Mark E. Lutes, Chair of the firm’s Board of Directors and a Member of the Firm in the Health Care and Life Sciences practice, in the firm’s Washington, DC, office, was featured in an MCOL ThoughtLeaders newsletter, on the topic of “What will be the impact and implications of an increasing number of health plan and local health system product joint ventures around the country?”

Following is an excerpt:

Payor provider joint ventures have had a long history. They arise out of a natural impulse to marry the skill sets of the joint venturers. I worked on a series of them as early as the 1980s. While the plans in many cases survived, they did not persist as joint ventures at the equity level. For that reason, as some identified in this piece, lawyers will always spend much of their planning and drafting work around exit contingencies.

As with other joint ventures, the payor/provider variety must weather the vicissitudes of each of the joint venturer’s capital budgets and strategic goals. The revenue of the provider participant, and the specialist physicians in the community, likely remains volume based. The care management aspirations of the venture carry that burden. Moreover, it is likely that the co-venturers may differ as to product design preferences (e.g., how many eggs to put in a narrow network basket).

That said, they will remain compelling propositions to provider systems seeking full-risk opportunities, particularly without the challenges of fully capitalizing a new insurer, contracting a wrap-around network and standing up medical management, claims and other functions. However, decision-making in these endeavors is inherently more difficult. Participants should go into these ventures “caveat emptor.” That is, participants need to understand that the fundamental friction between payer and provider perspectives requires careful attention to the governance issues. Furthermore, participants need to anticipate what the path would look like if a particular book of business, developed off of the joint venture, needed to transition to a non-joint venture operation.

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