In April 2010, the Roanoke Orthopaedic Center, the largest independent orthopedic group in Southwest Virginia, merged with the Roanoke-based Carilion Clinic. ROC had approached Carilion Health System about a possible merger several years earlier after the hospital-based physician group converted to a physician-led clinic model. The merger brought together the six-decade old ROC and the hospital-employed group, Carilion Bone and Joint, to form Carilion Clinic Orthopaedics.
The merger has benefited all of the above parties involved in the partnership: the physicians of both orthopedic groups, Carilion Roanoke Memorial Hospital, Carilion Clinic and the Roanoke Ambulatory Surgery Center (an ASD Management-managed ASC which is a 50/50 joint venture project of Carilion Roanoke Memorial Hospital and a physician group composed of physicians of the former ROC and other independent physician-owners).
"What it's done for us, in a time when we are seeing consolidation of physician practices, has been to serve as an example of a high-quality center providing the area an outlet for physician's case volume while adding to the overall level of care and efficiency to the entire system" says Joe Zasa of ASD Management. "The merger has actually improved business rather than steer it in the other direction. The ASC provided a bridge to the merger; it allowed our center and partners to take the first step toward a win-win affiliation between the independent physician group with its ASC and the local hospital."
Here, Thomas K. Miller, MD, an orthopedic surgeon from the former ROC and a physician-owner of Roanoke ASC discusses how the merger came about and why the partnership is still a perfect arrangement for his practice and the ASC.
Q: Your group initially partnered with Carilion on the ASC. How and why did that come about?
Dr. Thomas K. Miller: It will help to understand the history of my group's practice and the ASC. From when I began practice in Roanoke 26 years ago, my group had considered the possibility of opening an independent ASC. Initially the political and economic climate was very much contrary to a freestanding, non-hospital affiliated ASC. However, I think the hospital recognized the increasing shift to outpatient surgery and had the foresight to see the community need for a freestanding center and that our group would provide a large case volume to such a facility. We assisted in their original facility design and had a very good working relationship for almost 15 years.
As other providers and specialties requested facility access and the culture of the center evolved to be more like "in-house" ORs, we revisited the idea of an independent ASC. After finding a group of surgeons with primarily outpatient practices who were willing to assume a degree of financial risk, we enlisted Woodrum/ASD (the forerunner of ASD Management) to assist us with financial feasibility assessments and facility planning. While we had adequate case volume and financial backing to justify a completely independent surgical center, we felt that engaging the hospital system as a partner rather than a potentially antagonistic competitor would be of value as Virginia is a certificate of public need state. This ended up being an advantage at several levels. The hospital had recognized the need for additional ORs and supported the COPN application as it would allow expedited construction of ORs that would provide them an additional income stream. We were able to use their in house legal counsel rather than the added expense of independent council.
Finally, while we had property selected for the proposed ASC, the hospital had a more central, visible and accessible site that has proven far better than our original selection would have been. This allowed us to develop a 50/50 joint venture with the physician shareholders holding one additional (controlling) board vote.
Q: What brought your group to approach Carilion about merging with its orthopedic group?
TKM: As the hospital-based group expanded from Level I trauma support to include more elective type orthopedic subspecialists, we saw that the two practices were evolving along complementary rather than competing pathways. We both had reached an impasse in group expansion as it was difficult for either group to recruit "competing" subspecialists. At the same time, the structure of the Carilion Clinic as a physician-driven practice model was viewed as potentially beneficial for long-term goals if we could work with rather than compete against the hospital-employed orthopedists.
We started shared call and cross coverage with the hospital group about 3-4 years ago. Once we got past the inevitable politics of independent vs. employed and some minor philosophical issues we found that we worked well as a more unified body than competitors. We traded call nights to smooth schedules, made sure all were "equal partners," and established referral patterns that better matched specialty interests. Even though our financial structures were vastly different, our patient care philosophies were consistent and we realized that for us to grow the spectrum and depth of services we wanted to offer in our region, a formal combining of the groups would be necessary.
Q: So after you merged the groups, how did the hospital view the ASC?
TKM: An initial concern was whether our ownership of the ASC would be contrary to the Clinic's mission and structure as the original hospital group was hospital-employed and without similar access to supplemental income streams. At the time of the merger, it was unusual to have us as part of the Clinic (which meant we were hospital employees) but owning a "competing" facility. The Roanoke ASC was an income source but admittedly viewed by the hospital as discounted compared to hospital-based outpatient reimbursement and at a 50 percent reduction based on shares owned.
More important, however, the ASC provided very efficient OR access for a volume of patients that could not otherwise be accommodated. To match the case volume of the ASC (if cases were shifted to the hospital-based ORs), each provider would have required either a two room schedule or extended OR access every day. These options were not realistic from a cost, equipment availability, room access or patient care standpoint. That we can consistently do 6-8 orthopedic cases (it is fairly typical for my schedule to have 2-3 shoulder reconstructions, an ACL reconstruction and 2-3 knee arthroscopy cases in one room with a 3:30-4:00 p.m. out of room time) is not something a hospital-based OR can match in its most efficient mode. From a hospital standpoint, they recognize that having these cases done in high volume and low overhead in an expedited manner is financially beneficial to them (even with some economic sharing). From a Clinic standpoint, the OR efficiency allows us to get the cases done with reduced patient wait times and in a manner that allows more flexibility in our office access.
I will admit there was concern that there would be pressure to bring cases "in house" post merger but recognition of the ASC's systemwide value in the negotiation process prior to merger allowed this concern to be addressed upfront. High volume, efficient scheduling, consistency and patient satisfaction were common goals that addressed much of the "competing entities" issue.
Q: Do you feel that you've sacrificed anything by merging?
TKM: Our practice patterns were well established at the time of the merger. The hospital/clinic knew what to expect of us and we spent a significant amount of time in due diligence establishing exactly what our role would be in the merged group and clinic overall. That all parties knew what they were getting in to has been essential to satisfaction post merger. It certainly extended the negotiation process and was a distinctly non-linear process. While I think the "loss of autonomy" and adapting to the structure of a much larger corporate entity has been (and remains) an issue that each of us has had to find a way to handle, the potential for each of our individual practices (the ROC and Carilion Bone and Joint providers) to evolve to where we want outweighs any "culture shock."
Q: Have there been any "added benefits" to the hospital based on your group's experience with establishing and operating an ASC?
TKM: I would think that issues relating to fiscal responsibility are the biggest added benefit. I think many of us practiced in a vacuum when it came to referable issues such as insurance contracts as they relate to facility reimbursement, supply costs, implant costs and much of the daily overhead associated with patient care in an OR environment. As long as we "have a place to work and the equipment we want," we assume the business will "take care of itself."
With the direct responsibility one sees with the ownership of an ASC, there is a distinct change in fiscal awareness. As orthopedists we often want the newest (and often expensive) toys. While much of this relates to improved patient care, I think we all have to admit the "wow factor" has a role. Being more aware of income streams and cost has carried over post merger and I think all members of Carilion Clinic Orthopaedics are much more aware of fiscal issues.
That said, the more focused environment of the ASC allows some flexibility in product evaluation (and new toys) that would take much longer in the larger hospital environment and we have been able to use this to the hospital's advantage. We know that if a product, process or implant improves patient care, we need to consider its use; if it is fiscally responsible to use it in the ASC setting, we know it will be so in the hospital OR environment.
Q: Is this something that you or members of your group were comfortable with at the start of the ASC?
TKM: This is not at all an area that most of us had experience with when we started the center. Our business manager had excellent contacts with other groups, including those with their own ASCs but the "day-to-day" management of an ASC differs so much from the daily business of an orthopedic practice we realized that more focused facility management would be essential. This directed us to selecting ASD Management for our initial assessments and subsequent management agreement. It provided access to facility planning and construction, facility contract negotiation, suppliers, etc., that we would have really had difficulty establishing.
This was very important during the startup and growth of the ASC. At this point, we are much more comfortable with the process and do quite a bit of this "in house" and rely on ASD for the "big ticket" items and overall financial management.
Q: A common concern associated with hospital-employed physicians is that once employed by a hospital, physicians see fewer cases, take on a lighter schedule and do not maintain the drive they had when they were independent. How have you been able to avoid falling into this routine?
TKM: We were asked a similar question by the hospital-based group prior to the merger. We came into the merger not because we felt financially pressured to have someone "save" our practice or as a place to wind down our practices but rather because we viewed the merger as a means of expansion and improved subspecialty practices. We knew, having shared call and patients, that the hospital-based physicians had a similar practice and patient care mentality. We committed to patient volumes (clinic and operative) that mirrored our independent practice profiles. The Clinic committed to providing an environment that would allow us to do that. This has required each of us learning the strengths and benefits of each system and trying to pick the best of each.
While this is not always possible (and I'll admit that those physicians involved in the management aspect of the combined group probably spend far more administrative time sorting through "cultural differences" than we expected), we all wanted an environment that allowed us to see the patient population and have the surgical practice best suited to our interests and skills.
Shortly post merger, the Carilion Clinic and Carilion Roanoke Memorial Hospital split into separate divisions. If we had considered the merger as a means of "slowing down a bit" because we are "just employees" and finances are not our problem anymore, this could have been a rude awakening to suddenly have to be aware of fiscal responsibility again. Neither side came in to the merger with this attitude and as a result, the orthopedic section has really not seen a significant difference in how we practice regardless of which financial arm we are held accountable to. We are actively (and perhaps aggressively) involved in the Clinic and hospital budget process. It is something that as a "physician-driven clinic" we feel is essential and something we felt was an added benefit that we brought to the merger.
Thank you to ASD Management for arranging this interview.
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