Q: How are you approaching those partnerships with not-for-profits?
Fetter: We want to be viewed by leading not-for-profits as their preferred partner when it comes to either services or ambulatory activities, or even hospital joint ventures.
The successful not-for-profits, for obvious reasons, aren't putting themselves up for sale; but what they are interested in doing is assembling scale and efficiencies through partnerships. And they want to do it with a partner who shares their commitment to the local community and mission-driven culture.
One example of this happened in Northern California in 2012. We have one hospital—San Ramon Medical Center—in the east bay of San Francisco. Adjacent to us is a three-hospital system at John Muir Health, also in the east bay, but in the northern part. I can't remember who approached whom, but we said, "Why don't we create a joint venture here? Why don't you buy part of our hospital? We'll take the proceeds and invest it into more ambulatory development for the benefit of this community and both of our organizations." They thought that was a great idea. Two years later, it's working fabulously.
If you had asked anybody, could there be a joint venture of physical assets between an investor-owned company and a not-for-profit institution in that community, they would have said you're out of your mind. But people all over the country have talked about that deal and how unusual it is to see an investor-owned system like us sell a portion of an asset.
Q: You mentioned your strategy involves a focus on ambulatory services. I'm struck by the fact that 85% of your growth in outpatient is organic.
“As we're purchasing facilities... it breathes new life into the center.”
Fetter: What's happening there is that we've been very active acquirers of ambulatory facilities and also we've built a lot of them. As we're purchasing facilities, which we're usually doing in partnership with physicians, it breathes new life into the center. I never would have imagined this, but if you look at all the things we've acquired in the aggregate, and where our volumes are now compared to where they were when we bought them, we're up by nearly 80%. That is a staggering increase. It's way beyond any sort of industry-standard rate of growth. The whole experience has exceeded my expectations.
We've also been experimenting with new concepts: urgent care, freestanding emergency departments, urgent care focused just on kids. It's remarkable how successful that enterprise is. And we are viewing ambulatory services as a way to move into new markets where we might never own acute care hospitals, but where our expertise in developing and operating outpatient facilities can provide new options for physicians and patients, often in partnership with existing hospital systems.
Stay tuned for the full interview with Fetter later this week.