The Types of Joint Ventures in Health Care

A breakdown of the entities and some legal tips for Ohio businesses

Health care is one of the most competitive industries: The margins are being squeezed, the technology is constantly changing, government regulations are complex, administrative burdens are considerable, and patient expectations are high.

For a number of different reasons, independent companies, organizations, or medical professionals may benefit from forming a joint venture or other type of partnership. As defined by the Cornell Legal Information Institute, a joint venture is a commercial enterprise formed by two or more separate entities to pool resources to achieve a common purpose.

An Overview of Joint Ventures

Before forming a commercial partnership, companies and organizations should carefully review the unique circumstances—with close attention to the risks, the benefits, and their short-term and long-term objectives. Joint ventures are complicated.

When it comes to legal considerations at the outset, “three major components spring to mind,” says Christopher M. Huryn, who advises health care clients at Brouse McDowell in Akron. “One is a compliance consideration, because a lot of times these joint ventures are created amongst health care referral sources and competitors. So you have to be sure the joint venture is structured in compliance with the fraud and abuse laws, the Anti-Kickback Statute and the Stark law. You also have to make sure there aren’t any issues with respect to compliance of antitrust statutes, and there can also be tax considerations if there is a for-profit and nonprofit doing a venture together.”

“Joint venture” is a broad term that does not refer to one specific type of business partnership. Here is a breakdown of the most common ones in the health care industry:

  • Management Service Affiliation: One of the least intensive types of commercial partnerships, a management service program allows independent health care providers to outsource certain administrative burdens to another company. 
  • Contractual Venture Partnership: A contractual venture partnership is a commercial relationship focused on helping health care providers improve their efficiency and performance through pooling of resources and services. 
  • Clinical Integration (CI) Program: A Clinical Integration (CI) program is a specific type of arrangement that allows for the facilitation and coordination of patient care across multiple providers. Through a CI, independent medical practices can work together to provide patient care in a manner that is more efficient and allows for better organizational operation.  
  • Co-Management Agreement: A co-management agreement is a contract between a direct health care provider and a party that offers some form of management services.
  • Management Services Organization (MSO): A Management Services Organization (MSO) is a popular health care industry partnership that allows for greater efficiency in administrative and management functions.
  • Physician-Hospital Organization (PHO): A Physician-Hospital Organization (PHO) serves as an agent for both health care providers (such as hospitals) and individual physicians. The purpose of a PHO is to protect and advance the mutual interests of both parties. 
  • Professional Services Arrangement (PSA): A Professional Services Arrangement (PSA) is between a medical practice and a hospital. When structured properly, a PSA allows a medical practice to remain fully independent while also being well integrated into the hospital’s administrative system.

Setting Up a Joint Venture

Entering a joint venture with an outside company or organization is a significant step. It should never be taken lightly. Any successful business partnership requires a genuine commitment of time, energy, and financial resources.

Seeking legal counsel, from the start, is advisable, Huryn says. And while the two entities involved may have their own corporate counsels, seeking advice from someone experienced in health care and joint ventures is preferable.

“These arrangements need to be structured in ways different from a general commercial transaction,” Huryn says. “Best practice would be to engage a legal counsel in the development of a joint venture, and early on. You want to address the issues sooner, rather than later, in terms of the formation and the compliance laws involved.”

And the formation is just the start, he adds: “The structure, the funding, the market analysis, how the company is run and managed, the competitors, how the company would be unwound if it doesn’t work out—all of these things are considerations on top of the health care component.”

For more information on this area of law, see our overviews of business organization and mergers and acquisitions.

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