As the roles of physicians and hospitals continue to evolve, "under arrangements" joint ventures have become a hot topic in healthcare.

The under arrangements model "really does put a premium on the partnership between the hospital and physicians," said Steve Nyquist of Salient Health Ventures in Cullman. "There are a lot of ways that you can do hospital-physician joint ventures, but this seems to be something that is very attractive both to physicians and hospitals right now."

The Stark II statute defines an under arrangements joint venture as a "contract between a hospital and an entity owned by one or more physicians providing designated health services."

The main benefit of the under arrangements model is that it is hospital-based, said Jay Weatherly, the other half of the Salient team that facilitates physician-hospital ventures. The collaboration forms a new company, but the partnership is able to avoid a duplication of certain services because it uses the hospital's existing provider number and billing system, Weatherly said.

"In the world of the hospital-physician joint ventures, the under arrangements model allows for greater reward for the partnership," Nyquist said. "It allows for an opportunity that physicians would have to become more invested in a project, and with the balance of more risk."

The most important function of an under arrangements model is to serve a legitimate business purpose, Weatherly said, such as these examples:

• Improve the quality of outcomes and patient satisfaction.
• Improve efficiency and control operational costs.
• Establish a new community health service.
• Expand an existing community health service.
• Share significant capital expenditures or improve access to capital.
• Expand the existing physician base.
• Avoid the elimination of needed healthcare services.
• Avoid the necessity for a certificate of need.

"All those kinds of things are important and need to be present in order to basically justify the existence of a joint venture," Weatherly said.

And, no, an increase in profits is not a legitimate business purpose in this blueprint.

"One of the things that does drive these hospital-physician joint ventures, at times, is people just want to do a deal," Nyquist said. "You read about joint ventures being created — or even free-standing independent-of-hospital deals — being done, and people can sort of get going so quickly that they want to just do something for the sake of doing a deal. What we have seen, and certainly what is true about the under arrangements (ventures), is that you have to start with a legitimate business purpose. It's got to make sense. It's got to be either a new service or expanding an existing service that the hospital provides.

"Once you articulate what the division for that is going to be, or what the needs are for that hospital or that community that would be served, then you create a neat model that is good for the physicians and good for the hospital. … But it's got to start and ultimately be based in the fact that you've got to have good outcomes, and it's got to be needed in the community. And then it can grow."

Other types of under arrangements ventures between healthcare facilities and third party contractors, such as outsourcing of dietary or imaging services, have long been employed. However, under arrangements alliances between physicians and hospitals are not yet widespread in the Birmingham area, Nyquist said.

"The under arrangements model is a methodology; it is an approach to a joint venture," Weatherly said. "It is not the only way to get from point A to point B. … We feel that it has its place, and because it's not that commonplace, we find that we have a lot of inquiries."
Weatherly and Nyquist stress that any joint venture between a hospital and physicians carries legal and regulatory standards and parameters, and the under arrangements model is no different.

"Because of the scrutiny of under arrangements — and, we believe, one of the reasons that more under arrangements deals have not been consummated — is that it is pretty detailed," Nyquist said. "There is a fairly high bar that is set that you've got to meet to ensure that it is done well, with a legitimate business purpose.

"Everything's got to be aboveboard and everything's got to be on the table for all to see. Yet when you take the time on the front end to structure it to make sure everything is aboveboard and then it runs the way it can and should run, it becomes a very powerful formula for success."


June 2007