Indeed, more traditional M&A activity in the health care space is down significantly from its pandemic highs. As one example, private equity firms recorded or announced an estimated 151 health care-related deals in the third quarter of 2023, the lowest mark since Q2 2020, and significantly less than half the deal count of Q4 2021, the market peak. In light of this, many actors are looking to joint ventures as an alternative to more traditional acquisition activity in order to pursue business combinations in the health care space.

At its core, a joint venture (JV) is a contractual business arrangement in which two or more parties pool their resources and expertise to achieve a particular goal. Although joint ventures can serve as a useful alternative to an outright acquisition of another company, they require long-range planning at the outset. Failure to consider an organization’s objectives and ensure that JV documents facilitate those objectives can lead to unintended consequences, financial losses (or failure to capture financial gains), a strained relationship with JV partners, and costly disputes. An organization’s excitement to pursue a new venture with a partner should be tempered by careful evaluation of issues that are unique to JV structures.

A joint venture structure presents benefits and risks to a participant that should be assessed. Benefits include access to increased resources and talent, potential for innovation, and the opening of new markets. Additionally, as compared to a full acquisition, a joint venture can be less capital intensive and allow for risk sharing among JV partners. Risks presented by joint ventures include a need to rely on the performance of the other party as well as the tension that can be generated by the disparate cultures and goals of JV partners. Additionally, although outside the scope of this article, the parties should consider and evaluate antitrust risk in connection with any JV arrangement and health care regulatory risk associated with JV arrangements involving practices receiving any federal health care program payments, such as Medicare Advantage organizations.

Joint ventures are usually highly negotiated and bespoke to the opportunity that the parties are collectively pursuing. However, a party exploring entering a joint venture should consider a number of important factors early in the process. These factors include the scope and purpose of the venture; the appropriate corporate, capital and tax structure; considerations about the capital contributions of each party and related returns; the management structure; governance rights; and exit rights.