Health Law Advisor

New from the Diagnosing Health Care Podcast: The game has changed—are you positioned to adapt? Over the past 12 months, the federal government has been heavily regulating private investment in health care entities.

Simultaneously, multiple states have enacted or introduced new laws restricting or requiring approval of such investments. The question arises: What do you do if you already have investments in these health care entities?

On this episode, Leslie Norwalk, Strategic Counsel at Epstein Becker Green (EBG), joins EBG attorneys Josh Freemire, Tim Murphy, and Ted Kennedy, Jr., to discuss how health care entities, investors, and board members should be responding to an evolving political and regulatory environment that has increased the scrutiny of private investment in health care entities.

State governments are increasingly entering the field of health care market oversight and enforcement. In what was once an issue typically left to the federal government, state governments are looking for ways to regulate market activity in the health care industry as a way to stem increases in health care costs. Late May brought yet another example of what the future may offer in this regard.

In this episode of the Diagnosing Health Care Podcast: After nearly two years of combined efforts from the Federal Trade Commission and the Antitrust Division of the Department of Justice, the agencies jointly issued much-anticipated merger guidelines identifying the procedures and enforcement practices they will apply for evaluating potential mergers.

What might these changes mean for hospitals, health systems, and other stakeholders in the health care industry?

On this episode, Epstein Becker Green attorneys Trish Wagner, John Steren, Jeremy Morris, and Dan Fahey discuss some of the key changes in the finalized antitrust merger guidelines and what these guidelines mean for the agencies' approach to enforcement.

On March 13, 2024, Indiana Governor Eric J. Holcomb signed Senate Enrolled Act No. 9 (“SEA 9”) which will amend the Indiana Code with respect to notice of health care entity mergers and acquisitions.

The measure, effective July 1, 2024, adds a new Chapter 8.5 to the Indiana Code providing in Section 4(a) that “[a]n Indiana health care entity that is involved in a merger or acquisition with another health care entity with total assets, including combined entities and holdings, of at least ten million dollars ($10,000,000) shall, at least ninety (90) days prior to the merger or ...

An increasing number of states are requiring advance notice of health care transactions.  These requirements may delay transactions or result in confidential information becoming accessible to the public. Effective August 1, 2023, New York[1] enacted legislation that requires health care entities involved in material transaction(s) to provide written notice to the New York Department of Health at least 30 days prior to the closing of the transaction. In enacting the legislation, New York joined Connecticut[2], Massachusetts[3], Nevada[4], Oregon[5], Rhode Island[6], and ...

In this episode of the Diagnosing Health Care Podcast:  From wholesale revisions of the merger guidelines to significant amendments to the Hart-Scott-Rodino premerger notification forms, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) have proposed significant changes that, if adopted, will have profound effects on merger review and enforcement for the foreseeable future.

What might these changes mean for hospitals, health systems, and other stakeholders in the health care industry?

On this episode, Epstein Becker Green attorneys Trish ...

Due diligence is a standard phase of any corporate transaction, whether structured as an asset or stock sale or joint venture, and sellers are often surprised, and even overwhelmed, by the comprehensiveness of the diligence investigation.  Preparing prior to soliciting bids or looking for a buyer can ease the burden of diligence and allow the seller to focus on other areas of the transaction, such as negotiating important terms and documents.

In this episode of the Diagnosing Health Care Podcast:  Like the diversity of the industry itself, merger and acquisition (M&A) transactions in health care take many forms, varying in size and complexity.

While buyers tend to focus on several things as part of those transactions, securing key employees post-closing is an important but sometimes overlooked issue.

What are some important factors to consider when entering a transaction in a human capital-intensive industry like health care?

In this episode of the Diagnosing Health Care Podcast:  The Federal Reserve’s steady increase of interest rates and the slowed economic growth have increased fiscal pressure on health care providers, leaving many to look for ways to bridge budget shortfalls through injections of capital, asset sales, or other strategic transactions. 

What options are there for providers moving forward?

This Diagnosing Health Care Podcast episode dives into the growth of physician practices accepting risk-based payments from health plans and examines why these practices are attractive to investors. Special guest Jason Madden, Managing Director at Accordion, and Epstein Becker Green attorneys Joshua Freemire, Jason Christ, and Tim Murphy, discuss the health regulatory considerations investors must assess when evaluating investment opportunities with physician practices accepting risk-based payments.

To supplement the issues discussed in this ...

On April 30, 2019, Assistant Attorney General Brian Benczkowski announced that the Department of Justice (“DOJ”) had published an updated version of the Criminal Division's 2017 guidance publication “Evaluation of Corporate Compliance Programs.”  In making the announcement, Assistant Attorney General Benczkowski said the update was designed to “better harmonize the prior Fraud Section publication with other Department guidance and legal standards.”  He noted that DOJ also sought “to provide additional transparency in how [it] will analyze a company's ...

According to a report by West Monroe Partners, approximately 40% of companies engaged in corporate transactions reported finding a cybersecurity issue during post-acquisition integration of the target company.  While companies routinely conduct robust transactional due diligence to manage legal risk, many fail to adequately conduct cybersecurity due diligence. As a consequence, many companies and investors are leaving themselves vulnerable to potentially severe latent cyber risks.

Cybersecurity is especially relevant in healthcare transactions as the industry ...

Tuesday’s decision by Judge Richard Leon of the U.S. District Court for the District of Columbia categorically approving the merger of AT&T and Time Warner, without imposing any conditions or limitations and rejecting granting a stay for appeal purposes, will, unless blocked if there is an appeal, open the way for a series of pending vertical merger deals.

A “vertical merger” is a merger of two companies that do not compete and that are at different levels of the product or service-provision process. Such mergers do not reduce the number of competitors in a given market and, by ...

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 ...

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 ...

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 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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 here,  here, 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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 to ...

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 ...

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 I would never consider beginning even minor surgery on myself, many hospitals and ...