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Healthcare Acquisitions and Divestitures During the COVID-19 Pandemic

It seems as though all aspects of our personal and professional lives have been impacted in one way or another by the COVID-19 public health emergency. Healthcare acquisitions and divestitures are no exception. Although the ramifications depend on the specific circumstances of each transaction, we are noticing certain common threads woven among recently closed and currently in progress transactions in the healthcare industry. Here are a few of the questions that often arise as we work with clients to navigate the current business landscape both during and after the COVID epidemic. 

  • Valuations. It’s no secret that numerous businesses are experiencing financial distress. Some of the country’s largest financial institutions are ramping up hiring in their bankruptcy and distressed credit divisions, indicating the players in the best position to know believe that rates of financial distress and delinquencies will continue to rise in the near term. How should the financial performance of the business during the pandemic (which may include recent business interruption, decline in revenue or increase in costs) be taken into consideration when determining the overall value of the business? How should buyers price in the risk created by COVID-induced uncertainty? Most commentators note that the COVID-19 pandemic has shifted deal dynamics in favor of buyers, creating a buyers’ market. How should buyers and sellers change their “deal playbook” and/or negotiation strategy in response to these market forces? 
  • Earnouts. It’s important to each transaction party that it ultimately receives the benefit of its bargain. What is the likelihood that the seller will receive the earnout in whole or in part? Are the earnout targets based upon pre-pandemic figures and economic assumptions? Should more of the purchase price be shifted to the earnout to mitigate risk for the buyer? Can the earnout measurement period be extended in an effort to mitigate the impact to the seller of a potential future short-term economic decline?  
  • Escrow. The parties may be aware of certain contingent liabilities attributable to pandemic-related contractual disputes, litigation or regulatory non-compliance. How much of the purchase price should be placed in escrow given potential COVID-19 related risks identified in diligence?  
  • Employment Law Considerations. It’s been a busy year for employment attorneys and businesses implementing related compliance requirements. Are there potential governmental enforcement actions or employee lawsuits on the horizon for the seller? Has the seller complied with recent employment law changes and cumbersome but crucial workplace health and safety requirements? Have members of the seller’s workforce tested positive for COVID-19? 
  • Litigation and Other Disputes. It is no secret that the public health emergency has resulted in substantial supply chain disruption and payment defaults. If applicable, what is the seller’s likelihood of success under force majeure, termination and other key contractual provisions.  Has the pandemic resulted in current or potential litigation with landlords, vendors, insurers, customers, lenders, employees or others?  
  • Compliance Requirements. The federal government has made it clear that certain recipients of SBA PPP loans and HHS Provider Relief Fund payments will be subject to governmental audit and scrutiny. Has the seller received SBA loans or grants or Provider Relief Funds?  If so, is the seller complying with the related attestation, documentation and forgiveness requirements? Does the seller have the proper Provider Relief Fund policies and procedures in place?  
  • Cybersecurity. Governmental authorities have identified increased cybersecurity risks to businesses during the pandemic. Does the seller have an active and robust data privacy and security program? Has the seller experienced any recent breaches and, if so, were they addressed appropriately?  
  • Purchased Assets and Assumed Contracts. What will happen if the pandemic results in a material adverse change in the seller’s business between the date when the purchase agreement is signed and the date of the closing? What if the business isn’t operating in the ordinary course in accordance with past practice and/or historical financial results?  Is the buyer required to proceed with the closing? Will there be an adjustment to the purchase price? Is the seller in compliance with all of its representations, warranties, covenants and other obligations in the primary transaction agreement(s)? Will the seller be liable for related damages?  
  • Representations and Warranties Insurance. Having comprehensive representation and warranty insurance in place can benefit both parties to the transaction. Will the insurer exclude representation and warranty claims related to the COVID-19 pandemic from the insurance coverage? It may be important for buyers to reach out to several insurers and compare the coverage available.

As the pace of deal activity within the health care space continues to increase, our firm’s attorneys are working daily with clients to further develop and adjust their strategies to respond to changes and uncertainty in today’s environment. Please let us know if we may assist you to brainstorm potential transaction structures and “best practices” to mitigate business and regulatory risk during this time, while maximizing transaction value. We’d be delighted to discuss with you further. For additional information, please contact Kate Hickner at kehickner@bmdllc.com or Kevin Saunders at rksaunders@bmdllc.com. 

Changes to Physician Assistant Statutes in Florida

In the last year, there have been many changes to the scope of practice and collaboration/supervision requirements for advanced practice providers such as APRNs and physician assistants in the state of Florida. In a previous Client Alert we discussed House Bill 607, which expanded the autonomous practice of APRNs providing primary care services in Florida.

Ohio Senate Bill 49 – Ohio Expands Lien Rights for Design Professionals

Effective September 30, 2021, Ohio granted limited lien rights to design professionals, including architects, landscape architects, engineers, and surveyors. Ohio Governor Mike DeWine signed Senate Bill 49 into law on July 1, 2021. This new law established a statutory right to lien commercial real estate by Ohio design professionals who, until now, could not file a lien for non-payment of professional services. Senator Vernon Sykes, a primary sponsor of Senate Bill 49, stated that the “legislation ensures that architects, engineers and other designers will get paid for their work, regardless of the outcome of their projects . . . It will support hardworking Ohioans by protecting the value of their labor . . ..”

Primary Care Practice Officially Defined in Florida for APRNs Practicing Autonomously

As many providers in Florida are aware, House Bill 607 (the “Bill”), which was passed in February of last year, gives certain APRNs in Florida the ability to practice autonomously. The only catch is that they must work in primary practice. When the Bill was initially passed, there was question as to what was exactly considered primary care, absent a definition from the Florida Board of Nursing. However, as of February 25, 2021, “primary care practice” has officially been defined.

Part II of the No Surprises Act

The Department of Health and Human Services (“HHS”) published Part II of the No Surprises Act on September 30, 2021, which will take effect on January 1, 2022. The new guidance, in large part, focuses on the independent dispute resolution process that was briefly mentioned in Part I of the Act. In addition, there is now guidance on good faith estimate requirements, the patient-provider dispute resolution processes, and added external review provisions.

Safer Federal Workforce Task Force - Guidance for Federal Contractors and Subcontractors

The Safer Federal Workforce Task Force has issued its Guidance for Federal Contractors and Subcontractors (Guidance). Note that the Guidance applies only to “covered contracts,” which are contracts that include the clause (Clause) set forth in Sec. 2(a) of Executive Order 14042 (Ensuring Adequate COVID Safety Protocols for Federal Contractors). The Federal Acquisition Regulatory Council (FARC) is to conduct rulemaking and take related action to ensure that the Clause is incorporated into federal contracts. Until that happens, federal contractors likely will not see the Clause in its contracts. Following is a broad summary of the Guidance.