information is proprietary.
Dearborn and Trenton, Mich.-where the ASCs are supposed to open-are about a 51/2-hour drive from Indianapolis, said Linda Pendleton, Voluntary Enterprises' director of real estate services, who manages Community's five Indianapolis-area ASCs. "You can't get there easily from here. It's not like we were bored. But this was a great opportunity and pretty noteworthy for us, the first time we've done something like this." Voluntary Enterprises also owns the system's medical office buildings and manages 250 physician practices in Indiana.
David Shapiro, medical director of Nashville-based ambulatory surgery center company Surgis, said with more than 3,000 ambulatory surgery centers nationwide, "There are almost as many ways to partner and syndicate as there are ASCs." Having an off-site manager is common, he said.
"Our company ... operates 24 centers in a dozen states," Shapiro said. "That is the norm, rather than the exception. However, what Community is doing is not common for not-for-profit local systems. I wouldn't be surprised to see this happen more in the future."
Shapiro, who is president of the American Association of Ambulatory Surgery Centers, said hospitals are increasingly using their for-profit arms to join with physicians on deals to diversify their income, protect existing relationships and claim a slice of the lucrative ambulatory surgery business, rather than risk losing the entire pie to their increasingly entrepreneurial doctors.
Scott Becker, a healthcare lawyer with the Chicago office of McGuireWoods who has brokered many physician-hospital joint ventures including ASCs, said he's only heard of one other community not-for-profit hospital system attempting a similar deal, which he would not identify.
"It's not that different from the kinds of ventures that the Mayo Clinic or the Cleveland Clinic undertake, and there are plenty of investor-owned companies doing this, but to my knowledge Community would be the first to export its skills to other markets in other states," Becker said.
He said that the best-run ASCs achieve profit margins of 25% to 30%, but most average 10% to 15%, making them potentially lucrative investments for physicians and their hospital partners. By contrast, tax-exempt hospital profit margins average in the single digits. He said not-for-profit hospitals typically create legally permissible for-profit subsidiaries-which in turn pay taxes on their income and return those profits to support the hospitals' mission-to own and operate the joint ventures.
Randy Augspurger, Voluntary Enterprises' director of operations, said physicians seeking investment opportunities and control over their work environments are not difficult to find. Augspurger said Community and Voluntary Enterprises invited the Michigan physicians to come to Indianapolis and see for themselves. "That was our selling point," he said. "It boils down to physician relationships. The doctors complained that they weren't getting the efficiencies they wanted, that it was difficult to schedule patients and secure block time. We have those in our facilities. That's what convinced them."
Ken Trester, senior vice president of planning for Dearborn-based Oakwood Healthcare, said Community had the expertise that Oakwood sought. "This is a unique venture in my experience," Trester said. "The physicians were impressed with VEI and looked at their operations and said they know how to run ASCs."
Construction on the ASC projects in Trenton and Dearborn begins this month and the facilities are slated to open in 2004. The physicians involved in those centers originally were interested in building and operating the facilities themselves. Trester said the ASCs will be shared. The physicians and Oakwood hospitals each will own a 40% stake, and Voluntary Enterprises will manage the operation and claim the remaining 20%.
Peggy Davidson, Voluntary Enterprises' vice president of surgery center development and operation, who has moved to Michigan and will run those centers, said the first ASC project began with a group of doctors who practiced at Beaumont Hospital in Troy, Mich. That center is scheduled to open in February 2004.
Davidson said the Indiana ASCs are not only profitable but also popular with patients and their physician partners. "We consult with the doctors and build private patient rooms, both pre-op and post-op, with a strong philosophy of customer service," she said. "And we continue to stress our preference to always have a local hospital partner."
She said Community and Voluntary Enterprises operate the centers but do not own the buildings for the ASC joint ventures, which range in price from $5.5 million to $7.5 million apiece.
She said other out-of-state projects could be on the horizon, but the company has no plans to build any acute-care or specialty hospitals.