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.

Unfortunately, the IT department, with its own personnel, equipment, contracts and procedures, is often overlooked during a hospital or health system merger, acquisition or divestiture.  To make matters worse, the IT departments of Target and Acquirer will have varied frameworks, computing platforms, software, hardware and infrastructures but will have to function together post-closing.

When commencing an M&A or similar transaction, IT has to be accounted for and managed from the beginning.  It is frequently advisable that the parties enter into a transition services agreement (TSA) to allow Acquirer to continue to use Target's IT systems and to address other IT-related matters with respect to the transition of operations after closing.

Here are five important steps that a hospital or health system should follow before preparing to negotiate and draft the TSA:

1. Take Inventory.  Target and Acquirer should each take its own inventory of IT agreements (this first step will take longer than you think).  Acquirer should be aware of its gaps where there are no IT agreements in place or located.  Target should share the IT agreements requested by Acquirer.
2. You Say You Want a Resolution.  Well, You Know.  Both parties (with the help of their IT personnel and attorneys) should request copies of documents from various vendors to fill the gaps identified in Step #1.
3. Meeting of the Minds.  Acquirer should conduct due diligence to determine, among other things, licensing rights, early termination fees, notice periods or assignment rights.  Target should decide what rights, if any, it would like to retain post-closing.  Both parties should meet and discuss with each other which inventory items each party needs post-closing.
4. Preparation of Documents.  The attorneys should then draft the amendments to IT agreements, assignments, consents and notices to the various vendors.  Both parties should be wary of any notice periods contained in the IT agreements.
5. Game Plan.  A plan needs to be organized and effectuated by the attorneys and IT personnel for both parties for the transition of inventory, including the identification of the party responsible for transitioning each item and a due date.

It is crucial for hospital and health systems to provide uninterrupted care for their patients during a time of transition.  Transitioning IT during a hospital or health system transaction can be manageable after following the important steps above as both parties should be in a better position to begin to prepare the TSA.  Typically, advanced planning and remaining diligent throughout the process will lead to positive and effective results.

Besides, having to call the help desk may be annoying, but it's nicer to have someone on the other end of the phone than no one at all.