Partnership for medical office building

[TXDoc21]

I work as part of a large multi-specialty group. The office building we use is owned by the hospital real estate group and we rent from them. In our market we are a very large player for our specialty. The hospital is coming to us and asking if we would like to participate in teaching residents in the program they are starting in 2 years or so. With initial talks they don’t seem to want to pay everyone. They are interested in a “for the love of the game” model it seems. Obviously we see the pros/cons.

One thought I had was that we could go back to them and say that we would like to be able to do a joint venture with you in our office building. Establish shares and we would have to buy in with equity. We are the largest tenant by far (over 25 docs in the building). Then we could be part owners of the building and be paying ourselves rent.

Does anyone have any thoughts or comments on this?

[Tim]

Sounds like U of H. , maybe not. The “new” medical school is a difficult sell to the state and the university has to find places for the next step, residency programs. So far, HCA committed to hosting residents. No idea how the funding is split.
Real estate funds have gone to the medical school and ONE clinic on/close to campus that seems to message their mission.
Joint venture on the building is a separate issue. Feel free to approach the hospital. I doubt the medical school will kick in. The hospital might since your group is a major tenant.

[ENT Doc]

Good luck with that angle. I have no doubt they’ll say no. But who knows maybe worth a shot. If you’re going to do that, are you near the end of your lease? Do you have alternatives? Is moving an actual credible threat?

[SerrateAndDominate]

Kind of ridiculous they aren't paying you for your time. Worth a try

[EntrepreneurMD]

If they say no, 25+ docs can leave, build and start paying rent to themselves while keeping the property appreciation and tax depreciation for themselves. There are always options.

Caution, financial partnerships with hospitals don't usually do well for the physician group. Hospital ACO's come to mind.

[jacoavlu]

joint ventures can make sense in surgery centers, imaging centers, in your shoes I don't see how a jv with the hospital for the building makes much sense

[TXDoc21]

So they have agreed to pay some of us a small wage (I’m one of the “lucky” ones). The amount is <5% of my income so it’s a big change to have a resident with me all the time for that amount of money. The hospital is the one bringing the residency program to campus. It would be a lot easier for them if we play ball then if we told them no. We worry that over time they will just bring in replacements that are hospital employees if we say no though too.

We could move. The building is very convenient for all of us (right next to hospital). I doubt we will get everyone to sign up for moving due to the large amount of capital that could require.

I bought shares in the surgery center that the same hospital has a JV with and it has done very well thus far in my 1.5 years of ownership.

I would love to have ownership in our office building for a lot of reasons. I was just trying to think of ways to make that happen. I guess it doesn’t hurt to ask.

[jhwkr542]

There's something to be said for having a good relationship with the hospital too. You may need the goodwill, especially when you're negotiating contracts with insurance carriers.

[Tim]

There's something to be said for having a good relationship with the hospital too. You may need the goodwill, especially when you're negotiating contracts with insurance carriers.

From the sounds of it, putting money into an office building jv with a managing partner that will never sell leaves a void in the exit strategy for the physician or heirs.

[TXDoc21]

We aren't owned by the hospital and so we negotiate our insurance contracts through our group independently. I guess my thought was if you retire then the shares go back to the managing group (like would happen in a surgery center) and then are up for grabs for either the existing physician owners or a new doc coming into the building.

[Tim]

We aren't owned by the hospital and so we negotiate our insurance contracts through our group independently. I guess my thought was if you retire then the shares go back to the managing group (like would happen in a surgery center) and then are up for grabs for either the existing physician owners or a new doc coming into the building.

Someone will end up getting screwed.
Does the group pay the exiting doc? What price?
Typically buy in/buy outs have a defined formula or appraisal to set a methodology. Problems exist with bid/ask.
If you leave and no new doc is added, can you retain ownership or forfeit? Is ownership optional or required? One can get screwed coming in or leaving. FMV always depends on whether one is buying or selling. A group or ASC needs a definition, so does a building.

[jacoavlu]

We aren't owned by the hospital and so we negotiate our insurance contracts through our group independently.

yes, and what happens if you end up having to go out of network bc a payer wants to cut your reimbursement ?

at that point having goodwill with the hospital really matters. Bc going out of network may be the only leverage you have with the payer.

If you have a professional services contract with the hospital, the contract may actually mandate that you maintain in network status with particular payers

[TXDoc21]

All valid points. We are free to take patients to any hospital for cases. Most just use this one because it’s on campus. I take patients to other places and never have a problem. I just let the patient decide. The hospital has no say in where we go.

[EntrepreneurMD]

All valid points. We are free to take patients to any hospital for cases. Most just use this one because it’s on campus. I take patients to other places and never have a problem. I just let the patient decide. The hospital has no say in where we go.

That's by law, not due to the hospital's generosity.

[dennis]

Whatever you do remember loyalty to a hospital especially if it's in a "system" is a one way street. You have to do what's best for your group because the hospital sure will do what's best for it and throw you under the bus if it suits them. If you think you will be better off economically to own your own building do it.