Hospital transactions are intricate projects, and many times issues pop up, which have the potential to delay, drive down the value or even kill a deal. Even issues that hospital leaders may not perceive as threatening can become potential landmines.
In a recent McGuireWoods webinar, Holly Carnell, JD, associate at McGuireWoods, and Geoffrey Cockrell, JD, partner at McGuireWoods, discussed three transaction elements that can become landmines and successful strategies for moving past them.
1. General hospital relationships. Many hospitals have a number of third-party relationships — with physician groups, medical office buildings and medical device suppliers — which can be perceived as valuable to potential partners, but can also become sources of concern during transaction negations. "Many issues can arise with third-party relations, and sorting out embedded issues can become complicated," says Mr. Cockrell.
Strategy: Work early to identify, solve issues
"It is important to identify issues and deal with them in advance. My overall advice on that from a selling perspective is to do what you have to do to stay ahead on those issues. If you are arriving out of the gate late — no matter what size the hospital is — you are going to have some issues," says Mr. Cockrell.
2. Physician agreements. Expired physician agreements or agreements that are not consistent with fair market value can become larger, more serious Stark and Anti-Kickback issues for a hospital. Sometimes physician agreements are undocumented, which can be hard to track and may cause issues with Stark and Anti-Kickback as well.
Strategy: Conduct due diligence
According to Ms. Carnell, the hospital that is looking for a potential partner should conduct due diligence to address physician agreements. While this may be difficult to add to the search and negotiation process, the main benefit of due diligence is that it will pinpoint problems so the hospital can get ahead of them. "In every transaction there will be Stark and Anti-Kickback issues. Although some may be minor, there is no substitute for going through and analyzing current physician agreements," says Ms. Carnell. Hospital leaders need to review all agreements, especially those that may be undocumented. "Going through account payables to see where the hospital's outgoings are and have gone in the past will help a hospital match contracts with physicians. We have seen hospitals receive huge dividends because they found potentially major issues ahead of time," says Ms. Carnell.
3. Attorney General review. While each state may have slightly different transaction policies and/or interest in healthcare transactions, it is pretty common for an attorney general to have a great deal of review power. If a hospital does not keep the state attorney general in the loop about their transaction process and/or progress, it could become a huge issue.
Strategy: Inform, engage attorney general
The main strategy for managing the attorney general and regulatory review process is to respect different attorney general preferences — some may want to be more involved than others. "Make sure your dealings with the attorney general are not an afterthought. This is critical. Engage the attorney general at the level [she or she] desires. Treating them with respect is critical as you navigate the transaction," says Mr. Cockrell. In addition, an attorney general could become a valuable resource for a hospital, unless [he or she] finds out about the deal from the press.
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In a recent McGuireWoods webinar, Holly Carnell, JD, associate at McGuireWoods, and Geoffrey Cockrell, JD, partner at McGuireWoods, discussed three transaction elements that can become landmines and successful strategies for moving past them.
1. General hospital relationships. Many hospitals have a number of third-party relationships — with physician groups, medical office buildings and medical device suppliers — which can be perceived as valuable to potential partners, but can also become sources of concern during transaction negations. "Many issues can arise with third-party relations, and sorting out embedded issues can become complicated," says Mr. Cockrell.
Strategy: Work early to identify, solve issues
"It is important to identify issues and deal with them in advance. My overall advice on that from a selling perspective is to do what you have to do to stay ahead on those issues. If you are arriving out of the gate late — no matter what size the hospital is — you are going to have some issues," says Mr. Cockrell.
2. Physician agreements. Expired physician agreements or agreements that are not consistent with fair market value can become larger, more serious Stark and Anti-Kickback issues for a hospital. Sometimes physician agreements are undocumented, which can be hard to track and may cause issues with Stark and Anti-Kickback as well.
Strategy: Conduct due diligence
According to Ms. Carnell, the hospital that is looking for a potential partner should conduct due diligence to address physician agreements. While this may be difficult to add to the search and negotiation process, the main benefit of due diligence is that it will pinpoint problems so the hospital can get ahead of them. "In every transaction there will be Stark and Anti-Kickback issues. Although some may be minor, there is no substitute for going through and analyzing current physician agreements," says Ms. Carnell. Hospital leaders need to review all agreements, especially those that may be undocumented. "Going through account payables to see where the hospital's outgoings are and have gone in the past will help a hospital match contracts with physicians. We have seen hospitals receive huge dividends because they found potentially major issues ahead of time," says Ms. Carnell.
3. Attorney General review. While each state may have slightly different transaction policies and/or interest in healthcare transactions, it is pretty common for an attorney general to have a great deal of review power. If a hospital does not keep the state attorney general in the loop about their transaction process and/or progress, it could become a huge issue.
Strategy: Inform, engage attorney general
The main strategy for managing the attorney general and regulatory review process is to respect different attorney general preferences — some may want to be more involved than others. "Make sure your dealings with the attorney general are not an afterthought. This is critical. Engage the attorney general at the level [she or she] desires. Treating them with respect is critical as you navigate the transaction," says Mr. Cockrell. In addition, an attorney general could become a valuable resource for a hospital, unless [he or she] finds out about the deal from the press.
More Articles on Hospital Transactions:
Transparency is the Key: 3 Tips to Manage Physician Opposition to a Transaction3 Methods for Managing Concern in a Community Hospital Acquisition
5 Key Decision Points in Hospital Transactions