Cooperation Over Competition to Benefit All

Cooperation Over Competition to Benefit All 

By Tom Doenitz, MBA 

When Pinehurst Surgical of Pinehurst, N.C. opened the doors of its replacement medical office building (MOB) in July 2006, the event was lauded as a new era of enhanced collaboration between the group’s physician-surgeons and the local hospital. As one of the largest multi-specialty surgical group practices, Pinehurst Surgical’s robust market presence gained a significant boost with the larger, more efficient building. The stately 131,135-squarefoot facility, inspired by traditional Southern architecture, enabled the group to expand the practice and maximize operational efficiencies. Located on the campus of FirstHealth Moore Regional Hospital, the MOB is adjacent to a new six-operating room (OR) ambulatory surgery center (ASC), providing patients and physicians with one-stop convenience. Pinehurst Surgical’s new facility stands as a testament to perseverance, compromise, and a physician/hospital partnership nearly 10 years in the making. 

Growing Pains 

Although it is world renowned for its golf courses, Pinehurst is a small town with a population of roughly 11,000. Despite the bucolic nature of the area, Pinehurst Surgical and Moore Regional are not rural care providers. Pinehurst Surgical draws patients from 15 counties — six primary and the rest secondary. The practice serves a patient population of about 350,000 and enjoys a statewide reputation. Moore Regional is the flagship hospital of FirstHealth of the Carolinas, a private, nonprofit healthcare system. A 385 bed acute care facility, Moore Regional is the only hospital in Pinehurst. 

The two organizations share a tightly knit history that dates back 60 years to when the group practice formed in a space carved out of the hospital itself. As the practice grew and expanded, it maintained close proximity to the hospital; for the last 30 years, they were located just across the street from each other. In the public’s perception, this made the organizations one and the same. 

In the mid-1990s, Pinehurst Surgical began planning for growth and development. The group recognized that it needed to grow its services and recruit more physicians to sustain its position as market leader, continue providing innovative care and keep pace with patient demand. To this end, Pinehurst Surgical engaged Marshall Erdman & Associates to analyze the group’s facility development options and perform a revenue and expense analysis to confirm that a more operationally fit facility, combined with new ancillary incomes, would offset the costs of owning a larger building. 

The question then became where to build. With Marshall Erdman’s help the group explored options for expanding the current facility, but the desire all along was to move to the hospital campus, says William Edsel, CEO of Pinehurst Surgical. “We suggested to hospital officials that we could build a large medical office building and they could build a parking deck,” Edsel recalls. This was in the summer of 1995. 

However, Pinehurst Surgical wanted few or no restrictive covenants on the lease or sale of land. This included the provision of mutual ancillary services, as well as allowances for future technologies. Given that they intended to stay in the new facility for at least 40 years, the group practice wanted to keep all options for ancillary growth and overall healthcare delivery open. But the hospital was reluctant to bring Pinehurst Surgical to its campus only to compete for profitable ancillary lines of service. 

When negotiations for a hospital campus location stalled, Pinehurst Surgical purchased acreage two miles away in Southern Pines. The site provided ample space for expansion, but time and convenience would become casualties to the distance between the replacement building and the hospital campus. 

“The distance would have been significant because of time-urgent situations such as baby deliveries, emergency room calls, and other medical- related matters. And there is a congested traffic circle in between the acreage we purchased and the hospital campus,” Edsel says. 

The long-term consequences would be far broader, extending all the way to the philosophy that linked the two organizations in the public eye. “A lot of people think that FirstHealth and our doctors are one in the same,” Edsel explains. “Moving away from the campus would have caused a visual disassociation.” The inability to reach a compromise could have hurt the hospital’s standing in the community as well, says Charles Frock, CEO of FirstHealth of the Carolinas. “We have an active foundation made up of a lot of people who want to see its hospital and doctors working together,” Frock says. “We would have maintained good relationships with Pinehurst Surgical if they had moved, but it would have raised questions in the community. It would send a message that regardless of what was said, we just weren’t working together.” 

Coming to Terms 

In an interesting twist, it was ultimately an ASC that brought both entities together. Although negotiations over the MOB were still stalled, in 2002 Pinehurst Surgical and Moore Regional agreed to jointly pursue a certificate of need (CON) for an ASC. In response, a separate group of local surgeons teamed up with a rival ASC group looking to enter the Pinehurst market to apply for a competing CON. 

“Ultimately both applications were denied, and the hospital suggested and ultimately prevailed in getting all community surgeons to work together for an ASC,” Edsel says. 

The six OR ASC opened in January 2006. It was the first building on the new FirstVillage campus, an expansion of the Moore Regional campus. The ASC is owned by Moore Regional, Pinehurst Surgical, additional community surgeons, and Neuterra, a management company. 

It was the ASC that helped pave the way for Pinehurst Surgical’s replacement MOB, asserts Hugh DuBose, principal with consultant firm HealthCare Facilities Associates, LLC. DuBose served as the owner’s representative for Pinehurst Surgical. 

“It’s interesting because the outcome of this deal led to the sharing of outpatient revenue between the hospital and doctors, which led to the real estate deal that led to construction of the new MOB,” DuBose says. 

As the ASC project got underway, Pinehurst Surgical and Moore Regional negotiated a parcel for the replacement MOB on the extended hospital campus, with a long-term ground lease. 

“We had wanted to be on the hospital campus all along, and they wanted us there too,” Edsel says. “We both had to accept some compromises to make the deal work for both organizations and our patients.” 

According to Edsel, this involved working together to determine market share, individual roles for each organization and their overall role in providing the care needed for their community and the region. 

Frock describes this as a “philosophical change,” stating, “There were issues that were important to them that we had to struggle with. We had to come to an understanding regarding where things are going to go down the road and how we could maintain appropriate control, yet allow them to grow their business as they see fit. It was more important for us to maintain good relationships with our physicians, and our surgeons in particular, rather than fight with them.” 

This includes competition over ancillaries. For instance, rather than compete for imaging revenue, Moore Regional views Pinehurst Surgical as providing fundamental imaging services, freeing the hospital to invest in complex and expensive new technology. Conversely, the hospital needed assurances that Pinehurst Surgical wouldn’t infringe on its inpatient services by building a mini-hospital down the road. “They concluded that wasn’t likely enough or beneficial enough to make that a deal breaker,” Frock says. 

The end result is a comprehensive, surgical group practice MOB with fully digital diagnostics (including MRI and CT), a pre-operative center, a sleep lab, and physical therapy. The group has expanded its services and added new lines, and it intends to add other specialty services along with related ancillaries to support its surgeons. An adjacent parking deck was built by the hospital to guarantee convenient parking and access. 

Patient volumes are on the rise and the practice has recruited eight additional surgeons (since August 2005) for a total of 38, with more to follow in the coming years. Operational efficiencies are designed into the facility to foster cross-training, keep variable costs in check, and help physicians and staff accomplish more in less time. 

The group also has the only BioSkills lab in a private practice. Pinehurst Surgical partnered with Smith and Nephew, an international device company, on the 650-square-foot center. The BioSkills lab is used to demonstrate new medical devices and teach groundbreaking surgical approaches using cadaveric material. Without question, the clinic’s lab lends prestige to the hospital by proxy — and levels the playing field with the hospital’s most direct competitors — academic medical centers. The BioSkills lab will bring world class training to the hospital campus; drawing physicians, surgeons even dentists and veterinarians from around the country for training opportunities. 

Lessons Learned 

In discussing what ultimately led to success, the theme centers on patience and planning. 

“Tenacious perseverance in working toward an equitable solution was the ultimate reason it was worked out,” Edsel says. “This took 10 years to achieve.” 

DuBose seconded those thoughts, noting that patience is the cornerstone to successful arrangements like the one between Pinehurst Surgical and Moore Regional. “Understanding really is an evolutionary process,” DuBose says. “You’ve got to negotiate, and both parties have to understand what the other party’s goals are. Both parties need to recognize that there is going to be some give and take.” 

DuBose and Edsel also cite planning as a key component of the complex negotiations. The ability to evaluate design options, study economic models and understand how all alternatives affected the master plan enabled the hospital and the clinic to make informed decisions based not only on existing circumstances, but also in relation to future growth. 

To help the group determine what made sense from a design and economic standpoint, Marshall Erdman conducted a revenue and expense analysis and studied multiple sites and design options. The data and subsequent recommendations directly informed negotiations between the surgeons and the hospital. Marshall Erdman ultimately helped select the site in FirstVillage, and then planned, designed, and constructed the new facility. 

Frock agrees that having knowledgeable advisors on board from the start was an important factor for success. “The more knowledgeable the advisors, the quicker you get to something reasonable for both parties,” he says. 

Edsel also recommends having a real estate developer, a project rep and a good healthcare attorney who understands the economics of healthcare deals. “Most people don’t think of lawyers as key negotiators but they have these great skills if you permit them to act on your behalf. We considered our attorney to be a key consultant in the entire process,” Edsel says. 

Although it was a long process, both organizations are stronger for the journey and the partnership they have forged. The risk of losing revenue to shared modalities is more than made up for by securing market share and maintaining a comprehensive campus of inpatient and outpatient services. 

“Don’t underestimate the power and advantage of hospitals and physicians working together on the issues we all struggle with, like managed care or competing health systems,” Frock says. “It’s better to deal together with that outside adversary rather than squander resources and give the competition the advantage.” 

As for the evolution of the campus concept itself, Edsel says the clinic and parking deck are in the exact spot he envisioned nearly 10 years ago. “We all felt we were right. Only time, careful interactions, and ultimate cooperation prevailed so that all parties recognized that the best solution was to work together for the good of the community and our patients.” 

Tom Doenitz, MBA, is a project executive for Marshall Erdman & Associates, an integrated design-build firm that specializes in healthcare facilities. Since joining Marshall Erdman in 1998, Doenitz has collaborated on more than 30 healthcare facilities. He can be reached in the Atlanta office at tdoenitz@erdman.com or (770) 416-0772.