Potential pitfalls during a hospital or health system merger

Mergers and acquisitions (M&A) are an inevitable part of hospital operations and healthcare delivery for the foreseeable future, but executives need to keep a cautious eye on potential pitfalls that can occur while pulling a merger offer, according to J.D. Supra Business Advisor.

Among the biggest of these potential problems is whether the entities intending to merge should conduct an antitrust review. Such a review may be necessary for a transaction that falls far short of a merger, such as forming an accountable care organization, according to attorneys Michael King, Julie Sullivan and Darryl Landahl of Brownstein Hyatt Farber Schreck.

There were 98  M&As among hospitals and health systems in 2013, up 3 percent from 2012, and more than 50 percent from 2010, according to a survey by Kaufman Hall, which noted that hospitals now position themselves to better compete in an era of value-based payments and population health. And the ongoing pace of M&A will be unrelenting, according to industry observers.

"The Federal Trade Commission has specifically targeted hospital mergers in its efforts to halt transactions that it believes will undermine clinical quality or push prices higher," the attorneys wrote, "focusing on situations where the number of providers decreases from four to three, three to two, and two to one." Although one of the parties may claim it is on the brink of financial insolvency, the hurdle is particularly high when making such a claim.

In addition to keeping tabs as to whether the transaction comports with federal law, it should also follow guidelines regarding state fraud and abuse laws. "The wide variation in the existence and scope of these laws from state to state can be particularly challenging for providers operating in more than one state," the attorneys wrote, adding that many states have laws on the book similar to the Stark law regarding physician kickbacks, but they may not be as broad.

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