Thomas C. Fox, Carol Colborn Loepere, Joseph W. Metro
[can be accessed at Westlaw Database Identifier: "HTHCFTM"]
Listed below are a few examples of the many types of transactions in the health care industry. Each involves a variety of health care regulatory issues arising under federal and state law. Because many of these regulatory considerations can significantly affect the structure and substance of the transaction, financial officers, lenders, investors, and other decision makers, and their attorneys, need to have an understanding of the applicable health care legal requirements before an agreement takes shape.
- A hospital chain desires to do a $1.5 million private placement of unsecured promissory notes and convertible securities with institutional and individual investors and use the proceeds to establish new psychiatric treatment programs at its hospitals.
- An owner of two long-term care facilities decides to purchase two additional facilities from a corporation that has filed for bankruptcy.
- An investment banking firm wishes to establish a subsidiary corporation to purchase Medicare and Medicaid receivables.
- A chain of outpatient surgery centers plans to "go public" and use the proceeds to repay debt incurred in a leveraged buyout.
- A partnership is to be formed to construct, develop and operate a mobile urological treatment unit that will provide extracorporeal shock wave lithotripsy services to patients with kidney stones.
- An investment bank wants to buy bills from hospitals, clinics, and nursing homes, pool them, and then repackage the "pools" as notes, bonds or commercial paper to be sold to institutional investors.
- A large employer believes it is better suited to negotiate the health care services needed by its employees. The employer decides to contract with selected providers and to mandate their use by its employees. As an incentive to the providers, the employer wants to share any cost savings with the providers and limit their financial risks.
No significant transaction should proceed without the parties receiving an opinion of counsel on the regulatory issues arising under federal and state health care laws and, in particular, the anticipated third party reimbursement (Medicare, Medicaid, and private insurance) following the closing of the transaction. Given that most revenues in the health care system come from third party payors, a transaction involving the incurrence of costs that are not recognized for reimbursement by third party payors can be prohibitively expensive. Similarly, the assumption of overpayment liabilities or civil money penalties can significantly affect the price of the transaction, let alone the willingness of a buyer to acquire the business. Therefore, the application of Medicare and Medicaid principles is best addressed at the time the transaction is being planned, not at the time of a controversy.
The following seven steps provide a basic format for conducting a preliminary analysis of most health care transactions:
- Identify the relevant parties and the health care businesses in which they are involved;
- Identify the federal and state programs in which the parties participate or laws under which they are regulated;
- Determine the nature of the transaction;
- Determine the governmental notices, approvals and/or consents that will be required for the transaction;
- Identify the relevant third party payment considerations; and
- Determine the relevant health care "due diligence" requirements.
- Review pending and recently enacted state and federal regulations and legislation on health care reform. This approach is not intended to be an exhaustive analysis, but to provide a general framework to review key issues to be considered. Each step discussed in detail below contains references to chapters where the topic is discussed at greater length. Sample forms are included with the discussions in several chapters.
