Each year, health care attorneys, executives, consultants, and investors gather to discuss the latest trends in health care deals at the AHLA Health Care Transactions Conference. This year was no exception, as health care experts from across the country spoke on various timely topics affecting the health care industry. The Conference kicked off with an energetic keynote address by Larry Van Horn, a renowned expert and researcher on health care management and economics, and the conference included AGG’s own Michael Barry, who discussed key lessons learned in health care transactions. The following are key takeaways from this content-rich conference:
Five (5) Tips for Parties Considering a Health Care Transaction
Across the country, provider types of all shapes and sizes are entering into transactions of varying degrees—from service agreements to affiliations to full-blown acquisitions. Here are five (5) tips for parties considering a transaction:
- It is imperative for parties considering a health care transaction to fully understand the goals/objectives of the other party to the transaction prior to execution of any definitive agreements. This mutual understanding helps facilitate a “win / win” for the parties in a transaction.
- There is no “standard Non-Disclosure Agreement.” If you’ve seen one NDA, you’ve seen one NDA.
- At the outset of a health care transaction, don’t forget to include a non-solicitation provision in the Letter of Intent. Otherwise, the Buyer may discover during the due diligence phase of the transaction that it simply does not need the Seller entity; rather, it only needs to hire a few of the Seller’s key employees.
- Pay attention to “boilerplate” contractual provisions (e.g., governing law, forum, etc.). Otherwise, you could easily find yourself in court (and trying to find a lawyer licensed to practice) in a jurisdiction on the other side of the country.
- In any health care transaction, no party wants to consider “divorce” prior to “marriage.” However, it is important for parties contemplating a business combination to consider how an “unwind” or “divorce” would work; otherwise you are setting yourself up for an extremely messy “divorce.” Think of it as a prenuptial agreement between the parties. It is an unfortunate reality that some business combinations simply do not work.
Private Equity Investment in Health Care
- Private equity investment in health care continues to increase at a rapid pace. Factors driving this growth include: (1) realization of value in a fragmented market/industry; (2) shifts in reimbursement models create a need for increasing efficiencies; (3) aging population; (4) political/economic uncertainty; (5) consumerism of health care (driving innovation); (6) health care is a service that will always need local resources; and (7) opportunities for innovation.
- Recent Trends / “Hot” Investment Opportunities:
- Post-Acute (home health, etc.)
- Physician Practice Management (e.g., anesthesia, etc.)
- Veterinary Medicine
- Behavioral Health
- Private equity investment in health care creates unique challenges, primarily from a regulatory perspective (e.g., corporate practice of medicine, fraud and abuse, licensure, change of ownership, etc.).
- Tips for Private Equity to Avoid Liability When Investing in the Health Care Industry:
- Scrutinize compliance program of target entity
- Coding and billing audits of target entity
- Fraud and abuse review of target entity and relationships with referral sources
- Review for government touches/investigations of target
- Review for privacy and security breaches by target
- Review licenses and third party payor contracts for consents/approvals
Private Equity Investment in Behavioral Health
One of the key trends discussed at the Conference included private equity investment in behavioral health care. In fact, behavioral health is starting to drive higher multiples, even into the double digits.
- What’s driving private equity investment in behavioral health?
- Increase in funding for mental health under federal legislation
- Provider shortages driving consolidation
- Free flowing debt markets and cash on hand
- Benefits of private equity investment:
- Potential to alleviate provider shortages
- Increase quality of care through the implementation of evidence-based practices to “mom” and “pop” type providers
- Economies of scale
- Any investment in behavioral health must pay special attention to state privacy laws, which often have greater restrictions than HIPAA and restrictions focused on mental health. Other considerations include corporate practice of medicine.
Those in the health care industry understand that in this current climate they must be proactive and think strategically about how to improve quality and efficiency through thoughtful investment and partnerships. If you are considering a potential transaction and want to understand key considerations and relevant guidance, please reach out to Matt Brohm and Jenny Tyler.