CASE STUDY: PALOS SURGICENTER

Restoring Profitability & Growing a Hospital Joint Venture

Sometimes a new solution to an old problem can make a big difference. In Palos Heights, Illinois, a southwest suburb of Chicago, Regent Surgical Health and community-based physicians recently partnered with the community hospital to restore the profitability of a mature ambulatory surgery center. The surgery center joint venture created a turnaround by recruiting new physicians and introducing new surgical and diagnostic procedures while increasing the overall number of cases and reducing operating costs.

Palos Community Hospital, a 436-bed in-patient hospital, acquired the center in 2001 from The University of Chicago Health System. For a number of years, Palos Community Hospital leadership saw much of their patient volume being referred to other ambulatory surgery centers in the area, as their four OR center floundered while specializing almost exclusively in pain-management and ophthalmology procedures. The case mix resulted in a payer mix that was less than optimal for a facility to reach profitability and contribute to the parent organization’s service mission.

A number of developers approached Palos Community Hospital leadership over the years wanting to acquire or partner with physicians and the hospital. Palos Community Hospital had certain requirements before entering into a partnership arrangement — among the most important was that the managing partner own a portion of the center and share in both the risks and rewards of the venture and not simply collect a management fee. Because of Regent Surgical Health’s knowledge of the local market and reputation for turning around underperforming surgery centers, Palos Community Hospital leadership met with Regent in 2006 to discuss ways to reposition the outpatient center for sustained growth and profitability.

"The hospital did not have a track record of joint venturing with physicians, and our leadership faced some skepticism from within its own physician community whether an agreement could be completed," says Palos Surgicenter administrator Paul Skowron. "Hospital management agreed to enter into a partnership that met the needs of all concerned. As it turned out, the ownership offer to physicians was oversubscribed by about 175 percent."

Regent Surgical Health and Palos Community Hospital executed a joint-venture agreement in January 2007. Within the first three months the center greatly expanded its services and increased the depth of the physician referral base. The new ownership structure is comprised of Regent Surgical Health, Palos Community Hospital and 19 physician partners with physicians holding three of the six board seats.

Regent has secured the existing referral base while partnering with additional physicians to add new lines of patient service. The expanded partnership includes specialists in orthopedics, GI, hand general surgery, podiatry as well as a new pain management group.

"In February, we began new orthopedic and hand surgery procedures, added new equipment and reconfigured the first floor," says Skowron. "Approximately $300,000 will be spent on new GI and orthopedic equipment, which we believe will yield an excellent return on investment." Skowron says the center should double its volume within two years while reducing the percentage of Medicare cases. Says Skowron, "This is going to be a huge success for Palos Community Hospital, the community-based specialists, Regent and the patients we collectively serve."