In theory, a joint venture is defined as a partnership or conglomerate formed to share risk or expertise. In reality, it involves much more than that. The joint venture can also be used to turn competitors into allies, improving the relationship between a dialysis center and a hospital that were previously opponents; it can allow physicians from different backgrounds to benefit from each others’ knowledge; and it can allow physicians to take on a more active role in their own scheduling and practice.
Additional benefits might include increased supplemental income, a better use of the nephrologist’s valuable time and bargaining leverage for better contracts. However, there are the comparable disadvantages of decreased autonomy (if the owner previously had an independent practice) and restrictions on types or brands of supplies.
Teaming up with a larger company can bring access to beneficial supply contracts, which offer reduced rates for purchasing supplies in bulk—numbers that an independent center might never reach. By joint venturing with a management company, a dialysis center can take advantage of membership in a group purchasing organization.
The larger partners see joint ventures as a good way to access outside capital for new and improved facilities and equipment, as well as to engage physicians more directly in the quality and efficiency of clinical operations.
From the physicians’ perspective, owning part of the facility at which they work is a constructive way of supplementing incomes that have been eroded as a result of governmental and managed care program cutbacks and high malpractice insurance. Many physicians also welcome a setting in which they can be more active in delivering good service and quality and providing better patient satisfaction.
One of the main reasons for joint venturing is that for physicians, under some of the larger companies, the rules of medicine have become corporately dictated, which means the decisions on the dialysis unit level are made by the top members of the large corporate structures, so medical care is basically being dictated to them, said Christopher Pyrek, vice president of business development for Renal CarePartners Inc. “But under joint venture agreements, physicians primarily direct the medication for each individual patient.”
Physicians prefer having greater control over the medical care they provide, and they also prefer that a medical professional make care decisions, not an executive. “In our company, we have protocols that need to be met, but each patient is an individual, and not all criteria fit straight across the board,” Pyrek said. “So the physicians can prescribe medicine on an individual basis.”
That greater control is really the main reason behind the physician’s desire to joint venture, he added. There are the financial benefits of the profits obtained through the clinic, but physicians also appreciate the ability to make choices in the design, layout, color and equipment of a new dialysis center.
There aren’t many negatives from the physician’s perspective, said Pyrek. “One of the keys of working with nephrologists is that we have the talent and expertise—not many physicians know how to put up a dialysis unit and set up the Medicare requirements, and drug billings, so by partnering up with us, we take care of the entire process. A lot of physicians do go out on their own, but for them, it is typically a longer learning curve, and a greater opportunity for mistakes, specifically in billing or in construction. These days, codes are constantly changing, and you need to have somebody on top of that at all times so you don’t lose time, effort and money.”
Pitfalls
When entering a joint venture, partners must watch out for the following problem areas:
- An inability to achieve the financial performance expected
- An inability to cooperate in operations
- A failure to commit sufficient capital or time to make the venture succeed
- A failure to fulfill (on an ongoing basis) the conditions for legal compliance.
It is necessary, when sitting down to map out the joint venture’s scope, that these four areas be covered in detail. Consequences of not meeting the financial objectives must be clear, and it is necessary to keep the communication lines open so there are no misconceptions of how operations are to be run.
To cement the best possible working relationship, parameters should include a clear definition of a bona fide business objective for entering the joint ventures. Establish each partner’s expectations in regard to capital needs and anticipated returns on investment.
Determine the fair market value of all financial transactions involved in the joint venture. These can include capital contributions, service contracts and space or equipment leases. Everything should be documented, and both parties should establish an ongoing process for compliance with the terms of the written agreements.
Another potential mistake that can be made when entering a joint ventures is location. The facility might be poorly located, and therefore inaccessible or inconvenient to the very patient group the nephrologists are trying to reach. Size may also be a factor; the facility could be too small for its patient volume, or so large that space is wasted. Money spent on leases or equipment to fill that unused space could be better used in another area of the dialysis center.
Reasons to Joint Venture
Narrowing down the reasons to enter a joint venture is simple, said Steven J. Bander, MD, an interventional nephrologist and associate professor of medicine at the St. Louis University School of Medicine. “From my perspective, there are two primary reasons: (1) Being able to control the environment in which you practice and deliver patient care, and (2) financial reward from a large segment of your practice.”
For an established nephrologist in practice (of more than three years), the care of dialysis patients represents the majority of the practice, both from an investment of time and income, he added. “Most nephrologists are not employees of large systems but are independent practitioners running a small business. Why would or should a nephrologist give up total control and significant income of a large portion of their practice to another entity when a joint venture structured and conducted properly can be beneficial to both parties? We can see today the results of consolidation within the industry for the nephrologists—no real ability to influence the care in the dialysis unit with corporate dictated protocols for medications and procedures. Some of the consequences include ongoing investigations into the inappropriate use of ancillary drugs and laboratory tests for corporate profits. The questions of who has operational control and if the nephrologist is listened to are crucial.”
The reasons behind joint venturing are easy to discern, said Joseph A. Cashia, CEO and founder of National Renal Alliance in Franklin, Tenn. “As partners, we can deliver a higher quality of patient care. With that being said, in order for the partnership to be successful, both the provider and the physician have to understand the overall benefits of delivering the highest quality of care to the patients. As partners, we have to be in agreement on the impact that quality has on the bottom line. When both parties share this philosophy of putting patients first, then we will never be at odds with each other. At our core philosophy, Steven Bander and I are in agreement. High-quality care drives the bottom line, not vice versa.”
Joint ventures need to be properly structured to work well and provide benefits for both parties. “The advantages for entering into a properly structured joint venture for the nephrologist are time and having an operational partner,” Cashia added.
With the time element, the nephrologist benefits by not having to manage day-to-day operations. Instead, he said, “The nephrologist has more time to see patients and to compete successfully in their respective markets, having time to network, look at competitive factors and expansion of their specific markets, work on physician recruitment, or just have free time to pursue other endeavors.”
And having an operational partner, he said, confers other advantages. “It is beneficial having an operational partner with more than one facility who listens and performs the following day-to-day tasks: employee turnover, accounts receivable, billing, supply and equipment contracts, inventory control, reimbursement contracts, leveraging of IT technologies, education and core competencies of staff, and allowing networking with other nephrologists around the country.”
In a nutshell, Cashia said, the physician can concentrate on providing care, while the partner handles the problems of running a business. The nephrologist has more time for patient care and research but still can make supplemental income.
“The advantage is that, as true partners, we are on the same page. Partnership between the provider and the physician is like a marriage. We have to have continued communication on a regular basis on everything from the financials to the quality of care. As partners, there has to be a trust factor there that allows for full disclosure from both parties. Physicians are partners, and I cannot emphasize that enough. I truly believe that when providers and physicians are not true partners, then the standard of patient care is compromised.”
There are disadvantages to joint ventures, but, Bander said, “The advantages far outweigh the disadvantages. Let’s call them ‘challenges’ rather than disadvantages. If I had to list some challenges, I would say they are: (1) The inability to listen and cooperate in operations, and (2) ongoing compliance with the legal systems, especially regarding the Centers for Medicare and Medicaid Services (CMS).”
“I would echo those thoughts exactly,” Cashia added. ‘These are two challenges that providers and physicians face both in joint ventures as well as in independent operations. The upside of this kind of partnership is the ability to combine resources to better deal with the challenges and overcome them.”
Examples of Success
The University of Wisconsin Dialysis Program has a joint venture, Wisconsin Dialysis Inc. (WDI), with the University of Wisconsin Hospital (UWHC), Meriter Hospital, and the University of Wisconsin Medical Foundation (UWMF). “This merging of academic and private medical settings has resulted in state-of-the-art chronic dialysis care for our patients,” according to the program’s Web site.
Partnering with nephrology practices nationwide, WellBound has a network of self-care dialysis centers. These “Centers of Excellence” allow nephrologists to provide selfcare (home) dialysis therapies for 30 percent of their patients. The company not only offers education, but also programs that address kidney transplantation and vascular access planning.
Partnerships can do more than simply provide dialysis services. For example, Fresenius Medical Care created a joint venture agreement with Beth Israel Medical Center in New York to combine dialysis patient treatment with renal disease outcome and technology research. The joint venture, Renal Research Institute, is a collaborative effort including a select group of dialysis facilities that have strong ties to academic research institutions.
The intent of the partnership is not only to provide ongoing dialysis care for its patient group, but also to continually improve outcomes and to develop and apply new technology to enhance overall patient care. In addition, current dialysis clinical practices are examined to improve efficiencies and to measure cost-effectiveness of alterations to treatments.
Joint ventures have become so successful that even the U.S. government is getting involved. In June 2002, the Veterans Administration (VA) performed an analysis to determine if a joint venture would be beneficial for Tripler Army Medical Center (TAMC) in Oahu, Hawaii. The objective of the study was “to determine the cost effectiveness and strategic implications of expanding the existing dialysis clinic to allow VA beneficiaries access for chronic dialysis care.”
The study analyzed costs incurred in 2002 at private dialysis facilities and at TAMC. Because the Veteran’s Administration Medical and Regional Office Center does not have a hemodialysis unit, patients needing such services are referred to private providers.
All of the costs for dialysis at those facilities—including fixed, variable, direct and indirect costs—were analyzed and then used to produce cost projection models for an expanded acute/chronic dialysis facility, according to an abstract provided by the Department of Defense’s Defense Technical Information Center. The models even included costs for additional staff and pharmaceutical cost projections. “The study indicated that it is in TAMC’s best interest to focus on related diversification and expand to meet the chronic dialysis needs of the VA beneficiaries. Financially, through this project, TAMC would be able to significantly reduce its dialysis treatment costs and provide a competitive market price while simultaneously exceeding the other island dialysis providers’ staffing ratios and skill sets. Based on the results of this study, it is recommended that a joint venture acute/chronic hemodialysis clinic be initiated.”
In 2000, Johns Hopkins Medicine (JHM) and George Washington University (GW) teamed up to form a new company to streamline and enhance dialysis and related care, and to begin interventions early to delay the need for dialysis. The new company, Integrated Renal Solutions (IRS) LLC, is built around an evidence-based program developed by JHM that detects renal problems early and closely monitors treatment.
The anticipated benefits include better management of renal disease and treatment cost reductions of up to 20 percent, according to Paul Scheel, Jr., MD, clinical director of Hopkins’ department of nephrology and co-medical director of IRS.
Juan Bosch, MD, chief of renal diseases and hypertension and professor of medicine at George Washington University, co-directs the company with Scheel. “The IRS program is designed to identify end-stage renal disease (ESRD) patients early, educate providers about the most effective treatments, prolong the time before a patient needs to begin dialysis, maintain the optimal health of patients during dialysis, and facilitate successful renal transplants,” said Bosch. Identifying patients early with ESRD is critical for effective care and management because adjusting to dialysis the first year is typically difficult. It’s also the most costly treatment period, according to Bosch.
“By managing the early problems of renal failure at our Bond Street Dialysis Center in Baltimore, we were able to reduce deaths by 10 percent compared with similar facilities,” Scheel said. At the same time, the center also reduced hospital admissions for ESRD from an average of 3.09 per patient per year to 1.8 per year.
This joint venture provides a solution for care that has often been spotty. “Historically, ESRD care has not been managed or coordinated in any systematic way,” Scheel said. “As a result, care for patients often has been uneven and has involved significant unnecessary costs.”
Improving care and reducing costs is the overall goal—one that a joint venture is uniquely positioned to deliver. RBT
