This short article briefly outlines several methods by which hospitals attempt to align interests with physicians. Some of these options may be useful for different types of projects. Further, depending on whether pursuing an imaging venture, an ASC venture, a nuclear camera venture ... This short article briefly outlines several methods by which hospitals attempt to align interests with physicians. Some of these options may be useful for different types of projects. Further, depending on whether pursuing an imaging venture, an ASC venture, a nuclear camera venture, a cardiac cath venture or other type of venture, some of the models may be more or less useful.

Briefly stated, the core models are as follows:

Minimal integration models. We generally view the following as minimal integration models. Typically, this means that the arrangements are short term and generally do not require the development of partnership agreements or require extensive capital contributions.

• Medical directorships. This involves an agreement with a physician or physician group who will provide various services to the venture, such as administrative services, training of employees and staff, etc., in exchange for a set fee.

• Management contracts. These are situations where either the hospital would manage a physician practice or a physician would manage a department of the hospital or some other effort on behalf of the hospital.

• Gain-sharing efforts. Gain-sharing usually involves the hospital and physicians working together to achieve cost savings in purchasing for certain surgical procedures or other procedures and then sharing those savings between each other. While a minimal integration model, these efforts take a great deal of time and effort to put together.

• Under-arrangement joint-ventures. In the traditional under-arrangement joint-ventures, a hospital simply buys an existing service from a physician group or similar entity and then bills for the services. This is differentiated from the more extensive under-arrangement ventures being put together today and noted below.

• Part-time employment arrangements. Here, the hospital or a related party employs physicians on a part-time basis to provide services to the hospital.

• Independent contractor. Here, like an employment agreement, the hospital typically contracts directly with a physician and has him or her provide services on the hospital's behalf. In other independent contract arrangements, such as hospital-based independent contractor arrangements, the physician provides services and bills third parties.

Often, there is very little economic difference. Medium integration models. We generally view the following as medium integration models. They require more effort to put together than a minimum integration model and often require capital contributions and the development of various partnership type agreements.

• True joint-venture. Here, the physicians and hospital joint-venture to be the actual provider of services, and they develop the joint-venture provider together. The provider of services bills third party payors and Medicare. This is a typical or traditional model for a surgery center.

• Equipment, real estate or infrastructure joint-venture. Under these types of joint-ventures, the physicians and hospital jointly invest in an equipment joint-venture or real estate
joint-venture. Then, this venture leases equipment or real estate to either a physician group or a hospital group or both.

• Under-arrangements joint-venture. Under this scenario, the physicians and hospital will often put together a much fuller under-arrangements venture than under the minimal integration under-arrangements. Then, this joint venture will include everything except the provider number and license. Rather than providing services to third parties and commercial payors, it will provide its services to the hospital and the hospital will bill its services as hospital outpatient department services to third parties.

These types of underarrangements and joint-ventures involve several regulatory risks. Nevertheless, they have become increasingly common and popular. Full integration models. There are also several complete integration models, of which the following are a few:

• Income and employment through hospital directly. The typical full integration generally includes full and complete employment of the physicians. Here, the hospital directly employs physicians. This has the benefit of satisfying the Fraud and Abuse Statute employment safe harbor and the Stark Act employment exception.

• Hospital employs the physicians through a subsidiary. Here, the hospital creates a subsidiary company and employs the physicians through the subsidiary. Again, this provides the hospital with increased control of its ability to provide services over time and to control the physicians' services.

• Professional corporation or foundation model. Under this type of scenario, the hospital provides services through a captive or related professional corporation that employs the physicians. Here, we note certain recent IRS private letter rulings regarding UBIT in practice corporations owned by hospitals. This article is not a legal analysis of the models discussed herein. Rather, this is intended as an overview of certain of the options. As one moves forward with any of these options, one should consider the provision of more comprehensive legal guidance, as well as the review of different valuation issues that are involved in each model.