Duets Done Right: Health Care Joint Ventures in 2026 and Beyond

Jennifer Hutchens, Partner, Dechert LLP, and Thomas Spellman, Associate General Counsel & Vice President, Fresenius Medical Care, discuss the role that joint ventures are currently playing in the health care industry and what to expect when engaging in a joint venture. They cover why joint ventures are so popular right now and issues related to the corporate practice of medicine, the Stark Law and Anti-Kickback Statute, antitrust, financial provisions and reporting rights, and restrictive covenants. They also share some hot spots they have seen in their own practices. Jennifer and Thomas spoke about this topic at AHLA’s 2026 Health Care Transactions conference in Nashville, TN.

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Transcript

SPEAKER_00 0:04

This episode of AHLA Speaking of Health Law is brought to you by AHLA members and donors like you. For more information, visit AmericanHealthlaw.org.

SPEAKER_01 0:16

Hello, everyone, and welcome to the AHLA Speaking of Health podcast. I am Jennifer Hutchins, your co-host for today. I am a proud, longtime AHLA volunteer and board member, and it's been truly my professional home here at AHLA in the healthcare law community for nearly 20 years. In my practice at Deckard LLP, I lead our healthcare-regulated group, working frequently with investors, providers, MSOs, and other ancillary service organizations. A big part of my day-to-day practice is working on transactional work, joint ventures, and anywhere in between, first from concept all the way through formation, growth, and sometimes window. And a lot of that practice is actually on the advisor side with these transactions. And I hope that that perspective will come through today in what we discuss. I am happy to report that I am joined by my co-host and longtime friend and collaborator, Tom Spellman. Tom and I have worked together for about a decade or more at this point across pretty much every type of structure and deal type that you can imagine in the healthcare world. And I hope that today's conversation is going to reflect a lot of the fun that we've had and some things that we've learned along the way as well.

SPEAKER_02 1:30

Thanks, Jennifer. It's great to be here with you on the podcast. My name is Tom Spelman. I am associate general counsel and vice president at Fresenius Medical Care, which is a publicly traded healthcare company with a particular focus in renal care. My day-to-day is acquisitions, divestitures, and joint ventures, especially across our kidney dialysis business. So joint ventures are very much my bread and butter, my day-to-day. Looking forward to today's conversation.

SPEAKER_01 1:58

Absolutely. And so just to refresh for everyone listening in, Tom and I actually gave a presentation at the AHLA Transactions Conference in Nashville this past spring. We delivered a presentation around this topic earlier this year, as I mentioned. And that topic was called Duets Done Right, Healthcare Joint Ventures in 2026 and Beyond. And today, what we're looking to do is actually bring that conversation to this podcast. We are going to kind of skip over the 101 basics, assuming that the audience has got that down. And before I forget, I want to give the biggest shout out. We have a fantastic summer associate on our team here at Deckart named Anna Bamber. She is a rising, uh, first of all, she's a superstar. Um3L at Wake for us and has helped Tom and I convert the magic of that presentation that we did at the transaction conference into our podcast today. So thank you, Anna.

SPEAKER_02 2:55

Yeah, Anna, huge help. Couldn't have done it without you. Um like like Jennifer mentioned, we're kind of glossing over the 101 of joint ventures and and deals in general. And we're really hoping to drive into, you know, kind of the more veteran lessons that Jennifer and I have learned over the years, things from deals where things didn't go exactly as planned, or, you know, maybe things took a turn, um, and just kind of you know provide that that extra level of uh of experience that we have today in the podcast.

SPEAKER_01 3:26

Absolutely. Um, so looking forward to going deep today on issues that actually drive outcomes in practice, regulatory pressure points, governance issues under stress, and really designing deals that hold together five years in, 10 years in. I think that's really going to be the focus of our conversation today. So, with that, let's kick it over to a structure conversation, Tom. Always good to start there.

SPEAKER_02 3:49

Yeah, absolutely. And we'll keep it pretty high level given our time constraints. The first question we often get in these conferences or more generally is you know, why have a focus about joint ventures? Um, you know, I'm sure most of you listening into the podcast have experienced them in some form or another because really they're they're everywhere in healthcare right now, um, offering real opportunities for both business side, you know, opportunities that may not have been available through more standard transaction um structures. And then also on the patient care side, really opening up some new ways to provide more comprehensive patient care. Um one of the challenges we find with joint ventures is that you're not just inheriting all the complexities of healthcare operations, the laws, the regulations, et cetera. You get to keep all that fun stuff and you get to layer a whole new level of complexity on top of it through your joint venture structure. Um that joint venture structure can come in basically three types. Um, the first one, and you know, this is kind of Jennifer and I's shorthand, uh, is what we call the equity or legal joint venture. And that's where you're forming a new entity, right? Your new co and your partners are gonna hold equity in that. Um, your second option is the contractual joint venture, where um you're not gonna create that new co, but instead you're gonna have a contract or a series of contracts that really mimic that equity ownership structure. Um, and and then third, you're gonna have management joint ventures, which is gonna be, again, a contractual structure, but it's gonna be more through shared services arrangements. Um, like I mentioned, I think the equity JV is the most common. It has the clearance governance mechanics, um, and frankly, it's the easiest to explain to kind of a broader audience. So throughout the podcast, I think that's where you're gonna see most of our focus. Um, basic setup, like I mentioned, you're gonna have a newly formed NUCO. The partners are gonna fund with cash, assets, sweat equity, some combination thereof. Um, and then there's gonna be one or more affiliated service agreements running alongside it, where you have one or more of the partners providing some level of service to the NUCO so that it can take on the healthcare operations that it's looking to do. Um like to talk about a little bit is joint ventures can really look a lot like MA deals on the surface. And so, you know, folks in the mergers and acquisition or affiliation space, um, which is very, very common, very popular in healthcare, um, a lot of this may sound similar. Um, we like to we do like to think that there's an analytical distinction in all of this, um, especially when you get into negotiation and problem solving as you're as you're structuring and negotiating a deal. Um, typically in an MA deal, you're gonna be acquiring a business and its existing capabilities. When usually when we're thinking about joint ventures, you know, the parties are getting into business together. There may be some initial operations that you know parties are stepping into, um, but generally the joint venture's new business and its core operations are gonna be partner dependent on an ongoing pay basis. And that dependency is the defining feature. Um, unfortunately, it can also be the source of many joint venture disputes. Um, for instance, if you swapped out one partner for a generic capital provider and the business runs the same way, we're gonna think of that as more like venture capital and private equity. If that partner's specific expertise or services are what we call load-bearing, that's when we think of ourselves as being in joint venture territory.

SPEAKER_01 7:13

I think that's a really helpful translatable landscape for us to come at these deals, knowing that a lot of our listeners may have a transactional practice. Maybe it's more PE heavy at any given time, maybe it's more standard MA. And I think a lot of the skills that we're gonna impart and sort of lessons learned definitely have that translatability. So, along that line, as a private practitioner in this space, one question I generally like to sort of level set with my clients on and spend time with is what are the core legal documents in these types of healthcare JVs and what work does each one of those have to do? So, you know, Tom alluded to this earlier, but we think of this at least this part as a bit of a two-legged stool. Um, you've got two structural anchors. The first is generally what we call a joint venture agreement, covering scope and purpose, covering equity allocation and contributions, generally a lot on governance. That governance could be anything from board composition to voting thresholds, reserved matters, uh, deadlock resolutions. And importantly, for our investor clients, especially financial provisions, initial capital, funding obligations, and distribution waterfalls. And then critically, and although our session was called Do Wets Done Right, one of the most important lessons in putting together a JV is no one wants to think about exit when everyone's ready to, you know, sign on the dotted line and have a real collaboration with a long term of 20 and 30 years. But council is often thinking about what an exit strategy could look like, should look like from a protective standpoint, but also because sometimes the most successful JVs also run their course and the parties are ready to uh move on to other ventures or maybe even move on to do other things together. So exit strategy is not necessarily a naughty word in our experience, and it's something we critically think about up front when we're setting up structure. So that could be things, um, and we also find, by the way, it's much easier to think about those things when the parties are at the table in a collaborative spirit, not when everything has sort of gone wrong. Um, so we think about what triggers a buyout potentially. Sure, it could be breach, sure it could be deadlock, but what it's what if it's an investor liquidity event? What if it's a change of control? The mechanics matter enormously when that partner investment horizon may differ from party to party. The second anchor is what we call a services agreement. And usually that's kind of a suite of documents. Tom mentioned that oftentimes in these joint ventures, there are affiliate services that the partner entity may be providing to the JV via either themselves or or through an affiliate. So we definitely don't think of those as boilerplate. They actually go to define performance standards, cost structures, and what happens if a partner stops providing services. And so we'll come back to that in just a little while. So shifting over to what we like to think of as kind of why JVs in the sense of business rationale, let's let's take a little bit of time to like elaborate on what Tom mentioned earlier about the sort of wild popularity of JVs in healthcare. I think from the inception of both Tom and I's careers, longer than we'd like to admit, um, JVs have been popular and they are not in any shape or fashion getting any less sophisticated or any less frequent. If anything, they're becoming much, much more complicated and much, much more frequent. So I would say from what we're seeing, the very first driver of that is synergies, right? In healthcare, that need for synergy is genuinely very real. Healthcare operations have a level of complexity that are unparalleled to probably any other industry. And even the largest systems, the largest strategic entities can't be excellent at everything. When you find a partner who fills in your gaps and you can formalize that through some sort of equity or contractual arrangement, when you can formalize it through governance rights, when you can formalize it through the right distribution waterfalls, you have created something that's far more durable than just a contractual vendor relationship by way of contrast. The second big driver is market access. And this is one where legal structure does really do some serious lifting for those lawyers on the line listening in. Healthcare markets have real barriers to entry, uh certificate of need requirements in many states, pay or contracting leverage, regulatory licenses, just to name a few. And we've got a in the United States alone, a 50-state environment to take into account. A JV with an established market participant can provide access to many of those things, if not all, simultaneously, as long as it's structured properly. The regulatory and structural design elements of that JV can really help to determine whether you can capture the upside of those benefits.

SPEAKER_02 12:13

The third driver that we often talk about is risk allocation. Um, and this can be where a joint venture structure can really earn its keep. Um, one thing we talk about often is proportional capital contributions, right? So that's going to mean proportional financial exposure. So you have financial risk allocation. Um but sometimes the more interesting question is how JVs can help allocate operational or regulatory risk. Take a medical director arrangement, for example. Um, if a healthcare business that wants to be a joint venture depends on a particular physician or you know, subspecialty of physician practice for medical director services or kind of other oversight, um, and you bring that physician in as a joint venture partner, that partner now has both a contractual and an equity-backed incentive to perform. You could obviously have a medical director as just a simple vendor relationship. You have that contract, but maybe you don't have that equity-backed skin in the game. So when one party is providing maybe regulatory expertise, payer relationships, even things that seem simple like back office administration, um, the joint venture structure can create a durability that your standard fee for service arrangements maybe can't replicate as well.

SPEAKER_01 13:24

Absolutely. Absolutely. And so now let's talk about why, let's bring it down to our year, right? We're midway through 2026. Why are JVs becoming so dominant in this era specifically? Like beyond the general drivers we've just covered, from our perspective, definitely first and foremost is probably capital efficiency. A full acquisition means that paying an entire purchase price and assuming all the liabilities on day one. And a JV means a proportional capital and proportional exposure. And for let's say a large health system managing a constraint balance sheet, for example, or a private equity fund that wants to maintain dry powder, that's a significant structural advantage when you can have a JV that sort of spreads that across a vehicle as opposed to a full straight-on MA deal.

SPEAKER_02 14:19

Definitely. One other driver that we're seeing, especially more recently in joint ventures, is antitrust considerations. Um, most folks on this podcast, I'm sure, follow the news, right? Full hospital merger mergers are getting serious FTC and DOJ scrutiny. Um the FTC is generally looking at a lot of different specialties in healthcare. Um so sometimes a joint venture that's very narrow in scope and for a very precise business purpose can sometimes get a deal done that a full MA transaction wouldn't because of antitrust reasons. Um, you know, obviously a joint venture isn't a blanket antitrust safe harbor. Um, you know, you still have horizontal collaboration analysis. Um, you know, the government still wants to make sure that whatever collaboration you're doing is, you know, a legitimate joint enterprise that produces real efficiencies. Um, you know, you want to make sure that you're not in a scenario of price coordination or market allocation. Um so obviously getting things wrong can be expensive. But again, a joint venture can be a way to very much in a smaller, more focused way, you know, pursue a business opportunity that might otherwise not be available through just a pure MA structure.

SPEAKER_01 15:34

Yeah, I think that's right. And and I really like to think of it too, Tom, is that when we work on these JVs, they, you know, they're touching the patients in a way that the continuum of care, you know, in the case of a hospital, to bring it down to that level as mentioned earlier, potentially you're looking at an impact on patients from all the way from pre-admission through post-discharge. And the most interesting deals that we're working on today intentionally seek to own probably multiple points along that continuum. Um, I know when we deliver some of our presentations at the AHLA conferences, we ground them in case studies. So, you know, take a hospital with a JV opportunity with a cardiology practice. They can keep the patients with the cardiac conditions out of the hospital in the first place and make sure that they actually execute on care plans post-discharge in a way that really reaches into the patient. And that kind of reach is only possible in many instances through a JV structure where the incentives are aligned to do so. Um, we see support functions like revenue cycle management, can be JV opportunities in their own right as well. I know that's a hot area here in 2026. Uh, if you have, again, are looking at a hospital player, they likely have a very robust infrastructure there. You may have a smaller, nuanced um physician practice, maybe a PE fund, maybe they're less so into that business as an operational matter. And so well-designed JVs can allow collaboration from both that clinical and operational continuum all at once in much more of a seamless way that ultimately has a delivery of care element that's quite advantageous for the patients.

SPEAKER_02 17:21

Yeah, absolutely. And so, you know, to kind of before we move on to the next section, put a bow on all of this. And I think this is important for lawyers new to joint ventures. Why are we doing a joint venture? Because we're building something that maybe neither party could achieve alone. We're pooling resources, we're sharing risks, we're leveraging complementary strengths. A lot of times our healthcare clients, you know, we're in complex markets, we have capital constraints. So the joint venture can be a powerful model. And if the lawyers on the deal understand why we're doing a joint venture versus any other type of transaction structure, um, that can really help us get to answers when we're at loggerheads, when we're at a dispute point, something like that in the formation. Um, so now we're gonna turn, we're gonna spend a little bit of time on the legal issues that can make or break those deals for lawyers.

SPEAKER_01 18:10

Absolutely. So, you know, as Proud Healthcare Council, Tom and I, um, we spend a lot of time on regulated and compliant sides of JVs. And honestly, there, these areas alone could fill an entire session with you all. And so we've chosen to hit upon some highlights and give you enough context to hopefully spot some real pressure points that at least we've seen in our deal work together, so that when you encounter them, you can think about them in maybe similar ways that help advance the needle for your deals. So the the big three, so to speak, that you absolutely cannot ignore in this space are corporate practice of medicine, the Stark Law, and the United Kickback Statute. As we said, not going to be a 101 session. So we feel pretty confident that everyone on the line has a good familiarity with some of these. We also will uh touch a bit on HIPAA and antitrust. Antitrust came up earlier because those are just increasingly central to innovative joint ventures that we're doing, particularly in the data space, particularly in spaces where there's geographic consolidation of joint venture partners in different regions on the antitrust side. So let's start with everyone's favorite corporate practice of medicine. Some people abbreviate it CPOM. Um, CPOM is one of those doctrines that sophisticated practitioners, I think, sometimes underweight. Um, and that even may be not just uh practitioners, but also sometimes our business clients, that maybe investors, um, knowing that CPOM at its heart really regulates medical professionals or dental professionals if you're doing something in the in the dental space. Um and I think it's also uh in part underweighted because there's a piece of it that feels a little antiquated, maybe old-fashioned. Uh, but of course, we see CPOM day in, day out having very real consequences in our JD designs. Uh, the core prohibition probably is familiar to most corporations themselves as non-human entities cannot practice medicine, right? They're not credentialed, they're not licensed. And physician clinical judgment, therefore, must remain independent of any sort of corporate influence, conflict of interest, and the like. But the application of this law, because it's a 50-state type jurisdictional issue, can vary significantly from state to state. Some states have bright line, statutory prohibitions, and criminal penalties in some instances. I mean, I'd say that's all the way on one end of the spectrum. Others rely on sometimes very, very old common law doctrine that is admittedly maybe a bit ambiguous on its edges for modern day legal practice, uh, for us lawyers trying to navigate giving current day advice around them. And the definition of what constitutes practice of medicine versus administrative management not only can differ across materially across jurisdictions, but also can differ quite a bit with the advent of AI and other types of developments in the administration of care side of things. So definitely from our perspective, when we are huddling both outside and inside council, CPOM is definitely on our list early, and how we navigate it with our business stakeholders is definitely something that we get together and get aligned on way before we're deep into the documentation phase. We are mapping out every state where the JV may have operations that are either near term, midterm, or maybe even aspirational because we want to be sure we're building JVs that stand the test of time. A lot of times these JVs are in existence for decades, and those are the ones that make us proud because they are living and breathing or Organism JVs that work out really well for our clients. And so we're there as the council to assess whether the proposed governance structure can kind of grow with the joint venture across the different states that they may be interested in working with in the United States. And for PE back deals, especially, CPOM is very often a first structural constraint that can really drive MSO architecture. And we address it before we think of what equity can look like, of what service agreements can look like, and certainly of before we think about how compensation between the entities is going to flow.

SPEAKER_02 22:39

So from CPOM, the next two we're going to touch very briefly on STARC and AKS. Again, I'm sure most listeners have dealt with these two federal statutes and state equivalents, you know, more than you'd like to. In almost every joint venture, you need to be thinking about how the business might implicate these two statutes, even if no physician owns, uh is anticipated to be an owner in the joint venture currently. And one other kind of like the key takeaway that I always find in these presentations to really hammer home is that the STARK and AKS compliance and analysis, it's not a one-time thing that you're setting up right before you close your joint venture or early on when you're talking to your business colleagues about what the considerations might be. Um presumably this joint venture is going to grow and evolve and last a long time. It's going to add service lines, add and subtract partners and things like that. Um the most important takeaway for Stark and AKS is building in ongoing monitoring operations into a compliance program from day one. Um I'll touch very briefly on Stark. Again, I think most listeners probably know Stark better than I do as a deal lawyer. Stark is focused on physician ownership of and financial relationships with entities providing designated health services. Umphasize is you know, there's a variety of safe harbors and plenty of regulations about Stark. But the recent 2021 value-based exceptions are very significant. Um, and I think most lawyers thinking about a joint venture should really spend some time understanding how CMS is viewing the physician incentive alignment through these uh through these three major exceptions. Um really quick, we have full financial risk, meaningful downside financial risk, and value-based arrangements. Um, that VBA third one we think is the most commonly used, at least in our practice. Um, and the key kind of learning tool that we want to emphasize is that the documentation burden for any of these um incentive alignment programs or any other safe harbors that you're relying on, that documentation burden is real. Um you need to be documenting your value-based purpose, you need to be documenting your specific outcome metrics, and you need to have a clear nexus between remuneration and compensation and how you're thinking about care improvement activities. So, again, it's like day one, how are you building this compliance infrastructure in place? And how is that infrastructure going to function and evolve over time as your joint venture grows?

SPEAKER_01 25:09

I really like that analogy, Tom, about building. One of the things that I think you'd probably agree, one of our favorite things about joint venture work is the fact that a lot of times you have a white paper that you are, you know, you've taken your notebook and you're mapping out literally arrows, circles, and everything else about how things are going to flow. And I love the analogy of the build and you know, taking the next prong of the AKS, the anti-kickback statute. And we're just speaking about the federal versions of these laws. Listeners uh probably know that similar to CPOM, um there are um state versions of these laws, and um, we definitely, you know, navigate those as we think of our footprint issues within the JVs, but just taking it down to the level of federal AKS uh as a reminder, we think of it as much broader in many ways than the STARK law. As Tom mentioned, Stark is really at its core when you look at the legislative intent and all these sort of revisions over the years. It's specifically about physician self-referrals. Anti-kickback, in our experience, especially putting together these JVs, can be a more significant overlay in many instances because it at its heart is covering inducements by any provider toward a referral source. So by definition, it's a much wider net and it is intent-based. But the interpretations of the court over the years about intent has been quite broad as well. And so it's found the various courts, and this has been uh tested over many, many times, that um that one intent to induce referrals is enough to trip up the complicated and yet extremely umerous uh anti-kickback statute regime from the government's perspective, they don't necessarily need to have to prove that referrals have actually flowed from the arrangement. The commercial reasonableness test is always where I come back. Where would this financial arrangement make sense absent any referral arrangement, a referral relationship? And this is a conversation we have with our business clients really, really early on. Um, if you're paying a physician partner above market rates for their services or structuring distributions in a way that is seen, you know, could be seen by a reasonable eye as a reward for a referral volume rather than true operational contribution, there could be an anti-kickback pretense there to think about. And there are, as Tom mentioned, like on the Stark side, there are a variety of safe harbors. And a lot of the work of council is to figure out how we can best cast light on the true positive intent of our joint venture and its and its partners and its and the joint venture's objectives. So we're frequently looking for what are called in the uh AKS world, safe harbors. And as Tom mentioned, there are within the last five or so years relatively new at this point, um, less new and more tried and true, uh, value-based care arrangement, uh, safe harbors that in a way mimic some of the mentionings that Tom had on the STARK side. Um, it really what it boils down to for us is that we are aiming with our clients to structure these arrangements with um intentionality around these issues, quite a bit of internal documentation that we like to keep in our files, so to speak, so that the documentation is not just a policy that no one looks at, but actually is the guidepost by which the partners operate the joint venture itself and the spirit by which they're going about. Um, and so to that end, a lot of times if we're looking at a safe harbor that we're trying to get our clients under, it's very much about setting up a design framework as opposed to checking a box that all of the elements of a safe harbor may or may not be granted. I did want to take a pause on fair market value. I know oftentimes the podcast has listeners that focus uh maybe less from a legal compliance perspective and more from other health professional vantage points, such as fair market value. Fair market value is definitely a practical issue that we encounter a lot through the life of our joint venture work. And it's not just a formation exercise. Um, certainly at formation, there's valuation of non-cash contributions, um, which requires defensible methodology-driven appraisals. Uh, but the critical requirement of fair market value analysis really scrubs out throughout the joint venture's life cycle and is actually embedded into many of the safe harbors and the exceptions to STARK that Tom mentioned earlier. And one thing that we really like to remind our partners about when we're advising our clients that are members of these JVs is that we really need to remember that those fair market value obligations do not just go away once the JV is operating. We need to revisit uh affiliate service arrangements that may not necessarily have uh a requirement in the agreement to sit down every six months or a year to evaluate and practice that fair market valuation is lined up. That may be best practice, even if it's in the agreement. Sometimes our clients may not exactly put that onto their operational checklist, but these are real inflection points that uh we counsel throughout the life cycle of the JV to continue to be visiting. So really building in that valuation uh methodology, but also that culture of valuation within how the JV operates is really important. And certainly revisiting it over time is definitely a great best practice.

SPEAKER_02 30:57

Definitely. Um, so the next regulatory framework we want to touch briefly on, um, I previously mentioned a bit antitrust, right? Um so earlier on I mentioned you want you're gonna want to make sure that your joint venture has a legitimate business purpose, right? You're not going into part to partnership with your major competitor just to kind of you know organize some sort of price coordination dressed up as a JD or something like that. Um I like to think most of the sophisticated folks listening to this podcast um and their business clients are are too smart for that. But frankly, it does happen, and and there have been some some pretty effective recent FTC rulings about that. Um but the the second antitrust risk that I feel like gets a lot less attention, but is in some ways more important in joint ventures is this idea of information sharing, right? So we're gonna form a joint venture, we're gonna have two or three or more potential competitors all together in the same room. They're gonna be talking at board meetings, they're gonna be doing business planning, they're gonna be reviewing the performance of the joint venture. Um, and in all these conversations, there's gonna be a lot of what we'll call antitrust sensitive information, um, data on pricing, capacity, strategic plans, things like that. Um, so the joint venture, if not structured well, it can be a conduit for sharing commercially sensitive competitive information, um, which is obviously not the joint venture's structural design. Um, so one of the things that the lawyers are going to want to be mindful of, not just in drafting the documents, but also in kind of training their clients who are running these joint ventures is you know, building explicit information barriers, what is and what can't be shared, um, what are your board protocols? Um, talk about what's a legitimate business discussion to be having at these meetings. Um, and then restricting access to competitively sensitive information beyond the JV's operational scope. It's a little bit amorphous, but I think you know, for a lot of lawyers in the audience, you're gonna know it when you see it. Um, and it's it's something to keep in mind as you're thinking about these potentially broad joint venture relationships.

SPEAKER_01 33:05

Yeah, and I think, Tom, one interesting point on that is that I think our in-house lawyers on the line may end up bearing a lot of that practical counseling more often than our externally facing lawyers who set up these JVs and maybe don't live and breathe with them um day in, day out, like your team might when we operational that operationalize them. So I think that's a great point, Tom. Um, moving along a bit towards uh some of the dollars in, dollars out topics, you know, financial provisions and reporting rights, I think is one where I would definitely recommend we sort of pause and pay a little bit of careful attention, not just because financial performance we know behaviorally and otherwise drives decision making, there's no doubt about it. But because a JV involving, you know, physician partners, financial information sits at the intersection of member rights under state law and compliance obligations under SARC and anti-kickback statute. So if you have a physician partner's distribution tied to the JV's bottom line, and the bottom line is affected by the volume of services that the physician refers to the JV, that reporting structure itself could have compliance implications. So building that reporting framework with that lens from the start is super important. Um, growth, I would say, is another consideration, building in flexibility to address future expansion. I mentioned earlier, it's one of the exciting pieces of the work is that when our clients come to us about a J E V, they they may have an idea that's one to two years out, and we as council will be encouraging them to think broader, five, ten years ahead. Where do you think this might head while still trying to create those clear rules for how the current business operates?

SPEAKER_02 34:46

Yeah, absolutely. Another topic that I think of as touching, you know, kind of the regulatory space, it's it's it's more of a contractual negotiation, but restrictive covenants, um, they're getting a lot of careful attention in in the legals, legal and call it, um uh legislative world, right? Um we have the FTC's 2024 rule that was recently vacated. Um, but there's an underlying regulator regulatory trend that um is reflecting this very real concern about what restrictive covenants are appropriate. Um, and a lot of times non-competes and things like it are, at least to the people forming the joint venture, you know, folks are gonna claim that they're very important. Um, so it's important for the lawyers to understand, you know, what's happening in current states, right? You have current California, Minnesota, North Dakota, they're trying to effectively ban non-competes. Um, other states like Colorado and Illinois are very much restricting the scope and the durations. Um, and even in other states where we don't have statutory restrictions, the lawyers structuring a deal need to be mindful that this is an ever-evolving landscape. Um so you're gonna want to do an enforceability analysis jurisdiction by jurisdiction, uh, but you're gonna need to make it clear to your clients that you know things could change. And if things do change, um how do we need to think about that? Um are we creating overly broad non-competees that aren't gonna be held up in court or that the state is gonna have a problem with? Um it's it's a little bit of a black box, unfortunately, as you're trying to give guidance to your your business colleagues, um, but but it's definitely a key area that as folks are forming joint ventures these days to be mindful of.

SPEAKER_01 36:29

You know, that's interesting, Tom. I, you know, skipping a little bit ahead, I guess I'd wonder from you, you know, how do you approach negotiations where you as the counsel seasoned in this you know area might uh where the structure might not work, maybe that our business clients are thinking about, or where you may have to tell your business folks, you know, what maybe they don't want to hear but need to hear, right? As as trying to protect your client. How do you go about that in your in-house life?

SPEAKER_02 37:00

Yeah, and you know, obviously, and I think most folks would agree to this is you don't want to lead with no. You don't want to just slam the door, you want to be redirecting folks and you want to try to be productive. Um, but kind of all the stuff that we just talked about, at the end of the day, we have a variety of regulatory landscapes that are gonna overlay these business deals, these joint ventures. And it's it's not that most in most instances, none of them are going to be an absolute bar as to what the business wants to do. Folks just maybe need to be thoughtful about how are they structuring things, or you know, is the does the scope and and scale need to be scaled back a little bit? Um corporate practice is is always an easy example, right? If you are working for a PE client, um, you know, you have your your kind of tent pole organization and you're doing all sorts of acquisitions of smaller practices. If it's your first time in a corporate practice state, um if the business comes to you and says, we want to acquire this practice, you don't just say no, you say we might need to use an MSO structure, and we're gonna have to explain the structural differences that an MSO brings. You know, here are the risk profiles that have changed a little bit. Um, that's somewhat of an easy example because I think most PE backed firms are gonna be somewhat understanding of that if they're you know players in the healthcare space. Um, but you know, I I still think it's a good example because it really drives home the lesson of you know helping your business understand, for I guess maybe a better way to say it, helping the business understand what they're not gonna get, right? In the corporate practice sense, you're not gonna have equity control, but that's not really the ultimate goal, right? The ultimate goal is economic and strategic influence and and being able to kind of like grow this practice and make money, you're still gonna be able to do that in an MSO structure. It's just gonna feel a little bit different. Um, and so a lot of times, you know, as I talk to you know, new hires or or other folks in my organization or even kind of cross-training new negotiators, we like to tell them that, you know, if we want to have a successful negotiation, it's important to form a strong partnership, right? Um, not just between me and my client, but you know, business partner to business partner. And we're not just trying to form a technically correct transaction that checks the boxes and meets all the safe harbors, right? We want to be thinking about what's the business really trying to do, what are some pressure, excuse me, pressure points or areas where we know that different partners are gonna have different priorities, um and really then think about how those priorities might change, how the business might change. Um, really, one of the things I like to tell my business is not just what is this gonna look like the day we sign the documents, because admittedly, a lot of times those, you know, corporate development people get to walk away and not necessarily live with the business, right? Their job is to kind of get things formed up, but they want to be thinking about how is this joint venture gonna function in the formative years? How is it gonna function when things are going well? And and what are we gonna do when we're under stress?

SPEAKER_01 40:08

I think that's a really helpful level set. You know, I would add, you know, sort of on the strand of the PE client to riff off of that a second. I I wanted to reiterate for those on the line that work in that space, whether you're in the PE business side or whether you yourself are an advisor in in any capacity for a PE, I have found that, you know, as Tom said, the level of sophistication obviously of all of our clients is very high if they're in any sort of healthcare deal space. None of these issues that we're covering so far, I think, are going to be new issues. The thing that we like to stress is that this is such an evolving space. So, you know, getting down to the basics sometimes with our client, you know, like if I'm working with a PE client, for example, they are very familiar with kind of navigating decision-making authority, how boards can be structured, what voting rights look like, but they're really turning to outside counsel for the most cutting-edge decision-making uh layers that pile on on top of that. So for those listening in, navigating, for example, our you know, new and burgeoning area of uh almost it feels like 50-state versions of transparency laws that are being adopted in states like Oregon and others that are layering quite a bit of nuanced presentation as to how our clients may want to go out, even at the term sheet stage, talking to partners and thinking through what the different partners bring to the table with that ultimate goal of you know, proper governance, of course, proper financial structures to make every partner's contribution feel valued, not just in paper, but also how that JV operates and with the asterisk of the times are changing in terms of regulator sensitivity to a lot of the themes that we're discussing today. So, you know, I would I would say that you know, maybe years ago finances was was maybe a key source of sort of tension negotiations. And now what we're really focusing our clients on is really focusing on less the, you know, often harder to resolve financial disagreements, but actually understanding each partner's theory about you know how control as they define it in the JV looks into a governance structure that actually is going to stand the test of time in an ever-evolving landscape of regulation that that where there is more scrutiny. Um, so yeah, Tom, I'd I'd love to have you walk through a little bit of some hot spots that you see in your practice. I think that, you know, having our work together for so many years, I always enjoy hearing about the things that not just come through your desk, but from your in-house vantage point can really be lessons for the audience about um joint venture work across uh different domains.

SPEAKER_02 43:00

Yeah, and I think I have one that kind of tracks pretty closely with you know what you were just covering there, right? As we think about, you know, what are folks' focuses and how have they evolved over the years, especially as I think joint ventures, frankly, have gotten more mature over the last decade. Um, one of the things that I uh I often have to, not obviously not with Jennifer, but with other outside counsel that I've worked with, is um, you know, it's it's a tough balance sometimes for the lawyers to have their lawyer hat on, right? And we're negotiating a contract. I'll give an example. We had um a joint venture for products distribution, right, with a pretty major provider supplier. Um, and back in the day, our outside council and they were doing their job, right? But they spent hundreds of hours on indemnification and exclusivity and a lot of those financial concerns that that Jennifer flagged in in her previous uh previous discussion. And all that stuff is very helpful, but There wasn't enough focus on kind of the operational problems, the the issues about control. And so in that joint venture, when problems showed up, it wasn't really helpful to have this very detailed and lengthy section on indemnity and exclusivity, because all of that tied into, you know, you're in court or you're terminating the contract or something like that. Nobody wanted to terminate the joint venture relationship. It was for the most part going very well. There were just some pretty substantial operational hurdles that that were not really addressed in the JV agreements. So I I think the hot spot that I always have to, you know, kind of hold both sides of the fence, right, between business and legal, is how am I making sure that obviously we have a contract that has good legal terms in it and we're negotiating those legal terms well, but we're not spending so much time on the kind of legal nitty-gritty when we really should be focused on the operational provisions. We should be bringing in the operators in the early stage of the deal to say, here's how we think it's gonna work. Is this how it plays out in practice? Or kind of like, what are the intricacies that someone in 20 years of procurement can have that I'm never gonna have as you know, as a lawyer, not necessarily in that space.

SPEAKER_01 45:19

Yeah, I like that analogy. I'll throw one in that that kind of resonates with me. Going back to non-competes, hot topic, of course, in the JV world, just adding in, you know, sort of a value ad that I like to do with my clients. Let's say I'm working with a new PE fund, um, and I know non-compete's again a hot topic, especially if it's a new client. I rather than doing, you know, the lengthy memo, the, you know, the things that I quite frankly, a lot of our PE clients, for example, many times they don't even have a Tom role. They might not have an in-house lawyer. And so I'm really needing to uh level set with a business team that obviously is very legally sophisticated, but they certainly wouldn't appreciate, you know, a 50-state survey, not asked and and um not asked for anyway about you know the latest and greatest on non-competes in the healthcare space as it as it might be apropos. Um so what I'll try to do is um, and shortcuts the word that comes to mind, but I don't mean it in a bad way. It's um it's sort of a way to backend into um, even if it's a new client, a way to think about how they may be thinking about non-competes. So what I'll do is, you know, I'll research the private equity funds, like prior healthcare investments, which are of course good practice anyway, especially with a new client, and look into their portfolio assets, their hold periods, their exit strategies. And for me, with a little bit of extrapolation and educated guesswork, it tells me how aggressive their non-compete demands are likely to be. Obviously, you want to validate that with the client, you know, as you have your discussions, but a fund building, a regional platform needs to be free to operate in that geography. And if I understand that, I can design non-compete provisions that are um protective of my client's legitimate interests, you know, without becoming a deal breaker. So that's certainly something that, you know, our role as counsel is. So I think we're coming to the end of our time together, Tom. I don't know if you want to kind of walk us through a few takeaways that might be good for us to highlight and then we can wrap up.

SPEAKER_02 47:25

Yeah, absolutely. So, first of all, thanks to everyone for spending time with us. Um, you know, we appreciate it. Um, a few quick takeaways. Um, we've talked a lot about risks and pressure points, and obviously that's the kind of key nature of our jobs as lawyers. Um, but you know, I I like to kind of kind of step away necessarily from the what do we do when things go wrong? And really one of the things I like about joint ventures, and one of the things I like to keep thinking about as I'm structuring deals is thinking about the strengths and like what is the when our incentives align, how is this joint venture going to amplify what each partner brings? Um, our job is to design legal documents that maximize those efforts. Um, and it's it can be really rewarding and enjoyable to see how when things come together right, we're actually driving significant value and and making a big difference in patient lives.

SPEAKER_01 48:17

Absolutely. Well, Tom, thank you. It's always a pleasure for uh doing this type of volunteer work with the AHLA, uh, such an important professional home for both of us. And you're such a thoughtful partner in these types of uh conversations and so enjoyed it. Thank you to everyone for tuning in today. Uh, the AHLA does incredible work, bring practitioners together around issues that matter the most in healthcare law. And this podcast is just one of the ways that we try to make those conversations accessible beyond the transactions conference room in our instance. So if today's conversation resonated with you, I certainly hope that you'll check out all that AHLA has to offer, including our broader podcast series. So thank you for listening and catch you next time. Take care.

SPEAKER_02 49:04

Bye.

SPEAKER_00 49:10

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