Know Your Partners, Know Your Goals in Joint Ventures Between Hospitals and Universities

June 1, 1996

WASHINGTON--Joint ventures between community hospitals and university departments of oncology can offer significant benefits to both, but not unless all parties involved understand one another and formulate a well thought out program.

WASHINGTON--Joint ventures between community hospitals and universitydepartments of oncology can offer significant benefits to both,but not unless all parties involved understand one another andformulate a well thought out program.

David A. Gift, MS, delivered that message with strong emphasisduring the Association of Community Cancer Center's annual nationalmeeting. Vital to the success of such joint ventures is a clearunderstanding of the reasons for forming them, said Mr. Gift,executive administrator for strategy and management, Departmentof Radiology, Michigan State University, East Lansing.

"One of the greatest reasons for failure in business in generalis that the partners didn't really know why they wanted to doit," he said.

Another problem lies in establishing the value of each partner'sequity contribution to the venture and honoring that contributionthroughout all dealings. "In these competitive times, withinany one community or region, frequently the collaborators withinthe alliance are competitors in lots of other ways," he said."The easiest way to solve that problem is for each to relatefairly to each other."

Mr. Gift, who helped put together a joint venture in radiationoncology among Michigan State, the University of Michigan, andthe Michigan Capital Medical Center in Lansing, offered a listof pitfalls confronting those who wish to form a community hospital-universitypartnership, including:

The business plan--Success depends on creating a careful,definitive business plan based on the market potential and a knowledgeof the partners' strengths and weaknesses, and doing it from thestart.

"This is critical; you want to know what you are gettinginto," Mr. Gift said. "If you're doing things in-houseand make a few mistakes in details, that's not such a bad thingto solve. If you make mistakes in an alliance relationship, thatcan lead to some big problems." A good plan also serves asa management tool. "It sets the targets for operation,"he said.

Flexibility--Planning a joint venture requires flexibility,both among partners and within the venture's operations. Marketconditions, patient populations, reimbursement contracts, technologiesall change, and a joint venture must be able to respond promptlyand effectively.

Capitalization--This can pose a problem for nonprofitsseeking to join forces, often because a shrinking market has adverselyaffected them financially. Mr. Gift suggested one, perhaps unexpected,source. "We've obtained loans from the university and thecommunity partners to get the capitalization for the facilities,"he said.

Termination planning--Partners should consider how theywill eventually end their relationship, when the time comes, equitablyand amiably. "That is a useful thing to do," Mr. Giftsaid. "You can take care of some of the nastiest detailsat a time when you really want to work together. It's a greatway to cement the relationship and emphasize that everything isgoing to be fair."

Finally, noting the complex nature of such joint ventures, Mr.Gift urged getting legal counsel involved very early. But he offeredone warning: Don't let the lawyers control the business plan.