The corporate vice president of planning and development of Fidelity Health Care was approached by a member of one of the two cardiologist medical groups in the metropolitan area. Apparently, the contract this group has with one of Fidelity's competitors is about to expire and the doctors are not satisfied with how the new contract negotiations are proceeding. The cardiologist group would be willing to partner with Fidelity Health (FH) in a co-owned cardiac care niche hospital. FH would put up 90 percent of the capital, approximately $52 million, which could be borrowed at a low rate, to build the facility and purchase the equipment. The cardiologist group would put up the remaining 10 percent and would staff the hospital and make all referrals for prolonged in-patient care to Fidelity's local hospitals. In this venture, FH would own 51 percent and the cardiologist group 49 percent.
The cardiologist group is insistent that the hospital be built out west in one of the most affluent suburban neighborhoods in the metro area. This would mean that the cardiologist group would leave the inner city where they operate principally now and those patients, mostly underserved, would essentially be without specialty cardiology services, given that the other cardiology group also resides out west in another competitor hospital in a different prosperous suburb. There actually is no community need for the cardiac hospital out west because they already have relatively easy access to the hospital that houses the other cardiology group. Nevertheless, the consulting firm hired to review the deal has assured us that we would reach those not already served and would take patients away from the competition because the cardiac group with which we would partner, though smaller, is more reputable and ranked higher by quality sources than the other one. The consulting firm believes strongly that the demand for services at Fidelity's cardiac hospital would be sufficient enough that the hospital would generate substantial revenues and quite possibly net about $20-30 million in income annually for the first five years. This would mean an additional $10-15 million to Fidelity's bottom line. In the past, Fidelity probably would not even have received a Certificate of Need (CON) since objectively there is no community need. But, with the state CON program recently repealed, that is not an issue in this case.
From a business perspective, the advantages of this new venture are clear: Fidelity makes money, bolsters its cardiac services, increases market share and thereby widens the gap between itself and one of its competitors (i.e., the one from whom they would be "taking" the cardiologist medical group) and narrow the gap between itself and another competitor (i.e., the hospital out west with which they would now be competing for cardiac services). (Courtesy of Dr. Michael Panicola, SSM Health Care, St. Louis, Mo.).