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Strategic Alliances to Outsource or Vend IT

Susan Patton, for HealthLeaders Media, March 26, 2010

On the flip side of outsourcing, hospitals that have the brand premium, skilled workforce and specialized technological resources to create and sell their excess capacity in both general business back office services, IT and specialized clinical resources, can add an additional, diversified (albeit taxable) revenue stream to the hospital's patient care revenues. Strategic alliances offer a common solution to a common problem.

Steps in Evaluating Any Strategic Alliance
Any intelligent strategic alliance requires input from its champions, management, legal and financial advisors. As with any undertaking, any effective strategic alliance will be founded on a buy-in among the stakeholders regarding efficiencies and benefits to be obtained from the relationship. Business and financial advisors will ensure that the business model, business plan and financial pro formas will anchor the studies of an alliance's feasibility, objectives and rational to concrete actions.

Legal advisors will ensure that the equity or contractual structure and other rules of engagement are appropriate to achieving the parties' goals and are not an impediment to them. Legal issues include control, exit strategies and flexible, fast dispute resolution that facilitate the adaptability of the alliance to changes in circumstance and evolution rather than deadlock and dissolution. Due diligence by all is part of the vetting of the participants' strengths and weaknesses and resource capacity and limits, both financial and with respect to personnel. Operational issues, including budgets, compensation, profit or expense sharing, need to be addressed as well.

Types of Strategic Alliances
Strategic alliances take a wide range of legal forms and may involve equity or non-equity contractual relationships among a mix of health industry companies, companies in other industry sectors and governments. One way to conceptualize the various legal forms of strategic alliances is to view them along a continuum of integration and control from:

  • contractual collaboration
  • equity joint venture or contractual joint venture joint service arrangements
  • outsourcing business functions to a shared service cooperative in health industry or commercial business in IT industry
  • outright merger or consolidation

Contracts and Non-Equity Joint Ventures
A contractual joint venture is an agreement joining together two or more hospitals or entities for the purpose of executing a particular business undertaking. Hospitals do not always furnish capital as part of their joint venture commitments. There are, for example, non-equity arrangements in which some hospitals are more in need of technical services or technological expertise than they are of capital. Each participant contributes in accordance with their ability and needs. Contract law governs contracts and non-equity joint ventures.

Equity Joint Ventures: Corporations, LLCs, Limited Partnerships
An EJV is an organization created as a new and separate legal corporate entity, which is the product of a joint investment by two or more organizations. It is constructed as a hybrid organization in which the EJV parent organizations remain independent with different missions, values, motivations and objectives, although they also contribute to the management process of the EJV. Parent organizations, acting as owners, have the authority to determine EJV tasks and activities, but EJVs in reality are, at least legally speaking, independent organizations.

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