Early in 2007, the board of Knightsbridge Surgery Center, located in Columbus, Ohio realized two things. First realization, we were completing a remarkable run. When Regent made our equity investment and began managing the center in 2004, it was losing money and the physician partners were discouraged. By inviting 13 new members into the partnership, we increased the operating earnings to $3.2 million and paid down a substantial amount of indebtedness. Second realization, we had a 50/50 chance of seeing our earnings decline over the next 12 months due to contract issues with the market’s major payers.
We were in network with UnitedHealthcare, receiving $850 per case and out of network with Anthem. Our receipts from Anthem were dropping as they continued to sell low cost policies with limited out of network benefits. Our best contract with Medical Mutual was under renegotiation. What to do? The board decided to reopen discussions with OhioHealth. OhioHealth was and still is one of the largest healthcare systems in the region, and most of the Knightsbridge board members were on staff with Riverside Hospital, the preeminent OhioHealth Facility in Columbus.
On two previous occasions when the center was distressed, OhioHealth had been approached but declined to invest. They became interested in investing as the center became successful and initiated a majority partnership offer that, at the time, the board declined. This time we initiated the discussion. At Regent, our model is one that gives the physicians controlling interest in the facility. We had never worked with a majority hospital partner, and while uncertain about the deal, we began talks with OhioHealth in order to give our center yet another fighting chance.
OhioHealth has tremendous market clout and had achieved contracting success far in excess of what independent surgery centers in the area could achieve alone. They already owned 50 percent interest in two surgery centers with super majority rights for tie breaking authority. We were pleased to discover that their physician partners were very happy with OhioHealth’s collaborative style and that no decisions had gone to tie breaking process in their five years of partnership with ASCs.
With these promising signs, we began a six-month negotiation led by our legal representative, Opie Rollison of Marshall and Melhorn in Toledo, Ohio. While the road was not smooth, we concluded our transaction in October of 2007. The physicians maintain control over the clinical quality of the center, the administrator, the medical staff, and the admission of new members. OhioHealth promised to say nothing in the first 12 months and observe how we worked. They were true to their word. In the one-year plus since our partnership began, they have achieved remarkable success in contracting with all major payers, resulting in an excellent financial impact on the center. Our profits doubled, and our physicians are now receiving distributions equal to those they received in 2006, with less uncertainty due to our in-network status. These distributions are in addition to receiving a multiple of their original investment in the sale. In markets where the payers are highly concentrated, we believe hospital joint ventures make great sense for both the hospitals and the physicians. OhioHealth receives a great return on its investment and close partnership with their physicians. The surgery center enjoys improved contracts with the major payers. This is why many of our centers now have hospital partners, and we appreciate their contributions.