Colin McDermott, director of VMG Health, and Alexandra Higgins, a manager at VMG Health, discussed these matters April 28 at the Becker’s Hospital Review 7th Annual Meeting in Chicago.
Traditionally, joint venture transactions were driven by reimbursement and payer networks, management expertise, access to capital, cost efficiencies, declining inpatient stays and a shift to outpatient care.
While some of these drivers are still relevant, Mr. McDermott and Ms. Higgins also identified three emerging drivers in the joint venture sphere — changing reimbursement models, access to networks and infrastructure, and the retail health evolution.
“Access to network and infrastructure is particularly important because as large acute care hospital systems start employing all the physician base, there are fewer physicians in the market,” said Mr. McDermott. “As that happens, you could end up getting left out of the narrow network and lose provider contracts.”
Regardless of what drives a transaction, some of the pros of a joint venture include increased market share, improved network integration, enhanced management expertise and geographic penetration. Some of the cons of joint ventures are slower development processes, decreased ownership and running into regulatory issues.
Once the pros and cons have been weighed, it’s important to address the post-transaction contractual arrangements.
“Depending on the parties involved, contracts may touch on one or more arrangements,” said Ms. Higgins. “The service agreement side of business may not be as ‘sexy’ as the transactional side, but these agreements are crucial to operations and growth. That said, it’s important to strategically decide which party will take on each service and have that information detailed in the agreement.”
According to Ms. Higgins, post-transaction contractual arrangements typically fall into five categories:
1. Trade name or brand license. Frequently, hospitals or health systems contribute their name or logo to a joint venture facility, which will pay for the service on a joint venture revenue basis.
2. Management or administrative services. Any of the parties involved in a joint venture can provide management or administrative services. However, managed care contracting services are typically retained by the health system.
3. Billing and collection. Similar to a management or administrative services arrangements, billing and collection services can be provided by any party involved in the joint venture with the appropriate expertise.
4. Employee staff lease. This type of arrangement has become more common recently. One of the parties may retain the staff — including nurses, technicians and front office staff — under these arrangements, and then lease them out to the joint venture.
5. Physician compensation. These arrangements can cover a variety of services, including professional and clinical services, medical directorship, physician-required administrative services and pay-for-performance incentives.
More articles on transactions & valuation issues:
UHS buys out minority owner in 6 Nevada hospitals
Capella, RegionalCare merge into $1.7B company
24 hospital transactions and partnerships in April
