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5 Tips to Avoid Issues Between Hospital Boards During a Transaction

Many times when a merger or acquisition is announced, a hospital and/or health system's board of trustees or board of governors is behind the deal. If not directing the deal, the board's members are informed and involved in the transaction. There may not always be perfect harmony between two or more boards when working toward a transaction, and there may be disagreements on any number of issues whether because a board has a historical way of operating or because some members hold very strong opinions. When more than one board is involved, issues that are often resolved easily can become barriers.

"Although major issues may be rare, there are times when issues do impact a transaction. In my experience they generally occur when one of the organizations has a chair or a group with very strongly held beliefs and very strongly held opinions," says Dale Van Demark, JD, partner at EpsteinBeckerGreen. "[However], the boards are certainly motivated to work through any issues. They presumably have the experience to understand that agreements occur and that you can find pathways forward."

Both Mr. Van Demark and Geoffrey Cockrell, JD, partner at McGuireWoods, believe that if a board is committed to a transaction, the members will work through barriers and hurdles to reach agreement. However, even if the boards are committed, sometimes special tactics or approaches are needed to re-align focus and find the right direction. "When I talk to boards and CEOs about any transaction issue or hurdles, I always go back to a couple of core points that I find helpful in terms of focusing on a particular issue. Fundamentally, these are the areas you need to give attention to if you want to avoid issues in the boardroom," says Mr. Van Demark.

Here are five issues that Mr. Van Demark and Mr. Cockrell find useful for re-focusing when issues arise during transaction discussions among boards.

1. Look to the hospital's mission for inspiration. When an issue comes up during discussions or preparation for a transaction, the board should think back to the hospital's principles and/or mission. "Whatever the issue happens to be — does it impact your organization's mission?" asks Mr. Van Demark. "My experience is that very few issues really come down to that fundamental point of mission, but it is always a good question to ask because it focuses individuals on why they are [conducting transaction discussions] in the first place," he adds.

2. Focus on fundamental goals of the transaction. When there is a clash within the hospital's board and/or with the potential partner's board, Mr. Van Demark recommends putting the issues in perspective by focusing on the fundamental goals of the transaction.  "Does the issue impact the possibility of achieving those fundamental goals? If the answer is no, then it becomes less of an issue. If the answer is yes, then there can still be a path forward but perhaps with more compromise," says Mr. Van Demark.

3. Do not get distracted by peripheral issues. According to Mr. Cockrell, board members need to keep the core issues of a transaction in mind instead of letting peripheral issues dominate the discussion. For instance, if a larger hospital is partnering with a small, community hospital, the community hospital's board would need to stay attuned to the larger hospital's vision for providing services. "Making sure the acquiring hospital is committed to a suite of services at the acquired hospital is a core issue to keep an eye on," says Mr. Cockrell.  

4. Keep lines of communication open. It is important to keep appropriate and clear lines of communication open at the board level so if issues come up during the course of the transaction, there is already a great foundation for productive discussion. "If you are very clear on your hospital's mission and goals with respect to a transaction, and they are communicated very clearly and consistently to the other party throughout the course of discussions, then it is less likely for misunderstandings to arise," says Mr. Van Demark.

5. Keep the interests of stakeholders in mind. According to Mr. Van Demark, it is important to stay aware of stakeholders' interests when dealing with transaction issues in the boardroom. "I find this is sometimes ignored. However, whether the stakeholders are the hospital staff, physicians, lenders, regulators, patients or the political community, they may influence the ability to complete a transaction," says Mr. Van Demark. "It is always important when dealing with board clashes to understand how constituent groups might look at the issue," he adds.

Mr. Cockrell agrees. "Some stakeholders can get worked up about the wording of a contract," he says.

Often, when a hospital's board is considering and beginning a transaction, its members are committed to the goal and will work through issues that may arise. In addition, board members generally work through areas of disagreement on a regular basis. However, when a second or even third board is involved, issues that can usually be worked through easily, maybe become more difficult. In those instances, the above five tips may help to work through or avoid misunderstandings.

More Articles on Hospital Transactions:

Audrain Medical Center Has 8 Potential Partners for Affiliation
South Jersey Healthcare, Underwood-Memorial Merger Receives Attorney General Approval
Highmark Files Suit to Stop West Penn From New Merger Talks

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