1. Why do Hospital/Health System Administrators need to involve legal counsel and valuators in Hospital Physician transactions

Transcription

1 Coordinating the Efforts of Legal Counsel and Valuators in Hospital Physician Transactions Perspectives and Experiences from Legal Counsel and Valuator Kevin Walker, CPA Daniel Bailey, Esq. 1. Why do Hospital/Health System Administrators need to involve legal counsel and valuators in Hospital Physician transactions a. The Healthcare compliance environment is why we are all here i. Stark Laws ii. Anti Kickback Statute iii. Tax Exempt Status (for some) b. For this presentation, Transaction can be any or all of the following: i. Practice Acquisition ii. Physician Compensation 1. Employment 2. Call Pay 3. Medical Directorships iii. Professional Services Agreement iv. Management Services Agreement v. Physician Hospital Joint Ventures vi. Clinical Co Management Agreement c. While the structure of the relationship or transaction can be different, many of the legal compliance and valuation concepts are the same 2. Who is responsible for what in a hospital physician transaction a. Similar concepts of all transactions are that the transactions need to be: i. Fair Market Value need to consider beyond the IRS definition and consider the Department of Health and Human Services definition 1. IRS Definition The price at which property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of the relevant facts. [Treasury Reg (b); Revenue Ruling 59 60, C.B. 237]

2 2. Department of Health and Human Services definition the value in arm s length transactions, consistent with the general market value. General market value means the price that an asset would bring as the result of a bona fide bargaining between well informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as a result of a bona fide bargaining between well informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement. Usually, fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined by any manner that takes into account volume or value of anticipated or actual referrals. ii. Commercially Reasonable iii. Established in a Legally Compliant Fashion b. Legal Counsel is responsible for ensuring the transaction is a set up in a legally compliant fashion and can give guidance on commercial reasonableness c. The Valuator is responsible for ensuring the amounts are Fair Market Value and can give guidance on commercial reasonableness d. Ultimately, Hospital/Health System Leadership is responsible for its decisions being commercially reasonable and should rely on guidance from Legal Counsel and Valuator for a legally compliant transaction at a fair market value rate. e. Responsibilities of Physicians and Physician Legal Counsel i. It is not only the hospital entity that bears the risk ii. Physicians have just as much (or more) to lose

3 3. Legal Perspectives in Hospital Physician Transactions a. A resulting legally compliant contract or transaction is the part you can control b. An ounce of prevention is worth a pound of cure getting the transaction done correctly up front is much less costly than the costs of defense and/or settlement in the future. c. Starting documents i. Letter of Intent ii. Non Disclosure iii. Exclusivity iv. Confidentiality d. Driving toward a commercially reasonable relationship and transaction needs to start at the beginning i. Who are the right resources in the Hospital/Health System to complete the transaction get the right folks at the table? ii. When is the right time to begin due diligence or accumulate documents? iii. When does a transaction require an outside valuator? iv. When is the right time to engage an outside valuator? v. Who should engage and interact with the valuator? vi. What policies or protocols should a Hospital/Health System have in place as it relates to physician transactions? (refer to sample FMV/Transaction Policy) 4. Fair Market Value Perspectives in Hospital Physician Transactions a. FMV is Facts and Circumstance Based it s important to first get a grasp of the facts and circumstances, and then move toward value. Don t agree to a value prior to getting the valuator involved. (refer to sample FMV Request / Checklist) b. While Fair Market Value has its definitions, standards and approaches, it is ultimately a defendable position. The valuator needs to be able to defend his/her conclusions to all parties, but ultimately to outside challenges.

4 c. Each transaction takes on a life of its own. No two transactions are exactly the same. Its best to have valuators who have a toolkit of experiences and resources to support and complete the transaction not one size fits all. d. Value is a range, not an exact number. The higher a hospital pays in the risk range, the more risk. Commercial Reasonableness, Specific Market considerations and Risk Tolerance impact where to pay in the risk range. e. Higher Risk transactions require greater rigor f. Inappropriate reliance on market data can lead to inappropriate conclusions. Ensure your valuator fully understands the market data. g. Ensure that a Stacking review is performed i. such that the sum of all parts is not greater than the whole for all services ii. such that a physician is not being paid twice for the same service or for doing two things at once at full value for each 5. Practical Valuation Issues a. Who does the Valuator work for in a transaction? i. Ideally, the Valuator is working for the transaction and to ensure the amounts are defendable from all challenges ii. Practically, the Valuator is being paid for by one party b. Should both sides in a transaction get a valuation? i. Sets both sides up for a Battle of the Valuators does this facilitate a transaction that is FMV and Commercially Reasonable? ii. What to do when the physicians engage a non healthcare (or non reputable) valuator? Specialization in healthcare, with its regulatory and compliance environment is a MUST. iii. Ultimately, the Hospital has the greatest risk and will need to rely on the Valuator they trust.

5 iv. The existence of multiple valuation opinions can potentially later be looked at as opinion shopping v. Ideally, the physicians and their legal counsel need to trust the hospital and its valuator. c. Should the Hospital s Valuator meet with the other side? i. Catch 22 depends on the situation ii. The Valuator should be able to further confidence and trust that the Hospital is trying to get it right for everyone involved. iii. But, as previously mentioned, FMV is a range, not a number. Physicians will typically want the top number in the range, which may not be commercially reasonable or the Hospital s offer. d. Is a detailed valuation report required? i. Valuation standards have specific standards and allow for summary or detailed reports. ii. The Valuator should always follow appropriate valuation standards and consider all appropriate issues. iii. But, the defendability of a transaction as FMV is not dependent on a detailed valuation report. 6. Practical Legal Counsel Issues a. What should every file have at the conclusion of a transaction? (refer to sample CATS form) i. What needs to be in place prior to closing? ii. What can be rounded up post closing? b. Options/considerations if one of the parties poisons the well during the negotiation?

6 7. Real Life Experiences / War Stories a. What number can you support sounds like How much can I get away with i. Is it Commercially Reasonable to approach a transaction in this fashion? b. This doctor is the biggest admitter to my hospital