JOAs are transactions between two hospitals or health systems in which both parties are affiliated yet operate independently in certain regards, such as keeping power over the board of directors and assets.
According to a legal alert from law firm McGuireWoods, hospitals and health systems that are looking to form these types of affiliations need to know three main points.
1. Structural characteristics. A JOA affiliation is not a true merger, or transfer of assets. Instead, most JOAs are carried out by creating a new corporation known as a joint operating company. The JOC, usually a 501(c)(3), serves as the parent organization of two or more affiliating hospitals and is the main management and financial authority, according to the guide.
However, JOAs allow each hospital to retain separate identities and boards, which are delineated by specific terms in the traditional merger documents.
2. Tax exemption. When two nonprofit hospitals create a JOA and JOC, many tax issues must be resolved, the guide said. For example, which entity can consolidate or eliminate services? And which entity approves capital transactions?
“Ultimately, the IRS will evaluate the facts and circumstances of the JOA/JOC structure to ensure that sufficient control is vested in the JOC, both functionally and financially, to establish its treatment as a parent corporation of the affiliated hospitals,” according to the guide.
3. Antitrust issues. Since JOAs may involve two or more competing hospitals in collaborative relationships, they must answer all antitrust concerns. For example, both parties must ensure the JOA structure “does not impose unreasonable ancillary restraints on the hospital parties,” according to the guide.
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