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Category Archives: Mergers and Acquisitions

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If At First It Doesn’t Succeed—FTC Will Try, Try Again to Oppose Hospital Mergers

Recently, the Federal Trade Commission (“FTC”) faced major losses in challenging hospital mergers.  However, it is clear that the FTC is not backing down, especially given its tendency to conclude that proposed efficiencies do not outweigh the chance of lessening competition.

In July of this year, the FTC abandoned a challenge to the proposed merger of St. Mary’s Medical Center and Cabell Huntington Hospital in West Virginia after state authorities had changed West Virginia law and approved the merger despite the FTC’s objections. This year as well, the FTC failed to enjoin the Penn State Hershey Medical Center and PinnacleHealth … Continue Reading

NY High Court Rejects Expansion of Common-Interest Doctrine

In 2008, Ambac v. Countrywide defendants Bank of America Corporation and Countrywide Financial Corporation merged into a wholly-owned subsidiary of Bank of America.  In discovery, Bank of America withheld communications between Bank of America and Countrywide that occurred before the merger, on the basis that they were privileged attorney-client communications that were protected from disclosure under the common-interest doctrine.  In 2014, the New York Appellate Division, First Department, acknowledged that “New York courts have taken a narrow view of the common-interest [doctrine], holding it applies only with respect to legal advice in pending or reasonably anticipated litigation,” but rejected the … Continue Reading

Physician Owned Labs Affiliating with Hospitals

Hospital-physician practice acquisitions represent a large segment of the very active healthcare mergers and acquisitions market, which will likely continue in 2016.[1]  In New York, an acquiring hospital often forms a new professional corporation owned by one or more hospital-based physicians to acquire the business and operations of a group physician practice in an asset purchase. The acquiring hospital will be able to exercise a level of management and control over the new professional corporation, often referred to as a “captive PC”, through a contractual arrangement with the captive PC.  This captive PC structure is used to comply with … Continue Reading

Zoning and Land Use Issues in Hospital M&A Transactions

  The age and complexity of hospital real estate often result in zoning and land use issues that must be addressed in hospital M&A transactions.  In larger transactions, purchasers and their lenders frequently obtain zoning reports prepared by one of the national companies, which summarize existing code requirements and potential non-compliance by the hospital.  For smaller transactions, it is common for purchasers and their lenders to rely on a letter from the local Planning & Zoning office, which is often limited to confirmation of the zoning classification and whether there are outstanding zoning and land use violations.  While zoning reports … Continue Reading

Religious Principles and Hospital Mergers: Addressing a Conundrum

By Dale C. Van Demark

As we weather what most industry watchers (including me) have observed is a renewed wave of hospital and provider consolidation, it is likely we will continue to see failed merger attempts involving religious and non-religious hospitals. The recent failures of the hospital mergers in Waterbury, Connecticut and in the Philadelphia suburbs are just two recent examples.

The Conundrum

Many religious hospitals trace their religious affiliation to the origins of the institution, which can date back many decades.  For some religious hospitals, their very existence, or their survival through difficult times, is linked closely with the … Continue Reading

Proven Strategies to Avoid Landmines in Disclosure Schedules

In most purchase and sale transactions, the purchase agreement is accompanied by and incorporates disclosure schedules that include certain relevant information to the transaction. In the rush of negotiations, diligence, and transition planning, it is easy to overlook the importance of the disclosure schedules. However, these schedules are much more than a mere compilation of information meaningful only to the lawyers who drafted the corresponding provisions of the purchase agreement. In fact, the disclosure schedules are a vital part of any transaction, helping to inform the buyer of the nature of the asset(s) being acquired and to define or limit … Continue Reading

Avoiding “Code Blue”: Managing Potential Physician Resistance to a Hospital M&A Transaction

Hospital M&A activity has been increasing recently, and when these transactions are public knowledge, opposition from the physician community (as well as the hospital staff) to such types of transactions may also be a side effect.  Physicians are vital to the operation of a hospital, and any resistance from the physician community, could be a tremendous obstacle, either slowing down the transaction or causing the potential buyer to pull out of the deal.  Hospital administrators, along with their advisors, should do their best to foresee any opposition and manage physicians’ expectations through the transaction process.

There are many potential concerns … Continue Reading

CMS Signals Examination of Medical Staff Participation Rule – What It Means for Your Transaction Preparation

Earlier this summer, I wrote about the new conditions of participation for hospitals that, among other things, would have required medical staff participation on hospital governing boards. As I suggested might happen, it appears CMS may revisit this requirement. Specifically, CMS has apparently directed state survey agencies not to assess compliance with this requirement, or to cite deficiencies relating to any non-compliance with this requirement, until further advised by CMS. There are a variety of ways to look at the circumstances of and fallout from the medical staff participation requirement. At the time the new conditions of participation were announced, … Continue Reading

Real Estate Title Issues in Hospital M&A Transactions

My earlier post explored various real estate strategies frequently used in hospital M&A transactions.  Each of those different approaches – using real estate assets to secure acquisition financing, increasing existing lines of credit, or monetizing the real estate assets through divestiture – reflect different objectives and opportunities.  But, real estate is more than “location, location, location” and “strategy, strategy, strategy”—there must also be “value, value, value”.  The real estate market itself is the lynchpin to establishing the value of individual properties, but the value of hospital properties is frequently affected by dynamics somewhat unique to hospitals. Often, a hospital will … Continue Reading

A Practical Guide for Physicians Selling Their Practices

Medical group acquisitions by hospitals will likely continue at a significant rate. Through these acquisitions, physicians can achieve efficiencies and economies of scale that may not be available to independent practices. While an acquisition offer might come as a welcome opportunity, the process involves a series of complex issues that can seem overwhelming. There are many steps that physician practices can take to help them seize opportunities and minimize issues that might delay or derail a deal.

  • Preparing the Existing Entity
    Most doctors choose their career because they want to practice medicine, not run a business. Physicians considering an acquisition
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The Government Two Step on Hospital and Health Care Market Consolidation

Although not the only factor, government payment reform initiatives in the Affordable Care Act (ACA) are widely perceived as driving health care market consolidation.  Perhaps more significantly than mergers between hospitals, the ACA has created new interest in mergers across service lines (as reported herehere, and here).  Hospitals, physician groups, outpatient centers, post-acute providers, and even insurance carriers are combining with each other in all sorts of ways and at an accelerating pace. Depending on who you talk to in government,  this activity is (1)  paving the way for a new and improved clinically integrated delivery … Continue Reading

Top 5 Considerations When Dealing with State Antitrust Enforcement Authorities

Increasingly, state antitrust enforcement authorities are taking an interest in and/or becoming involved in the review of hospital transactions. While parties often focus on the review process at the Federal Trade Commission (FTC), careful planning will take into account the fact that the State antitrust authorities may become involved as well. Among other things, it is common for FTC staff to coordinate a review of a transaction with State officials. 

A State’s antitrust division falls under the authority of the State Attorney General. The State AG’s office often has interests that are much broader than a strict antitrust analytical framework, … Continue Reading

The Road to a Successful Transaction: Paved With Your Priorities

While I may be stating the obvious, hospitals and health systems are complex creatures that frequently drive local economies, culture and population health status (among other things).  Accordingly, when considering a potential change of control transaction, it is critical that you examine what drives your organization and what [in the community] your organization drives.  In particular, the latter is frequently overlooked in these circumstances.

What Drives Your Organization (Your Mission)

So, how do you begin to identify your organization’s priorities?  I recommend starting with the low hanging fruit—the hospital’s mission.  It is critical in the early stages of a … Continue Reading

Will the Supreme Court’s Ruling on the ACA Impact the Hospital Merger Market?

Dale C. Van Demark

Not by much – but perhaps in a unique way.

The increased pace of hospital and health system merger activity we’ve seen in the marketplace has had little to do with the Patient Protection and Affordable Care Act (the “ACA”). Rather, broader market conditions, some of which are affected by the ACA, have been driving hospital market consolidation. The financial crisis, which negatively impacted many hospitals’ ability to raise capital or maintain their credit ratings, and the downturn in the broader economy, which resulted in fewer people seeking care, have created the primary incentive for hospital … Continue Reading

Three Critical Components of Every Hospital Merger You Need to Understand

Every hospital merger has three critical components that board members and senior management need to consider, and which can provide a great analytic framework within which to evaluate options early in the process of consider a transaction. By no means are these three the most important in every transaction, but every hospital merger I’ve worked on required careful attention to, and a very clear understanding of, these components.

1.         Structure:  Transaction structure can seem a bit technical and legalistic, but understanding transaction structure is key to understanding core transaction dynamics – such as who will be financially responsible for long-term … Continue Reading

Do Not Overlook “IT” in Early Stage Hospital Merger Planning

Each party should be aware of key issues before preparing to negotiate transition services agreements

As I type this blog post, I would not be surprised if suddenly my computer froze, and I had to call the help desk.  While calling the help desk can sometimes seem like an annoyance, having a central function to deal with all information technology (IT) issues is actually essential to ensuring that hospitals and health systems are able to effectively close a merger transaction.

In fact, IT has become indispensable for many hospital and system functions, including for patient care and core financial functions.… Continue Reading

Laying the Foundation for a Successful Community Hospital Transaction

Few decisions are as significant for a community hospital as the decision to enter into a strategic affiliation, asset sale, merger, joint venture, or other dispositive transaction. But while the significance of such a decision cannot be overstated, the challenges of implementation – particularly for organizations without relevant transaction experience – cannot be understated. The following is a list of some of the key steps you should take when preparing for a potential transaction:

  1. Designate a Leader and Build a Team. Identify and empower a project manager to take the lead on coordinating due diligence and transition preparation (not

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

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
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CMS Final Rule Revising Conditions of Participation of Hospitals

In the latest application of the law of unintended consequences….

As you may know, on May 16, 2012, CMS issued a final rule revising the conditions of participation by hospitals in the Medicare and Medicaid programs. (Download the final rule.) Among other things, the final rule includes a provision requiring that at least one member of a hospital’s medical staff be included on the governing body of the hospital or hospital system.

This provision did not appear in the proposed rule, and was apparently added to the final rule in response to commenters who suggested that CMS’s proposal … Continue Reading

Real Estate Strategies In Hospital M&A Transactions: An Overview

You frequently hear the phrase “location, location, location” be used to describe the value of real estate.  True, location matters tremendously, no matter the type of real estate.  But, in hospital M&A transactions, the value of the real estate assets is often derived from “strategy, strategy, strategy”.  Today, the real estate assets of hospitals are playing an increasingly important role in hospital M&A transactions.  This trend is caused in part by the desire of purchasers to support purchase prices or other financial impact of the transaction with “hard” physical assets, given the current uncertainty about reimbursement rates and concerns of … Continue Reading

When to Engage Transaction Counsel for a Hospital or Health System Merger or Affiliation

Not long ago, I had my appendix out.  Not wanting to spend more than necessary, I did a little reading on the subject and decided to do some of the pre-op work myself.  In addition to making certain the incision area was appropriately clean, I entered the hospital with my own set of scalpels and my own special concoction of over the counter pain killers to self-anesthetize.  Once in the hospital, I decided I might as well start the procedure and so I . . . .

Of course, I’m making this up.

But there is a point here.  While … Continue Reading