Mergers and acquisitions (M&A) in the healthcare industry are happening more as healthcare organizations seek to grow, control costs, and improve care. However, these deals are often complicated since healthcare industry transactions are relatively unique when compared with similar transactions in other industries. Healthcare organizations must follow a number of local, state, and federal laws and regulations both in their day-to-day operations and when undertaking a M&A transaction. Understanding these laws, rules, and regulations is essential if you are part of an Idaho healthcare M&A transaction. This article will explain key legal issues in healthcare mergers and acquisitions and how to manage them.
What Are Healthcare M&A Transactions?
Mergers and acquisitions in healthcare happen when two healthcare organizations combine or one healthcare organization purchases some or all of another. This could mean merging hospitals, buying healthcare practices, or combining networks. These transactions can help organizations grow, provide better services, and lower costs. However, these deals also come with significant legal challenges and must follow specific rules. These rules protect patients, keep competition fair, and ensure healthcare organizations follow laws and regulations concerning payments, employees, and medical practices. Compliance with laws and regulations helps avoid problems, fines, and legal ramifications.
Healthcare M&A Regulations
Healthcare mergers bring unique legal challenges because the deals are often big and complex. The following are some key healthcare M&A regulations and legal considerations.
Antitrust Laws
Antitrust laws such as the federal Hart-Scott-Rodino Act, the Clayton Act and the Idaho Competition Act exist to keep competition fair and protect consumers. In healthcare M&A transactions, these laws ensure a deal doesn’t reduce competition or unfairly impact patients. The Federal Trade Commission (FTC) and the Department of Justice (DOJ) closely review M&A transactions to ensure the deal doesn’t harm patient access or lead to monopolies. When appropriate, federal and state agencies can block hospital mergers or acquisitions. It is crucial to assess the potential impact on competition before proceeding with any acquisition or merger. Transactions that limit patient choices or raise costs may face legal challenges.
Compliance with Healthcare Regulations
Federal and state healthcare regulations, such as the Affordable Care Act (ACA), Stark Law, Anti-Kickback Statute, and Idaho Anti-Kickback Statute, help prevent fraud and protect patient privacy. Any healthcare M&A transaction must be structured to not run afoul of these laws since failure to comply with these laws can result in costly legal issues, damage to your organization’s reputation, potential harm to patients, and service disruptions.
State-Level Considerations
The Idaho Nonprofit Hospital Sale or Conversion Act (Act) outlines the process for nonprofit hospitals to sell or convert to for-profit entities or to mutual benefit corporations. The Act requires, among other things, that the Idaho Attorney General be notified of any proposed sale or conversion that is regulated by the Act and that the Attorney General review the transaction and provide an opinion. The Attorney General may also direct that public hearings concerning the proposed transaction be held. While the Act is not implicated by every healthcare M&A transaction, when it is healthcare organizations must ensure compliance with the Act to avoid having the transaction voided or otherwise being subject to civil penalties for non-compliance.
Licensing and Accreditation
Healthcare organizations must ensure all parties to the deal have the correct licenses, certifications, permits, and approvals and that all such licenses, certifications, permits, and approvals are valid and current to ensure continuing operation after the close of the transaction. Mergers might require organizations to update or amend their licenses, certifications, permits, or approvals – or obtain new ones – especially if they have locations in different states.
Healthcare organizations must also conduct a thorough review of the other organization’s Medicare and Medicaid status. In the event the transaction results in a change of ownership (CHOW) for Medicare purposes, a CHOW application must be submitted to the Centers for Medicare and Medicaid Services (CMS) prior to closing the transaction. As a result, it is critical that this analysis is conducted early in the process to allow the parties to anticipate and prepare the necessary information and filings.
Patient Privacy Compliance
Protecting patient privacy in the healthcare industry is crucial to maintaining trust and safeguarding sensitive personal information from misuse or unauthorized access. Healthcare organizations must protect patient privacy during a merger or acquisition. This means following the Health Insurance Portability and Accountability Act (HIPAA) and state-specific privacy laws. Organizations can keep patient data safe during M&A transactions by implementing strict security measures, complying with HIPAA, and limiting access to sensitive information to authorized personnel only.
Employment and Labor Issues
Mergers and acquisitions often result in layoffs, job changes, and changes to pay and compensation. Employers must follow federal and state laws regarding layoffs and job changes, such as the Worker Adjustment and Retraining Notification Act (WARN Act). Addressing these issues early in the process helps avoid problems, ensures compliance with applicable law, and makes the change easier for employees. Additionally, clear communication with staff about any changes and providing support during the transition can help maintain morale and reduce uncertainty.
Contracts
Contracts can pose legal challenges in healthcare mergers because both organizations are likely to have numerous existing agreements with vendors, insurers, employees, and other partners that need review and renegotiation. These contracts often include terms that may not align with the new organization’s goals or structure, or may prohibit assignment of the contract to a new entity. Additionally, some contracts may have clauses that are triggered by a merger, such as change-of-control provisions, which could lead to penalties or termination. Carefully reviewing and updating all contracts is crucial to prevent legal disputes and ensure a smooth transition.
Payment and Reimbursement Issues
Healthcare organizations use many different methods to be reimbursed for the care they render. One might use fee-for-service, while the other may use a value-based care reimbursement model. After the merger, the new organization will need to find a way to make both systems work together. If not completed correctly, this could cause problems for patients and the organization.
Charters & Bylaws
A healthcare organization’s charter, articles of incorporation, and/or bylaws outline the organization’s formation, governance structure, and the processes and framework that guide its operations. Prior to any M&A transaction it is critical that these documents be reviewed to ensure that any merger aligns with each organization’s governing documents.
Steps for a Successful Healthcare M&A Transaction
Healthcare mergers and acquisitions can be tricky, but following these steps can make things easier:
- Conduct thorough due diligence. Before proceeding with a healthcare M&A deal, thoroughly review financial records, contracts, compliance with healthcare regulations, patient care practices, and any ongoing legal or regulatory issues to identify potential risks.
- Work with legal and financial professionals. Healthcare M&A transactions are often complicated. Working with experienced attorneys and financial professionals can help you understand the rules, patient privacy laws, licensing issues, and how to structure the deal.
- Develop a clear integration plan. An integration plan detailing how the two organizations will combine can help make the change smoother for everyone. The plan should focus on merging operations, maintaining high-quality care, and organizing staff.
- Communicate clearly. Keep employees, patients, and others informed about what is changing and how it will affect them. Clear communication helps prevent confusion and builds trust during the process.
By following these steps, you can have a better chance of a smooth and successful healthcare M&A transaction that benefits your organization and your patients.
Why Work with Smith + Malek for Healthcare M&A Transactions?
A strategic and well-planned healthcare M&A transaction can spark business growth, improve patient care, and enhance financial stability. At Smith + Malek, we help healthcare organizations navigate complex M&A transactions. We have significant experience managing all aspects of healthcare mergers and acquisitions and can guide you through the process. Our attorneys can:
- Identify business objectives,
- Evaluate the target company,
- Conduct due diligence,
- Structure deals,
- Mitigate risks,
- Obtain regulatory approvals,
- Ensure compliance, and
- Negotiate contracts for your transaction.
Contact Smith + Malek today about your healthcare sector merger or acquisition. We can help protect your business, make sure you follow the law, and ensure the deal goes smoothly. Let us help you achieve a successful merger or acquisition that benefits your organization and patients.
Resources:
- Limitation on certain physician referrals, 42 U.S.C. § 1395nn (1995), link.
- Exclusion of certain individuals and entities from participation in Medicare and State health care programs, 42 U.S.C. § 1320a-7b(b) (2019), link.
- Prohibited acts-service providers, Idaho Code § 41-348 (1996), link.
- Worker Adjustment and Retraining Notification, 29 U.S.C. Ch. 23 (1988), link.