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, this appeared a cautionary tale, one that illustrated the potential and unintended consequences, and potentially adverse effect, of a lack of foresight, proper analysis and planning. In view of the recent suspension of enforcement, which may lead to an eventual abandonment or repeal of the rule, this may now look like nothing more than an example of how even potentially significant adverse consequences can ultimately be avoided, or “undone”. In short, no big deal, right? Certainly, when push comes to shove and the stakes are high (as they are in many deals), errors, omissions and problems that arise can and often will be fixed, resolved, waived or otherwise addressed in order to allow a transaction to close.  It is rare, although not unheard of, for an unresolvable legal issue – the proverbial “deal killer” – to emerge when the parties are well into the throes of a transaction. However, there is generally no magic-wand solution, and often the “fix”, as it were, comes at substantial cost, whether it’s in effort, expense or delay. Issues that are uncovered late in the game, particularly those that might have been avoided with careful foresight, planning, communication or coordination, add stressors to a transaction and deal teams(s) that may, by the time the issue is uncovered, already be stretched pretty thin. So, if your organization is evaluating a potential merger, acquisition, divestiture or affiliation transaction, most particularly as a target, do yourself a favor – get your ducks, meaning in this case, your organization’s records, in order:

  • Organize your organizational documents and record books, including your minute books and, if applicable, your stock ledger and records or the equivalent.
  • Ensure that all board/member minutes and consents are accurate and up-to-date, that they are executed where applicable and that they include all relevant exhibits and attachments.
  • Ensure that your organization’s records with respect to its investments in any subsidiaries or partnerships are in order, and that your organization is in possession of valid and accurate certificates reflecting such equity ownership where applicable.
  • Review the applicable provisions of any operating agreement, shareholder agreement or partnership agreement applicable to any subsidiary, joint venture or other such arrangement in which your organization is involved to identify restrictions on transfers of interests and/or applicable notice/consent requirements relating to same.
  • Confirm that the number of members of the board of directors/managers/trustees of your organization is consistent with that provided in the organizational documents or under applicable law.
  • Ensure that your organizational documents reflect the date that all such directors/managers/trustees were appointed or elected, and the term of office of each.
  • Review your organizational documents to confirm meeting notice requirements, waiver of notice provisions and written consent requirements
  • Establish a communications plan for your board, and ensure that you can reach all members of the board as and when necessary.

Undertaking this review, and correcting any issues that are identified, before launching a transaction will facilitate the other party’s review, as well as the documentation and closing process, and help avoid last-minute issues that can add effort and expense to, if not also delay or even jeopardize, a transaction.