August 15, 2025 • 44 mins
Jerry Chang, Managing Director, BRG, speaks with Brynne Goncher, Vice President/Deputy General Counsel, Piedmont Healthcare, and Tom Hawk, Partner, King & Spalding LLP, about the factors that increase the likelihood of successful joint venture partnerships between health systems and other providers and the factors that increase the likelihood of struggling joint venture partnerships. They discuss some of the drivers and characteristics of the joint venture partnerships they are seeing; issues related to partner, operational, and financial alignment; and real-world anecdotes. Jerry, Brynne, and Tom spoke about this topic at AHLA’s 2025 Advising Providers: Legal Strategies for AMCs, Physicians, and Hospitals conference in Austin, TX. Sponsored by BRG.
Watch this episode: https://www.youtube.com/watch?v=nhO7v-oxw_Q
Learn more about BRG: https://www.thinkbrg.com/
Learn more about the 2025 Advising Providers conference that took place in Austin, TX: https://www.americanhealthlaw.org/advising-providers-legal-strategies-for-amcs-physi
Learn more about the 2026 Advising Providers conference that will take place February 11-13, 2026, in Las Vegas, NV: https://www.americanhealthlaw.org/advisingproviders
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_01 (00:00):
Hello, everybody.
SPEAKER_05 (00:18):
I want to thank everybody for joining us today
on our podcast.
My name is Jerry Chang, and I'ma managing director and partner
with BRG in Atlanta, Georgia.
I want to start off by sayingthat the perspectives that me
and my co-podcasters are goingto give today are personal
opinions and perspectives andnot necessarily the perspectives
(00:39):
of our respective firms orhealth system.
So as I mentioned, I'm with BRG,and BRG is a professional
services firm.
We have over 1,500 colleagueshere that serve clients, and we
are spread out across 40countries.
plus different locations on sixcontinents.
(00:59):
And the three primary areas ofservice that we focus on are
corporate finance, which is thegroup I'm in, and the evaluation
and advisory services, financialadvisory services practice.
We also have an economicsdisputes and investigations
group.
And then finally, we haveindustry specialties, of which
(01:19):
healthcare is one of our mostimportant.
So BRG really takes healthcarevery seriously.
I personally am in, as Imentioned, the corporate finance
valuation practice.
I serve clients and theircounsel with valuation and
financial advisory services fora number of different
motivations.
Of course, we're talking aboutjoint ventures here today.
(01:39):
So joint ventures, strategicpartnerships, mergers,
acquisitions, any type oftransaction like that.
I also, of course, do valuationfinancial advisory for
regulatory compliance purposes,Stark Law, any kickback.
Also, I testified as an expertwitness, so I do litigation
support as well as bankruptcyrestructuring and financial
(02:00):
reporting.
So that's just a brief summaryof my firm and what I do.
I would like to give my fellowco-podcasters a chance to
introduce themselves.
So maybe we'll start with, Idon't know, Brynn, do you want
to start off?
Sure.
SPEAKER_00 (02:17):
Sure.
Hi, I'm Bryn Gonsher, VP, DeputyGeneral Counsel of Piedmont
Healthcare, which is anot-for-profit community health
system comprised of about 22locations, including 26
hospitals, excuse me, 2,200locations, including 26
(02:38):
hospitals across the state ofGeorgia.
Go ahead, Tom.
SPEAKER_04 (02:44):
Thanks.
I'm Tom Hawk.
I'm a partner at the law firm ofKing& Spalding, and I am in our
Atlanta office on our healthcareteam.
I do healthcare transactionalregulatory work, representing
providers, handling a variety ofdifferent types of transactions
from mergers, acquisitions,divestitures, joint ventures,
(03:05):
topic of today, and alsofinancial industry participants
like private equity firmsinvesting into the space.
And I'm excited about theopportunity to do my very first
podcast with Jerry and Bram.
SPEAKER_05 (03:18):
Great.
Thanks a lot.
So Tom and Bryn, as you recall,earlier this year, we were in
Austin, Texas at the AHLAAdvising Providers Conference.
I believe the official name wasAdvising Providers, Academic
Medical Centers, Hospitals, andPhysicians.
And we're in Austin.
(03:39):
I do remember the tasty barbecuefrom going to some restaurants
in Austin, all those greatbriskets there.
But we presented some insightson joint ventures between health
systems and other providersalong the care continuum.
And I'd like to expand on thattalk that we had during this
podcast, perhaps focus a littlebit more on factors that uh
(04:04):
increase the likelihood of jointventure partnerships that can
flourish and then also maybefocus on some factors that
increase the likelihood of astruggling joint venture
relationship i think ouraudience uh would be interested
in those insights and we canalso share some you know some
real world anecdotes uh sort offrom the front lines of what
(04:27):
we've seen and and related tojoint venture partnerships that
have flourished or maybe havestruggled a bit.
But starting off, I'd like toask Tom and or Bryn to comment
on just health joint ventures ingeneral, including some of the
drivers, characteristics, typesof JVs that you're seeing out
(04:47):
there.
Either of you can start.
Tom, you want to go first?
Sure.
Well, I mean, it's a
SPEAKER_04 (04:54):
question we have gotten a lot.
focusing on joint ventures overthe last three to five years,
really, for a number ofdifferent reasons.
I think we all operating in thehealthcare industry space and
doing deal work know the amountof scrutiny that has been on
healthcare transactionalactivity, a variety of different
(05:17):
types of transactions, both atthe federal and state level over
the past few years.
And Providers looking to achievetheir strategic goals have, in
many cases, turned to jointventures as a way to achieve
some of their strategic goalsthat may have less regulatory
scrutiny than a full alignmenttransaction like a merger or
divestiture might have.
(05:39):
In addition to that, things likeattractive aspects of joint
ventures are that you sharerisk, right?
You share risk, you sharecapital, and so it can be a more
cost-efficient way to achievestrategic objectives.
And we've run the gamut andtypes of interest of joint
ventures from very formal wholehospital JVs, although those are
(06:04):
less common, but they occur, tojoint ventures of a single
imaging location or an ASC, forinstance, and different
transaction models from virtualjoint ventures where no assets
really move.
You're just joint ventures onpaper to full on joint operating
(06:25):
companies that both partnerscontribute assets and capital
into.
So the interest is broad in anumber of different ways and
it's driven by a lot ofdifferent factors.
SPEAKER_00 (06:39):
Yeah.
And, you know, as Tom, as youmentioned, you know, we're
seeing a lot of partnershipseither come to us or what we're
doing in the oncology area, inthe ortho area, ASCs, obviously,
urgent care, imaging.
Yeah.
(07:00):
you know, post-acute care andthen also on the lines of
research, technology, MOBs.
Those are the types that, youknow, we have partners that are
interested in doing that type ofthing with us.
And, you know, we're doing thosetypes of things with other
partners.
SPEAKER_05 (07:19):
Yeah, I'll just add a couple more.
Just in my work as doingevaluation and financial
advisory, I'm working with aclient in physical therapy,
contemplating a joint venturewith a health system, as well as
behavioral health.
I think those are all areas thatwe're seeing a lot of.
So great.
So that lays the sort of thegroundwork on our discussion.
(07:41):
I would like to discuss some ofthese factors now that could
lead to an increased likelihoodof a successful joint venture,
one that flourishes, and alsosome factors that may lead to
less desirable joint venturepartnerships.
I think that's very important.
I'd like to divide ourdiscussion into sort of three
(08:03):
different categories ordimensions that you know, that
we can talk about.
So number one would be the,sorry, the partner alignment
dimension.
The second category would be theoperational alignment category.
And then the third category thatwe can discuss would be the
(08:24):
financial alignment category.
So let's start with the partneralignment category.
You know, when I, Tom and Bryn,when I think about partner
alignment, I automatically thinkabout like my spouse and some of
the things that I had to thinkabout before I decided to
partner up with my spouse in amarriage and things that are
(08:45):
pretty important.
So what are some of the crucialfactors that our audience should
consider when they're looking ata potential joint venture
partner from a partner alignmentperspective.
I don't know, Bryn, do you wantto give your thoughts on maybe
from your perspective in anonprofit?
UNKNOWN (09:07):
Yeah.
SPEAKER_00 (09:07):
Yeah, so I think that one of the most important
things for us has been to reallyunderstand our goal of a
potential alignment and then toreally do diligence on a
potential partner's goal.
You know, for us, it's going tobe a lot of access to care,
continuum of care, potentiallygaining expertise in an area
(09:30):
that we don't have expertise inthat currently, maybe speed to
market, but really understandingunderstanding, well, what is our
goal and what are we trying toaccomplish?
And then understanding thepartner, the potential partner,
what are they trying toaccomplish?
(09:51):
And are we together going to beable to accomplish something
that is even better than whatboth parties could do on their
own?
SPEAKER_04 (10:02):
Great.
Yeah, I completely agree withBren.
I think one, particularly in thejoint venture space,
underappreciated aspect ofdiligence in the transactional
context is cultural diligencebetween two organizations.
(10:22):
And it's really important.
Sitting as outside counsel, Iget to, you know, we represent
nonprofit health systems,academic medical centers.
for-profit companies, privateequity companies.
And each one has a verydifferent feel, very different
(10:43):
management styles,decision-making styles, ability
to consult with stakeholders orneed to consult with
stakeholders.
And many times thedecision-making apparatus of one
type of company, it just doesn'tmeld well with a different type
of company for a variety ofdifferent reasons.
(11:04):
And one's not better than theother, but it's just that
they're different and may not becompatible.
And so cultural diligence isreally important.
But I think, you know, a closesecond or equally important is
what are you seeking to get outof it?
And how does that align withwhat you know your partner,
potential partner is seeking toget out of it?
Are they Is this somethingthat's strategic, like what Bryn
(11:27):
mentioned about access to careand growing their care
continuum, or are they afinancial investor who is
willing to make a return orneeds to make a return within a
certain window or is looking tomake a return and get some
liquidity within a certainwindow of time?
And do those two things alignand can they align?
And other things like, is yourpartner, do they have experience
(11:53):
being a joint venture partner?
Do they have experience doingtransactions?
Do they know sort of howinvasive and disruptive it
sometimes can be?
Are they clinically led or arethey more business operator led?
And what does that mean for howthe parties work together?
And then what is the twomissions and can they align
SPEAKER_02 (12:14):
well?
SPEAKER_04 (12:15):
I said a lot, so I'll shut up now and let...
Let you offer some thoughts,Jerry.
SPEAKER_05 (12:21):
It seems like if you really find a partner, Tom and
Bryn, that you really do alignwith on these important facets
or dimensions, it can maybe helpin the future, too, if we
encounter certain issues orthings.
Sometimes things don't goperfectly, right?
And you might encounter somethings that you have to work
through.
Do you feel like just puttingthat work up front will help
(12:46):
down the road also in the jointventure partnership?
SPEAKER_00 (12:49):
Yeah, so, you know, we're coming as a nonprofit
health care, you know, communityhealth care system.
We're coming from, you know,this is for the long term.
This is this is for thecommunity for the long term.
And so can the more that we canwork through the details in an
LOI, those types of things, andreally, really dig into, well,
(13:12):
what is each partner going tobring to the joint venture?
I think the more successful wehave seen our joint ventures,
both from an documenting thejoint venture, but then from an
operational perspective andreally having that good rapport
(13:35):
for the long term.
SPEAKER_04 (13:36):
Right.
Yeah, I would say just to put afiner point on a particular
aspect, I think it's reallyimportant and people often give
lip service to it, but may notreally do the work behind it.
That is sort of the an agreedupon upfront, agreed upon, I
guess, game plan for any majorcapital investment.
(14:03):
So to the extent you're doing ajoint venture for a cancer
center of excellence, andthere's gonna be a new building
or orthopedic joint venture, andthere's gonna be some new
building, what is the budget forthat?
And there inevitably are gonnabe cost overruns and any sort of
thing like of that nature.
And how is that handled?
And we've seen this also in thecontext of joint ventures for
(14:25):
value-based care plans, whereyou get into some of the risks
of operating a health plan andhow that operates or at least
sharing risk in the value-basedcare context.
And to the extent there arelosses there, how is that going
to be funded?
All that needs to be veryclearly agreed upon up front
with a fair amount of diligenceand financial diligence backing
(14:49):
it up.
SPEAKER_05 (14:50):
Before we move on to the next category, Tom and
Brynn, do you have any anecdotalexamples of, and obviously we're
not gonna mention anyconfidential client names or
anything like that.
And so just wondering if youhave any examples of cultural
issues that may have led topartnerships that have
(15:13):
flourished and then others thatmay have led to more challenges.
SPEAKER_04 (15:20):
Yeah, so for cultural issues, I would, a few
examples I have are theinstances when business
leadership may not haveexperience, a ton of experience
in operating professionalclinical organizations clashes
(15:42):
with clinical leadership.
And For budgetary reasons, forquality of care reasons, you
can't operate a physicianpractice like you can operate a
Burger King for a variety ofreasons.
And so those sorts of culturalissues can surface pretty
(16:06):
quickly when there'smisalignment.
SPEAKER_00 (16:10):
Yeah, and I would say kind of going back to my LOI
point, I think that we try to,you know, be very thoughtful in
how we approach And how detailedwe are in our LOIs, so that way
we can really determine at theLOI level, is this the right
(16:34):
partner for us?
Because we're spending a lot oftime, we're spending a lot of
money in putting together ajoint venture, and it...
you know, we found that reallyspending that time parsing
through an LOI is where we candetermine, is this the right
partner for what we are tryingto achieve?
SPEAKER_04 (16:55):
Yeah.
And I would just observe that inthe negotiation process of the
LOI itself, Frictions and howpeople deal with that friction
is going to be a predictor offuture compatibility.
SPEAKER_05 (17:09):
It's like taking someone golfing.
You can figure out a lot aboutsomeone just by taking a round
of golf with them, right?
Things like integrity, honesty,courtesy.
SPEAKER_04 (17:19):
One of my law partners has a phrase, which is
common, but it's how you doanything or how you do the
little things is how you doeverything.
SPEAKER_05 (17:27):
That's right.
SPEAKER_03 (17:28):
That's
SPEAKER_05 (17:30):
so true.
Okay, let's move on to oursecond dimension or set of
factors that could lead to ajoint venture partnership that
would flourish versus maybeflatline.
The second would be theoperational alignment category.
And so we talked a little bitabout the cultural and how
important it was to have fitwith the organization, the
(17:52):
history, the culture, thevision, mission goals.
Now let's turn to some factorsthat...
that affect operation and makesure that those are aligned.
Things like, I guess,governance, decision-making,
growth plan.
Brynn or Tom, can you expand onsome of your insights and
perspectives on some of theseoperational alignment factors
(18:15):
that are crucial to a successfuljoint venture?
SPEAKER_00 (18:20):
So maybe I'll just go first and kind of talk about
from my perspective what, youknow, I think it's going back to
the goals of what we are lookingto get out of a joint venture
that kind of leads to how wenegotiate and what type of
(18:40):
governance we want to have inplace.
If we are really looking to apartner who really knows an area
that we don't know as well, yes,we'll probably have a management
agreement in place, but we maygive a little bit on some of the
data, some of the operationalpieces in the joint venture
(19:05):
agreement.
If we are trying to learnsomething from the, learn how to
do this on our own, maybe wemight have more of the
day-to-day piece.
So I think that the goals reallydictate so much of how we
negotiate and what we try to getinto a joint venture agreement.
SPEAKER_04 (19:32):
I totally agree, Bryn.
I think a couple of additionalobservations.
And this runs the gamut, right,to Bryn's point about the level
of control, the level ofgovernance input that each
partner may want to have to theextent it's a joint venture
where it's either 50-50 or closeto 50-50.
You'll see many times very jointlevels of control, even if there
(19:58):
is a management agreement inplace.
But if it's more of a minoritypartner, majority partner, joint
venture, it may be a truepassive investment almost, like
a shareholder in a corporationwhere you get to have some input
on major decisions.
But other than that, that's yourpartners running with the
(20:21):
business.
And just clear alignment on thatand clarity on what each party
expects.
And it needs to be in thegovernance documents hardwired.
And I think it's criticallyimportant to have sort of the
decision-making process formajor decisions hardwired in the
(20:41):
documents.
because management teams change,people move on from one job to
the next, and the organizationsare still going to be there and
they're still going to bepartners.
And so how sort of theconstitution, if you will, of
the relationship needs to be setforth clearly so that when
things happen in the future,they can, you know, you can
(21:03):
chart a path to addressing anyissues.
SPEAKER_05 (21:07):
It does seem like, Tom, and Brennan, that, you
know, just thinking of thesevarious scenarios that could
occur as the joint ventureoperates.
There's things like, well,what's the duration?
What's each party's expectationson duration?
What happens if there's a changein control of one of the
parties?
(21:28):
There could be commitmentexpectations.
So I believe that's what you'retrying to describe is all these
potential scenarios and go aheadand address that upfront.
SPEAKER_00 (21:41):
Yeah, I think that one of the things as we were
prepping for this podcast, wewere talking about just the
hardwiring, when meetings willtake place, things as really as
basic as that or as detailed asthat.
I mean, you have to expect thatthere will be disagreements.
(22:03):
What happens when there is adisagreement?
Are you going to...
Put stuff in the agreement thatsays parties have to sit down
together face to face within Xdays and work through something
before anything else happens.
You know, how are you going toreally work through all of that?
(22:25):
I think the other piece that,you know, if it's for a long
term arrangement, there aregoing to be management changes
over that period of time.
And, you know, when you have anew person coming in, it's a lot
easier to pull to a jointventure document that says,
okay, here are the steps whenthis happens, when there is a
disagreement or, oh, there aremeetings every quarter at such
(22:50):
and such location.
So it just makes operations alot easier and a lot more
seamless and it's a lot morelikely to lead to success for
both parties when you can sitdown and have those types of
provisions in the JV agreementitself.
UNKNOWN (23:07):
Okay.
SPEAKER_04 (23:08):
Yeah, and I think in addition to those, Bryn, you
need to contemplate that this isa partnership.
And unfortunately, partnershipssometimes don't work out.
And so there needs to beagreement on how to extricate
yourself from the joint ventureif certain triggers happen, if
(23:34):
financial performance you know,doesn't pan out the way you
thought or if there's a changeof control of the partner, you
know, what happens in thosescenarios and to the extent that
there is sort of an exit right,how is that valued?
And that's where, you know,people like Jerry can help you
work through how you shouldvalue something like that under
(23:55):
those circumstances anddifferent factors that may be
taken into account.
But there needs to be a pathoutside of just burning down the
house litigation to getting toextricating yourself from a
venture that's not producing.
SPEAKER_05 (24:10):
Brendan, Tom, are there certain triggers that our
audience should be aware of toaddress certain issues on an
operational basis going forwardas the joint venture proceeds?
SPEAKER_04 (24:28):
Well, we've seen a number of different, I guess,
triggers.
around financial performance,for instance, around workforce,
if certain physician workforcefalls below a certain level or
certain key physicians were toleave or certain percentage of
physicians were to leave, ifthat's the particular venture.
(24:52):
Or if, for instance, if thejoint venture were to operate a
behavioral health center, forinstance, between a health
system and an outside providerof behavioral health healthcare,
you might have a time-basedtrigger for when you expect to
have the business beoperational, you know, to get
(25:13):
the CO in and to get theconstruction finished and get
operational.
And sometimes there are triggersaround that.
And in all of those cases,again, there needs to be, there
needs to be a path once thosetriggers have been triggered to
figure out what the next stepsare.
If there's, if there needs to beunwinding or other ways to
(25:38):
address it.
SPEAKER_05 (25:40):
Great.
Well, before we move to the nextand final category of alignment
factors, are there any anecdotalexamples from an operational
perspective that any of you canthink about that led to a
successful joint venture ormaybe one that led to something
that was more challenging?
SPEAKER_00 (26:02):
So, you know, and maybe this is more on the lines
of just in general as opposed tospecific examples, but, you
know, I've found that when we'reable to bring the day-to-day
operators that will have, youknow, face-to-face contact with
the joint venture partner on adaily basis, per se, and really
(26:25):
bringing them in on the fronthand and asking them, you know,
well, what do you expect from anoperational perspective to get
out.
What types of commitment do youwant from these partners?
And having those conversationsand those discussions between
(26:46):
the parties up front and notjust including the leaders that
are up here negotiating theoverall transaction, but really
getting the people involved whoare gonna be doing the
day-to-day operations.
We found that that has been verysuccessful in a successful
long-term joint venture.
SPEAKER_04 (27:09):
Yeah, I would say in terms of operational alignment
success, when one of the twopartners has the expertise that
the venture needs to operate thebusiness.
To the extent that two partnerscome together to form a joint
(27:30):
venture to enter into yetanother line of business, a
third line of business thatneither partner has any
particular expertise in, butthat they may just want to enter
for different reasons.
Those have been less successful.
And, you know, one particulararea that I have had experience
(27:53):
in having to unwind a fewtransactions has been in the
health plan space when healthsystems operate health plans and
joint ventures with other,either with physician groups or
with other health systems and,you know, like everybody on this
call knows that health insuranceis a very complicated and
(28:14):
capital intensive business.
And it's one that you reallyhave to know what you're doing
to successfully operate a healthplan.
And so many times for healthsystems that started those and
didn't work out so well, we'vehad to assist with the unwinding
process.
SPEAKER_05 (28:35):
Okay, great.
All right, so we've talked aboutthe partner alignment dimension
of joint ventures, and we'vealso talked about the
operational alignment factors.
The third and final one would bethe financial.
So we've talked about partneralignment, operational
(28:56):
alignment, and now comes themoney part.
And it seems like the financialalignment factors span the whole
continuum of the joint venturefrom pre-joint venture to
ongoing as joint ventureoperates.
And they could be at the end aswell.
I happen to do a lot of my workon the front end as an
(29:19):
evaluation financial advisor,helping the parties understand
the contributions that are goingin on the front end.
And I can tell you that that's avery important part of whether a
joint venture is going tosucceed or not, because both
parties have to understand whateach party is bringing to the
(29:40):
table, right?
And sometimes there's adisagreement on that.
It also depends on what type of,I guess, structure when it comes
to determining the percentageownership of the joint venture.
It could be a top-down whereBoth parties have a set
percentage in mind, let's say51-49 or 50-50, or it could be
(30:04):
more of a bottoms up wherethey're just like, here's what
we're contributing.
And whatever the value of eachside is, is going to determine
the percentage ownership theywant to venture.
And as you know, as our audienceprobably knows, there can be a
host of a wide variety ofdifferent types of assets,
services that can becontributed.
(30:26):
Everything from tangible assetsto intangible assets.
So a tangible asset would bejust think about hard assets
like real estate or personalproperty, furniture, fixtures,
equipment.
And then you could have actuallya whole business.
I had a joint venture wherethere was a children's hospital
(30:46):
that was going to do it orcontemplate a joint venture with
a pediatric unit of a acute carehospital.
So I actually had to value bothbusinesses.
And then the third category isjust intangible assets.
So you might have a brand thatone party is bringing or
intellectual know-how orintellectual property or
(31:07):
proprietary know-how.
And so you just continuum ofdifferent assets, what I call
harder to value assets, which ison the intangible side.
And then you've got the easierto value assets, which is on the
tangible side.
And then business valuation iskind of right in the middle.
So I think it's very importantthat both parties come together
(31:29):
up front and really understandwhat each side is contributing
and whether they perceive thathaving value.
I've had one party say, hey,we're bringing all this
proprietary know-how for theservice line.
And the other party's like,well, yeah, they do have some
know-how, some processes,protocols, but we think that we
(31:51):
have, you know, protocols thatare just as valuable.
And so just getting all that outthere and talking about the
methodology also, talking aboutthe methodology, talking about
the key assumptions, especiallywhen you're jointly engaged,
oftentimes I'm jointly engagedby both joint venture partners
(32:11):
to do the evaluation advisory.
And it's good to have everyoneon every call and being able to
just be very transparent aboutperceptions on what's being
contributed, the perception ofvalue.
So that's kind of on the frontend.
You know, Tom and Bryn, as faras ongoing, or maybe even some
(32:35):
front end that I didn't mention,do you have any thoughts on
important financialconsiderations to contribute to
a, or increase the likelihood ofa flourishing joint venture
versus one that maybe struggles?
SPEAKER_04 (32:49):
Well, you know, my key observation about this last
factor is that money solves alot of problems and a lack of
money creates a lot of problemsand will exacerbate any of the
other factors we had alreadytalked about.
So I do think in addition to theimportant work about valuing
(33:13):
each party's contribution, thereneeds to be, and this is
non-legal, but there needs tobe, you know, clear and focused
business diligence on thebusiness plan of the venture
itself.
That it is a, you know, you kickthe tires on the business plan
and it makes sense.
(33:34):
The business teams both, youknow, say grace over it and
bless it because it's, theproblems really come up when the
business plan is, just wasfaulty to begin with uh frankly
and and that that just createsproblems across all the other
factors that we've we've talkedabout so that's that is that is
(33:55):
key uh and then other sort ofbig financial agreements are you
know to the extent this businessis throwing off or generating
positive uh cash flow whathappens to that is that uh
reinvested in the business Is itdistributed to the members?
Are there mandatory?
If the venture is a taxableentity, and many times it is,
(34:17):
are there mandatory taxdistributions hardwired in to
the governance documents?
What does all that look like?
Brent, I don't know if you haveany other thoughts.
SPEAKER_00 (34:31):
Yeah, I guess in terms of valuation and things
like that, I find that you know,if it's going to be something
like an imaging center or, youknow, something that is
outwardly facing to the public,a joint venture, really
discussing the naming of thatparticular imaging joint
(34:52):
venture, you know, whatever the,or, you know, other hospital,
will that have both parties'names in it?
Will it just have one party'sname?
I think that that really isimportant from a valuation
perspective, just to be able toshow from a branding, what are
you bringing to this?
(35:13):
I think another thing is reallyunderstanding what the different
part the services that eachparty is going to be providing,
even though those are sometimesdone through, you know, as I
said before, a managementagreement, it still helps you
understand the expertise andwhat each party is expected to
do and thereby, you know, kindof frames the financial piece a
(35:38):
bit.
SPEAKER_04 (35:42):
Great.
I'll go ahead, Tom.
Just on Bryn's point about thebranding piece in particular,
it's really important to getagreement upon how the venture
will be branded, but also thelimitations of that branding.
We have clients that are veryrightly possessive over their
(36:03):
brand and don't want ittarnished in any way.
And so, you know, anylimitations around use of their
brand or if there were an issueat the particular venture that
would harm the brand, how isthat dealt with?
SPEAKER_05 (36:18):
Yeah, definitely a good point.
Now that we have talked aboutthe front end and the ongoing
financial considerations, itseems like there's also some
considerations to think about onthe back end.
For instance, if there's sometype of transfer or sale or exit
event, sometimes I'm brought into do evaluation work and
(36:40):
advisory on the back end whensome of those events occur.
What are your thoughts onfinancial considerations as you
unwind or potentially unwind orhave some event that occurs that
could possibly end a jointventure?
SPEAKER_00 (36:59):
Yeah, I guess maybe I'll just go first speaking from
a nonprofit healthcare system.
There might be certainpurchasers of a joint venture
partner that we may not beinterested in partnering with.
And so we will try to doeverything that we can to have
(37:25):
just complete approval rights.
The type of partner it is maynot allow that.
And so then going back to thegoals that we are looking for
with respect to this jointventure, if the partner is sold
or sells, do we want the rightto buy out the joint venture
(37:48):
maybe?
Or are we like, no, we wannasell it.
And so really going back to whatare we looking to get out of it
may dictate how we frame ournegotiations on a change of
control.
SPEAKER_04 (38:10):
Yeah, I think that's exactly right.
And I would say that dependingon the type of joint venture
that the parties are running orhealth system like Brent's
client enters into, may alsodrive their comfort level.
(38:30):
For instance, if a health systemhas a service line joint venture
that's operating out of theirmain campus, there may be red
lines about partners that theyreally have to stick to versus
an offsite urgent care center orsomething like that.
So it depends and underscoresthe importance of predetermined
(38:56):
agreement on exits.
Is there a right at firstrefusal to Bryn's point?
Are there?
Drag along rights, if a partnerwants to sell, can you sell as
well?
Or if you want to sell it, canyou require your partner to sell
or tag along?
So, yeah, those are all thingsyou've got to have agreement on
(39:19):
and clarity on up front.
SPEAKER_05 (39:21):
Yeah, I'll just give an anecdotal example of a
situation I saw recently where Ibelieve it's setting the joint
venture up for success andflourishing.
I had a project where I wasjointly engaged by a health
system and a specialty.
And they insisted that bothparties be on the phone when
(39:47):
they talked to me and we startedstarting to talk about potential
assets to be valued, services tobe valued, that each side was
contributing, very open,transparent, nothing was opaque.
even talked about methodology.
Here's some of the methodologieswe're planning on using.
And then also maybe even some ofthe key assumptions.
(40:10):
And I remember one call whereboth parties were on,
representatives from bothpotential partners were on the
phone.
And we were talking about one ofthe assets and the assumptions
that we felt were reasonable andsupportable from a fair market
value perspective.
And I remember being surprisedsurprised that one of the
(40:31):
parties said, oh, I think you'rebeing a little conservative on
that assumption for the otherside, which actually increased
the value of that particularasset.
But it was just the environmentof building trust, and I think
that that is going to set themup for success because they're
just very transparent, veryopen, very cordial, respectful.
(40:52):
They do disagree on some things,but being able to just build
that trust, I think, was veryimportant in the Example I saw.
SPEAKER_04 (41:04):
It goes back to the cultural diligence point and
cultural fit that we began with.
SPEAKER_05 (41:09):
And you can see here that even though we did divide
up these factors into threecategories, they really are
integrative, right?
They're not really cleanlydivided into financial,
operational, and cultural orpartner alignment.
It really is a holisticperspective because it There's
some factors in financial thatwill affect operational and vice
(41:30):
versa.
The alignment on the culture.
Do you agree with that, Brynn?
I
SPEAKER_00 (41:36):
do.
Yeah.
I mean, I think numerous timesduring our conversations and,
you know, both here andprepping, you know, one, we had
a hard time really saying whichshould come first, right?
You know, because I thinkthey...
One could say sometimes thiscomes first, sometimes another.
(41:56):
And I think throughout thisconversation, we've really been
going back and forth, going backto the operational, going back
to the goals, all of thosethings, even while we're talking
about financials and vice versa.
So it's really allinterconnected.
SPEAKER_04 (42:18):
Totally
SPEAKER_05 (42:21):
agree.
UNKNOWN (42:21):
Yeah.
SPEAKER_05 (42:22):
Well, I think we'll end on that note.
I want to thank myco-podcasters.
This was my first podcast also,so this was a great experience
with Tom and Bryn.
I feel privileged just to beable to do this podcast with
them.
Also, I want to thank ouraudience for joining us.
We really enjoy sharing thistopic.
(42:42):
As I mentioned, we shared thistopic in Austin earlier this
year, and we were able to toparlay that into this podcast
for a wider audience.
And speaking of parlay, youknow, the conference we're at,
the AHLA Advising ProvidersConference is going to be in Las
(43:04):
Vegas, I believe, next year.
So we look forward to possiblyrunning into some of you there.
And if you need to reach us,we're all on LinkedIn.
Feel free to connect with us andwe'd be happy to answer any
questions you have.
If you want to discuss any topicthat we discussed today, we
would be happy to do so.
Any final words, Tom and Bryn?
SPEAKER_00 (43:26):
Yeah, just I wanted to say thank you to Jerry and to
Tom for inviting me toparticipate in this.
I really enjoyed working withyou all, both for prepping for
Austin and prepping for this.
So thank you.
And thank you to AHLA.
Yes,
SPEAKER_04 (43:42):
definitely.
Yeah, I'll just echo what Brynsaid.
Thank you to...
Jerry and Bren, thank you to BRGfor sponsoring as well.
SPEAKER_05 (43:50):
Great.
I hope everybody has a great,great day or great evening or
whatever time of day you'rewatching this.
And we'll talk to you soon.
SPEAKER_01 (44:02):
To subscribe and add this private podcast feed to
(44:27):
your podcast app, go toAmericanHealthLaw.org slash
Daily Podcast.
you
Hello, everybody.
SPEAKER_05 (00:18):
I want to thank everybody for joining us today
on our podcast.
My name is Jerry Chang, and I'ma managing director and partner
with BRG in Atlanta, Georgia.
I want to start off by sayingthat the perspectives that me
and my co-podcasters are goingto give today are personal
opinions and perspectives andnot necessarily the perspectives
(00:39):
of our respective firms orhealth system.
So as I mentioned, I'm with BRG,and BRG is a professional
services firm.
We have over 1,500 colleagueshere that serve clients, and we
are spread out across 40countries.
plus different locations on sixcontinents.
(00:59):
And the three primary areas ofservice that we focus on are
corporate finance, which is thegroup I'm in, and the evaluation
and advisory services, financialadvisory services practice.
We also have an economicsdisputes and investigations
group.
And then finally, we haveindustry specialties, of which
(01:19):
healthcare is one of our mostimportant.
So BRG really takes healthcarevery seriously.
I personally am in, as Imentioned, the corporate finance
valuation practice.
I serve clients and theircounsel with valuation and
financial advisory services fora number of different
motivations.
Of course, we're talking aboutjoint ventures here today.
(01:39):
So joint ventures, strategicpartnerships, mergers,
acquisitions, any type oftransaction like that.
I also, of course, do valuationfinancial advisory for
regulatory compliance purposes,Stark Law, any kickback.
Also, I testified as an expertwitness, so I do litigation
support as well as bankruptcyrestructuring and financial
(02:00):
reporting.
So that's just a brief summaryof my firm and what I do.
I would like to give my fellowco-podcasters a chance to
introduce themselves.
So maybe we'll start with, Idon't know, Brynn, do you want
to start off?
Sure.
SPEAKER_00 (02:17):
Sure.
Hi, I'm Bryn Gonsher, VP, DeputyGeneral Counsel of Piedmont
Healthcare, which is anot-for-profit community health
system comprised of about 22locations, including 26
hospitals, excuse me, 2,200locations, including 26
(02:38):
hospitals across the state ofGeorgia.
Go ahead, Tom.
SPEAKER_04 (02:44):
Thanks.
I'm Tom Hawk.
I'm a partner at the law firm ofKing& Spalding, and I am in our
Atlanta office on our healthcareteam.
I do healthcare transactionalregulatory work, representing
providers, handling a variety ofdifferent types of transactions
from mergers, acquisitions,divestitures, joint ventures,
(03:05):
topic of today, and alsofinancial industry participants
like private equity firmsinvesting into the space.
And I'm excited about theopportunity to do my very first
podcast with Jerry and Bram.
SPEAKER_05 (03:18):
Great.
Thanks a lot.
So Tom and Bryn, as you recall,earlier this year, we were in
Austin, Texas at the AHLAAdvising Providers Conference.
I believe the official name wasAdvising Providers, Academic
Medical Centers, Hospitals, andPhysicians.
And we're in Austin.
(03:39):
I do remember the tasty barbecuefrom going to some restaurants
in Austin, all those greatbriskets there.
But we presented some insightson joint ventures between health
systems and other providersalong the care continuum.
And I'd like to expand on thattalk that we had during this
podcast, perhaps focus a littlebit more on factors that uh
(04:04):
increase the likelihood of jointventure partnerships that can
flourish and then also maybefocus on some factors that
increase the likelihood of astruggling joint venture
relationship i think ouraudience uh would be interested
in those insights and we canalso share some you know some
real world anecdotes uh sort offrom the front lines of what
(04:27):
we've seen and and related tojoint venture partnerships that
have flourished or maybe havestruggled a bit.
But starting off, I'd like toask Tom and or Bryn to comment
on just health joint ventures ingeneral, including some of the
drivers, characteristics, typesof JVs that you're seeing out
(04:47):
there.
Either of you can start.
Tom, you want to go first?
Sure.
Well, I mean, it's a
SPEAKER_04 (04:54):
question we have gotten a lot.
focusing on joint ventures overthe last three to five years,
really, for a number ofdifferent reasons.
I think we all operating in thehealthcare industry space and
doing deal work know the amountof scrutiny that has been on
healthcare transactionalactivity, a variety of different
(05:17):
types of transactions, both atthe federal and state level over
the past few years.
And Providers looking to achievetheir strategic goals have, in
many cases, turned to jointventures as a way to achieve
some of their strategic goalsthat may have less regulatory
scrutiny than a full alignmenttransaction like a merger or
divestiture might have.
(05:39):
In addition to that, things likeattractive aspects of joint
ventures are that you sharerisk, right?
You share risk, you sharecapital, and so it can be a more
cost-efficient way to achievestrategic objectives.
And we've run the gamut andtypes of interest of joint
ventures from very formal wholehospital JVs, although those are
(06:04):
less common, but they occur, tojoint ventures of a single
imaging location or an ASC, forinstance, and different
transaction models from virtualjoint ventures where no assets
really move.
You're just joint ventures onpaper to full on joint operating
(06:25):
companies that both partnerscontribute assets and capital
into.
So the interest is broad in anumber of different ways and
it's driven by a lot ofdifferent factors.
SPEAKER_00 (06:39):
Yeah.
And, you know, as Tom, as youmentioned, you know, we're
seeing a lot of partnershipseither come to us or what we're
doing in the oncology area, inthe ortho area, ASCs, obviously,
urgent care, imaging.
Yeah.
(07:00):
you know, post-acute care andthen also on the lines of
research, technology, MOBs.
Those are the types that, youknow, we have partners that are
interested in doing that type ofthing with us.
And, you know, we're doing thosetypes of things with other
partners.
SPEAKER_05 (07:19):
Yeah, I'll just add a couple more.
Just in my work as doingevaluation and financial
advisory, I'm working with aclient in physical therapy,
contemplating a joint venturewith a health system, as well as
behavioral health.
I think those are all areas thatwe're seeing a lot of.
So great.
So that lays the sort of thegroundwork on our discussion.
(07:41):
I would like to discuss some ofthese factors now that could
lead to an increased likelihoodof a successful joint venture,
one that flourishes, and alsosome factors that may lead to
less desirable joint venturepartnerships.
I think that's very important.
I'd like to divide ourdiscussion into sort of three
(08:03):
different categories ordimensions that you know, that
we can talk about.
So number one would be the,sorry, the partner alignment
dimension.
The second category would be theoperational alignment category.
And then the third category thatwe can discuss would be the
(08:24):
financial alignment category.
So let's start with the partneralignment category.
You know, when I, Tom and Bryn,when I think about partner
alignment, I automatically thinkabout like my spouse and some of
the things that I had to thinkabout before I decided to
partner up with my spouse in amarriage and things that are
(08:45):
pretty important.
So what are some of the crucialfactors that our audience should
consider when they're looking ata potential joint venture
partner from a partner alignmentperspective.
I don't know, Bryn, do you wantto give your thoughts on maybe
from your perspective in anonprofit?
UNKNOWN (09:07):
Yeah.
SPEAKER_00 (09:07):
Yeah, so I think that one of the most important
things for us has been to reallyunderstand our goal of a
potential alignment and then toreally do diligence on a
potential partner's goal.
You know, for us, it's going tobe a lot of access to care,
continuum of care, potentiallygaining expertise in an area
(09:30):
that we don't have expertise inthat currently, maybe speed to
market, but really understandingunderstanding, well, what is our
goal and what are we trying toaccomplish?
And then understanding thepartner, the potential partner,
what are they trying toaccomplish?
(09:51):
And are we together going to beable to accomplish something
that is even better than whatboth parties could do on their
own?
SPEAKER_04 (10:02):
Great.
Yeah, I completely agree withBren.
I think one, particularly in thejoint venture space,
underappreciated aspect ofdiligence in the transactional
context is cultural diligencebetween two organizations.
(10:22):
And it's really important.
Sitting as outside counsel, Iget to, you know, we represent
nonprofit health systems,academic medical centers.
for-profit companies, privateequity companies.
And each one has a verydifferent feel, very different
(10:43):
management styles,decision-making styles, ability
to consult with stakeholders orneed to consult with
stakeholders.
And many times thedecision-making apparatus of one
type of company, it just doesn'tmeld well with a different type
of company for a variety ofdifferent reasons.
(11:04):
And one's not better than theother, but it's just that
they're different and may not becompatible.
And so cultural diligence isreally important.
But I think, you know, a closesecond or equally important is
what are you seeking to get outof it?
And how does that align withwhat you know your partner,
potential partner is seeking toget out of it?
Are they Is this somethingthat's strategic, like what Bryn
(11:27):
mentioned about access to careand growing their care
continuum, or are they afinancial investor who is
willing to make a return orneeds to make a return within a
certain window or is looking tomake a return and get some
liquidity within a certainwindow of time?
And do those two things alignand can they align?
And other things like, is yourpartner, do they have experience
(11:53):
being a joint venture partner?
Do they have experience doingtransactions?
Do they know sort of howinvasive and disruptive it
sometimes can be?
Are they clinically led or arethey more business operator led?
And what does that mean for howthe parties work together?
And then what is the twomissions and can they align
SPEAKER_02 (12:14):
well?
SPEAKER_04 (12:15):
I said a lot, so I'll shut up now and let...
Let you offer some thoughts,Jerry.
SPEAKER_05 (12:21):
It seems like if you really find a partner, Tom and
Bryn, that you really do alignwith on these important facets
or dimensions, it can maybe helpin the future, too, if we
encounter certain issues orthings.
Sometimes things don't goperfectly, right?
And you might encounter somethings that you have to work
through.
Do you feel like just puttingthat work up front will help
(12:46):
down the road also in the jointventure partnership?
SPEAKER_00 (12:49):
Yeah, so, you know, we're coming as a nonprofit
health care, you know, communityhealth care system.
We're coming from, you know,this is for the long term.
This is this is for thecommunity for the long term.
And so can the more that we canwork through the details in an
LOI, those types of things, andreally, really dig into, well,
(13:12):
what is each partner going tobring to the joint venture?
I think the more successful wehave seen our joint ventures,
both from an documenting thejoint venture, but then from an
operational perspective andreally having that good rapport
(13:35):
for the long term.
SPEAKER_04 (13:36):
Right.
Yeah, I would say just to put afiner point on a particular
aspect, I think it's reallyimportant and people often give
lip service to it, but may notreally do the work behind it.
That is sort of the an agreedupon upfront, agreed upon, I
guess, game plan for any majorcapital investment.
(14:03):
So to the extent you're doing ajoint venture for a cancer
center of excellence, andthere's gonna be a new building
or orthopedic joint venture, andthere's gonna be some new
building, what is the budget forthat?
And there inevitably are gonnabe cost overruns and any sort of
thing like of that nature.
And how is that handled?
And we've seen this also in thecontext of joint ventures for
(14:25):
value-based care plans, whereyou get into some of the risks
of operating a health plan andhow that operates or at least
sharing risk in the value-basedcare context.
And to the extent there arelosses there, how is that going
to be funded?
All that needs to be veryclearly agreed upon up front
with a fair amount of diligenceand financial diligence backing
(14:49):
it up.
SPEAKER_05 (14:50):
Before we move on to the next category, Tom and
Brynn, do you have any anecdotalexamples of, and obviously we're
not gonna mention anyconfidential client names or
anything like that.
And so just wondering if youhave any examples of cultural
issues that may have led topartnerships that have
(15:13):
flourished and then others thatmay have led to more challenges.
SPEAKER_04 (15:20):
Yeah, so for cultural issues, I would, a few
examples I have are theinstances when business
leadership may not haveexperience, a ton of experience
in operating professionalclinical organizations clashes
(15:42):
with clinical leadership.
And For budgetary reasons, forquality of care reasons, you
can't operate a physicianpractice like you can operate a
Burger King for a variety ofreasons.
And so those sorts of culturalissues can surface pretty
(16:06):
quickly when there'smisalignment.
SPEAKER_00 (16:10):
Yeah, and I would say kind of going back to my LOI
point, I think that we try to,you know, be very thoughtful in
how we approach And how detailedwe are in our LOIs, so that way
we can really determine at theLOI level, is this the right
(16:34):
partner for us?
Because we're spending a lot oftime, we're spending a lot of
money in putting together ajoint venture, and it...
you know, we found that reallyspending that time parsing
through an LOI is where we candetermine, is this the right
partner for what we are tryingto achieve?
SPEAKER_04 (16:55):
Yeah.
And I would just observe that inthe negotiation process of the
LOI itself, Frictions and howpeople deal with that friction
is going to be a predictor offuture compatibility.
SPEAKER_05 (17:09):
It's like taking someone golfing.
You can figure out a lot aboutsomeone just by taking a round
of golf with them, right?
Things like integrity, honesty,courtesy.
SPEAKER_04 (17:19):
One of my law partners has a phrase, which is
common, but it's how you doanything or how you do the
little things is how you doeverything.
SPEAKER_05 (17:27):
That's right.
SPEAKER_03 (17:28):
That's
SPEAKER_05 (17:30):
so true.
Okay, let's move on to oursecond dimension or set of
factors that could lead to ajoint venture partnership that
would flourish versus maybeflatline.
The second would be theoperational alignment category.
And so we talked a little bitabout the cultural and how
important it was to have fitwith the organization, the
(17:52):
history, the culture, thevision, mission goals.
Now let's turn to some factorsthat...
that affect operation and makesure that those are aligned.
Things like, I guess,governance, decision-making,
growth plan.
Brynn or Tom, can you expand onsome of your insights and
perspectives on some of theseoperational alignment factors
(18:15):
that are crucial to a successfuljoint venture?
SPEAKER_00 (18:20):
So maybe I'll just go first and kind of talk about
from my perspective what, youknow, I think it's going back to
the goals of what we are lookingto get out of a joint venture
that kind of leads to how wenegotiate and what type of
(18:40):
governance we want to have inplace.
If we are really looking to apartner who really knows an area
that we don't know as well, yes,we'll probably have a management
agreement in place, but we maygive a little bit on some of the
data, some of the operationalpieces in the joint venture
(19:05):
agreement.
If we are trying to learnsomething from the, learn how to
do this on our own, maybe wemight have more of the
day-to-day piece.
So I think that the goals reallydictate so much of how we
negotiate and what we try to getinto a joint venture agreement.
SPEAKER_04 (19:32):
I totally agree, Bryn.
I think a couple of additionalobservations.
And this runs the gamut, right,to Bryn's point about the level
of control, the level ofgovernance input that each
partner may want to have to theextent it's a joint venture
where it's either 50-50 or closeto 50-50.
You'll see many times very jointlevels of control, even if there
(19:58):
is a management agreement inplace.
But if it's more of a minoritypartner, majority partner, joint
venture, it may be a truepassive investment almost, like
a shareholder in a corporationwhere you get to have some input
on major decisions.
But other than that, that's yourpartners running with the
(20:21):
business.
And just clear alignment on thatand clarity on what each party
expects.
And it needs to be in thegovernance documents hardwired.
And I think it's criticallyimportant to have sort of the
decision-making process formajor decisions hardwired in the
(20:41):
documents.
because management teams change,people move on from one job to
the next, and the organizationsare still going to be there and
they're still going to bepartners.
And so how sort of theconstitution, if you will, of
the relationship needs to be setforth clearly so that when
things happen in the future,they can, you know, you can
(21:03):
chart a path to addressing anyissues.
SPEAKER_05 (21:07):
It does seem like, Tom, and Brennan, that, you
know, just thinking of thesevarious scenarios that could
occur as the joint ventureoperates.
There's things like, well,what's the duration?
What's each party's expectationson duration?
What happens if there's a changein control of one of the
parties?
(21:28):
There could be commitmentexpectations.
So I believe that's what you'retrying to describe is all these
potential scenarios and go aheadand address that upfront.
SPEAKER_00 (21:41):
Yeah, I think that one of the things as we were
prepping for this podcast, wewere talking about just the
hardwiring, when meetings willtake place, things as really as
basic as that or as detailed asthat.
I mean, you have to expect thatthere will be disagreements.
(22:03):
What happens when there is adisagreement?
Are you going to...
Put stuff in the agreement thatsays parties have to sit down
together face to face within Xdays and work through something
before anything else happens.
You know, how are you going toreally work through all of that?
(22:25):
I think the other piece that,you know, if it's for a long
term arrangement, there aregoing to be management changes
over that period of time.
And, you know, when you have anew person coming in, it's a lot
easier to pull to a jointventure document that says,
okay, here are the steps whenthis happens, when there is a
disagreement or, oh, there aremeetings every quarter at such
(22:50):
and such location.
So it just makes operations alot easier and a lot more
seamless and it's a lot morelikely to lead to success for
both parties when you can sitdown and have those types of
provisions in the JV agreementitself.
UNKNOWN (23:07):
Okay.
SPEAKER_04 (23:08):
Yeah, and I think in addition to those, Bryn, you
need to contemplate that this isa partnership.
And unfortunately, partnershipssometimes don't work out.
And so there needs to beagreement on how to extricate
yourself from the joint ventureif certain triggers happen, if
(23:34):
financial performance you know,doesn't pan out the way you
thought or if there's a changeof control of the partner, you
know, what happens in thosescenarios and to the extent that
there is sort of an exit right,how is that valued?
And that's where, you know,people like Jerry can help you
work through how you shouldvalue something like that under
(23:55):
those circumstances anddifferent factors that may be
taken into account.
But there needs to be a pathoutside of just burning down the
house litigation to getting toextricating yourself from a
venture that's not producing.
SPEAKER_05 (24:10):
Brendan, Tom, are there certain triggers that our
audience should be aware of toaddress certain issues on an
operational basis going forwardas the joint venture proceeds?
SPEAKER_04 (24:28):
Well, we've seen a number of different, I guess,
triggers.
around financial performance,for instance, around workforce,
if certain physician workforcefalls below a certain level or
certain key physicians were toleave or certain percentage of
physicians were to leave, ifthat's the particular venture.
(24:52):
Or if, for instance, if thejoint venture were to operate a
behavioral health center, forinstance, between a health
system and an outside providerof behavioral health healthcare,
you might have a time-basedtrigger for when you expect to
have the business beoperational, you know, to get
(25:13):
the CO in and to get theconstruction finished and get
operational.
And sometimes there are triggersaround that.
And in all of those cases,again, there needs to be, there
needs to be a path once thosetriggers have been triggered to
figure out what the next stepsare.
If there's, if there needs to beunwinding or other ways to
(25:38):
address it.
SPEAKER_05 (25:40):
Great.
Well, before we move to the nextand final category of alignment
factors, are there any anecdotalexamples from an operational
perspective that any of you canthink about that led to a
successful joint venture ormaybe one that led to something
that was more challenging?
SPEAKER_00 (26:02):
So, you know, and maybe this is more on the lines
of just in general as opposed tospecific examples, but, you
know, I've found that when we'reable to bring the day-to-day
operators that will have, youknow, face-to-face contact with
the joint venture partner on adaily basis, per se, and really
(26:25):
bringing them in on the fronthand and asking them, you know,
well, what do you expect from anoperational perspective to get
out.
What types of commitment do youwant from these partners?
And having those conversationsand those discussions between
(26:46):
the parties up front and notjust including the leaders that
are up here negotiating theoverall transaction, but really
getting the people involved whoare gonna be doing the
day-to-day operations.
We found that that has been verysuccessful in a successful
long-term joint venture.
SPEAKER_04 (27:09):
Yeah, I would say in terms of operational alignment
success, when one of the twopartners has the expertise that
the venture needs to operate thebusiness.
To the extent that two partnerscome together to form a joint
(27:30):
venture to enter into yetanother line of business, a
third line of business thatneither partner has any
particular expertise in, butthat they may just want to enter
for different reasons.
Those have been less successful.
And, you know, one particulararea that I have had experience
(27:53):
in having to unwind a fewtransactions has been in the
health plan space when healthsystems operate health plans and
joint ventures with other,either with physician groups or
with other health systems and,you know, like everybody on this
call knows that health insuranceis a very complicated and
(28:14):
capital intensive business.
And it's one that you reallyhave to know what you're doing
to successfully operate a healthplan.
And so many times for healthsystems that started those and
didn't work out so well, we'vehad to assist with the unwinding
process.
SPEAKER_05 (28:35):
Okay, great.
All right, so we've talked aboutthe partner alignment dimension
of joint ventures, and we'vealso talked about the
operational alignment factors.
The third and final one would bethe financial.
So we've talked about partneralignment, operational
(28:56):
alignment, and now comes themoney part.
And it seems like the financialalignment factors span the whole
continuum of the joint venturefrom pre-joint venture to
ongoing as joint ventureoperates.
And they could be at the end aswell.
I happen to do a lot of my workon the front end as an
(29:19):
evaluation financial advisor,helping the parties understand
the contributions that are goingin on the front end.
And I can tell you that that's avery important part of whether a
joint venture is going tosucceed or not, because both
parties have to understand whateach party is bringing to the
(29:40):
table, right?
And sometimes there's adisagreement on that.
It also depends on what type of,I guess, structure when it comes
to determining the percentageownership of the joint venture.
It could be a top-down whereBoth parties have a set
percentage in mind, let's say51-49 or 50-50, or it could be
(30:04):
more of a bottoms up wherethey're just like, here's what
we're contributing.
And whatever the value of eachside is, is going to determine
the percentage ownership theywant to venture.
And as you know, as our audienceprobably knows, there can be a
host of a wide variety ofdifferent types of assets,
services that can becontributed.
(30:26):
Everything from tangible assetsto intangible assets.
So a tangible asset would bejust think about hard assets
like real estate or personalproperty, furniture, fixtures,
equipment.
And then you could have actuallya whole business.
I had a joint venture wherethere was a children's hospital
(30:46):
that was going to do it orcontemplate a joint venture with
a pediatric unit of a acute carehospital.
So I actually had to value bothbusinesses.
And then the third category isjust intangible assets.
So you might have a brand thatone party is bringing or
intellectual know-how orintellectual property or
(31:07):
proprietary know-how.
And so you just continuum ofdifferent assets, what I call
harder to value assets, which ison the intangible side.
And then you've got the easierto value assets, which is on the
tangible side.
And then business valuation iskind of right in the middle.
So I think it's very importantthat both parties come together
(31:29):
up front and really understandwhat each side is contributing
and whether they perceive thathaving value.
I've had one party say, hey,we're bringing all this
proprietary know-how for theservice line.
And the other party's like,well, yeah, they do have some
know-how, some processes,protocols, but we think that we
(31:51):
have, you know, protocols thatare just as valuable.
And so just getting all that outthere and talking about the
methodology also, talking aboutthe methodology, talking about
the key assumptions, especiallywhen you're jointly engaged,
oftentimes I'm jointly engagedby both joint venture partners
(32:11):
to do the evaluation advisory.
And it's good to have everyoneon every call and being able to
just be very transparent aboutperceptions on what's being
contributed, the perception ofvalue.
So that's kind of on the frontend.
You know, Tom and Bryn, as faras ongoing, or maybe even some
(32:35):
front end that I didn't mention,do you have any thoughts on
important financialconsiderations to contribute to
a, or increase the likelihood ofa flourishing joint venture
versus one that maybe struggles?
SPEAKER_04 (32:49):
Well, you know, my key observation about this last
factor is that money solves alot of problems and a lack of
money creates a lot of problemsand will exacerbate any of the
other factors we had alreadytalked about.
So I do think in addition to theimportant work about valuing
(33:13):
each party's contribution, thereneeds to be, and this is
non-legal, but there needs tobe, you know, clear and focused
business diligence on thebusiness plan of the venture
itself.
That it is a, you know, you kickthe tires on the business plan
and it makes sense.
(33:34):
The business teams both, youknow, say grace over it and
bless it because it's, theproblems really come up when the
business plan is, just wasfaulty to begin with uh frankly
and and that that just createsproblems across all the other
factors that we've we've talkedabout so that's that is that is
(33:55):
key uh and then other sort ofbig financial agreements are you
know to the extent this businessis throwing off or generating
positive uh cash flow whathappens to that is that uh
reinvested in the business Is itdistributed to the members?
Are there mandatory?
If the venture is a taxableentity, and many times it is,
(34:17):
are there mandatory taxdistributions hardwired in to
the governance documents?
What does all that look like?
Brent, I don't know if you haveany other thoughts.
SPEAKER_00 (34:31):
Yeah, I guess in terms of valuation and things
like that, I find that you know,if it's going to be something
like an imaging center or, youknow, something that is
outwardly facing to the public,a joint venture, really
discussing the naming of thatparticular imaging joint
(34:52):
venture, you know, whatever the,or, you know, other hospital,
will that have both parties'names in it?
Will it just have one party'sname?
I think that that really isimportant from a valuation
perspective, just to be able toshow from a branding, what are
you bringing to this?
(35:13):
I think another thing is reallyunderstanding what the different
part the services that eachparty is going to be providing,
even though those are sometimesdone through, you know, as I
said before, a managementagreement, it still helps you
understand the expertise andwhat each party is expected to
do and thereby, you know, kindof frames the financial piece a
(35:38):
bit.
SPEAKER_04 (35:42):
Great.
I'll go ahead, Tom.
Just on Bryn's point about thebranding piece in particular,
it's really important to getagreement upon how the venture
will be branded, but also thelimitations of that branding.
We have clients that are veryrightly possessive over their
(36:03):
brand and don't want ittarnished in any way.
And so, you know, anylimitations around use of their
brand or if there were an issueat the particular venture that
would harm the brand, how isthat dealt with?
SPEAKER_05 (36:18):
Yeah, definitely a good point.
Now that we have talked aboutthe front end and the ongoing
financial considerations, itseems like there's also some
considerations to think about onthe back end.
For instance, if there's sometype of transfer or sale or exit
event, sometimes I'm brought into do evaluation work and
(36:40):
advisory on the back end whensome of those events occur.
What are your thoughts onfinancial considerations as you
unwind or potentially unwind orhave some event that occurs that
could possibly end a jointventure?
SPEAKER_00 (36:59):
Yeah, I guess maybe I'll just go first speaking from
a nonprofit healthcare system.
There might be certainpurchasers of a joint venture
partner that we may not beinterested in partnering with.
And so we will try to doeverything that we can to have
(37:25):
just complete approval rights.
The type of partner it is maynot allow that.
And so then going back to thegoals that we are looking for
with respect to this jointventure, if the partner is sold
or sells, do we want the rightto buy out the joint venture
(37:48):
maybe?
Or are we like, no, we wannasell it.
And so really going back to whatare we looking to get out of it
may dictate how we frame ournegotiations on a change of
control.
SPEAKER_04 (38:10):
Yeah, I think that's exactly right.
And I would say that dependingon the type of joint venture
that the parties are running orhealth system like Brent's
client enters into, may alsodrive their comfort level.
(38:30):
For instance, if a health systemhas a service line joint venture
that's operating out of theirmain campus, there may be red
lines about partners that theyreally have to stick to versus
an offsite urgent care center orsomething like that.
So it depends and underscoresthe importance of predetermined
(38:56):
agreement on exits.
Is there a right at firstrefusal to Bryn's point?
Are there?
Drag along rights, if a partnerwants to sell, can you sell as
well?
Or if you want to sell it, canyou require your partner to sell
or tag along?
So, yeah, those are all thingsyou've got to have agreement on
(39:19):
and clarity on up front.
SPEAKER_05 (39:21):
Yeah, I'll just give an anecdotal example of a
situation I saw recently where Ibelieve it's setting the joint
venture up for success andflourishing.
I had a project where I wasjointly engaged by a health
system and a specialty.
And they insisted that bothparties be on the phone when
(39:47):
they talked to me and we startedstarting to talk about potential
assets to be valued, services tobe valued, that each side was
contributing, very open,transparent, nothing was opaque.
even talked about methodology.
Here's some of the methodologieswe're planning on using.
And then also maybe even some ofthe key assumptions.
(40:10):
And I remember one call whereboth parties were on,
representatives from bothpotential partners were on the
phone.
And we were talking about one ofthe assets and the assumptions
that we felt were reasonable andsupportable from a fair market
value perspective.
And I remember being surprisedsurprised that one of the
(40:31):
parties said, oh, I think you'rebeing a little conservative on
that assumption for the otherside, which actually increased
the value of that particularasset.
But it was just the environmentof building trust, and I think
that that is going to set themup for success because they're
just very transparent, veryopen, very cordial, respectful.
(40:52):
They do disagree on some things,but being able to just build
that trust, I think, was veryimportant in the Example I saw.
SPEAKER_04 (41:04):
It goes back to the cultural diligence point and
cultural fit that we began with.
SPEAKER_05 (41:09):
And you can see here that even though we did divide
up these factors into threecategories, they really are
integrative, right?
They're not really cleanlydivided into financial,
operational, and cultural orpartner alignment.
It really is a holisticperspective because it There's
some factors in financial thatwill affect operational and vice
(41:30):
versa.
The alignment on the culture.
Do you agree with that, Brynn?
I
SPEAKER_00 (41:36):
do.
Yeah.
I mean, I think numerous timesduring our conversations and,
you know, both here andprepping, you know, one, we had
a hard time really saying whichshould come first, right?
You know, because I thinkthey...
One could say sometimes thiscomes first, sometimes another.
(41:56):
And I think throughout thisconversation, we've really been
going back and forth, going backto the operational, going back
to the goals, all of thosethings, even while we're talking
about financials and vice versa.
So it's really allinterconnected.
SPEAKER_04 (42:18):
Totally
SPEAKER_05 (42:21):
agree.
UNKNOWN (42:21):
Yeah.
SPEAKER_05 (42:22):
Well, I think we'll end on that note.
I want to thank myco-podcasters.
This was my first podcast also,so this was a great experience
with Tom and Bryn.
I feel privileged just to beable to do this podcast with
them.
Also, I want to thank ouraudience for joining us.
We really enjoy sharing thistopic.
(42:42):
As I mentioned, we shared thistopic in Austin earlier this
year, and we were able to toparlay that into this podcast
for a wider audience.
And speaking of parlay, youknow, the conference we're at,
the AHLA Advising ProvidersConference is going to be in Las
(43:04):
Vegas, I believe, next year.
So we look forward to possiblyrunning into some of you there.
And if you need to reach us,we're all on LinkedIn.
Feel free to connect with us andwe'd be happy to answer any
questions you have.
If you want to discuss any topicthat we discussed today, we
would be happy to do so.
Any final words, Tom and Bryn?
SPEAKER_00 (43:26):
Yeah, just I wanted to say thank you to Jerry and to
Tom for inviting me toparticipate in this.
I really enjoyed working withyou all, both for prepping for
Austin and prepping for this.
So thank you.
And thank you to AHLA.
Yes,
SPEAKER_04 (43:42):
definitely.
Yeah, I'll just echo what Brynsaid.
Thank you to...
Jerry and Bren, thank you to BRGfor sponsoring as well.
SPEAKER_05 (43:50):
Great.
I hope everybody has a great,great day or great evening or
whatever time of day you'rewatching this.
And we'll talk to you soon.
SPEAKER_01 (44:02):
To subscribe and add this private podcast feed to
(44:27):
your podcast app, go toAmericanHealthLaw.org slash
Daily Podcast.
you
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