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The BayCare Experience:Physician Joint Ventures

Paul R. Summerside, MD

Chief Medical Officer

BayCare Clinic, LLP

President, Board of Managers

BayCare Aurora, LLC

Aurora BayCare Medical Center (ABMC)

• ABMC is an acute care hospital that opened in 2001• Joint Venture of BayCare Clinic (a physician partnership) and

Aurora Health Care (a not-for-profit organization)• 40% Physician ownership• 167 Beds including the following services:

- General Medical and Surgical - Women’s Health

- Adult ICU/eICU - Obstetrics

- Cardiovascular - Level III Neo-natal ICU

- Neuroscience - Pediatric Inpatient

- Orthopedic - Inpatient Rehabilitation

- Emergency Services including a Level II Trauma Center - Oncology

• Located in Green Bay, Wisconsin• 1,100 employees• Operates under the Planetree philosophy: patient centered care in

a healing environment

BayCare History

• 1996 - Independent Specialty Practices Form MSO• 1998 - Letter of Intent w/ AHC• 1999 - Integration of MSO to BayCare Clinic• 1999 - Finalize JV Operating Agreement• 2000 - Break Ground on ABMC Hospital• 9/01 - Opening ABMC Tertiary Hospital• 2003 - ABMC Reaches Calendar Year Profitability • 2004 - ABMC Pays off Operating Line and

Accumulates Cash Reserve• 2007 - ABMC 5th Consecutive year w/ > 12% margin

and begins seventh expansion

Joint Ventures….Why?

– Am I in trouble?

– Am I at risk?

– Will I be at risk?

Risk Avoidance = 10x Pleasure Pursuit

Change

1. Fixed Costs

2. Physician Loyalty

3. Capital Needs

4. Regulatory Concerns

5. Safety/Quality

6. Payor Mix Risk

Hospital System Anxieties

Maslow’s Hierarchy of Needs

Understanding Motivation

1. Loss of lifestyle

2. Loss of Control

3. Loss of Colleagues

4. Loss of Respect

Physician Fears/Needs

0 Volume

$ M

illi

ons

LOSS

COST

PROFIT

REVENUE

Hospital Finance

0 Volume

$ T

hous

ands

LOSS

COST

PROFITREVENUE

Physician Finance

0 Volume

$ T

hous

ands

LOSS

COST

PROFIT

I Move I Stay

Ris

k C

orri

dor

REVENUE

Physician

0 Volume

$ M

illi

ons

LOSS

COST

PROFIT

Ortho HappyOrtho Sad

Ris

k C

orri

dor

REVENUE

Hospital Finance Fears

Institutional: Greatest Good for the Greatest Number

(Missions)

Physician: My Income, My Overhead,

My Time, My Patients (Goals)

Clash of Cultural Values

Reliance on benevolent dictatorships

w/ a “Mission”

Psst… remember RESPECT and Control!

Physician Fears…

The Renter vs. Owner

Neurological Spine Costs Among Six Centers

No Complications

020,00040,00060,00080,000

100,000120,000140,000160,000180,000200,000220,000240,000

0 1 2 3 4 5 6 7

• Key personnel like each other;

• Understanding partner’s cultural values;

• Respect of partner’s value;

• Willingness to relinquish control.(If you love them, set them free!)

Keys to Successful Join Ventures

If you want to be a lion tamer….

you better at least like the animals.

Hospital System Anxieties

• Fixed Costs• Physician Loyalty• Capital• Regulatory • Safety/Quality• Payor Mix Risk• Loss of Profitability and

Mission

Physician Anxieties

• Loss Lifestyle• Loss of Control/Quality • Loss of Colleagues• Loss of Respect

Aligning Incentives (Fears!)

• Ownership• 40% BayCare Physicians• 60% Aurora• All Stark Controlled Revenues in the JV

• Governance (MAD) Board • Five Aurora and Five BayCare• 70% Super Majority Rule• Partner Veto all Self-Dealing• Non-competition

BayCare Aurora Experiment

• Results:– BayCare Clinic

• 1999 – 53 specialists» $44 million net collections

• 2007 – 100 specialists» 40 physician extenders» $105 million net collections

BayCare Aurora Experiment

• BayCare Aurora LLC• 1999 – Two Surgery Centers

» $8 million gross revenues

• 2007 – Tertiary Hospital System» $200 million gross revenues» Largest Taxpayer in County

BayCare Aurora Experiment

IP and OP Discharges Since 2002

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Qtr 12002

Qtr 22002

Qtr 32002

Qtr 42002

Qtr 12003

Qtr 22003

Qtr 32003

Qtr 42003

Qtr 12004

Qtr 22004

Qtr 32004

Qtr 42004

Qtr 12005

Qtr 22005

Qtr 32005

Qtr 42005

Qtr 12006

Qtr 22006

Qtr 32006

Qtr 42006

* Source: Aurora Loyalty Index Data Through Q2 2007

40%

45%

50%

55%

60%

65%

2001 2002 2003 2004 2005 2006 Q12007

Q22007

Patient Satisfaction – Inpatient Services

40%

45%

50%

55%

60%

65%

70%

75%

2001 2002 2003 2004 2005 2006 Q12007

Q22007

* Source: Aurora Loyalty Index Data Through Q2 2007

Patient Satisfaction – Outpatient Ambulatory

“In the Absence of a Great Dream…

Pettiness Prevails.”

--Peter Senge