Joint Ventures in healthcare are a common way to collaborate on a focused care delivery initiative. A JV is a partnership between two or more organizations to own and operate a healthcare facility. JVs are separate from the primary operating companies of the JV partners. As a result, there are a host of issues that are unique to their structure.
Joint Ventures can involve multiple models and can be among independent practices, hospitals and other healthcare organizations. Ambulatory surgery centers, imaging centers and dialysis units are all facilities that are commonly joint ventured. Providers can establish a JV for a value based care delivery model. Each party to the JV brings its own contributions to the success of the enterprise. Here are some areas that you should think about when evaluating whether to enter into a JV.
Planning. Know your partner; if not directly, then at least by reputation. Project the budget for five years. Lean on your own financial and industry experts to stress-test the projections. Acquiring an existing facility or buying into an operating JV is more predictable than starting de novo. Be sure you know the time and process involved in the change in ownership or licensure process, and the impact of delays if there is a backlog of applications. Contracting with CMS is generally predictable but contracting with commercial payers can vary.
Ownership Percentage. Joint ventures are structured with ownership among two or more healthcare entities. Ownership percentage dictates capital contribution obligations, capital accounts and taxes, and distribution benefits. As discussed below, however, owning a majority interest does not always mean that you have a controlling interest in governance and operations. Think about the primary drivers that you want to influence as a JV partner and consider those in the context of your ownership percentage. Then “manage” your oversight by structuring the governing documents to protect your participation in the areas that matter most.
Governance Structure. Your JV should have a governing body. Board meeting frequency should be prescribed in advance. That body can act as an operating committee or specifically appoint members to an operating committee. In the early stages of the venture, meetings should be frequent until operations normalize. A typical governance structure should provide for board representation based on percentage of ownership in the structure. Anticipate “counting votes” when considering the governance structure and governing documents. Even if you are a minority interest holder, you will want to be able to have input on executive leadership, distributions, capital calls, admitting new joint venture partners and transferring interests, borrowing, expanding or reducing service lines, administrative services arrangements, and liquidation and sale. Dispute resolution should be included to address any deadlock. Because JVs by their nature are not the primary operating companies of the parties, it is important for the governing documents to be specific about how to address these and other issues.
Administrative Services. As an ancillary facility with separate ownership, it is common to have administrative services provided by one of the joint venture parties. Pay special attention to the terms of the agreement. The services can be comprehensive, including operations responsibility, staffing and human resources, billing, licensure and accreditation responsibility, and payer contract management. The services need to be explicitly described. Detail should include a review process such as performance metrics, limits on pricing margins of supplies, attribution of responsibility for failure to perform, and a process for remedial action should also be included in any arrangement.
Compliance. Structuring a JV transaction is no different than any other healthcare transaction. There are compliance risks tied to the structure of the transaction, the valuation applied to the transaction, and liabilities inherited from prior operators, all of which are unique to a joint venture. Understand the intention behind the regulatory framework and engage experts to be a guide through the matrix.