Explore partnership models that can help to improve performance, sharpen strategic focus, and support long-term sustainability.
Many health care organizations are continuing to explore health care joint ventures and partnership models that can improve performance, sharpen strategic focus, and support long-term sustainability. In some cases, a joint venture can provide a practical path for repositioning a service line, accessing specialized operational expertise, making space for a core service line, or creating a more efficient structure for an asset that may no longer fit as neatly within the broader system.
However, the decision to pursue a joint venture should not be based on partner interest alone. It requires a clear understanding of the asset’s underlying value, the organization’s objectives, and the role the transaction is expected to play over time.
While contribution margin may serve as an initial reference point, it rarely tells the full story. To evaluate an opportunity effectively, leaders need to assess how the service line would perform on a more standalone basis.
Here are the five steps organizations can take to get started:
1. Look beyond departmental reporting
A service line may appear either financially attractive or underperforming based on internal reporting alone. However, most service lines do not operate independently. They often depend on resources that sit elsewhere in the organization, and they may also support other functions in ways that are not reflected clearly in the departmental financials. That makes it difficult to rely on contribution margin alone when evaluating value in a joint venture context.
A more useful starting point is to ask what the service line would look like outside the larger organizational structure. That means identifying the support it receives from shared infrastructure and determining which costs are embedded in other departments, cost centers, or enterprise-level budgets. Insurance is one example, as it is often purchased centrally and never shows up directly in a service line’s financial results. Split staffing is another. If employees support multiple departments but their salaries are charged to only one area, the reported economics of the service line may be overstated or understated.
2. Develop a more complete picture of economic performance
To understand value more accurately, organizations should build a fuller view of the service line’s cost structure before entering serious joint venture discussions. This includes costs that may be omitted, allocated elsewhere, or not fully captured in routine departmental reporting.
Those costs often include:
- Staff salaries charged outside the department
- Rent or space-related expenses
- Utilities and maintenance
- Insurance
- Management and administrative oversight
- Shared support functions such as billing, collections, imaging, or laboratory services
- EHR implementation and ongoing support costs
It is also important to distinguish between ordinary operating costs and expenses that are discretionary, irregular, or one-time in nature. Not every expense reflected in historical performance represents the true ongoing cost of operating the service line, just as not every omitted cost should be ignored simply because it sits elsewhere on the income statement.
3. Know that value is shaped by future performance, not just past results
Historical performance is only part of the equation. Forecasted performance can also have a meaningful impact on how a service line is valued, particularly if the organization expects changes in volume, patient patterns, or market demand.
For example, an outpatient physical therapy and rehabilitation service may appear more valuable if the organization recently acquired an orthopedic practice and expects that relationship to generate stronger volume going forward. In that case, the outlook for future earnings may matter as much as – or more than – the current departmental margin. A realistic forecast can help leaders evaluate the service line in a way that better reflects its strategic and financial potential.
4. Evaluate partners through both a financial and strategic lens
Once a more complete view of value is established, attention can shift to the structure of the transaction and the choice of partner. At that stage, price should not be the only consideration. A prospective partner may offer attractive economics, but that does not automatically make it the right fit.
Organizations should also evaluate how a partner operates, how collaborative the relationship is likely to be, and how well that partner can work within the broader goals of the organization. Cultural alignment, operational approach, and the ability to integrate effectively can all influence whether the joint venture ultimately creates value over time.
5. Be explicit about ownership, governance, and control
Internal clarity is just as important as external fit. Before discussions progress too far, organizations should have a firm understanding of what they want from the arrangement. That includes decisions about ownership, governance, economics, and the level of influence they want to retain after the transaction closes.
In some situations, preserving strategic involvement in the service line may be more important than maximizing near-term economics. In others, the organization may decide that greater transfer of responsibility is appropriate. The right answer will depend on the role the service line plays in the enterprise, the organization’s broader goals, and how much operational control leadership believes it should continue to hold.
Management structure should be considered through the same lens. Some organizations may want current leaders to remain actively involved in the new entity. Others may conclude that long-term success depends on handing more operational responsibility to the partner. That determination should be made deliberately, with a realistic view of leadership capacity, operational expertise, and future expectations for performance.
Bringing the pieces together
The strongest health care joint venture decisions depend on a sound understanding of the service line’s true financial profile, a realistic view of future performance, and a clear sense of what the organization wants the partnership to accomplish. Just as important, they require a partner whose capabilities, operating style, and governance approach align with those priorities.
How SullivanCotter can help
A successful joint venture depends on more than a favorable valuation. It requires a clear understanding of the service line’s standalone economics, a realistic view of future performance, and alignment around the strategic role the partnership is meant to play.
As organizations weigh these decisions in an increasingly complex market, the most effective approach is one that connects valuation insight with broader transaction strategy. SullivanCotter’s expanded valuation capabilities help health care organizations assess opportunities with greater clarity and confidence across joint ventures, divestitures, physician alignment, mergers and acquisitions, and other strategic transactions.
Contact UsFrequently Asked Questions
A health care joint venture is a partnership in which two organizations share ownership, governance, or operational responsibility for a service line, business, or asset. These arrangements are often used to improve performance, bring in specialized expertise, support growth, or reposition services within a changing market.
Contribution margin can be a useful starting point, but it does not capture the full standalone economics of a service line. Shared services, split staffing, space costs, insurance, management oversight, and other indirect expenses may sit outside the department’s reported financials, which can distort value if they are not fully considered.
Organizations should look beyond routine departmental expenses and account for costs that may be omitted, understated, or allocated elsewhere. These often include staffing support, rent or space-related costs, utilities, insurance, management oversight, shared services, and EHR-related expenses.
Historical results are only part of the picture. Forecasting helps organizations assess how future market demand, strategic initiatives, or service line growth may affect value over time. A realistic forecast can provide a more complete view of the asset’s financial potential.
The right partner is not defined by price alone. Organizations should also evaluate cultural fit, operating approach, governance alignment, willingness to collaborate, and the partner’s ability to support long-term strategic goals.
