Like many surgeons, I scheduled my ENT practice's first few years of procedures in hospital ORs or at area surgery centers. By the late 1990s, as we expanded into a multispecialty practice, we added a freestanding operating theater for self-pay cosmetic surgery and limited insurance cases. Soon after, we began asking ourselves, "Where do we go from here as a group practice?" One answer was to build our own ambulatory surgery center. But we operated in Connecticut, a state with rigid certificate of need laws and hospitals defending their market share. Our solution? We proposed a physician-hospital joint venture.

Nearly four years and a massive legal jungle later, 20 doctors in our region are in partnership with a regional acute-care facility. It's still a work in progress, but it's certainly apparent that these increasingly popular joint ventures are accompanied by perils as well as payoffs.

Convincing the chiefs
When we approached the hospital with our business plan to collaborate on a project, it was initially skeptical. The hospital already owned an outpatient surgery department; what purpose would giving up a share of its control serve? We offered two arguments for such an investment.

• Outsourcing ambulatory surgery pays dividends elsewhere. Hospitals don't earn the bulk of their returns from outpatient surgery but from inpatient services. Ambulatory means the patient arrives, undergoes surgery and departs, but inpatient includes blood work, X-rays, lab results and filling inpatient beds. This hospital was growing and in need of more ORs as it expanded into cardiac, bariatric and other surgical fields. To build a new on-campus facility would have been a massive expense. By moving ambulatory operations off-site - to, as it turned out, a refurbished existing building - it would be able to shift its outpatient ORs to more lucrative inpatient uses and still share in outpatient earnings.
• Physician-partners mean greater efficiency. The hospital could have built its own ASC, on- or off-campus. But studies have shown that if a physician is a partner in the process of creating and operating a surgery center, the resulting product tends to run more efficiently and cost-effectively, largely due to the incentives of ownership. Physicians who have an economic stake show up on time, don't waste minutes or dollars in the OR and make smarter purchasing decisions.

These potential benefits even convinced the hospital's CEO to visit a joint venture surgery center in Spartanburg, S.C., so he could observe its workings firsthand. When he returned, he had the ammunition to convince his colleagues that what we proposed could be a win-win situation.

The complications of collaboration
Partnering with a large institution is like dealing with a multi-headed dragon. The CEO and COO that you convinced to join you are responsible to their board, a group of people who often possess widely varied opinions. Add to that the possibility of divergent interests among the surgeons joining the venture and it's apparent that the partnership can be imperiled by multiple agendas, not to mention the tax and regulatory issues it will face and the fact that many hospitals are not-for-profit institutions while surgery centers are nearly always profit-driven enterprises.

When physicians and hospital administrators begin to plan their joint venture, relations can be adversarial. Establishing governance and parceling out operational control can keep the two sides grumbling at each other from across the negotiating table.

Externally, too, there are legal and regulatory compliance hoops to jump through, both in forming and running a joint-ventured ASC. Physicians and administrators may now be partners, but according to the Anti-kickback Statute, the Stark Act, the Internal Revenue Service and other federal watchdogs, they must remain separate entities and maintain an arms' length relationship in referring, billing, purchasing and other financial aspects.

Building a joint venture can be a long process, perhaps even a more complicated arrangement than establishing a physician-owned ASC, and physicians may find themselves out of their element during the planning stages. While the hospital has a dedicated staff of administrators and, more than likely, a large legal staff, physicians must retain their own legal counsel and sublimate their own practices to attend planning meetings.

It's essential for the physicians to retain attorneys and consultants who specialize in healthcare joint ventures to advise and guide them throughout. But it's also important for the physicians to identify which one of them has the organizational skills to serve as "team leader" for the side in its planning and negotiations with hospital administrators. The most qualified candidate might not be able to fill the role due to time constraints, but a team member who doesn't have the skills to represent your side's interests - but who is driven by ego to volunteer for the role - is hardly a fitting substitute.

The advantages of alliance
While a physician-hospital joint venture can be difficult to navigate, it can also prove to be a better arrangement once the adversarial phase has bridged into a more collaborative stage of mediation and an eye on the bottom line. You sold the hospital's administration the idea of forming a joint venture on the benefits its facility would gain. Here's how it pays off for you, the physician-owner.

For starters, you'll share in the hospital's administrative strength and influence, which will be acutely apparent if you live in a CON state. The CON process is a long one - the approval for our joint-venture ASC's application took eight months, even though it was uncontested - and the partner institution can lend a great deal of help.

Working with the institution adds a fair amount of credibility and quality to the ASC you establish from square one. In our experience, working with the hospital's health system earned us trust among the community and other physicians, since we were viewed in association with that institution instead of as just a new upstart.

Even more importantly, we won over patients through our association with the hospital system. Patients trust us because they're assured they'll get the same quality of care and safety as they do at the hospital they already know.

Teaming up with a hospital also potentially boosts an ASC's buying power by introducing its materials managers to the hospital's vendors and opening doors to lucrative purchasing contracts and leverage in negotiations. The surgery center has to conduct its own dealings and nothing can be given to it by the hospital to avoid kickback violations, but its association with the institution can be beneficial in the purchasing game.

No pain, no gain
We "broke ground" - or, rather, began renovations on the building we planned to inhabit - in January 2006 and were up and running by July. Our joint-venture ASC is still a work in progress, but arming ourselves with a convincing business plan, expert advisors and a patient outlook is helping us to reap the rewards of the effort.