University of Wisconsin-Madison From the SelectedWorks of Vikas Singh May, 2007 Current State of Physician - System - Corporate Joint Ventures Vikas Singh, University of Arkansas for Medical Sciences Available at: http://works.bepress.com/vikas_singh/12/
The Current State of Physician- System-Corporate Joint Venture Vikas Singh University of Arkansas for Medical Sciences May 2007
What is Joint Venture Joint venture is any short or long-term arrangement involving risk and benefit sharing between a hospital/health system and one or more entity(ies) or individual(s) in order to form and operate a common enterprise for new or existing purpose (HFMA). JV s are typically characterized by: joint funding of resources by investors Relationship defined and governed by an agreement Joint control Risk and benefit sharing
Precursors for physician-systemcorporate joint ventures Prior to 1970 s Hospitals were the major player Physicians worked in hospitals or in their own clinics 1970-1990 Physician ownership of services (e.g.: ophthalmology, dermatology) Opening up of ambulatory surgery centers ASC dealing with more profitable and complicated cases ASC requiring more than one day stay Imaging centers
Precursors for physician-systemcorporate joint ventures 1990 present State of the art imaging facilities Highly advanced ASC Specialty hospitals
Precursors for physician-systemcorporate joint ventures Source: VHA 2003 Research Series: The Doctor Is Out
Physician Motivators Desire for control Desire for efficiency Need to improve their income Perception that hospitals are not meeting their business needs
Physician Enablers Technological advancements Regulatory Climate Access to capital Availability of business partners and their management expertise
Physician Concerns Competitive response from hospitals (trigger price wars, adversely affect referrals, start competing services) Denying of physician privileges at the hospitals Changes in technology and borrowing costs Exit/enter and non-compete provisions Declining compensation. Limited access to capital. Lack of management expertise
Hospital Concerns Shrinking revenue streams Competition and loss of services to physician owned services Potential loss of substantial revenue in case physicians open their own facility Decreasing reimbursement Inability to satisfy community needs
Options Source: R.G.Rowland, Physician-Hospital Alignment, ECG Management Consultants
Benefits of Physician-Hospital Financial Collaboration (Joint Ventures) Source: R.G.Rowland, Physician-Hospital Alignment, ECG Management Consultants
Types of Joint Venture Equity joint venture Under arrangement deals Physician practice based ancillary service model Contractual arrangements
Equity joint venture Scope and size varies Other strategic partners may be included Sharing of risk and reward proportional to investment Reinvestment exposes partners to capital calls Buy/sell potential is controlled by all partners
Equity joint venture Source: Cohen, R.L., Physician-Hospital Joint Venture and Affiliation Models, Kutak Rock LLP
Equity Joint Venture Legal Structure Source: Cohen, R.L., Physician-Hospital Joint Venture and Affiliation Models, Kutak Rock LLP
Under Arrangement Deals As a response to Stark II Legislation Useful for a discreet line of business like cath lab, imaging suite and operating room. Hospital retains ownership but partners with physician to an extent depending upon what they will provide Hospital retains control over service and provides service to the partners equivalent to the level of risk assumed and investment
Under Arrangement Deals Source: Cohen, R.L., Physician-Hospital Joint Venture and Affiliation Models, Kutak Rock LLP
Physician Practice Based Ancillary Service Model Physician practice or medical group creates an ancillary service division for service to be provided by the same practice Practice and hospital partner and contribute cash Partners govern the division collectively and exercise voting power Risk and benefit sharing
Physician Practice Based Ancillary Service Model Source: Strode, R.D., Joint Venture Updates, McDermott, Will & Every
Other Contractual Arrangements Particularly for service lines Leasing Purchased service agreement Clinic co-management model
Important Considerations Tax exempt status consideration Structuring the venture entity under IRS standards Third party contractual agreements Anti-kickback statute Stark legislation Medicare reimbursement considerations Securities law State laws Corporate practice of medicine Fee splitting
Barriers
Summary Physician motivators and enablers lead to opening up of more physician owned surgery centers, imaging facilities and specialty hospitals Huge loss of revenue and market share by the hospitals and health systems Potential for benefit to the physician, hospitals, patients and the community as a whole by physician-system-corporate financial collaboration Multiple models as market is still evolving along with significant barriers