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Community Hospitals: Know Your Constituents and Stakeholders Before Starting Down the Path to Merger

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Organizations considering a significant transaction have a lot to think about.  One of the most important is making certain that relationships with key constituents and stakeholders are appropriately maintained and managed.  Too frequently, community hospitals and community health systems underestimate the scope and importance of those relationships.

Most of us can rattle-off a short list of key constituents and stakeholders for community hospitals and community health systems.

Here’s my standard list, together with a short description of why they are important:

  • Board members – approve the transaction.
  • Executive management team – provide significant input on transaction contours; without buy-in, the C-suite can kill a deal.
  • Key operational employees – business line managers can help a process run smoothly or poorly; they are also a part of your asset base.
  • Key partners – joint venture, academic and other types of partners will generally have approval or other rights triggered by a transaction; loss of these assets could negatively impact a potential deal.
  • Lenders – key partners, to be sure, who can help or hinder the development of a transaction.
  • Significant payers – payer contracts are an asset, and frequently require payer approval for assignment; antitrust investigations can start with payer calls to antitrust authorities.
  • Key physicians – medical staff relationships can be fragile, and while staff rarely is in a position to block a transaction, the physician community can undercut value and exert influence over other constituents.
  • Foundations and other supporting organizations – some may have approval rights tucked-away in long-forgotten bylaw or affiliation agreement provisions; can be great supporters in the community.
  • Local political leaders – similar to other supporting organizations, local political leaders can be great supporters in the community; more infrequently, they may be a part of the approval process.
  • State legislators; Governor – public support or opposition can have a significant impact on approval processes; some transactions benefit from lobbying; recent catholic hospital transactions have come under scrutiny and been stopped through political influence.
  • State attorney general – some follow specific transaction review protocols for the disposition of charitable or healthcare assets; attorney general support can be helpful if the transaction is subject to federal antitrust scrutiny.
  • Medicare adminstrative contractors – dispositive transactions require dispositions of provider numbers, and the MAC is crucial for this process to run smoothly.  (You may recall the days when we referred to these guys as FIs!)
  • State licensing authority and other regulators – goes without saying, but regulators can make transactions difficult or smooth.
  • Community – last and not at all least; patients can embrace or reject a transaction and a “new” provider.

Every organization has different relationships and each constituent or stakeholder has its own perspective.  Understanding these early in the process can maximize your chances of success.