Transaction Considerations and Regulatory Updates for Hospital Executives: Five Key Points to Remember | McGuireWoods LLP

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Hospitals and healthcare systems continue to navigate a changing environment, constantly impacted by a significant amount of transactional and regulatory activity. During a November 2, 2021 webinar titled “Key Transaction Considerations and Regulatory Updates for Hospital Executives,” McGuireWoods healthcare attorneys Amber Walsh, Bart Walker, Kayla McCann Marty and Timothy Fry discussed these topics, presented current trends, and examined key considerations for hospital, physician’s office and ancillary services transactions.

Below are five key points from the webinar discussion:

  1. Transaction volumes in 2020 have declined for hospitals and healthcare systems, but transaction values ​​have increased and the COVID-19 pandemic is likely to act as a catalyst for increased transaction activity in the future. Although the pandemic has temporarily slowed transactional activity, transactions continue to advance, primarily high-value transactions with average seller revenues of over $ 600 million. One of the drivers of this activity is that COVID-19 has revealed gaps in health infrastructure. It also revealed benefits in terms of scale and integration that, along with potential financial and fiscal implications, are likely to increase transaction activity as hospitals and healthcare systems take advantage of these. opportunities. In fact, many hospital administrations have indicated that their organizations are very likely to make one or more acquisitions over the next two years to grow. For example, there is greater interest in expanding alternative care sites such as outpatient surgery centers (ASCs), emergency care clinics, pharmacies, and independent physician offices. This focus will likely result in more horizontal and vertical integration in the health sector as entities consolidate and grow.
  2. Hospitals and healthcare systems considering transactions must consider several key issues, including restrictions on the practice of corporate medicine, financial and economic considerations, licensing and authorization requirements, awareness stakeholder and antitrust concerns. Proper structuring of transactions involves taking into account economics, state and federal laws, and other factors, including performing due diligence and timing considerations. For example, many states have laws that restrict the practice of medicine in the workplace, which means that licensed professionals (rather than corporations) must own the entity providing clinical services. Often a legal person creates a medical management company to provide administrative and management services for a practice while a professional company owned by a licensed professional provides clinical services. When it comes to licenses, permits and certificates of necessity, changes in ownership may require submitting applications or notices well in advance of a transaction closing. Regarding the antitrust approval timeline, the Federal Trade Commission (FTC) has also experienced delays in processing Hart-Scott-Rodino (HSR) requests, in light of high transaction volumes, this which may have an impact on entities considering a merger or acquisition. Instead of the typical 30-day advance submission for HSR deposits to get FTC approval on a letter of intent or signed purchase contract, entities are increasingly submitting deposits HSR up to 60 days in advance to account for potential new deposit submissions.
  3. Acquisitions of practices and ancillary services by hospitals are increasing as the COVID-19 pandemic acts as a catalyst for consolidation. The pandemic has accelerated the pace of doctors retiring or choosing to join another employer. The drivers of consolidation that existed before the pandemic also continue to drive consolidation, including potential technology investments, reduced administrative burdens, and access to payers and referral networks. Likewise, the COVID-19 pandemic has demonstrated areas of potential growth in ancillary service lines, as the provision of outpatient surgical procedures has increased and large health systems have partnered or acquired CHWs across the country. Hospitals and health systems considering expanding the lines of ancillary services may consider partnerships with management companies, salaried and independent physicians and other stakeholders. However, any entity considering consolidation or growth should also recognize that regulatory scrutiny of these relationships is increasing at the state and federal levels.
  4. Updates to the Physician Self-Referral Rule (Stark Law) went into effect on January 19, 2021, and hospitals and healthcare systems must ensure they comply with the Stark Law changes and consider any additional flexibility under its new exceptions. Specifically, the updates created new requirements related to physician compensation agreements. For example, effective January 1, 2022, entities must pool all ancillary service revenues from designated health services, as defined by the Stark Law, prior to any profit sharing or distribution. Separately, the updates also provide entities with flexibilities by creating new exceptions for value-based, limited compensation, and cybersecurity agreements, and expanding protections for physician alignment and patient engagement. While the changes generally reflect a move towards a narrower interpretation of prohibitions and a broader interpretation of exceptions, hospitals and healthcare systems should ensure that all provisions remain in compliance with applicable regulations as well as state laws. .
  5. COVID-19 specific regulations and considerations continue to impact transactions and operations, but hospitals and health systems must also prepare for a transition to a post-public health emergency era. It should be noted that the Centers for Medicare & Medicaid Services issued an interim final rule on November 4, 2021, requiring specific Medicare and Medicaid certified providers and providers – including hospitals, health systems, and others – to ensure that all staff are vaccinated for COVID-19 by January 4, 2021. The requirement has a limited religious exemption and does not allow testing in lieu of vaccination. Separately, on November 4, the Occupational Safety and Health Administration issued a Temporary Emergency Standard (ETS) requiring employees of large employers to get vaccinated or test negative every week. Lawsuits over testing requirements for private employers may impact implementation, as the U.S. 5th Court of Appeals issued a temporary stay for the ETS requirement on November 6 after several states disputed the requirements. Several other states, business groups, businesses and schools filed a separate challenge in the U.S. 11th Court of Appeals on November 5. Besides vaccination and testing policies and procedures, hospitals and health systems should also start planning for post operations and local governments repeal policies and waivers of the era of public health emergencies. As government authorities withdraw from COVID-19 policies, healthcare entities will need to reconsider any changes made in light of the temporary rules and ensure compliance with the appropriate regulatory requirements.

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