United States: Five Things To Know: Hospital Joint Venture Arrangements In Today's Landscape – McGuireWoods LLP

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In the past three to four years, health system transaction
activity has significantly slowed, due, in large part, to the
unavoidable COVID-19 response efforts hospitals faced. Now, in this
post-pandemic era, hospitals are reemerging and reengaging as
active players in the transaction sphere — particularly when
it comes to joint ventures, as McGuireWoods discussed during an
Aug. 2, 2023, webinar. Expect this upward trend in hospital
joint venture arrangements to continue, especially given the need
for alignment among healthcare entities in this current climate
with a focus on value-based care and clinical collaboration.

Read on for five key things to know about the landscape
impacting hospital joint venture arrangements.

  1. The economic landscape provides ripe opportunities for
    hospital joint ventures
    . The current economic landscape
    presents daily challenges that health systems, and the healthcare
    industry as a whole, continue to face. It is no surprise that
    current operating margins for health systems are extremely tight.
    In this post-pandemic era, health systems are experiencing
    increased staffing costs, inflationary pressure, supply-chain
    disruptions and higher rates of uncompensated care, all while
    facing a cessation of COVID-19-related funding and a decline in
    inpatient admissions. These drivers, coupled with decreases in
    reimbursement and higher capital requirements, create a unique
    opportunity for hospitals to structure strategic arrangements with
    joint venture partners designed to tackle these challenges.

  2. Health systems are experiencing decreased revenue and
    stagnant demand for employment across specialties while also facing
    an increased demand for higher salaries
    . The revenue
    across many health system specialties has decreased while the
    average salaries across these specialties have increased, creating
    economic hurdles for health systems.

    Further, hospitals have not seen as much of an increased demand for
    employment compared to the “corporate” healthcare sector
    (e.g., private equity-backed physician practices, strategic
    partners, consolidators, etc.). This comparison is most prominent
    across the primary care and internal medicine specialties, but
    similar comparisons can be drawn across other specialties.
    Accordingly, perhaps now more than ever, there is a greater demand
    for provider alignment strategies that joint venture arrangements
    bring to the table, including but not limited to joint-site
    delivery-of-care models.

  3. Collaboration among providers and suppliers is
    . Due to the challenges referenced above, collaboration
    and alignment are critical to ensuring patients receive the most
    comprehensive clinical care. Health systems are uniquely positioned
    to capitalize on value-based care initiatives due to their
    inpatient, outpatient and ancillary service line offerings, as well
    as their relationships with physicians and payor alignment
    strategies. These attributes are attractive to joint venture models
    that allow healthcare providers to strategically align and round
    out their service offerings while remaining prominent players in
    the market. One such area of collaboration and alignment is
    outpatient growth. The more outpatient options available, the more
    flexible health systems can be in taking advantage of this growth
    and collaboration to establish themselves as leaders in the market
    while also providing increased satisfaction among the physician and
    patient populations.

  4. Health system joint ventures are not “one size
    fits all
    .” Alignment strategies, including joint
    ventures, come in a variety of forms. The form that is right for
    each system is based on the clinical and business challenges the
    system seeks to combat. Factors such as organization size,
    geography and payor/provider relationships, among others, often
    shape the structure of joint ventures and can offer flexibility
    with regard to such structuring. While joint ventures still take
    the shape of a “traditional” model, which often involves
    the creation of one or more new legal entities owned by the joint
    venture partners (e.g., surgery centers), partial joint venture
    strategies—such as clinically integrated networks,
    co-management agreements, real estate arrangements or co-located
    service line arrangements—are on the rise and provide unique
    opportunities for alignment across provider types. These alignment
    strategies need not be mutually exclusive; however, each such
    strategy has its own regulatory, antitrust and financial
    considerations that health systems must consider.

  5. Thoughtful regulatory analysis is necessary to ensure
    health system joint ventures are appropriately structured
    The partnership of two healthcare providers through a joint venture
    arrangement undoubtedly provides valuable clinical alignment
    opportunities; however, such partnerships are also subject to a
    complex web of legal and regulatory considerations. Accordingly,
    joint venture partners must carefully analyze and navigate
    healthcare laws, including the federal Anti-Kickback Statute, the
    federal Stark Law, corporate practice of medicine laws, licensure
    laws and their state law counterparts. Additionally, the Office of
    the Inspector General has taken an interest in the various
    alignment strategies, providing guidance on how certain
    arrangements can and cannot be structured. Further, all joint
    venture arrangements also must consider heightened antitrust
    scrutiny, which, in recent years, has blocked several proposed
    arrangements. Understanding and analyzing these legal complexities
    from the outset will best ensure a compliant collaboration that
    achieves beneficial goals for health systems, physicians and the
    patient population.

While COVID-19 and the financial landscape have certainly posed
challenges for health systems throughout the past several years,
the current backdrop provides a unique opportunity for hospitals to
align with other providers to round out their current service line
offerings and increase collaboration and alignment among their
providers for the benefit of their patient population. Joint
venture arrangements provide flexibility in structuring to achieve
those goals but must be carefully analyzed at the outset to ensure
compliance with all applicable laws. Accordingly, hospitals looking
to joint venture should consult experienced legal counsel prior to
entering into the alignment strategies discussed in this

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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