Since the enactment of the Affordable Care Act in 2010, more and more hospitals and health systems have entered into some sort of affiliation, whether through acquisition, membership substitution, joint venture, or clinical affiliation. This trend is a result of the mounting pressures hospitals and health systems face in the current healthcare environment. Yet, fundamental change in the makeup of the hospital market also paves way for innovation, which includes new ways that organizations may partner to confront these challenges. The joint venture structure is one such innovation.
For those hospitals and health systems that are financially sound and have sufficient capital, entering into an affiliation allows them to best position themselves for future success—to thrive rather than just survive. Evaluating strategic alternatives from a position of strength allows the board of a hospital or health system to take its future into its own hands and identify affiliation partners that complement and enhance its operations, capitalization, compliance, and quality functions. Exploring a range of joint venture alternatives has been found by many systems to be a “best of both worlds” approach—combining the installed market presence and reputation of a nonprofit system with the scale, access to capital, and management expertise of an investor-owned company.
Most hospital and health system boards are aware of the trend of consolidation; however, many fail to appreciate the full range of strategic alternatives that may exist (including the joint venture structure) and the processes and tactics that can identify and realize the board’s desired outcomes. This article is the first in a series in which we will examine 1) the potential advantages of joint ventures; 2) how to go about the process of exploring a joint venture, including selecting a joint venture partner; and 3) expected trends and future developments with joint ventures.