Rex Healthcare, the busiest hospital in North Carolina’s Research Triangle region in terms of surgical procedures performed, has closed on the sale of a minority stake in a surgical center to a doctors group aiming to boost the number of cases handled at the facility.
The physicians group, comprised of 25 doctors in Cary, North Carolina, has raised $3 million for a 22 percent stake in the Rex Surgery Center of Cary. Steve Burriss, senior vice president of operations and ambulatory care for Raleigh-based Rex Healthcare, said that the Cary surgery center handles between 3,200 and 3,300 cases per year. The facility, open since 2003, is under capacity and the doctors group could boost the number of cases performed by 2,000 cases annually.
“Physicians gain a partial stake in the operation of a facility, and they are more likely to bring cases to a facility that they own,” Burriss said.
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Physician ownership in medical centers is not unusual. But it is less common in North Carolina than it is in some other states. That’s because North Carolina operates as a “certificate of need” state. Certificate of need, or CON, is a process through which the state tries to contain healthcare costs by regulating capital expenditures. Before healthcare providers — hospitals, universities or doctors groups — acquire, replace or add to facilities and equipment, they must explain the need for the expenditure and receive approval from the state Department of Health and Human Services.
More than two-thirds of states have CON laws. Dr. Paul Enochs, a Cary-based bariatric surgeon who was one of the coordinators for the doctors group, said that had the doctors considered a surgery center in a non-CON state, they could simply secure space and open its doors. But in a CON state, they must file with the state a formal request that has no guarantee of approval.
“It’s difficult to do that because you’re competing with hospitals and universities that have more wherewithal to compete for CONs,” Enochs said.
Enochs said that in conversations with Rex last year, he learned that the Cary center was under capacity. Rather than seek approval for their own facility, the doctors offered to buy a stake in the Cary surgery center.
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The growing trend of doctor ownership in outpatient surgery centers has drawn some scrutiny. A University of Michigan Health System study last year found that doctors who have ownership in a surgery center perform twice as many surgeries as doctors with no financial stake in a facility. Study author Dr. John Hollingsworth of the University of Michigan Medical School said in the report that the financial stake creates a potential conflict of interest as profit may motivate treatment decisions.
Enochs said caseload growth will come from doctors bringing their cases to the surgery center. The doctors group will grow as it brings on more physicians to invest in the facility and bring their patients to the surgery center for care. The Cary doctors have another year to buy additional shares without diluting the value of existing shareholders.The doctors’ stake in the facility can grow to up to 45 percent. Enochs said that the dual ownership structure benefits both parties: Doctors bring clinical experience while Rex provides administrative and facility experience that most doctors don’t have. Burriss said that even though Rex will retain a majority stake in the surgery center, the hospital and the doctors will share in operational decisions.
Meanwhile, Rex is moving forward with another facility in partnership with doctors. This summer, a new $8.5 million surgery center is breaking ground in Raleigh in a joint venture with the Raleigh Orthopeadic Clinic. The facility is expected to open on Jan. 1, 2013.
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