October 14, 2025 • 49 mins
Jennifer Hutchens, Partner, Dechert LLP, and Tom Spellman, Associate General Counsel and Vice President, Fresenius Medical Care, discuss how health care joint ventures can provide considerable financial, legal, and operational flexibility and opportunity for their participants, along with unique regulatory and relationship considerations. They cover when a joint venture can be useful for a health care business venture, what key financial and operational provisions to consider, and how to plan for both good and ranging business outcomes. Jennifer and Tom spoke about this topic at AHLA’s 2025 Annual Meeting in San Diego, CA.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_00 (00:04):
This episode of AHLA Speaking of Health Law is
brought to you by AHLA membersand donors like you.
For more information, visitAmericanHealthlaw.org.
SPEAKER_01 (00:17):
Hello, everybody, and welcome to the AHLA Speaking
of Health Law Podcast.
Today's session is HealthcareJoint Ventures in 2025 and
Beyond, a fireside chat withmyself, Jennifer Hutchins, and
my dear colleague Tom Spellman.
Today we will cover howhealthcare joint ventures can
provide considerable financial,legal, and operational
(00:37):
flexibility and opportunity fortheir participants.
And along the way, can alsobring some unique regulatory and
relationship considerations inthe healthcare sector
specifically.
We're also going to discuss whena joint venture can be useful
for a business venture, whattypes of key financial and
operational provisions we mightwant to consider, and of course,
(00:58):
how to plan for both good andranging business outcomes as a
result.
We plan to touch upon what we'veseen personally in our own
experiences about what makes ajoint venture successful for our
mutual clients.
And we plan to highlight someinnovative joint ventures
recently making the differencein the industry.
Tom and I actually spoke aboutthis topic at the AHLA 2025
(01:20):
annual meeting in San Diego inJune.
We may have seen some of youthere.
I'm your co-host today, JenniferHutchins.
I'm a proud volunteer of theAHLA, including serving most
recently on its board ofdirectors.
I've considered the AHLA homefor my professional life of
almost two decades of healthcarelaw.
In my law firm practice atDeckart LLP, I lead our firm's
(01:44):
healthcare regulatory practice,working with private equity,
other types of investors,providers, and so many other
types of stakeholders, oftentaking joint ventures from
concept to formation all the waythrough growth and on occasion
window.
I'm joined by my co-host, TomSpellman, as I mentioned,
seasoned in-house counsel atFirsenius Medical Care.
(02:05):
And today we do promise you atleast two acronyms and at least
one bad pun along the way.
SPEAKER_03 (02:12):
Hi, excuse me.
I'm Tom Spellman, I'm associategeneral counsel and vice
president at Firsenius MedicalCare North America.
I've been at Fersenius for abouta decade now.
And uh while I've been there, Ifocused on our U.S.
and international mergers andacquisitions, divestitures,
venture capital investments, andjoint ventures.
(02:33):
I mostly support Firsenius'kidney dialysis business, but
also provide some uh guidance onour non-core business as well as
general corporate and commercialguidance to the various teams.
Um, Jennifer and I have beenworking together for a while.
I'm thrilled to be here with hertoday.
Um, and I love a good pun, soI'm looking forward to that.
SPEAKER_01 (02:52):
Absolutely.
So before we dive in, Tom, let'sdo a quick origin story for the
listeners.
How did we still first startworking together and how has
that translated to our timetogether volunteering with the
AHLA?
SPEAKER_03 (03:04):
Yeah, of course.
So when I started working atFressenius, Jennifer was at one
of her prior firms as anassociate who was deep, uh
deeply involved in the Ferseniusjoint venture uh program.
Um so once I came aboard boardand started to work, uh Jennifer
and I started to work togethervery closely.
Since we've been colleagues andworking together, we've probably
(03:24):
closed over 50 MA and jointventure transactions.
Uh, it's been a fun run.
Um, we've had a lot of fun inthe process, and um as a result,
we've we've started to do a lotof work with AHLA.
We've spoken at the FundamentalsConference, the Transactions
Conference, and recently theannual meeting.
SPEAKER_01 (03:40):
Yes, and I would add, and I hope you can feel
that through this podcast, wereally do enjoy sending the
elevator down and impartingthese shared war stories and
lessons learned and what we kindof consider deal hacks with the
AHLA community.
We've been privileged to teachCLEs together and courses over
the years for AHLA on a widerange of healthcare
transactional and regulatorytopics.
(04:02):
And in the process, we'velearned so much from all of you
in the AHLA community and at thehealthcare law community at
large.
So, with that backdrop, let's goahead and set the stage for
today's conversation.
A quick roadmap first.
Uh, we plan to hit upon threeareas and then bring it around
the corner with a fourth kind oflook around the corner, so to
(04:23):
speak.
So, first, we want to hit uponwhat are JV's and common models.
Second, hit upon the regulatoryguardrails that we routinely
approach in this sector.
The third is more on theoperational side, a bit more of
a do-and-don'ts.
And then finally, that lookaround the corner, which I think
excites all of us for sure, ishow we are seeing JV's fuel
(04:46):
innovation.
So, an important reminder tothread throughout this
conversation is that the themeof consolidation in the American
healthcare system is largelygrowing and has been here
omnipresent for some time.
While much of this consolidationhas occurred, as Tom mentioned
earlier, through mergers andacquisitions, there's also been
considerable growth in what weconsider to be more so soft
(05:09):
consolidation in the case of thetopic at hand today, joint
ventures.
For example, those may be amongproviders, hospitals and health
systems, and healthcareprofessionals.
You can also bring in payors orother types of stakeholders,
obviously, as well.
A joint venture can providefinancial, legal, and
operational flexibility andopportunity for all those kinds
(05:30):
of participants.
But as we've often seen inhealthcare, they can really
bring up a lot of complexity,uh, both regulatory complexity
and relationship complexity.
And so today we're really gonnasit down to do that deeper dive
about why so many players in theindustry are choosing joint
ventures, a bit about how theywork and what to watch out for.
(05:52):
And no, JV does not mean juniorvarsity.
Uh, we promise that this isgonna be a varsity level
strategy, at least that's whatwe hope.
SPEAKER_03 (06:00):
Nice.
Um, so Jennifer, why don't westart at the top?
What is a joint venture and whydo we see so many of them in
healthcare?
SPEAKER_01 (06:06):
Absolutely, Tom.
Joint ventures, JVs, are what weconsider to be collaborative
arrangements where at theirheart, two or potentially more
than two organizations arepooling resources, they're
pulling capital, they're pullingexpertise to pursue a specific
business opportunity.
And generally, each of themkeeps their own distinct
(06:27):
organizational structure thissame.
Um, they JVs themselves havebeen popular for decades, and
that's because of thatflexibility that they offer.
They let the individualparticipants create something
new without the added complexityof costs and even permanence,
let's say, of a fuller merger oran acquisition.
(06:47):
And that flexibility really hasbeen the permeating appeal.
But in a heavily, heavilyregulated industry like
healthcare, that can also pose achallenge.
SPEAKER_03 (06:58):
Absolutely.
Um, so I'm sure a lot of folksin the audience have seen joint
ventures across a variety ofsectors.
Um, physician and providerpartnerships are very common,
hospital and payercollaborations.
Um, more recently, we've beenseeing a lot of provider and
technology company jointventures, uh, similarly, retail
company and health providerjoint ventures, um, really just
(07:20):
the opportunities and the growthof joint ventures is everywhere.
Um, one of the things we'regoing to try to touch on a
little bit is to impart thatwhat the right joint venture for
you and your client might be isgoing to depend very heavily on
what are the party strategies,what does the regulatory
environment look like, and whatsort of levels of control and
risk and capital uh is yourclient able to bring to the
(07:42):
table.
SPEAKER_01 (07:43):
Yeah, I think that's a really good way to set the
stage there, Tom.
Let's break down the types ofmain JV models that we've been
seeing.
SPEAKER_03 (07:51):
Yep.
Um, and so we typically think ofJVs as falling into three main
categories.
Um there's not like a specificrule or regulation as to what
the three are, but this is howwe we typically think about it
and how we've seen it.
Um the first, and I think is themost common, is what we call the
equity joint venture.
Um, it's called equity becauseat the end of the day, the party
(08:13):
the parties are gonna holdequity.
Um, typically they're gonna forma new holding company, typically
called NUCO, and they're gonnacapitalize it, putting either
cash or assets, contributingservices or other resources to
take NUCO from you know an emptylegal shell into an operating
provider in a space.
Um is going to operate as aseparate business with its own
(08:35):
governance, its own financials.
Um, this is typically the go-tojoint venture that parties are
going to want to choose whenthey're building out a new
service line or entering a newmarket together.
SPEAKER_01 (08:46):
Yes.
And then I guess shifting fromthe equity JV, the second would
be more of what we consider tobe a contractual JV.
So there, by contrast, there'sno new entity usually.
It's just one or more agreementsthat define the roles, the
economics, the performancestandards, the governance of the
venture itself.
(09:07):
You may hear terms that areflying through the press when
you're seeing different types ofcollaborations that may be
termed affiliations, they may betermed co-management, uh, a
variety of different synonyms,but we generally see these as a
bit of a lighter way, I wouldsay, and a faster way to
(09:27):
implement those types ofcombinations.
Uh, very important though,because you know, nothing's
easy, right, in any of theseareas, that we have clear
guardrails and performancemetrics.
And the one way we kind of thinkabout it and really joke about
it is that it really is a greatway for teams that want to
commit to one another, but don'tquite yet want those matching
(09:49):
tattoos.
SPEAKER_03 (09:50):
Right.
Um, and then the third basiccategory of joint ventures is a
management joint venture.
Uh, one party providesmanagement services, and that
can be some or all of a varietyof buckets.
You could have revenue cyclecompliance, HR, IT, procurement,
um, through some sort ofmanagement services
organization.
A typical acronym you'll heararound is an MSO.
(10:14):
Um, it can be challenging tofigure out when is a company
just a management company orwhen is it becoming a joint
venture.
Um again, there's not reallyhard and fast rules.
The way we think about it iswhen you have a management
services arrangement, it'sgetting close to the joint
venture territory when partiesare sharing risk or upside, and
you're getting beyond simple feefor service.
(10:36):
Um, in states where we havecorporate practice of medicine,
which we'll touch on a littlebit later in the podcast, this
is a very common model for uhphysicians and uh other entities
that are covered by corporatepractice uh to get around those
rules to join venture.
SPEAKER_01 (10:52):
Absolutely.
And look, what what I would sayis whatever the model is,
structure matters, ownershippercentages, capital calls,
board composition, what types ofreserve powers remain, deadlock
mechanisms.
That's one where a lot of ourclients don't really want to
think about that because you gointo a JV at times happy go
lucky, but we have seen deadlockbe a really key area when when
(11:16):
things unfortunately might goawry in a JV.
Um, and and along that line,exit rights would be another.
Um, you know, options to buyhave buy-sell triggers, transfer
restrictions, all of that needto be really clear up front from
a structural perspective.
So now taking a step back,here's the practical why now
from our perspective behind JVs.
(11:38):
JVs really allow healthcarecompanies to control costs, to
provide competitive services,and they're a fantastic partner
option when build is slow andbuying it might be pricey or
impractical.
We are seeing JVs used for allsorts of things, but ones that
we've certainly worked ontogether include entering a new
(11:59):
market quickly with a localpartner, scaling a service line
like dialysis in Tom's world,imaging, behavioral health, any
other type of service line inthat regard, uh, ability to
align with providers likephysicians without necessarily
employing them.
That of course uh does uh relateback to one of the themes
(12:19):
discussed, which is corporatepractice of medicine or
corporate practice of dentistryor whatever the analog is there.
Um it is also a means toco-develop uh particularly
value-based care products, whichis a particularly hot area now
with payors.
And even we're seeing a lot ofcreativity around, and we'll
touch upon this a little laterin the podcast, adding in tech
(12:42):
and retail capabilities withoutgiving up your core business if
that's not the type of businessthat you have.
I would also put a shout out forthe nonprofits out there.
We have seen firsthand that JVscan drive growth with a lighter
balance sheet footprint in manyinstances.
So if mission alignment,governance, and private benefit
(13:03):
guardrails are built in, thiscan be a really effective and
impactful way for nonprofits tohave some skin in the game and
really make a difference andreally change that footprint.
SPEAKER_03 (13:14):
Absolutely.
And then one other thing thatoverlays, you know, all the
reasons that Jennifer just laidout.
Sometimes joint ventures arepreferable just because they
bring a reduction of risk forthe parties.
Um, the parties can sharecapital, so it's a less
expensive investment.
Um, you're sharing operationalknow-how, so there's less
potential investment in uh yourteam, uh, whatever that might
(13:37):
be.
Um and there can be potentiallyless regulatory exposure if you
have a partner that complementsyour abilities, right?
If you have somebody withknow-how in the space, uh, or if
you were the party with know-howin the space.
Um so there's a lot of a lot ofgood potentials with joint
ventures.
Um, but generally that onlyworks if you're upfront about
things like control, culture,and economics from day one,
(13:58):
which we're gonna spend sometime to get into.
Um but bottom line, generallyyou want to be choosing the
joint venture that matches yourstrategy, your risk tolerance,
and your timeline.
And then you're gonna cover alot of the guardrails as the
lawyer on the deal that Jenniferand I are gonna touch on.
SPEAKER_01 (14:13):
Okay, so we've talked a little bit about the
why, why joint ventures are sopopular in healthcare.
Now let's talk about some of thekey regulatory and compliance
considerations in the healthcareworld.
We like to think of this as thebig three.
It's not at all by any stretchinclusive.
Uh, but I do think it provides aframework that we tend to start
from uh when we are analyzinghow to put these types of deals
(14:36):
together, whether it's with ourcompliance teammates and whether
it's with our businessteammates, um, and certainly
among our our councilcolleagues.
So those big three are CPOM,corporate practice of medicine
or its analogs, as I alluded toearlier, the Stark Law and the
AKS, ENA kickback statute.
So I tend to start with CPOM,mainly because it is more so a
(14:58):
state administered, statefunctional doctrine that's quite
old.
Uh, it's much older than Starkand AKS.
So I like to kind of start withthat base level.
Um, and then we'll zoom out toStark and AKS.
So for CPOM, corporate practiceof medicine doctrine, this is a
legal doctrine that at its coreprohibits corporations, and I
would use the word capital Cthere, although it's
(15:20):
unfortunately because it's a50-state doctrine not defined
that way.
Um, but capital C corporationsfrom the practice of medicine.
As I mentioned, it can varytremendously from state to
state, and many states havesignificantly older doctrines
than you might even imagine.
We've seen doctrines, you know,think about like the 1920s,
1940s era.
Uh, but at its core, thedoctrine is meant to curb what's
(15:43):
called corporate influence intoa physician or a medical
professional's medical judgmentfor their patients.
Uh, as I alluded to, andsometimes surprising to folks,
there are analogs for otherregulated medical professions or
health professions, dentistry,veterinary medicine to name a
few.
They all have a similar functionand intent.
SPEAKER_03 (16:06):
Yeah, and the intent behind corporate practice makes
a lot of sense.
You can you can easilyunderstand why.
Um, but as you can imagine,these restrictions can
significantly impact a jointventure that is in or around
these areas.
Um, so at the start of a deal,you're gonna want to do
significant analysis about whatjurisdiction we're gonna be you
know considered to be in and howthe corporate practice uh laws
(16:29):
can can impact thatjurisdiction, and then be
thinking about how structurescan be used to shape the deal.
Um, what are the keyconsiderations you're usually
looking at, Jennifer?
SPEAKER_01 (16:40):
So for starters, just with CPOM specifically,
because it typically is inrelation to key equity or other
types of control arrangements,it's it's generally ownership
restrictions, is the first placeI start.
Um, CPOM laws at their heartoften prohibit folks that are
not physicians uh from owningmedical practices or businesses.
(17:02):
And so as a result, this canlimit the structure of
particularly an equity JV, ofcourse, or an MSO JV, as Tom
alluded to earlier.
So you've got control andmanagement, and CPOM laws often
restrict non-physicians frommaking controlling medical
decisions.
If that's the case, the JV hasto make sure that those licensed
professional medicalprofessionals are making all the
(17:25):
clinical decisions.
The translation for that, andthat really is a red line, is to
let the clinicians make all theclinical calls full stop and to
be sure that your documentationand your operational structures,
policies, procedures all mimicthat.
SPEAKER_03 (17:43):
Yeah.
And unfortunately, corporatepractice, uh, you know, it goes
beyond ownership.
Uh, it can also affect thingslike revenue sharing models,
right?
So uh you can have issues withfee splittings or profit sharing
arrangements because it startsto look like a non-physician
person or entity is exertingcontrol over the physician
practice.
Um, so sometimes a JV is goingto want to adopt an alternative
(18:05):
structure so that they canprovide adequate administrative
or management support withouttriggering a CPOM issue.
SPEAKER_01 (18:13):
That's right.
And, you know, like we've said,CPOM laws with that variation
from state to state, I think ofit, you know, as very much a
patchwork.
It makes compliance tricky, Iwill say, obviously crucial.
Uh there are significant umdisciplinary actions that local
medical boards can take, canenjoy businesses in certain
(18:33):
instances.
So it doesn't just impact theproviders themselves, it can
impact the venture and itsoperations.
But because of that patchwork, Isometimes think of it really as
a puzzle.
And um a lot of our clients havemulti-state operations.
So we're not just looking at onestate and it's CPOM laws, which
may or may not exist.
CPOM is in the majority ofstates at this point, but there
(18:56):
are some states without CPOM atall.
Um, so we're quite literallyworking through this just this
patchwork of state laws.
I think of it as a quilt, quiltwith a bunch of holes in it.
Um, and plus it's been prettywidely publicized that many
states are actively revisitingtheir existing state law
frameworks with new and proposedlegislation.
(19:16):
I'd say that's been in the lastfive or so years.
Um, and dozens and dozens ofstates have gotten in on that
legislative action.
We sometimes get asked if it hasa COVID impact or you know,
Genesis because of the timing,but really less so COVID, as
more so in my mind, the way Isee it and the way that we
counsel clients is that a lot oftimes it's just bringing this
(19:37):
older, antiquated doctrine kindof into modern times, and you're
seeing legislatures reacting toexisting public activities that
might be going on in theirstate, with you know, an out of
state investor coming in andproviding equity to a medical
practice or a group of medicalpractices in a state or a bunch
(19:58):
of states.
And how does the legislaturefeel about that when it rubs
against these CPOM doctrines,especially when they're much
older?
These CPOM doctrines in somecases don't even contemplate,
you know, for example, privateequity as an investor because
they are, you know, ancient inmany cases, uh, relatively so.
So this is definitely anevolving area where advisors,
(20:20):
whether you are the complianceteam, the business team, or the
legal team, definitely need tobe up to speed and monitor so
that you can keep yourstakeholders informed.
SPEAKER_03 (20:30):
Absolutely.
Um so the so corporate practiceis one of the three big
regulatory regimes that that Icertainly keep in mind when
thinking about joint ventures.
Um the other two are the federalSTARK and anti-kickback laws.
Um, and then we can't mentionthe federal laws without the the
various state analogs, which Irefer to and I think a lot of
(20:50):
others refer to as mini Starkand mini AKS.
Um, Jennifer, do you want togive a quick overview for the
listeners about federal STARKlaw?
SPEAKER_01 (20:58):
Yeah, absolutely.
A lot of times those mini lawswill have some sort of
derivative to the federal, andyou know, we'll go ahead and
just give that federal overviewto start.
Uh federal STARK law, for thosethat are less familiar, is the
federal physician self-referrallaw.
And it really does what it says.
It prohibits a physician fromreferring Medicare patients for
(21:22):
what are called designatedhealth services, and we'll touch
on those in a second, to anentity that the physician or
actually the physician's familymember.
So it's a pretty broad overview,uh, pretty broad preview, has a
financial relationship with.
So essentially the STARK lawwants to ensure that physicians
exercise, again, and this isfamiliar in intent to the CPAM
laws, exercise medicaldiscretion independent of any
(21:46):
potential financial benefitsthat that professional might be
able to enjoy from therelationship.
SPEAKER_03 (21:52):
And what are those designated health services that
you touched upon?
SPEAKER_01 (21:56):
DHS, designated health services, there's
specific services and itemscovered by Medicare that can
trigger trigger theself-referral prohibition.
And they include things likeclinical labs,
inpatient-outpatient hospitalservices, and prescription
drugs.
There's actually definitedefined terms of what DHS is
under the legislation.
And it is pretty discretebuckets, but they are very
(22:18):
wide-reaching into the throes ofwhat you know a particular
venture might be doing in the inthe medical space.
Even if a JV, I should say,doesn't offer designated health
services at the outset, youknow, because we may be working
with a more of a startup JV, forlack of a better word.
As the business expands, theStark law could apply.
(22:39):
And we've seen this quite often.
So it's very important for thosethat are counseling in the JV
space to stay aware of what theJV does now, but also, you know,
what are its short to mid tolong-term plans for what it
might want to do in the futureto be sure that you kind of
circle back and true up thatanalysis.
SPEAKER_03 (22:58):
Right, right.
Unfortunately, there are someexceptions to the Stark law as
kind of healthcare evolves overtime, right?
SPEAKER_01 (23:04):
Right.
Right.
So modern exceptions that wework with quite a bit are
value-based care arrangements,which of course are aiming to
promote coordinated care,improve patient outcomes, reduce
healthcare costs.
You know, that's that notion,the shift away from you know fee
for service and into more of thevalue-based care area.
SPEAKER_03 (23:24):
Right, right.
Um and so then the last majorbucket we'll call in the
regulatory spaces federalanti-kickback statute or AKS has
a very similar goal, right?
It wants to ensure thatphysicians are providing medical
care independent of financialbenefits.
Uh, but it is much broader thanthe Stark law.
Um AKS is gonna be looking atany inducements by a provider to
(23:45):
a physician.
Um, fortunately, there are safeharbors that can shield a joint
venture if you fit into thecriteria.
Um whenever I'm setting up ajoint venture that has physician
investors, um, I'm gonna belooking at both of these
regulatory regimes.
But AKS especially, um, it'sgonna push joint ventures into
proving that uh any transactionsare fair market value and that
(24:08):
across the board, you know,everything that we're doing is
commercially reasonable.
Um, because at the end of theday, if we're really only doing
this deal because of theexpectation of referrals, um,
it's it's gonna be a problem andeveryone's gonna get in trouble.
SPEAKER_01 (24:21):
Yeah, absolutely.
I'd say the big four there tosummarize and simply put are you
know, number one, design forcare, for sure.
You know, be sure you have thatbackup file as if you're the
counsel from your business team.
The second, talking aboutdocumentation is document fair
market value FMV in the way thatus healthcare uh council and
(24:44):
advisors know it to be, capitalFMV and commercial
reasonableness, right?
For sure.
Um, and then don't hang anyeconomics on referrals, period.
That is um as clear as day ifyou are really on your business
team about watching how theyspeak to one another in texts,
(25:06):
in emails, and in other places.
Um, you know, again, that's amore in the hack category, but
we are definitely um very awarethat that that's a you know
something that we need to be100% mindful of.
Again, in this narrative, thattruly is the reason that our
clients are going into the jointventure space, which is to have
something innovative and to be acombination that brings
(25:28):
something new to the table andnot something questionable.
So, all right, we've nowdiscussed uh the regulatory and
compliance matters.
And let's shift gears to the funpart.
Not that the fun part is not theregulation, because Lord knows I
love a good regulation.
But how can you actually startand run a healthcare JV?
(25:48):
Um, and I when I say you, youknow, provo proverbial you, you
may be the lawyer on the phone,you may be the compliance
person, the business person, butbut how do we actually get that
JV jump started and up andrunning?
So when thinking about findingfounding a JV, getting one
started, developing a JV, forus, JV lawyers, Tom and myself,
(26:09):
we should know exactly who isforming the business because who
joins can significantly impactthe JV itself.
SPEAKER_03 (26:16):
Yeah, absolutely.
And and it's not just the nameson the page of the contracts,
right?
It's what is the legal entitythat's joining and what does
that imply?
Um, for example, if you'rerepresenting a tax-exempt
organization, you might needprotections around UBTI, right?
Unrelated business taxableincome.
Um, complex systems like myclient at Firsenius Medical
(26:39):
Care, um, the specificsubsidiary might matter, right?
Whether you're in the medicaldevice space or the provider
space, and what kind of licenseor what kind of regulations
apply to you.
Um and for individuals,physicians or otherwise that
might be joining, getting theexact identities of the
individuals that are going tojoin is critical because you're
gonna want to make sure thatthese are all accredited
(27:00):
investors.
If you need securities lawcompliance, um you're gonna want
to make sure that those are theright people for purposes of a
restrictive covenant.
SPEAKER_01 (27:09):
That yes, absolutely.
So that's kind of the day one ofthe JD, so to speak.
So let's plan for day two,right?
And three, four, five.
That gets a little trickier.
And that's the negotiating ofadmission of future members into
that new entity.
As we discussed, that ability tohave this sort of notion of
controlled flexibility, and Iput that in quotes because the
(27:32):
flexibility is what they're iswhat we're all after, but there
does have to be a fair amount ofguardrail in order to protect
the parties.
We are spending a lot of timebaking that into the operating
agreement.
Tom and I have worked on JVswhere the operating agreements
may be single member and theymay be short, um, because we
know by you know we know otherparties are coming in later, and
(27:53):
so we can deal with some joindermatters at that time.
But we've also dealt with oneswhere you know baked into those
operating agreements were dozensof pages in this regard.
And that could mean puttingprovisions in that permit the
transfer of equity to a newmember.
It could relate to covenantsthat limit the transfer of
(28:14):
equity to an affiliate or asuccessor in interest.
And I know we've had a coupleexciting, um, exciting ones in
that regard, Tom.
SPEAKER_03 (28:22):
So yeah, absolutely.
Um, you know, because at the endof the day, a lot of these joint
ventures, they're not for short,discrete periods of time, right?
If assuming things go well, thiscould be a multi-decade business
or or even longer.
So the core question that thelawyers on both sides are going
to have to think about is howmuch freedom do we want to give
a transferring member who wantsto exit or who wants to bring in
(28:45):
a new partner, versus how muchcontrol do we give the
non-transferring or remainingmembers?
Uh, you know, on one hand, youwant flexibility to you know
move your equity around asnecessary.
On the other hand, if you're notmoving your equity, you want to
have control over who's sittingat the table with you and who
you're in business with.
Um, and so a lot of timesthere's there's no right answer.
(29:08):
But uh one thing that oftencomes into play is can somebody
use money, right, to block anoutcome that they dislike?
Can there be a right of firstrefusal on transfers or
something like that?
SPEAKER_01 (29:18):
Yeah, that's right.
And you know, I would add thatbecause you're bringing
together, for lack of a betterword, disparate parties into a
shared arrangement, right?
The twists we see that over theJV's life, because you know,
these JVs, as Tom mentioned, Imean, they're hopefully
successfully in place fordecades, um, in perpetuity in
some cases.
(29:38):
And so we've seen twists where,you know, there might be a
member who at some pointexpresses an interest to be the
one that might want to transfer,but at the same time, they also
might be the one that wants toveto that down the line if their
circumstances change or theirownership amounts change.
So there's really a lot offluidity and We like that
(30:00):
because we want the members tobe able to grow into the venture
or flex out of the venture asmakes sense for them at that
time.
SPEAKER_03 (30:08):
Yep.
And you know, because we're inhealthcare, unfortunately, or
fortunately for the lawyers,there's there's even more
complexity that we have to keepin mind.
Um, a lot of healthcare jointventures being in a regulated
space, there's gonna be someadded complexity that the
lawyers are gonna want to keepin mind.
Um, for instance, you know, ifyour joint venture gets
reimbursement from federalpayers, you don't want any
(30:31):
transfers to an entity or anindividual that's been excluded
from those payer programs.
That's gonna basically blow upthe reimbursement uh ability of
the joint venture.
Um, similarly, you know, if youhave a joint venture with a
nonprofit partner or working ina nonprofit space, um, that prop
that party is probably gonnawant some protection about any
(30:52):
new members that couldjeopardize their nonprofit
exempt status.
Um, you know, and and you canimagine that issue across a host
of licensing and permitting uhissues that can come with a
particular joint venturedepending on the industry.
SPEAKER_01 (31:07):
Yeah, for sure.
Those are really good points.
We should also discuss planningfor future growth, which which
could come in the form ofexpanding locations, offering
new services, or any othervariety of pathway.
SPEAKER_03 (31:20):
Yeah, absolutely.
Um growth, growth is a greattopic because one, the business
folks like to talk about it,right?
They always want everyone toknow that their deals are gonna
be great and are gonna be supersuccessful.
Uh, but it can be verychallenging for the lawyers,
right?
Because growth almost bydefinition is unknown and you're
trying to look into your legalcrystal ball to plan for
(31:43):
eventualities that that reallyyou can't predict, right?
Um if a joint venture grows intoa new business line, is the
current management structureappropriate?
Um there's really no way toknow, but you know, we're we're
tasked with figuring out how todraft provisions that allow
growth to go forward.
Um it's uh it's a bit of acliche, but you kind of want to
(32:04):
draft for an argument that youhope to never have.
And you know, over time, as youget more experienced with joint
ventures, you get a little bitbetter at it, but but it's
always a bit of a bit of a blackbox.
SPEAKER_01 (32:14):
I like that one.
Draft for the argument that youhope you never have.
I like that.
Um that that goes along with my,you know, some of my cynical
clients will say that lawyersare paid pessimists, but there's
reasons for that.
So um, so for that reason, youknow, it's important for the JV
lawyers, I think, to get a senseof where the business could grow
when they draft that initialoperating agreement.
(32:37):
That's going to be thatgovernance document that, you
know, grows with the JV andcould be amended in the future.
But that really is that sort ofum charter, so to speak, of the
business itself.
And we are successful, right, ifthat business grows.
Every business wants to grow,right?
I mean, that's what our clientsare hoping for, especially in
the JV space where they're notdivesting, they're actually
(32:59):
choosing to go into somethingtogether and build.
Um, but you also want to andneed to protect that core of
that business that's beingformed.
So there's this tension that weobserve in this space where
you've got growth-focusedmembers that want enough freedom
to potentially pursue newopportunities.
And we might see that inside theJV, actually.
(33:20):
And Tom mentioned sometimes wehave rights of first refusal or
other mechanisms built into, youknow, allow for that in a
permissive way.
And sometimes they may want topursue those opportunities
outside of the JV.
Uh, but then you've gotgrowth-resistant members
sometimes that really areconcerned about cannibalizing
the JV or risking the status quothat's profitable on expansion
(33:44):
and and that they don't support.
SPEAKER_03 (33:46):
Right.
Yeah.
And it gets even harder if oneor more of the joint venture
parties, you know, say ahospital or health system, if
the joint venture is in its corebusiness, how can you tell a
hospital it can't grow intosomething it wants to do because
its joint venture partners don'twant it to?
Um, so there's always going tobe this push and pull.
Again, there's there's notalways a perfect right answer,
(34:07):
but it is just one of thosetensions that the lawyers need
to be aware of and understandwhen they're negotiating things.
SPEAKER_01 (34:12):
Yeah, we definitely see that as a tight rope walk
for sure.
A delicate balancing act, butone necessary and one that I
think a nuance that I didn'treally understand until I was
probably a little bit deeperinto my practice and have seen
JVs evolve, particularly thepartners evolve or the purpose
of the business evolve.
So it's definitely one to flagas a another good hack.
SPEAKER_03 (34:33):
Yeah, yeah.
And so you're typically going tosee this kind of push and pull
play out in three differentcovenants that you'll see in a
joint venture operatingagreement.
The employee non-solicitation,uh, confidentiality covenants,
and then non-competitioncovenants.
unknown (34:47):
Yeah.
SPEAKER_01 (34:47):
So the for the confidential confidentiality
covenants, we'll start with,those generally require the
members to keep the JVinformation confidential.
And that may limit actuallyultimately each member's use of
that information.
These are pretty standard indrafting, but in practice, it's
often tough, to be honest, to beable to distinguish what a
(35:08):
member learned through the JVversus what they developed
independently.
SPEAKER_03 (35:13):
Right.
Uh, non-solicitation covenantsare also pretty challenging in
that respect, right?
Um, usually, usually we'retalking about employees, it
could also cover vendors,customers, patients is really
sticky.
Um, but this is a topic where,again, it's hard to kind of
ensure protection because peoplehave, you know, general
advertisement for healthcaresupport staff and things like
(35:35):
that.
And it's also challengingbecause, you know, especially
now, but even before that, um,employee non-solicit to get a
lot of antitrust consideration.
So the lawyers are going to wantto be very mindful of what the
exact language says.
And to our earlier point, you'regonna want to be very thoughtful
in how you instruct yourbusiness colleagues on how to
talk about this kind of stuff.
SPEAKER_01 (35:57):
Yeah, absolutely.
And I will just say, you know,the elephant in the room,
sometimes they're justimpractical.
If a member already operates inthe same market, you can't
actually limit them fromengaging with every vendor.
And obviously, as you'vealluded, Tom, you know, patience
is a whole nother tricky area.
But, you know, customer, forexample, a targeted non-compete
(36:18):
is really, in our experience,often a better tool than a broad
non-solicit.
SPEAKER_03 (36:24):
Yeah, and the non-compete is typically the
most heavily negotiated.
Um, we won't go into too muchdetail, but the three big things
you're going to want to thinkabout are the what's covered
under the non-compete, thegeographic reason region that's
covered in the non-compete, andthe time period, right?
Is it during the joint venturerelationship?
Is there a tail period ifsomeone exits?
(36:45):
Things like that.
SPEAKER_01 (36:46):
That's right.
And these covenants also applyto affiliates most often.
Especially, yeah, especiallydrafted, drafted the way we
would typically like on behalfof the best interest of the JV.
Um, so let's talk about thosetypes of transactions.
Affiliates are in some wayrelated or share common
ownership with a member or amanager of the JV.
(37:08):
That's typically how we sort ofsee affiliate lowercase A
defined.
Uh, many of the healthcare JVsthat we've done together at
least have at least, if not morethan one, at least one
contractual or financialtransaction with an affiliate of
one of our JV members.
And we actually have found thatto be, you know, as we've gone
on to do other work, uh, thatthat's quite common in the
(37:30):
healthcare space.
These transactions can create,of course, conflicts of interest
technically in approving,overseeing, and terminating
these types of deals.
SPEAKER_03 (37:42):
Yeah, absolutely.
And, you know, when we'rethinking about it from a
practical standpoint, I thinkthe two main areas you're gonna
see affiliate transaction in iskind of like general management
services or something similar toa medical directorship where a
physician partner uh is isproviding specific services that
that really only a medicalprofessional can can provide.
(38:03):
Um so you're gonna wantwell-drafted agreements that
address different incentives,um, give non-affiliated members
the right to step in if servicesfalter or if the business
fundamentally changes.
Uh, your operating agreementshould also have a very clear
process for how are we approvingthese transactions.
Um, selecting who the provideris, material changes to these
(38:26):
transactions, what do what do wedo if we need to terminate?
You all want that, you'll wantall that stuff laid out very
clearly.
SPEAKER_01 (38:32):
Yeah, for sure.
And I think we've also foundit's quite important to make
sure that any window or exitprovisions in the JV contemplate
for that potential terminationof an affiliate transaction.
If even one of the members ofthe JV doesn't want to terminate
an affiliate transaction, thereality is that the JV may not
(38:54):
survive in certain instances.
And I know we don't go into thiswork, Tom, you know, with a
gym's day scenario, but that isa reality that we've had to
address.
SPEAKER_03 (39:03):
Yeah, absolutely.
Um, you know, I've been insituations where, say, you have
a joint venture with acardiologist and a hospital, and
the right now it's on thehospital campus, and the
hospital's rebuilding andthey're going from the first
floor to the fourth floor orsomething like that.
And the cardiology group says,no, that's you know, that's not
the deal we wanted.
Um, we want to now leave thehospital campus.
(39:25):
Well, maybe the hospital all ofa sudden it doesn't make sense.
Um, and so what do you do whenthose parties feel like the
original benefit of the jointventure just doesn't pan out
anymore the way they thought itwas going to?
SPEAKER_01 (39:38):
Yeah, I mean, it would be really hard, you know,
in that instance for the JV tomove forward.
So, you know, speaking of exits,uh, everyone's favorite topic,
the operating agreement shouldmatch out, should map out how to
wind down the business ifneeded.
So some of the last JV decades,some of the JVs in the last
decades, you know, we foundyou'll face some curveballs.
(39:59):
Um you'll have to anticipatewhat you can do today, but build
in that flexibility.
And um, like we talked aboutearlier, for what you can't.
So, Tom, what what shouldautomatically dissolve a JV in
your experience?
SPEAKER_03 (40:13):
Yeah, not certainly not every problem.
Um, you know, a lot of problemscan be fixed, even if it seems
like it's a fundamentaldisagreement.
But, you know, the the firststep should always be
discussions between the parties.
But I find generally, first off,if there's sustained negative
cash flow and some or all of thejoint ventures don't want to put
in more cash or take on debt,that that's kind of, you know,
(40:34):
at that point, unfortunately,the business didn't pan out and
it's probably time for the jointventure to wind down.
Um, and then the second big oneis, you know, if there's a
regulatory change, right?
We talked earlier about thesesafe harbors that allow certain
joint ventures to function.
If those change for any reasonand now you don't have the safe
harbor, unfortunately youprobably don't have your joint
venture anymore.
SPEAKER_01 (40:56):
Yeah, so those are good.
I mean, what you know, you alsothough are going to want to
preserve relationship integrity,right?
So the operating agreementshouldn't allow one party to
redesign the deal, right, bystripping out roles or revenue
streams without giving theaffected member a path to exit
or rebalance.
So how do you calibrate that?
SPEAKER_03 (41:17):
Yeah, I mean, so first of all, there's no perfect
way.
I think one way to get around itis to make sure that your
operating agreement is clearabout what happens if you get to
dissolution.
So everybody understands that ifwe can't come to some kind of
agreement, here's how things aregonna play out.
Um, but no, I mean, I think it'sa lot of like conversation
between the parties, back tothat cardiology hospital campus
(41:40):
uh topic.
Um, is there a situation wherethe parties can sit down and and
mutually agree?
Um, and if they can't come tosome sort of agreement, um
thinking about how therelationships are gonna play
out, because these folks stillprobably want to stay in
business, uh maybe not directlyin a joint venture, but but
they're still gonna see eachother if the healthcare space
isn't isn't that large.
(42:02):
Um, but you know, in general, wewant to be mindful that conflict
enough, uh conflict is you knowsomething we're trying to avoid.
Um so I think that's that shouldbe our over overarching goal in
in a lot of these joint venturenegotiations, giving giving
enough of a a script for for thebusiness folks to help avoid
some of this stuff.
SPEAKER_01 (42:22):
Yeah, and I would throw in there that you know,
we've seen enough of these uh gowrong, so to speak, that we just
have to plan for bad actors.
And that's not inherent inanyone's DNA.
We don't feel good about thatsometimes.
But I do think that, you know,that's just something that we
have seen as important to set upin terms of guardrails, things
as simple as building in, youknow, periodic screening against
(42:44):
federal exclusions lists,requiring, you know, prompt
notice by a member of an inquiryof a government investigator or
otherwise, you know, with thatgoal to really catch issues
before they infect.
You like what I did there?
Infect the JV.
Um yes, that is our promisedhealthcare plan.
Um, so next, you know, let'sdecide about what happens when
(43:06):
an issue arises briefly.
You know, what aboutinvestigations?
Like, should an investigationhave consequences?
How do you see Tom JVs uhputting into place tools that
mitigate bad behavior and youknow, not poison the well, so to
speak?
SPEAKER_03 (43:22):
Right.
Yeah, investigation is hard, Ithink, because you know, a lot
of times investigations can takeyears and there still may not be
a clear like knowing of badbehavior.
Um so I think one of the one ofthe key things that I find
successful in my practice is thetrigger for removing or
sanctioning or otherwise dealingwith a bad actor is not a final
(43:45):
non-appealable judgment orwhatever term the litigators
like to use.
It's once we know that theremight be bad act occurring, at
that point, the non-bad actingparties parties in the joint
venture, they can now takewhatever action the operating
agreement sees fit.
And maybe that means that youkick somebody out too early who
actually didn't do anything bad,but at least it puts the onus on
(44:06):
the accused to present somelevel of comfort to the other
parties of the joint venture.
Um because you're right, wedon't want a world where this
joint venture, which is probablyproviding healthcare services,
to have major interruptions.
That's that's not going to bebeneficial for patient
helpcomers and things like that.
SPEAKER_01 (44:24):
Yeah, I think that's a good, pretty solid playbook
from prevention to interimstandards to, you know,
unfortunately, removalmechanisms.
So let's take the final minutestogether to describe what we're
really excited about ashealthcare law practitioners,
which is innovation in JV and inhealthcare.
Um, so you know, I've got a bigquestion, big picture question
(44:47):
from your standpoint, Tom.
Like, what do you think are someof the key drivers that are um
bringing innovation intohealthcare and the JV model?
SPEAKER_03 (44:55):
Yeah, I think it's, you know, it's really cost,
right?
At the end of the day, you youhave a lot of large providers, a
lot of large health systems, youknow, companies like the ones I
work for, and and everyone'sfeeling the crunch on
reimbursement and caught, youknow, employee costs, vendor
costs, things like that.
So at the end of the day, folksare going to be looking at joint
(45:16):
ventures as an opportunity tosay, how can we achieve the you
know, the financial goals thatwe're looking for?
How can we get the patientoutcomes that we're looking for
while doing it at reduced cost?
And joint ventures are a greatopportunity for that.
Um, they maybe allow a largeorganization to operate outside,
not outside their usualpolicies, but have more of a
(45:38):
startup venture feel if they'repartnering with a venture
company in a joint venture.
Um, it may allow for medium orsmaller providers to offload,
like we discussed earlier, someof that capital risk, some of
that financial risk with a deeppocketed private equity firm or
something like that.
Um, or it just, you know, youhave a small physician practice
(45:59):
in whatever subspecialty, youknow, even though those folks
are, you know, probably doingpretty well financially,
healthcare is expensive.
And, you know, building out afive or ten million dollar
imaging center costs a lot ofmoney.
So even if you have five or tenphysicians, that's that's a big
investment.
That that could be somebody'sretirement account.
So having an opportunity wherebythis sort of structure allows
(46:20):
folks to mitigate and drive downcosts and reduce risks, uh, I
see that's why joint venturesare continually continued to be,
you know, active and and evengrowing in in the American
healthcare space.
SPEAKER_01 (46:33):
Yeah, definitely from my perspective too.
One of the things I found mostexciting about this era is um
how JVs can be possibly asolution for talent.
A JV can recruit productmanagers, data scientists, you
name it.
And you've got the agility of agrowth company, right?
But the scale of possibly ahealth system or a plan behind
(46:55):
it, um, it's really hard tocreate that single synergy in
front of, you know, in a singleparent organization.
And, you know, on the caredelivery side, JVs are really
pushing, as you mentioned, thatlower cost, higher convenience
setting.
You know, I know in your world,Tom, and Firstinius, you're
seeing a lot of innovation inthe home health area.
We're seeing hospital at homeadjacencies and virtual
(47:17):
specialties and all sorts ofdifferent combination efforts
when you bring particularly thetech side along with the
institutional side.
And I just for me, it's justsuch an exciting time to
practice in terms of newsolutions for patients, access
to care and the like.
And I would also say for thenonprofits out there, um, I
wanted to take a moment toreturn to that notion that
(47:40):
innovation through JVs canreally help to advance mission,
um, charitable mission, access,equity, community health,
without overextending thatbalance sheet.
And we touched upon thisearlier, but I think really
baking those mission metricsinto your scorecard, um, you
know, whether it's wait times inyour underserved areas, whether
it's language access, whetherit's digital equity measures, we
(48:03):
are seeing really, reallyexciting developments in this
space.
And it just feels like JVs havealways been there as that
solution, but the potential isendless as you're seeing on one
hand, partners developing thetech, developing the data, of
course, being sure that your IPand other data rights are
protected.
(48:24):
But greater than that, how doesthat fit in with more of the
institutional model that is moreclient and patient-facing and
developing these combinationsthat really are a mind blow and
uh just such an exciting time?
SPEAKER_03 (48:37):
Absolutely.
SPEAKER_01 (48:40):
So I am sure that you know we could keep talking
about this, Tom, um, forever andever.
And I know we do when we are atthe conferences.
So be sure to find us at anyconference that we are attending
for AHLA.
But I wanted to thank you, Tom,for sitting down and sharing
this time with me to deep diveabout one of our favorite
topics, healthcare jointventures.
SPEAKER_03 (49:00):
Yeah, absolutely.
Thank you, Jennifer, and thankyou, listeners.
And a quick plug um next year'sannual meeting, 2026, is going
to be in New York City for thefirst time, I think, in over a
decade.
Uh, Jennifer and I are bothhoping to be there.
So uh, if we're there,definitely come and find us and
say hi.
Thank you.
SPEAKER_00 (49:22):
If you enjoyed this episode, be sure to subscribe to
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For more information about AHLAand the educational resources
available to the health lawcommunity, visit AmericanHealth
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(49:45):
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SPEAKER_01 (00:17):
Hello, everybody, and welcome to the AHLA Speaking
of Health Law Podcast.
Today's session is HealthcareJoint Ventures in 2025 and
Beyond, a fireside chat withmyself, Jennifer Hutchins, and
my dear colleague Tom Spellman.
Today we will cover howhealthcare joint ventures can
provide considerable financial,legal, and operational
(00:37):
flexibility and opportunity fortheir participants.
And along the way, can alsobring some unique regulatory and
relationship considerations inthe healthcare sector
specifically.
We're also going to discuss whena joint venture can be useful
for a business venture, whattypes of key financial and
operational provisions we mightwant to consider, and of course,
(00:58):
how to plan for both good andranging business outcomes as a
result.
We plan to touch upon what we'veseen personally in our own
experiences about what makes ajoint venture successful for our
mutual clients.
And we plan to highlight someinnovative joint ventures
recently making the differencein the industry.
Tom and I actually spoke aboutthis topic at the AHLA 2025
(01:20):
annual meeting in San Diego inJune.
We may have seen some of youthere.
I'm your co-host today, JenniferHutchins.
I'm a proud volunteer of theAHLA, including serving most
recently on its board ofdirectors.
I've considered the AHLA homefor my professional life of
almost two decades of healthcarelaw.
In my law firm practice atDeckart LLP, I lead our firm's
(01:44):
healthcare regulatory practice,working with private equity,
other types of investors,providers, and so many other
types of stakeholders, oftentaking joint ventures from
concept to formation all the waythrough growth and on occasion
window.
I'm joined by my co-host, TomSpellman, as I mentioned,
seasoned in-house counsel atFirsenius Medical Care.
(02:05):
And today we do promise you atleast two acronyms and at least
one bad pun along the way.
SPEAKER_03 (02:12):
Hi, excuse me.
I'm Tom Spellman, I'm associategeneral counsel and vice
president at Firsenius MedicalCare North America.
I've been at Fersenius for abouta decade now.
And uh while I've been there, Ifocused on our U.S.
and international mergers andacquisitions, divestitures,
venture capital investments, andjoint ventures.
(02:33):
I mostly support Firsenius'kidney dialysis business, but
also provide some uh guidance onour non-core business as well as
general corporate and commercialguidance to the various teams.
Um, Jennifer and I have beenworking together for a while.
I'm thrilled to be here with hertoday.
Um, and I love a good pun, soI'm looking forward to that.
SPEAKER_01 (02:52):
Absolutely.
So before we dive in, Tom, let'sdo a quick origin story for the
listeners.
How did we still first startworking together and how has
that translated to our timetogether volunteering with the
AHLA?
SPEAKER_03 (03:04):
Yeah, of course.
So when I started working atFressenius, Jennifer was at one
of her prior firms as anassociate who was deep, uh
deeply involved in the Ferseniusjoint venture uh program.
Um so once I came aboard boardand started to work, uh Jennifer
and I started to work togethervery closely.
Since we've been colleagues andworking together, we've probably
(03:24):
closed over 50 MA and jointventure transactions.
Uh, it's been a fun run.
Um, we've had a lot of fun inthe process, and um as a result,
we've we've started to do a lotof work with AHLA.
We've spoken at the FundamentalsConference, the Transactions
Conference, and recently theannual meeting.
SPEAKER_01 (03:40):
Yes, and I would add, and I hope you can feel
that through this podcast, wereally do enjoy sending the
elevator down and impartingthese shared war stories and
lessons learned and what we kindof consider deal hacks with the
AHLA community.
We've been privileged to teachCLEs together and courses over
the years for AHLA on a widerange of healthcare
transactional and regulatorytopics.
(04:02):
And in the process, we'velearned so much from all of you
in the AHLA community and at thehealthcare law community at
large.
So, with that backdrop, let's goahead and set the stage for
today's conversation.
A quick roadmap first.
Uh, we plan to hit upon threeareas and then bring it around
the corner with a fourth kind oflook around the corner, so to
(04:23):
speak.
So, first, we want to hit uponwhat are JV's and common models.
Second, hit upon the regulatoryguardrails that we routinely
approach in this sector.
The third is more on theoperational side, a bit more of
a do-and-don'ts.
And then finally, that lookaround the corner, which I think
excites all of us for sure, ishow we are seeing JV's fuel
(04:46):
innovation.
So, an important reminder tothread throughout this
conversation is that the themeof consolidation in the American
healthcare system is largelygrowing and has been here
omnipresent for some time.
While much of this consolidationhas occurred, as Tom mentioned
earlier, through mergers andacquisitions, there's also been
considerable growth in what weconsider to be more so soft
(05:09):
consolidation in the case of thetopic at hand today, joint
ventures.
For example, those may be amongproviders, hospitals and health
systems, and healthcareprofessionals.
You can also bring in payors orother types of stakeholders,
obviously, as well.
A joint venture can providefinancial, legal, and
operational flexibility andopportunity for all those kinds
(05:30):
of participants.
But as we've often seen inhealthcare, they can really
bring up a lot of complexity,uh, both regulatory complexity
and relationship complexity.
And so today we're really gonnasit down to do that deeper dive
about why so many players in theindustry are choosing joint
ventures, a bit about how theywork and what to watch out for.
(05:52):
And no, JV does not mean juniorvarsity.
Uh, we promise that this isgonna be a varsity level
strategy, at least that's whatwe hope.
SPEAKER_03 (06:00):
Nice.
Um, so Jennifer, why don't westart at the top?
What is a joint venture and whydo we see so many of them in
healthcare?
SPEAKER_01 (06:06):
Absolutely, Tom.
Joint ventures, JVs, are what weconsider to be collaborative
arrangements where at theirheart, two or potentially more
than two organizations arepooling resources, they're
pulling capital, they're pullingexpertise to pursue a specific
business opportunity.
And generally, each of themkeeps their own distinct
(06:27):
organizational structure thissame.
Um, they JVs themselves havebeen popular for decades, and
that's because of thatflexibility that they offer.
They let the individualparticipants create something
new without the added complexityof costs and even permanence,
let's say, of a fuller merger oran acquisition.
(06:47):
And that flexibility really hasbeen the permeating appeal.
But in a heavily, heavilyregulated industry like
healthcare, that can also pose achallenge.
SPEAKER_03 (06:58):
Absolutely.
Um, so I'm sure a lot of folksin the audience have seen joint
ventures across a variety ofsectors.
Um, physician and providerpartnerships are very common,
hospital and payercollaborations.
Um, more recently, we've beenseeing a lot of provider and
technology company jointventures, uh, similarly, retail
company and health providerjoint ventures, um, really just
(07:20):
the opportunities and the growthof joint ventures is everywhere.
Um, one of the things we'regoing to try to touch on a
little bit is to impart thatwhat the right joint venture for
you and your client might be isgoing to depend very heavily on
what are the party strategies,what does the regulatory
environment look like, and whatsort of levels of control and
risk and capital uh is yourclient able to bring to the
(07:42):
table.
SPEAKER_01 (07:43):
Yeah, I think that's a really good way to set the
stage there, Tom.
Let's break down the types ofmain JV models that we've been
seeing.
SPEAKER_03 (07:51):
Yep.
Um, and so we typically think ofJVs as falling into three main
categories.
Um there's not like a specificrule or regulation as to what
the three are, but this is howwe we typically think about it
and how we've seen it.
Um the first, and I think is themost common, is what we call the
equity joint venture.
Um, it's called equity becauseat the end of the day, the party
(08:13):
the parties are gonna holdequity.
Um, typically they're gonna forma new holding company, typically
called NUCO, and they're gonnacapitalize it, putting either
cash or assets, contributingservices or other resources to
take NUCO from you know an emptylegal shell into an operating
provider in a space.
Um is going to operate as aseparate business with its own
(08:35):
governance, its own financials.
Um, this is typically the go-tojoint venture that parties are
going to want to choose whenthey're building out a new
service line or entering a newmarket together.
SPEAKER_01 (08:46):
Yes.
And then I guess shifting fromthe equity JV, the second would
be more of what we consider tobe a contractual JV.
So there, by contrast, there'sno new entity usually.
It's just one or more agreementsthat define the roles, the
economics, the performancestandards, the governance of the
venture itself.
(09:07):
You may hear terms that areflying through the press when
you're seeing different types ofcollaborations that may be
termed affiliations, they may betermed co-management, uh, a
variety of different synonyms,but we generally see these as a
bit of a lighter way, I wouldsay, and a faster way to
(09:27):
implement those types ofcombinations.
Uh, very important though,because you know, nothing's
easy, right, in any of theseareas, that we have clear
guardrails and performancemetrics.
And the one way we kind of thinkabout it and really joke about
it is that it really is a greatway for teams that want to
commit to one another, but don'tquite yet want those matching
(09:49):
tattoos.
SPEAKER_03 (09:50):
Right.
Um, and then the third basiccategory of joint ventures is a
management joint venture.
Uh, one party providesmanagement services, and that
can be some or all of a varietyof buckets.
You could have revenue cyclecompliance, HR, IT, procurement,
um, through some sort ofmanagement services
organization.
A typical acronym you'll heararound is an MSO.
(10:14):
Um, it can be challenging tofigure out when is a company
just a management company orwhen is it becoming a joint
venture.
Um again, there's not reallyhard and fast rules.
The way we think about it iswhen you have a management
services arrangement, it'sgetting close to the joint
venture territory when partiesare sharing risk or upside, and
you're getting beyond simple feefor service.
(10:36):
Um, in states where we havecorporate practice of medicine,
which we'll touch on a littlebit later in the podcast, this
is a very common model for uhphysicians and uh other entities
that are covered by corporatepractice uh to get around those
rules to join venture.
SPEAKER_01 (10:52):
Absolutely.
And look, what what I would sayis whatever the model is,
structure matters, ownershippercentages, capital calls,
board composition, what types ofreserve powers remain, deadlock
mechanisms.
That's one where a lot of ourclients don't really want to
think about that because you gointo a JV at times happy go
lucky, but we have seen deadlockbe a really key area when when
(11:16):
things unfortunately might goawry in a JV.
Um, and and along that line,exit rights would be another.
Um, you know, options to buyhave buy-sell triggers, transfer
restrictions, all of that needto be really clear up front from
a structural perspective.
So now taking a step back,here's the practical why now
from our perspective behind JVs.
(11:38):
JVs really allow healthcarecompanies to control costs, to
provide competitive services,and they're a fantastic partner
option when build is slow andbuying it might be pricey or
impractical.
We are seeing JVs used for allsorts of things, but ones that
we've certainly worked ontogether include entering a new
(11:59):
market quickly with a localpartner, scaling a service line
like dialysis in Tom's world,imaging, behavioral health, any
other type of service line inthat regard, uh, ability to
align with providers likephysicians without necessarily
employing them.
That of course uh does uh relateback to one of the themes
(12:19):
discussed, which is corporatepractice of medicine or
corporate practice of dentistryor whatever the analog is there.
Um it is also a means toco-develop uh particularly
value-based care products, whichis a particularly hot area now
with payors.
And even we're seeing a lot ofcreativity around, and we'll
touch upon this a little laterin the podcast, adding in tech
(12:42):
and retail capabilities withoutgiving up your core business if
that's not the type of businessthat you have.
I would also put a shout out forthe nonprofits out there.
We have seen firsthand that JVscan drive growth with a lighter
balance sheet footprint in manyinstances.
So if mission alignment,governance, and private benefit
(13:03):
guardrails are built in, thiscan be a really effective and
impactful way for nonprofits tohave some skin in the game and
really make a difference andreally change that footprint.
SPEAKER_03 (13:14):
Absolutely.
And then one other thing thatoverlays, you know, all the
reasons that Jennifer just laidout.
Sometimes joint ventures arepreferable just because they
bring a reduction of risk forthe parties.
Um, the parties can sharecapital, so it's a less
expensive investment.
Um, you're sharing operationalknow-how, so there's less
potential investment in uh yourteam, uh, whatever that might
(13:37):
be.
Um and there can be potentiallyless regulatory exposure if you
have a partner that complementsyour abilities, right?
If you have somebody withknow-how in the space, uh, or if
you were the party with know-howin the space.
Um so there's a lot of a lot ofgood potentials with joint
ventures.
Um, but generally that onlyworks if you're upfront about
things like control, culture,and economics from day one,
(13:58):
which we're gonna spend sometime to get into.
Um but bottom line, generallyyou want to be choosing the
joint venture that matches yourstrategy, your risk tolerance,
and your timeline.
And then you're gonna cover alot of the guardrails as the
lawyer on the deal that Jenniferand I are gonna touch on.
SPEAKER_01 (14:13):
Okay, so we've talked a little bit about the
why, why joint ventures are sopopular in healthcare.
Now let's talk about some of thekey regulatory and compliance
considerations in the healthcareworld.
We like to think of this as thebig three.
It's not at all by any stretchinclusive.
Uh, but I do think it provides aframework that we tend to start
from uh when we are analyzinghow to put these types of deals
(14:36):
together, whether it's with ourcompliance teammates and whether
it's with our businessteammates, um, and certainly
among our our councilcolleagues.
So those big three are CPOM,corporate practice of medicine
or its analogs, as I alluded toearlier, the Stark Law and the
AKS, ENA kickback statute.
So I tend to start with CPOM,mainly because it is more so a
(14:58):
state administered, statefunctional doctrine that's quite
old.
Uh, it's much older than Starkand AKS.
So I like to kind of start withthat base level.
Um, and then we'll zoom out toStark and AKS.
So for CPOM, corporate practiceof medicine doctrine, this is a
legal doctrine that at its coreprohibits corporations, and I
would use the word capital Cthere, although it's
(15:20):
unfortunately because it's a50-state doctrine not defined
that way.
Um, but capital C corporationsfrom the practice of medicine.
As I mentioned, it can varytremendously from state to
state, and many states havesignificantly older doctrines
than you might even imagine.
We've seen doctrines, you know,think about like the 1920s,
1940s era.
Uh, but at its core, thedoctrine is meant to curb what's
(15:43):
called corporate influence intoa physician or a medical
professional's medical judgmentfor their patients.
Uh, as I alluded to, andsometimes surprising to folks,
there are analogs for otherregulated medical professions or
health professions, dentistry,veterinary medicine to name a
few.
They all have a similar functionand intent.
SPEAKER_03 (16:06):
Yeah, and the intent behind corporate practice makes
a lot of sense.
You can you can easilyunderstand why.
Um, but as you can imagine,these restrictions can
significantly impact a jointventure that is in or around
these areas.
Um, so at the start of a deal,you're gonna want to do
significant analysis about whatjurisdiction we're gonna be you
know considered to be in and howthe corporate practice uh laws
(16:29):
can can impact thatjurisdiction, and then be
thinking about how structurescan be used to shape the deal.
Um, what are the keyconsiderations you're usually
looking at, Jennifer?
SPEAKER_01 (16:40):
So for starters, just with CPOM specifically,
because it typically is inrelation to key equity or other
types of control arrangements,it's it's generally ownership
restrictions, is the first placeI start.
Um, CPOM laws at their heartoften prohibit folks that are
not physicians uh from owningmedical practices or businesses.
(17:02):
And so as a result, this canlimit the structure of
particularly an equity JV, ofcourse, or an MSO JV, as Tom
alluded to earlier.
So you've got control andmanagement, and CPOM laws often
restrict non-physicians frommaking controlling medical
decisions.
If that's the case, the JV hasto make sure that those licensed
professional medicalprofessionals are making all the
(17:25):
clinical decisions.
The translation for that, andthat really is a red line, is to
let the clinicians make all theclinical calls full stop and to
be sure that your documentationand your operational structures,
policies, procedures all mimicthat.
SPEAKER_03 (17:43):
Yeah.
And unfortunately, corporatepractice, uh, you know, it goes
beyond ownership.
Uh, it can also affect thingslike revenue sharing models,
right?
So uh you can have issues withfee splittings or profit sharing
arrangements because it startsto look like a non-physician
person or entity is exertingcontrol over the physician
practice.
Um, so sometimes a JV is goingto want to adopt an alternative
(18:05):
structure so that they canprovide adequate administrative
or management support withouttriggering a CPOM issue.
SPEAKER_01 (18:13):
That's right.
And, you know, like we've said,CPOM laws with that variation
from state to state, I think ofit, you know, as very much a
patchwork.
It makes compliance tricky, Iwill say, obviously crucial.
Uh there are significant umdisciplinary actions that local
medical boards can take, canenjoy businesses in certain
(18:33):
instances.
So it doesn't just impact theproviders themselves, it can
impact the venture and itsoperations.
But because of that patchwork, Isometimes think of it really as
a puzzle.
And um a lot of our clients havemulti-state operations.
So we're not just looking at onestate and it's CPOM laws, which
may or may not exist.
CPOM is in the majority ofstates at this point, but there
(18:56):
are some states without CPOM atall.
Um, so we're quite literallyworking through this just this
patchwork of state laws.
I think of it as a quilt, quiltwith a bunch of holes in it.
Um, and plus it's been prettywidely publicized that many
states are actively revisitingtheir existing state law
frameworks with new and proposedlegislation.
(19:16):
I'd say that's been in the lastfive or so years.
Um, and dozens and dozens ofstates have gotten in on that
legislative action.
We sometimes get asked if it hasa COVID impact or you know,
Genesis because of the timing,but really less so COVID, as
more so in my mind, the way Isee it and the way that we
counsel clients is that a lot oftimes it's just bringing this
(19:37):
older, antiquated doctrine kindof into modern times, and you're
seeing legislatures reacting toexisting public activities that
might be going on in theirstate, with you know, an out of
state investor coming in andproviding equity to a medical
practice or a group of medicalpractices in a state or a bunch
(19:58):
of states.
And how does the legislaturefeel about that when it rubs
against these CPOM doctrines,especially when they're much
older?
These CPOM doctrines in somecases don't even contemplate,
you know, for example, privateequity as an investor because
they are, you know, ancient inmany cases, uh, relatively so.
So this is definitely anevolving area where advisors,
(20:20):
whether you are the complianceteam, the business team, or the
legal team, definitely need tobe up to speed and monitor so
that you can keep yourstakeholders informed.
SPEAKER_03 (20:30):
Absolutely.
Um so the so corporate practiceis one of the three big
regulatory regimes that that Icertainly keep in mind when
thinking about joint ventures.
Um the other two are the federalSTARK and anti-kickback laws.
Um, and then we can't mentionthe federal laws without the the
various state analogs, which Irefer to and I think a lot of
(20:50):
others refer to as mini Starkand mini AKS.
Um, Jennifer, do you want togive a quick overview for the
listeners about federal STARKlaw?
SPEAKER_01 (20:58):
Yeah, absolutely.
A lot of times those mini lawswill have some sort of
derivative to the federal, andyou know, we'll go ahead and
just give that federal overviewto start.
Uh federal STARK law, for thosethat are less familiar, is the
federal physician self-referrallaw.
And it really does what it says.
It prohibits a physician fromreferring Medicare patients for
(21:22):
what are called designatedhealth services, and we'll touch
on those in a second, to anentity that the physician or
actually the physician's familymember.
So it's a pretty broad overview,uh, pretty broad preview, has a
financial relationship with.
So essentially the STARK lawwants to ensure that physicians
exercise, again, and this isfamiliar in intent to the CPAM
laws, exercise medicaldiscretion independent of any
(21:46):
potential financial benefitsthat that professional might be
able to enjoy from therelationship.
SPEAKER_03 (21:52):
And what are those designated health services that
you touched upon?
SPEAKER_01 (21:56):
DHS, designated health services, there's
specific services and itemscovered by Medicare that can
trigger trigger theself-referral prohibition.
And they include things likeclinical labs,
inpatient-outpatient hospitalservices, and prescription
drugs.
There's actually definitedefined terms of what DHS is
under the legislation.
And it is pretty discretebuckets, but they are very
(22:18):
wide-reaching into the throes ofwhat you know a particular
venture might be doing in the inthe medical space.
Even if a JV, I should say,doesn't offer designated health
services at the outset, youknow, because we may be working
with a more of a startup JV, forlack of a better word.
As the business expands, theStark law could apply.
(22:39):
And we've seen this quite often.
So it's very important for thosethat are counseling in the JV
space to stay aware of what theJV does now, but also, you know,
what are its short to mid tolong-term plans for what it
might want to do in the futureto be sure that you kind of
circle back and true up thatanalysis.
SPEAKER_03 (22:58):
Right, right.
Unfortunately, there are someexceptions to the Stark law as
kind of healthcare evolves overtime, right?
SPEAKER_01 (23:04):
Right.
Right.
So modern exceptions that wework with quite a bit are
value-based care arrangements,which of course are aiming to
promote coordinated care,improve patient outcomes, reduce
healthcare costs.
You know, that's that notion,the shift away from you know fee
for service and into more of thevalue-based care area.
SPEAKER_03 (23:24):
Right, right.
Um and so then the last majorbucket we'll call in the
regulatory spaces federalanti-kickback statute or AKS has
a very similar goal, right?
It wants to ensure thatphysicians are providing medical
care independent of financialbenefits.
Uh, but it is much broader thanthe Stark law.
Um AKS is gonna be looking atany inducements by a provider to
(23:45):
a physician.
Um, fortunately, there are safeharbors that can shield a joint
venture if you fit into thecriteria.
Um whenever I'm setting up ajoint venture that has physician
investors, um, I'm gonna belooking at both of these
regulatory regimes.
But AKS especially, um, it'sgonna push joint ventures into
proving that uh any transactionsare fair market value and that
(24:08):
across the board, you know,everything that we're doing is
commercially reasonable.
Um, because at the end of theday, if we're really only doing
this deal because of theexpectation of referrals, um,
it's it's gonna be a problem andeveryone's gonna get in trouble.
SPEAKER_01 (24:21):
Yeah, absolutely.
I'd say the big four there tosummarize and simply put are you
know, number one, design forcare, for sure.
You know, be sure you have thatbackup file as if you're the
counsel from your business team.
The second, talking aboutdocumentation is document fair
market value FMV in the way thatus healthcare uh council and
(24:44):
advisors know it to be, capitalFMV and commercial
reasonableness, right?
For sure.
Um, and then don't hang anyeconomics on referrals, period.
That is um as clear as day ifyou are really on your business
team about watching how theyspeak to one another in texts,
(25:06):
in emails, and in other places.
Um, you know, again, that's amore in the hack category, but
we are definitely um very awarethat that that's a you know
something that we need to be100% mindful of.
Again, in this narrative, thattruly is the reason that our
clients are going into the jointventure space, which is to have
something innovative and to be acombination that brings
(25:28):
something new to the table andnot something questionable.
So, all right, we've nowdiscussed uh the regulatory and
compliance matters.
And let's shift gears to the funpart.
Not that the fun part is not theregulation, because Lord knows I
love a good regulation.
But how can you actually startand run a healthcare JV?
(25:48):
Um, and I when I say you, youknow, provo proverbial you, you
may be the lawyer on the phone,you may be the compliance
person, the business person, butbut how do we actually get that
JV jump started and up andrunning?
So when thinking about findingfounding a JV, getting one
started, developing a JV, forus, JV lawyers, Tom and myself,
(26:09):
we should know exactly who isforming the business because who
joins can significantly impactthe JV itself.
SPEAKER_03 (26:16):
Yeah, absolutely.
And and it's not just the nameson the page of the contracts,
right?
It's what is the legal entitythat's joining and what does
that imply?
Um, for example, if you'rerepresenting a tax-exempt
organization, you might needprotections around UBTI, right?
Unrelated business taxableincome.
Um, complex systems like myclient at Firsenius Medical
(26:39):
Care, um, the specificsubsidiary might matter, right?
Whether you're in the medicaldevice space or the provider
space, and what kind of licenseor what kind of regulations
apply to you.
Um and for individuals,physicians or otherwise that
might be joining, getting theexact identities of the
individuals that are going tojoin is critical because you're
gonna want to make sure thatthese are all accredited
(27:00):
investors.
If you need securities lawcompliance, um you're gonna want
to make sure that those are theright people for purposes of a
restrictive covenant.
SPEAKER_01 (27:09):
That yes, absolutely.
So that's kind of the day one ofthe JD, so to speak.
So let's plan for day two,right?
And three, four, five.
That gets a little trickier.
And that's the negotiating ofadmission of future members into
that new entity.
As we discussed, that ability tohave this sort of notion of
controlled flexibility, and Iput that in quotes because the
(27:32):
flexibility is what they're iswhat we're all after, but there
does have to be a fair amount ofguardrail in order to protect
the parties.
We are spending a lot of timebaking that into the operating
agreement.
Tom and I have worked on JVswhere the operating agreements
may be single member and theymay be short, um, because we
know by you know we know otherparties are coming in later, and
(27:53):
so we can deal with some joindermatters at that time.
But we've also dealt with oneswhere you know baked into those
operating agreements were dozensof pages in this regard.
And that could mean puttingprovisions in that permit the
transfer of equity to a newmember.
It could relate to covenantsthat limit the transfer of
(28:14):
equity to an affiliate or asuccessor in interest.
And I know we've had a coupleexciting, um, exciting ones in
that regard, Tom.
SPEAKER_03 (28:22):
So yeah, absolutely.
Um, you know, because at the endof the day, a lot of these joint
ventures, they're not for short,discrete periods of time, right?
If assuming things go well, thiscould be a multi-decade business
or or even longer.
So the core question that thelawyers on both sides are going
to have to think about is howmuch freedom do we want to give
a transferring member who wantsto exit or who wants to bring in
(28:45):
a new partner, versus how muchcontrol do we give the
non-transferring or remainingmembers?
Uh, you know, on one hand, youwant flexibility to you know
move your equity around asnecessary.
On the other hand, if you're notmoving your equity, you want to
have control over who's sittingat the table with you and who
you're in business with.
Um, and so a lot of timesthere's there's no right answer.
(29:08):
But uh one thing that oftencomes into play is can somebody
use money, right, to block anoutcome that they dislike?
Can there be a right of firstrefusal on transfers or
something like that?
SPEAKER_01 (29:18):
Yeah, that's right.
And you know, I would add thatbecause you're bringing
together, for lack of a betterword, disparate parties into a
shared arrangement, right?
The twists we see that over theJV's life, because you know,
these JVs, as Tom mentioned, Imean, they're hopefully
successfully in place fordecades, um, in perpetuity in
some cases.
(29:38):
And so we've seen twists where,you know, there might be a
member who at some pointexpresses an interest to be the
one that might want to transfer,but at the same time, they also
might be the one that wants toveto that down the line if their
circumstances change or theirownership amounts change.
So there's really a lot offluidity and We like that
(30:00):
because we want the members tobe able to grow into the venture
or flex out of the venture asmakes sense for them at that
time.
SPEAKER_03 (30:08):
Yep.
And you know, because we're inhealthcare, unfortunately, or
fortunately for the lawyers,there's there's even more
complexity that we have to keepin mind.
Um, a lot of healthcare jointventures being in a regulated
space, there's gonna be someadded complexity that the
lawyers are gonna want to keepin mind.
Um, for instance, you know, ifyour joint venture gets
reimbursement from federalpayers, you don't want any
(30:31):
transfers to an entity or anindividual that's been excluded
from those payer programs.
That's gonna basically blow upthe reimbursement uh ability of
the joint venture.
Um, similarly, you know, if youhave a joint venture with a
nonprofit partner or working ina nonprofit space, um, that prop
that party is probably gonnawant some protection about any
(30:52):
new members that couldjeopardize their nonprofit
exempt status.
Um, you know, and and you canimagine that issue across a host
of licensing and permitting uhissues that can come with a
particular joint venturedepending on the industry.
SPEAKER_01 (31:07):
Yeah, for sure.
Those are really good points.
We should also discuss planningfor future growth, which which
could come in the form ofexpanding locations, offering
new services, or any othervariety of pathway.
SPEAKER_03 (31:20):
Yeah, absolutely.
Um growth, growth is a greattopic because one, the business
folks like to talk about it,right?
They always want everyone toknow that their deals are gonna
be great and are gonna be supersuccessful.
Uh, but it can be verychallenging for the lawyers,
right?
Because growth almost bydefinition is unknown and you're
trying to look into your legalcrystal ball to plan for
(31:43):
eventualities that that reallyyou can't predict, right?
Um if a joint venture grows intoa new business line, is the
current management structureappropriate?
Um there's really no way toknow, but you know, we're we're
tasked with figuring out how todraft provisions that allow
growth to go forward.
Um it's uh it's a bit of acliche, but you kind of want to
(32:04):
draft for an argument that youhope to never have.
And you know, over time, as youget more experienced with joint
ventures, you get a little bitbetter at it, but but it's
always a bit of a bit of a blackbox.
SPEAKER_01 (32:14):
I like that one.
Draft for the argument that youhope you never have.
I like that.
Um that that goes along with my,you know, some of my cynical
clients will say that lawyersare paid pessimists, but there's
reasons for that.
So um, so for that reason, youknow, it's important for the JV
lawyers, I think, to get a senseof where the business could grow
when they draft that initialoperating agreement.
(32:37):
That's going to be thatgovernance document that, you
know, grows with the JV andcould be amended in the future.
But that really is that sort ofum charter, so to speak, of the
business itself.
And we are successful, right, ifthat business grows.
Every business wants to grow,right?
I mean, that's what our clientsare hoping for, especially in
the JV space where they're notdivesting, they're actually
(32:59):
choosing to go into somethingtogether and build.
Um, but you also want to andneed to protect that core of
that business that's beingformed.
So there's this tension that weobserve in this space where
you've got growth-focusedmembers that want enough freedom
to potentially pursue newopportunities.
And we might see that inside theJV, actually.
(33:20):
And Tom mentioned sometimes wehave rights of first refusal or
other mechanisms built into, youknow, allow for that in a
permissive way.
And sometimes they may want topursue those opportunities
outside of the JV.
Uh, but then you've gotgrowth-resistant members
sometimes that really areconcerned about cannibalizing
the JV or risking the status quothat's profitable on expansion
(33:44):
and and that they don't support.
SPEAKER_03 (33:46):
Right.
Yeah.
And it gets even harder if oneor more of the joint venture
parties, you know, say ahospital or health system, if
the joint venture is in its corebusiness, how can you tell a
hospital it can't grow intosomething it wants to do because
its joint venture partners don'twant it to?
Um, so there's always going tobe this push and pull.
Again, there's there's notalways a perfect right answer,
(34:07):
but it is just one of thosetensions that the lawyers need
to be aware of and understandwhen they're negotiating things.
SPEAKER_01 (34:12):
Yeah, we definitely see that as a tight rope walk
for sure.
A delicate balancing act, butone necessary and one that I
think a nuance that I didn'treally understand until I was
probably a little bit deeperinto my practice and have seen
JVs evolve, particularly thepartners evolve or the purpose
of the business evolve.
So it's definitely one to flagas a another good hack.
SPEAKER_03 (34:33):
Yeah, yeah.
And so you're typically going tosee this kind of push and pull
play out in three differentcovenants that you'll see in a
joint venture operatingagreement.
The employee non-solicitation,uh, confidentiality covenants,
and then non-competitioncovenants.
unknown (34:47):
Yeah.
SPEAKER_01 (34:47):
So the for the confidential confidentiality
covenants, we'll start with,those generally require the
members to keep the JVinformation confidential.
And that may limit actuallyultimately each member's use of
that information.
These are pretty standard indrafting, but in practice, it's
often tough, to be honest, to beable to distinguish what a
(35:08):
member learned through the JVversus what they developed
independently.
SPEAKER_03 (35:13):
Right.
Uh, non-solicitation covenantsare also pretty challenging in
that respect, right?
Um, usually, usually we'retalking about employees, it
could also cover vendors,customers, patients is really
sticky.
Um, but this is a topic where,again, it's hard to kind of
ensure protection because peoplehave, you know, general
advertisement for healthcaresupport staff and things like
(35:35):
that.
And it's also challengingbecause, you know, especially
now, but even before that, um,employee non-solicit to get a
lot of antitrust consideration.
So the lawyers are going to wantto be very mindful of what the
exact language says.
And to our earlier point, you'regonna want to be very thoughtful
in how you instruct yourbusiness colleagues on how to
talk about this kind of stuff.
SPEAKER_01 (35:57):
Yeah, absolutely.
And I will just say, you know,the elephant in the room,
sometimes they're justimpractical.
If a member already operates inthe same market, you can't
actually limit them fromengaging with every vendor.
And obviously, as you'vealluded, Tom, you know, patience
is a whole nother tricky area.
But, you know, customer, forexample, a targeted non-compete
(36:18):
is really, in our experience,often a better tool than a broad
non-solicit.
SPEAKER_03 (36:24):
Yeah, and the non-compete is typically the
most heavily negotiated.
Um, we won't go into too muchdetail, but the three big things
you're going to want to thinkabout are the what's covered
under the non-compete, thegeographic reason region that's
covered in the non-compete, andthe time period, right?
Is it during the joint venturerelationship?
Is there a tail period ifsomeone exits?
(36:45):
Things like that.
SPEAKER_01 (36:46):
That's right.
And these covenants also applyto affiliates most often.
Especially, yeah, especiallydrafted, drafted the way we
would typically like on behalfof the best interest of the JV.
Um, so let's talk about thosetypes of transactions.
Affiliates are in some wayrelated or share common
ownership with a member or amanager of the JV.
(37:08):
That's typically how we sort ofsee affiliate lowercase A
defined.
Uh, many of the healthcare JVsthat we've done together at
least have at least, if not morethan one, at least one
contractual or financialtransaction with an affiliate of
one of our JV members.
And we actually have found thatto be, you know, as we've gone
on to do other work, uh, thatthat's quite common in the
(37:30):
healthcare space.
These transactions can create,of course, conflicts of interest
technically in approving,overseeing, and terminating
these types of deals.
SPEAKER_03 (37:42):
Yeah, absolutely.
And, you know, when we'rethinking about it from a
practical standpoint, I thinkthe two main areas you're gonna
see affiliate transaction in iskind of like general management
services or something similar toa medical directorship where a
physician partner uh is isproviding specific services that
that really only a medicalprofessional can can provide.
(38:03):
Um so you're gonna wantwell-drafted agreements that
address different incentives,um, give non-affiliated members
the right to step in if servicesfalter or if the business
fundamentally changes.
Uh, your operating agreementshould also have a very clear
process for how are we approvingthese transactions.
Um, selecting who the provideris, material changes to these
(38:26):
transactions, what do what do wedo if we need to terminate?
You all want that, you'll wantall that stuff laid out very
clearly.
SPEAKER_01 (38:32):
Yeah, for sure.
And I think we've also foundit's quite important to make
sure that any window or exitprovisions in the JV contemplate
for that potential terminationof an affiliate transaction.
If even one of the members ofthe JV doesn't want to terminate
an affiliate transaction, thereality is that the JV may not
(38:54):
survive in certain instances.
And I know we don't go into thiswork, Tom, you know, with a
gym's day scenario, but that isa reality that we've had to
address.
SPEAKER_03 (39:03):
Yeah, absolutely.
Um, you know, I've been insituations where, say, you have
a joint venture with acardiologist and a hospital, and
the right now it's on thehospital campus, and the
hospital's rebuilding andthey're going from the first
floor to the fourth floor orsomething like that.
And the cardiology group says,no, that's you know, that's not
the deal we wanted.
Um, we want to now leave thehospital campus.
(39:25):
Well, maybe the hospital all ofa sudden it doesn't make sense.
Um, and so what do you do whenthose parties feel like the
original benefit of the jointventure just doesn't pan out
anymore the way they thought itwas going to?
SPEAKER_01 (39:38):
Yeah, I mean, it would be really hard, you know,
in that instance for the JV tomove forward.
So, you know, speaking of exits,uh, everyone's favorite topic,
the operating agreement shouldmatch out, should map out how to
wind down the business ifneeded.
So some of the last JV decades,some of the JVs in the last
decades, you know, we foundyou'll face some curveballs.
(39:59):
Um you'll have to anticipatewhat you can do today, but build
in that flexibility.
And um, like we talked aboutearlier, for what you can't.
So, Tom, what what shouldautomatically dissolve a JV in
your experience?
SPEAKER_03 (40:13):
Yeah, not certainly not every problem.
Um, you know, a lot of problemscan be fixed, even if it seems
like it's a fundamentaldisagreement.
But, you know, the the firststep should always be
discussions between the parties.
But I find generally, first off,if there's sustained negative
cash flow and some or all of thejoint ventures don't want to put
in more cash or take on debt,that that's kind of, you know,
(40:34):
at that point, unfortunately,the business didn't pan out and
it's probably time for the jointventure to wind down.
Um, and then the second big oneis, you know, if there's a
regulatory change, right?
We talked earlier about thesesafe harbors that allow certain
joint ventures to function.
If those change for any reasonand now you don't have the safe
harbor, unfortunately youprobably don't have your joint
venture anymore.
SPEAKER_01 (40:56):
Yeah, so those are good.
I mean, what you know, you alsothough are going to want to
preserve relationship integrity,right?
So the operating agreementshouldn't allow one party to
redesign the deal, right, bystripping out roles or revenue
streams without giving theaffected member a path to exit
or rebalance.
So how do you calibrate that?
SPEAKER_03 (41:17):
Yeah, I mean, so first of all, there's no perfect
way.
I think one way to get around itis to make sure that your
operating agreement is clearabout what happens if you get to
dissolution.
So everybody understands that ifwe can't come to some kind of
agreement, here's how things aregonna play out.
Um, but no, I mean, I think it'sa lot of like conversation
between the parties, back tothat cardiology hospital campus
(41:40):
uh topic.
Um, is there a situation wherethe parties can sit down and and
mutually agree?
Um, and if they can't come tosome sort of agreement, um
thinking about how therelationships are gonna play
out, because these folks stillprobably want to stay in
business, uh maybe not directlyin a joint venture, but but
they're still gonna see eachother if the healthcare space
isn't isn't that large.
(42:02):
Um, but you know, in general, wewant to be mindful that conflict
enough, uh conflict is you knowsomething we're trying to avoid.
Um so I think that's that shouldbe our over overarching goal in
in a lot of these joint venturenegotiations, giving giving
enough of a a script for for thebusiness folks to help avoid
some of this stuff.
SPEAKER_01 (42:22):
Yeah, and I would throw in there that you know,
we've seen enough of these uh gowrong, so to speak, that we just
have to plan for bad actors.
And that's not inherent inanyone's DNA.
We don't feel good about thatsometimes.
But I do think that, you know,that's just something that we
have seen as important to set upin terms of guardrails, things
as simple as building in, youknow, periodic screening against
(42:44):
federal exclusions lists,requiring, you know, prompt
notice by a member of an inquiryof a government investigator or
otherwise, you know, with thatgoal to really catch issues
before they infect.
You like what I did there?
Infect the JV.
Um yes, that is our promisedhealthcare plan.
Um, so next, you know, let'sdecide about what happens when
(43:06):
an issue arises briefly.
You know, what aboutinvestigations?
Like, should an investigationhave consequences?
How do you see Tom JVs uhputting into place tools that
mitigate bad behavior and youknow, not poison the well, so to
speak?
SPEAKER_03 (43:22):
Right.
Yeah, investigation is hard, Ithink, because you know, a lot
of times investigations can takeyears and there still may not be
a clear like knowing of badbehavior.
Um so I think one of the one ofthe key things that I find
successful in my practice is thetrigger for removing or
sanctioning or otherwise dealingwith a bad actor is not a final
(43:45):
non-appealable judgment orwhatever term the litigators
like to use.
It's once we know that theremight be bad act occurring, at
that point, the non-bad actingparties parties in the joint
venture, they can now takewhatever action the operating
agreement sees fit.
And maybe that means that youkick somebody out too early who
actually didn't do anything bad,but at least it puts the onus on
(44:06):
the accused to present somelevel of comfort to the other
parties of the joint venture.
Um because you're right, wedon't want a world where this
joint venture, which is probablyproviding healthcare services,
to have major interruptions.
That's that's not going to bebeneficial for patient
helpcomers and things like that.
SPEAKER_01 (44:24):
Yeah, I think that's a good, pretty solid playbook
from prevention to interimstandards to, you know,
unfortunately, removalmechanisms.
So let's take the final minutestogether to describe what we're
really excited about ashealthcare law practitioners,
which is innovation in JV and inhealthcare.
Um, so you know, I've got a bigquestion, big picture question
(44:47):
from your standpoint, Tom.
Like, what do you think are someof the key drivers that are um
bringing innovation intohealthcare and the JV model?
SPEAKER_03 (44:55):
Yeah, I think it's, you know, it's really cost,
right?
At the end of the day, you youhave a lot of large providers, a
lot of large health systems, youknow, companies like the ones I
work for, and and everyone'sfeeling the crunch on
reimbursement and caught, youknow, employee costs, vendor
costs, things like that.
So at the end of the day, folksare going to be looking at joint
(45:16):
ventures as an opportunity tosay, how can we achieve the you
know, the financial goals thatwe're looking for?
How can we get the patientoutcomes that we're looking for
while doing it at reduced cost?
And joint ventures are a greatopportunity for that.
Um, they maybe allow a largeorganization to operate outside,
not outside their usualpolicies, but have more of a
(45:38):
startup venture feel if they'repartnering with a venture
company in a joint venture.
Um, it may allow for medium orsmaller providers to offload,
like we discussed earlier, someof that capital risk, some of
that financial risk with a deeppocketed private equity firm or
something like that.
Um, or it just, you know, youhave a small physician practice
(45:59):
in whatever subspecialty, youknow, even though those folks
are, you know, probably doingpretty well financially,
healthcare is expensive.
And, you know, building out afive or ten million dollar
imaging center costs a lot ofmoney.
So even if you have five or tenphysicians, that's that's a big
investment.
That that could be somebody'sretirement account.
So having an opportunity wherebythis sort of structure allows
(46:20):
folks to mitigate and drive downcosts and reduce risks, uh, I
see that's why joint venturesare continually continued to be,
you know, active and and evengrowing in in the American
healthcare space.
SPEAKER_01 (46:33):
Yeah, definitely from my perspective too.
One of the things I found mostexciting about this era is um
how JVs can be possibly asolution for talent.
A JV can recruit productmanagers, data scientists, you
name it.
And you've got the agility of agrowth company, right?
But the scale of possibly ahealth system or a plan behind
(46:55):
it, um, it's really hard tocreate that single synergy in
front of, you know, in a singleparent organization.
And, you know, on the caredelivery side, JVs are really
pushing, as you mentioned, thatlower cost, higher convenience
setting.
You know, I know in your world,Tom, and Firstinius, you're
seeing a lot of innovation inthe home health area.
We're seeing hospital at homeadjacencies and virtual
(47:17):
specialties and all sorts ofdifferent combination efforts
when you bring particularly thetech side along with the
institutional side.
And I just for me, it's justsuch an exciting time to
practice in terms of newsolutions for patients, access
to care and the like.
And I would also say for thenonprofits out there, um, I
wanted to take a moment toreturn to that notion that
(47:40):
innovation through JVs canreally help to advance mission,
um, charitable mission, access,equity, community health,
without overextending thatbalance sheet.
And we touched upon thisearlier, but I think really
baking those mission metricsinto your scorecard, um, you
know, whether it's wait times inyour underserved areas, whether
it's language access, whetherit's digital equity measures, we
(48:03):
are seeing really, reallyexciting developments in this
space.
And it just feels like JVs havealways been there as that
solution, but the potential isendless as you're seeing on one
hand, partners developing thetech, developing the data, of
course, being sure that your IPand other data rights are
protected.
(48:24):
But greater than that, how doesthat fit in with more of the
institutional model that is moreclient and patient-facing and
developing these combinationsthat really are a mind blow and
uh just such an exciting time?
SPEAKER_03 (48:37):
Absolutely.
SPEAKER_01 (48:40):
So I am sure that you know we could keep talking
about this, Tom, um, forever andever.
And I know we do when we are atthe conferences.
So be sure to find us at anyconference that we are attending
for AHLA.
But I wanted to thank you, Tom,for sitting down and sharing
this time with me to deep diveabout one of our favorite
topics, healthcare jointventures.
SPEAKER_03 (49:00):
Yeah, absolutely.
Thank you, Jennifer, and thankyou, listeners.
And a quick plug um next year'sannual meeting, 2026, is going
to be in New York City for thefirst time, I think, in over a
decade.
Uh, Jennifer and I are bothhoping to be there.
So uh, if we're there,definitely come and find us and
say hi.
Thank you.
SPEAKER_00 (49:22):
If you enjoyed this episode, be sure to subscribe to
AHLA Speaking of Health Lawwherever you get your podcasts.
For more information about AHLAand the educational resources
available to the health lawcommunity, visit AmericanHealth
Law.org and stay updated onbreaking healthcare industry
news from the major mediaoutlets with AHLA's Health Law
Daily Podcast, exclusively forAHLA comprehensive members.
(49:45):
To subscribe and add thisprivate podcast feed to your
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