Joint Adventure: A Case Study in Hospital–Practice Integration

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This article is the second in a four-part series on options for hospital–practice integration. To read the first article, click here.

Sheila M. SferrellaTom BlankenshipOf one of the largest joint-venture integrations ever completed between a hospital and a radiology group, Robert Maier, CPA, CEO of Regents Health Resources, Inc, a consultancy headquartered in Franklin, Tennessee, notes, “It’s not often that you get to the end of a transaction and both parties feel really good, but here, the benefits and contributions have all worked to success, and both parties are pleased.” The transaction to which Maier refers wasn’t completed overnight. It took two years—but when it was completed, and the finished entity began operation on April 1, 2011, a $100 million joint venture between a Nashville hospital system and a prominent Nashville radiology practice stood as a monument to perseverance.

From the beginning, there was an attitude of cooperation between the venture partners. Sheila M. Sferrella, MAS, RT(R), CRA, FAHRA, is vice president of nonacute-care operations for Saint Thomas Health (Nashville), the hospital entity involved. She recalls, “From the beginning, we just decided to have fun with this.”

It was fun mixed with a lot of work. Both Saint Thomas Health and Premier Radiology (Nashville), the 30-member radiology practice that agreed to the joint venture, assembled advisory teams consisting of lawyers and valuation experts. Without these consultants, the deal would never have been completed, both sides now say.

The Saint Thomas Health–Premier Radiology joint venture was another prominent example of health-care entities seeking synergy by combining interests. Consolidation, in one form or another, is occurring all across the health-care landscape. Hardly a day goes by without a cardiology practice or a radiology group being purchased by a hospital somewhere, with the physicians becoming hospital employees.

Insurance companies are purchasing physician practices, too, and are transforming the physicians into employees to serve the insurers’ enrollees. The physician-as-employee model is a favored one, when the objective is to ensure revenues and control expenses as reimbursements decline.

Physicians at Premier Radiology didn’t want to become hospital employees, however, according to Chad L. Calendine, MD, the group’s president. Premier Radiology’s physicians wanted to remain independent, but the group was looking for an alliance with hospitals or health networks in some form.

“We were keenly aware that a stand-alone imaging provider was going to need to align with a health system in order to be flexible enough to withstand the changes taking place in health care,” Calendine says. “We knew that something would have to be done in the next couple of years.”

Thus, Premier Radiology was receptive, Calendine says, when Saint Thomas Health approached it about forming a joint venture to operate a network of outpatient imaging centers in the Nashville service area and in an adjoining county.

The hospital system had reason to view a joint venture as an opportunity. On the outpatient-imaging side, Saint Thomas Health had been losing market share. Tom Blankenship, vice president of network and business development for Saint Thomas Health, says, “Except for our two existing imaging centers, all our outpatient imaging business was in our hospitals. We were losing business, and the key factors were that we were competing with freestanding, drive-up-to-the-door, quick-turnaround outpatient centers.”

Through an aggressive business strategy, Premier Radiology had been taking advantage of its accessibility and quick turnaround to gain market share, Calendine says, yet outpatient market share was not enough for Premier Radiology to feel secure. New health-care entities such as accountable-care organizations (ACOs), which can contract to provide the full continuum of care for patients, are giving hospitals and health networks clout. These new health-care entities favored hospitals, which could act as hubs of care in ways that imaging centers could not.

Premier Radiology was also attracted by the larger geographic footprint that an alliance with Saint Thomas Health would create, Calendine says. A joint venture in which both sides co-owned the freestanding imaging centers would expand outpatient market share for both parties and create that larger geographic footprint.

For its part, Calendine says, Premier Radiology now stands to gain 200,000 imaging studies