Structuring The Deal:

Healthcare System Mergers, Acquisitions & Joint Ventures

Copyright 1996 William L. Manning except as otherwise noted. All rights reserved. No copyright claimed to original government works. Updated by Bill Manning on 8/03/97

About This Page

This page is dedicated to the deal-structuring issues arising in mergers, acquisitions and joint ventures by and among health systems. Most, although not all, health systems are governed by tax-exempt nonprofit parent corporations. Although mergers, acquisitions and joint ventures by and among such entities are treated (from a legal perspective) in much the same manner as fundamental transactions among for-profit corporations, nonprofit health care systems present unique legal challenges.

This page highlights some of these challenges, focusing on some of the legal mechanics of getting the deal done, including some of the regulatory issues. Although I have provided links to sources from various states, the visitor to this page should note that many of the legal issues are governed by state law which often varies by state.

Please feel free to comment on or contribute material here by e-mailing me at wmanning@netreach.net

Negotiating & Documenting The Deal

• When Rivals Talk Merger, Risks Abound Sharing information can prove damaging if deal dies, By David E. Rovella, The National Law Journal (p. B01), 7-28-97.
• What To Ask Before A Merger, By Randall Luecke & William Stotzer, Trustee, October 1,1995. Copyright ©1997 American Hospital Publishing Inc.
• Termination of Contract in Accordance with Terms May Breach Implied Covenant of Good Faith and Fair Dealing, by Michael W. Zelenty, National Law Journal, April 1997, Volume 4, Issue 4, Copyright © 1997 Pitney, Hardin, Kipp & Szuch.
• Agreement with Respect to the Exchange of Proprietary Data, Excellent form agreement from the law firm of Procopio Cory Hargreaves & Savitch LLP.
• On The Docket: Enforcing noncompetes, (Forbes, 5-05-97).
• Practical Problems In Taking Security Interests In Nonassignable Contracts, John Francis Hilson and Marijane Benner Browne, Brobeck, Phleger & Harrison LLP
• Environmental Issues in Real Estate and Business Transactions, Mary L. Walker, Brobeck, Phleger & Harrison LLP
• Downstream Guaranty Held to be Fraudulent Transfer, from Brobeck, Phleger & Harrison LLP
• Steal that deal and you may be entering the land of tortious interference, Judith Y. Gliniecki, Hunton & Williams.
• Mergers &Acquisitions: How to Win at a Losing Game, by Robert H. Smith CMC, March 1994. (at the WEB site of MC 100, Inc., management consultants).
• What's a Letter of Intent?, from NVST, The Mergers & Acquisitions - Venture Capital Meta Site.
• Why Do I Need to Sign a Confidentiality Agreement?, from NVST.
• Indemnity (meaning; comparison to guaranty), from Bowie & Jensen.
• Fair Market Value, from NVST.
• Tell Me About Due Diligence, from NVST and checklist authored by the law firm of Stoel Rives LLP.
• Another (more basic) Due Diligence Checklist from Richard Combs Associates home page.

Regulatory Concerns

• Eight Tips to Avoid Crashing Your Pension and Benefits Operations in Mergers, by Gabor Garai and Cindy V. Schlaefer, Epstein Becker & Green.
• OIG Sanctions Report (cumulative, in effect as of October 1996) in PDF format (1.2 mb) (Adobe Acrobat).
• Advisory On Exclusive Hospital-Based Medical Service Contracts, Health Law Update from McDermott Will & Emery, Vol. 14, No. 2a, 2-07-97.
• Employee classification as Independent Contractor -- Pitfalls, from Bowie & Jensen.
• Physician-Operated Networks and the New Antitrust Guidelines, New England Journal of Medicine Health Policy Report: (NEJM Volume 336, Number 5), 1/30/97.
• Get the low-down on the new federal antitrust guidelines for health care ventures: An article from the ACR; and the guidelines themselves in HTML, PDF or WordPerfect formats from the FTC.
• Getting Your Hospital Ready for an Antitrust Investigation, by Susan Barnhizer Rivas and Brenda S. Horn, ©1996 Ice Miller Donadio & Ryan.

Tools & Links

• The Reference Spot, From CSC: Free outlines for corporate forms and filings at state offices, all prepared by CSC. You need the Adobe Acrobat Reader Plug-in version 3.0. (link below)
• SEC LAW.com, (Law & Compliance Center) by Mark J. Astarita, Esq., Includes "Introduction to the Securities Laws", By Mark J. Astarita, Esq.
• Introduction to the Blue Sky Laws, By Mark J. Astarita, Esq. (from SEC LAW.com)
• Selected Bibliography on MSOs, AAHP.
• Corporate law (Limited Liability Company), from Bowie & Jensen.
• Corporate law (Forms of Corporate Entities), from Bowie & Jensen.
• Due Diligence for directors: Nine Troubles to Detect and Avoid, by Gabor Garai and Susan Pravda, Epstein Becker & Green.
• Corporate Law; meaning of "limited liability", from Bowie & Jensen.
• Corporate Law; Chart on corporate characteristics, from Bowie & Jensen.
• Negotiating the New Health System: A Nationwide Study of Medicaid Managed Care Contracts, A searchable index of the GWU Medical Center's findings on Medicaid managed care contracting process. Volume I - The Overview of Negotiating the New Health System: A Nationwide Study of Medicaid Managed Care Contracts is currently available.
• Search for SIC. This page allows the user to search the 1987 version SIC manual by keyword, to access descriptive information for a specified 4-digit SIC, and to examine the manual structure. The SIC manual is published by the National Technical Information Service.
• Glossary of Lease Terms.

• AHA Releases Guidelines For Hospital Mergers, Reuters, 8-01-97.
• Columbia/HCA, Tenet Merger Viewed As Unlikely By Analysts, Reuters, 7-25-97.
• Connecticut Attorney General's Office Rules On Assets, Reuters, 7-24-97.
• DOJ Attempts To Block Hospital Merger With Novel Product Market Theory, National Law Journal, 7-15-97.
• For-Profit Hospital Conversion Study Results Released, Reuters, 5-30-97.
• Surgeons File Antitrust Lawsuit Against Columbia/HCA, Reuters, 5-07-97.
• Assessing Liability Under New Medical Patent Infringement Law, Reuters, 5-01-97.
• Failed High-Profile Mergers With Blues Highlight Pitfalls, Reuters, 4-30-97.
• PCA Files Legal Action Against Sierra For Breach And Termination; Other Strategic Options To Be Pursued, PRNewswire, 3-18-97.
• Study rebuts perception of for-profit trend, Larry Tye and Alex Pham, Boston Globe Staff, 03/18/97.
• Health Affairs Tracks Hospital Conversion Trends, Reuters, 3-18-97.
• UCSF/Stanford Hospitals Consider Lease Option For Merger, Reuters, 3-18-97.
• Have the Urge to Merge? You'd Better Think Twice, Erick Schonfeld Fortune Magazine, 3-17-97.
• State And Federal Agencies Respond To Nonprofit Hospital Conversions, Reuters, 3-17-97.
• Coalition To Counter For-Profit Takeovers Of Not-For-Profit Hospitals, Reuters, 3-17-97.
• Georgia Alliance of Community Hospitals Applauds the Georgia House Passage of H.B. 600, Hospital Conversion Bill, PR Newswire, 3-14-97.
• Representatives Stark and Kennedy Holding Hearing On For-Profit Hospital Bill, Reuters, 3-12-97.
• Regent Says UCSF/Stanford Merger Deal Illegal, Reuters, 3-12-97.
• FTC Clears Merger Of Virginia Nonprofits, Reuters, 3-11-97.
• Hershey Medical Center To Merge With Geisinger, Reuters, 2-21-97.
• Coventry's HMOs To Sell Physician Group Practices, Reuters, 2-21-97.
• RI Attorney General Seeks Outside Review Of Columbia/HCA Deal, Reuters, 2-07-97.
• Software Helps Practice Managers Evaluate Capitated Contracts, Reuters, 2-06-97.
• Saving Their Assets: How to Stop Plunder at Blue Cross and Other Nonprofits, Judith E. Bell, The American Prospect no. 26 (May-June 1996): 60-66.
• Physicians Selling Practices Can Avoid Tax Traps, Reuters, 11-6-95

• Health Care Management
• IGNet
• HHS OIG Special Fraud Alerts
• HCFA
• GPO Access search the Federal Register, U.S. Code, Congressional bills and other government pubs.
• State Statutes by Topic
• Modern Healthcare Magazine
• HFMA - Healthcare Financial Management Association, a professional association for financial professionals in the healthcare field.
• NVST Mergers & Acquisitions - Venture Capital Meta Site - Excellent resource, albeit not uniquely related to health care. Be sure to access the site's NVST Academy page, chock full of glossaries, checklists and other useful explanatory items in M&A and venture capital transactions.
• Nonprofit Times Magazine, an on-line monthly.
• Nonprofit Resources.

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