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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. 

Ohio Supreme Court Clarifies Medical Statute of Limitations

The Ohio Supreme Court issued a decision in late December that clarifies and finalizes the Ohio law regarding the period of time in which patients can assert claims for medical malpractice. The Court was examining the interplay between three different statutes being the statute of limitations, the statute of repose, and the savings statute.

Ohio Hospitals and Healthcare Clinics: It’s Time to Revisit Your Billing and Collection Practices

According to a recent Cuyahoga County case, certain healthcare entities may not be protected from liability when engaging in unfair or deceptive billing acts. This decision is consistent with the growing trend across the country to encourage price transparency and eliminate unfair surprise billing practices by health care organizations. Now is the time for hospitals and other health care organizations to revisit their billing and collection policies and procedures to confirm that they are legally defensible and consistent with best practices.

HIPAA Business Associate Agreements: Why These Contracts Matter

No one loves drafting, reading or negotiating HIPAA Business Associate Agreements (BAAs). Yet many of us need to do so, and some of us do so daily. They are often boring, dense and technical, but BAAs are important from both a legal and a business perspective, and they deserve our attention. Failure to enter a BAA when one is required can constitute a HIPAA violation that results in substantial liability, as demonstrated by certain recent Department of Health & Human Services (HHS) settlements.1 A business associate who makes a disclosure that is not authorized by the applicable BAA or required by law can be subject to civil and, in some cases, criminal penalties. Further, parties are often presented with BAAs that contain onerous one-sided indemnification and other provisions that can be devasting to an organization in the event of a HIPAA breach. The significance of a BAA is often not fully understood by the parties until something goes wrong (e.g., a HIPAA security incident or breach, an Office of Civil Rights (OCR) audit or a fracture in the relationship between the parties) and, at that point, there is limited opportunity to mitigate legal and business risk. Ideally, attention should be given at the commencement of the business associate relationship, when the parties are able, to thoughtfully addressing regulatory requirements, planning and preparing for potential adverse events and appropriately allocating risk among the parties. As with most healthcare regulatory compliance initiatives, a proactive approach with respect to BAAs is preferable. This article provides a broad overview of certain BAA requirements and some practical negotiating tips for the parties involved.

“I’m Out Of Here!” Now What?

We all know that the healthcare industry is experiencing a wave of integration. This trend has been evident for many years. Fewer physicians are willing to assume the legal, financial and other business risks associated with owning their own practices. More and more physicians, including anesthesiologists, are becoming employed by large physician groups, health systems and national providers. This shift necessarily involves not only entry into new employment arrangements but also the termination of existing relationships. And those terminations are often governed by written employment agreements, state and federal healthcare laws and employer benefit plans and other policies and procedures. Before pursuing their next opportunity, physicians should pause for a moment and first attend to the arrangement that they are leaving. Departing physicians need to understand their legal rights and obligations when leaving their current employment relationships in order to avoid unintended consequences and detrimental missteps along the way. Here are a few words of practical advice for physicians contemplating an exit from their current employment arrangements.

Investment Training for the Second and Third Generations

Consider this scenario. Mom and Dad started the business from the ground up. Over the decades it has expanded into a money-making machine. They are able to sell the business and it results in a multimillion-dollar payday for their labors. The excess money has allowed Mom and Dad to invest with various financial advising firms, several fund management groups, and directly with new startups and joint ventures. Their experience has made them savvy investors, with a detailed understanding of how much to invest, when, and where. They cannot justify formation of a full family office with dedicated investors to manage the funds, but Mom and Dad have set up a trust fund for the children to allow these investments to continue to grow over the years. Eventually, Mom and Dad pass. Their children enjoy the fruits of their labors, and, by the time the grandchildren are adults, Mom and Dad's savvy investments are gone.