The Types of Joint Ventures in Healthcare

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

For a variety of reasons, independent companies, organizations, or medical professionals may benefit from forming a joint venture or another type of partnership.

A joint venture is a commercial enterprise formed by two or more separate entities that combine their resources to achieve a common purpose. For specialized legal advice, reach out to a health law attorney.

An Overview of Joint Ventures

Before forming a commercial partnership, companies and organizations should carefully review the unique circumstances, paying close attention to the risks, benefits, and their short- 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 healthcare clients at Brouse McDowell in Akron.

“First is a compliance consideration, because a lot of times these joint ventures are created amongst healthcare 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. Second, you also need to make sure there aren’t any issues with respect to compliance with antitrust statutes. Third, there can also be tax considerations if there is a for-profit and a nonprofit doing a venture together.”

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Common Types of Joint Ventures

“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 healthcare industry:

• Management Service Affiliation. One of the least intensive types of commercial partnerships, a management service program allows independent healthcare services to outsource certain administrative burdens to another company.
• Contractual Venture Partnership. A contractual venture partnership is a commercial relationship focused on helping healthcare 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 healthcare system.
• Co-Management Agreement. A co-management agreement is a contract between a direct healthcare provider and a party that offers some form of management services.
• Management Services Organization (MSO). A Management Services Organization (MSO) is a popular healthcare 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 healthcare 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 agreement with an outside company or organization is a significant step. It should never be taken lightly. Any successful new company or business partnership requires a genuine commitment of time, energy, and financial resources for high-quality care.

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 healthcare law 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 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 healthcare component.”