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5 Key Decision Points in Hospital Transactions

In order for hospital executives to maximize the value — financial and non-financial — of a transaction, they need to be aware of key decision points that may arise during transactions. According to John Reiboldt, managing director of Coker Group, a healthcare consulting firm, decision points could demand a significant amount of negotiation and consideration. Unprepared hospital executives could witness a setback in their transaction plans.

In a webinar hosted by McGuireWoods, Mr. Reiboldt and Geoffrey Cockrell, JD, partner at McGuireWoods and co-chair of its private equity group, discussed five important decision points for hospital executives to address during transactions.

1. Staff. One of the first key decision points in a transaction is the employee and personnel considerations going forward. "Transactions have the capability to have a significant, sometimes disruptive, impact on hospital employees. Thinking of the potential impact on the staff is of key importance," said Mr. Cockrell. He recommended hospital executives prepare to answer the following key questions early in the transaction planning process:

• Which employees will be retained going forward?
• What contracts will continue?
• What will the senior management and executive management look like?
• Is the existing senior management redundant? If so, who should stay or go? When should those changes be made?
• Will pension plans be terminated? What impact would that have on employees?
• What impact would suspending benefits have?

2. Board structure. Mr. Cockrell highly recommended addressing questions similar to the above concerning the structure of the hospital board. "The structure of the board can become political, especially when the transaction is not a full sale or acquisition," he said. For this reason, discussing the board structure early eliminates the likelihood of time delays due to lengthy negotiations.

3. Physician relationships. According to Mr. Cockrell, special attention should be given to physician relationships post-transaction. Key questions include:

• Are all of the current agreements going to be assumed going forward?
• Will the compensation agreements be assumed?
• Will the group contracts continue?
• Will medical staff bylaws continue?

4. Patient considerations. According to Mr. Reiboldt, patient considerations become key decision point in transactions, especially when a community hospital is involved. "I would add patient considerations because a purchasing or acquiring hospital will need to decide which services to maintain going forward," said Mr. Reiboldt. Mr. Reiboldt highlighted the following questions:

• If the hospital is rural, will it keep ambulatory services?
• Did the CEO introduce a specialty service to the hospital? If so, is it an important service line to maintain?
• Is there a patient population for a neonatal intensive care unit?

5. Physical facility. "The actual brick and mortar [of the hospital] plays a key role in discussions. It tends to be one of the big front-end factors that executives need to kick around," said Mr. Cockrell. The questions to address are straightforward:

• Are all current facilities needed to continue offering healthcare to the community?
• Will the transaction include a clause to provide capital for physical improvements?

More Articles on Hospital Transactions:

5 Best Practices for Cultural Changes Following a Transaction
Size Matters: How Capella Healthcare Executes its Development Strategies
Motivation Behind a Strategic Partnership: Q&A With Summa Health System President and CEO Thomas Strauss

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