AHLA's Speaking of Health Law

Partnership Strategies: The Prizes and Pitfalls of Mergers, Joint Ventures, and Flying Solo

September 06, 2022 AHLA Podcasts
AHLA's Speaking of Health Law
Partnership Strategies: The Prizes and Pitfalls of Mergers, Joint Ventures, and Flying Solo
Show Notes Transcript

In today's health care markets, health care entities are evaluating and selecting a variety of partnership strategies that range from a full asset merger to "going it alone." Each of these strategies has inherent risks, rewards, and regulatory hurdles. Danielle Bangs, Principal, Veralon, speaks with Conor Reidy, Partner, Winston & Strawn LLP, Earl Barnes, Corporate Vice President and General Counsel, Sentara Healthcare, and Andrew Rehagen, Vice President of Legal Affairs and Deputy General Counsel, American Orthopedic Partners, LLC, about the positives and negatives of these various partnership strategies from both a legal and practical perspective. Conor, Earl, and Andrew spoke about this topic at AHLA’s 2022 Annual Meeting in Chicago, IL. Sponsored by Veralon.

To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.

Speaker 1:

Support for ALA comes from Maryland partners, Inc. A national leader in valuation , transaction advisory, compensation, and strategy, exclusively in the healthcare industry. LAN's brain trust approach pulls together focus teams of trusted advisors that work together to provide comprehensive solutions for an organization's complex and interrelated needs. For more information, visit lon.com .

Speaker 2:

Right . Hello and welcome to this HLA podcast. Thank you all for tuning in today. My name is Danielle bangs . I'm a principal with Verlon and today I have the pleasure of speaking with Connor Reedy , Earl Barnes, and Andrew re Hagen regarding some of the topics that they raised in their recent panel discussion at the ha annual meeting, which is on the topic of partnership strategies, surprises, pitfalls of mergers, joint ventures, and flying solo. So today we'll have the opportunity to take some of the topics that they raised during their session a bit further and learn from their collective experience. Um , but before we dive in, let's start , uh, maybe with some introduction so that everyone listening has a sense for who each of you are and your background Earl, would you like to start?

Speaker 3:

Sure. Be happy to, I'm happy to be here. Uh , my name is Earl Barnes. I'm the , uh, corporate vice president and , uh, general counsel for Sentara healthcare , uh, based here in , uh, Norfolk , uh, Virginia. And we are an integrated delivery network that , uh, provides services throughout , uh, Virginia in parts of North Carolina.

Speaker 2:

And Andrew. How about, how about you? You wanna introduce yourself?

Speaker 4:

Sure. Thanks Danielle. So I'm Andrew re Hagen . I'm the vice president of legal affairs and deputy general counsel for American orthopedic partners based in Palm beach gardens, Florida. We're a private equity backed physician owned and physician led national orthopedic practice. Um , I've, I've been with AOP for a little over a year and prior to joining AOP, I , I worked primarily in healthcare compliance and helped build the compliance programs for a , a national substance use disorder provider in a large regional anesthesia practice.

Speaker 2:

Thank you and Connor .

Speaker 5:

Hi, I'm a partner with Winston and John . Um , I'm based in Chicago. Um, I do a lot of antitrust work including , uh, the , uh, health work with healthcare systems and practices , uh, not just in Chicago, but all over the country and , uh, happy to be here to talk to you, Daniel .

Speaker 2:

Excellent. Thank you all. So, as I mentioned , uh, at the beginning, the Genesis for the topics we'll dive into today , uh, was your recent panel discussion that focused on healthcare partnerships and transactions. So starting out, maybe from a big picture perspective , um, healthcare transactions have been occurring at a very rapid pace the last few years. And I'd love to hear your thoughts on whether you see that trend continuing , uh, or, and, you know, whether you see any changes in the types of transactions that are likely to occur. Uh, Andrew, what you wanna start off with this one?

Speaker 4:

Sure. So I, I may have a bit of a different perspective from , uh, what Earl may may see in his role, but I don't really see this, the healthcare transaction slowing down. I , I think we've seen a bit of a dip , uh, in the last few months as the market has kind of reacted to , uh, different economic pain points. Um , and I think physicians, especially on the physician practice side , um, and the investment bankers that , that we see , uh, working with those physician practices, I think they're taking a little bit of a cautious approach at the moment, but once the market settles, I , we don't really see any, and I , I personally don't see any, any real slowdown think you may just see a little bit of correction , um, uh, in , in terms of the , how quickly deals are are done. We , they may , uh, may take a little bit longer to , to close and to finalize, but I really , the interest is still very high. Um, the , and there's still a lot of motivation in the market, so I don't, I , I see the trend con continuing , um, just maybe a bit of a , a blip or a hiccup right now while, while the market kind of settles

Speaker 2:

Mm-hmm <affirmative> and Earl you , you may have a different perspective. Uh , what are your thoughts? Yeah,

Speaker 3:

Well, actually I , uh, we're aligned on that. I mean, I , I think at the end of the day , uh, I do see this kind of , uh, you know, activity that's in the marketplace, certainly this acquisitive nature that's in the marketplace , uh, just continuing on. Um, I don't, I don't think we're, we're gonna see it stop. Um , you know , I happen to have worked at an organization that, that did make the difficult decision to, to split apart. Um, and, you know, but I , I think that that's more the exception than the role at this point. Um, and I , I think that, you know, certainly from what I'm seeing , um, in the market that I'm in now , uh, you know, we've got just a ton of deals sitting on the board , uh, that we're looking at and opportunities that we're looking at , uh, all of which in the end, you know, the hope is we will help us , um, expand and grow and , uh, put us in a better position , uh, for our patients and our members.

Speaker 2:

Yeah, there certainly seems to be a lot of activity at this point. Mm-hmm <affirmative> , um, Connor , how about from an antitrust impact perspective? You see the level of activity or the types of transactions changing based on the level of antitrust enforcement we're seeing at the moment?

Speaker 5:

I , I think it , the impact is probably more on , uh, the number of transactions , um, than maybe the type. I think generally there is a preference more for the more integrated , uh, full asset merger type deals. And, you know, some of those deals , um, that previously were borderline, you know, and in the current enforcement administration , uh, may no longer be borderline. And , uh, you know , you may see , uh, the diff different people who are thinking about doing transactions, you know, pulling back a little bit, you know, we've already seen in the last year, the FTC challenge , uh, through transactions that led to abandonment and, you know, those are just the ones we see. I'm sure there's others that , um, have , uh, received pushback , um, from the government even before, you know, a formal lawsuit and, you know, that that can lead to abandonment, but, you know, basically it gives people second thoughts about, you know, which type of deals, you know, maybe people look a little farther afield , uh, in their deals instead of the, you know, hospital next to them . They're looking, you know, a few towns down that sort of thing. Um, but you know, there , there also is, you know, it , it could cause , uh, systems to also consider whether there are alternatives to, you know, the full asset merger, mm-hmm , <affirmative> , um, you know, whether I have, you know, seen clients look at, you know, whether there's , um, less than full asset , um, mergers that they can do in order to, you know, for example, fill out a , a service line where they are , uh, not as strong as they would like to be, and like to have more capability. So , um, certainly , uh, possibility that, you know, something more of those transaction will go through, but I think it's likely more, the , uh, people will look at different partners or, you know, different geographies than , um, they essentially would , uh, look , uh, in a different enforcement environment.

Speaker 2:

Right ? So building a bit on the topic of structure , uh, your presentation highlighted, you know, the range of different transaction structures that we see , uh, and, you know, the , the , the pros and cons to them. And, you know, I know this group has experience with partnerships at span that spectrum. So Andrew, maybe, maybe starting with you this time. I know you mentioned that , um, American orthopedic partners typically use as a JV structure, and you can probably better define what that means, but can you share why that structure is, you know, a model that has worked best for, for your organization and , and why other structures may not have been a good fit so far?

Speaker 4:

Sure. So , so we actually, I shouldn't, I , I'm not gonna say we shy away from the JV structure, but we're still kind of feeling that out. Um, as a pretty early company, we've, we're , we've only been around for around , uh, two years. So we're still trying to , um, we're still trying to vet out how that works for us as an organization and how it helps us grow. We, we focus more on the purchase agreement side , um, where we are, are buying , um, independent orthopedic practices. And so if you wanna split that out into a dichotomy, you can cut it up into an asset purchase or a stock purchase. And of those two, we, we typically lean toward the asset deals. Um, there's just less risk of, of inheriting liabilities. Um, you have fewer issues with benefits and retirement plans rolling over. Um, there's also potential tax benefits on , uh, in terms of a step up basis for an asset deal. Um, overall, it , it just presents a much simpler structure , uh, but on the flip side for the sellers, a stock purchase is , is a little bit more beneficial , um, especially the , the tax structure , um, and just, there's some benefits with maintaining your , your tax ID and the continuity there. So we prefer , um, the, the asset deals because they're simpler. Um , but again , it , it's not really a , an either or proposition it's a , you just have to feel out what the deal is, and you have to feel out where the, the sellers and your partners and , and what works best for them. And , uh, you know, possibly being able to meet them in the middle. So mm-hmm , <affirmative> , I don't know if we necessarily have a preferred or, or a, a preferred transaction structure or one where a verse two , um, you know, it , it just, it's a balancing act based on the deal.

Speaker 2:

Yep . That's, that's helpful. And, and Earl maybe building on that , um, anything to add, or, you know, your thoughts on how , uh, the ideal structure might change based on the specific partner or opportunity at hand mm-hmm <affirmative>.

Speaker 3:

Yeah, I , I think the key is remain flexible. And so, you know, I think as you look at many of the , uh, um, you know, hospital systems , uh, over the last five to seven years, you , you have seen a lot of activity on the JV side of things. And, and when I'm looking at that, though, I'm talking more about the build out of the ambulatory , uh, space and being able to provide ambulatory services. And so , um, you will see the joint ventures that will exist between , uh, hospital and physician group , uh, hospital, and maybe a proprietary company to provide a particular service. And I think those have worked generally have worked well. Um, because again, it's, it's on the front end. I think there's been discussion about a need within the community. Um, and, and that need is being met via this JV. And it's not necessarily a scenario in which the hospital has to fully owner control , uh, nor does the , the other partner need to fully owner control. They can work together , um, in the marketplace. So , um, but then I do think that, that the other activity that we've seen an awful lot of over the years has been the full on , uh, merger, so to speak or membership substitution, and , uh, those take , um, much, many more hours of , of work in , in my view, in due diligence. And, you know, as , uh, uh, as Connor alluded to in his, his initial comments , um, you know, there are some very real antitrust concerns that have to be addressed as you're , as you're moving forward.

Speaker 2:

Yeah, that's helpful. And, and Earl, one of the comments that you made during the presentation that, that stuck with me, and , and I think, you know, is in the context of , um, I believe in the context of arriving at , you know, the right structure, but also , uh, diligence and managing expectations, but you emphasize the importance of clarity of purpose mm-hmm <affirmative> , and it being a , a critical factor for successfully working through developing a partnership. Do you wanna speak to this a bit and share some of your thoughts and experience on this point?

Speaker 3:

Sure. So, you know, for me, clarity of purpose really is taking the time to understand what what's truly needed and, and some of that soul searching, so to speak goes on, should go on within each institution before they even begin talking with one another. Um, and so much of that stems from strategic plans that are developed , uh, within your, within your institution. And what are , you know, what do we plan to look like in three years and five years , um, in 10 years and, you know, what are the needs within the community? And so I think if you've been able to have that honest dialogue internally , um, and that's going to include your board members, it's going to include senior management. Um, you know, there's going to, it's going to include the community , um, in terms of what's needed. I think that helps define better what's truly needed. And so when you start to have dialogue with another potential partner in the community, or as I mentioned , um, you know, you've seen other instances where JVs are set up with proprietary companies that mm-hmm , <affirmative> that provide a very specific service such as imaging . Um, I think when you have that clarity of purpose of what's needed, and, and if those other institutions have engaged in that same type of dialogue, it makes for a , a far more robust , um, and meaningful partnership , uh, between the entities. Because again, there's an understanding of what's needed. Um , and, and there's an understanding of where the parties are headed. There's quite frankly an understanding of, of what this type of a venture really means. Is this an IM perpetuity type venture, or is this something that we project might last 10 years? Um, and then we'll, we'll kind of evaluate where we're at , uh, at the end of the 10 year period, but either way, I , I think , um, thought on the , on the , on the beginning end , uh, at the forefront, and I think dialogue , um, usually leads you to a point of coming up with a structure and an enterprise , uh, that has the ability to , uh, uh, to withstand , uh, you know, the upward and downward pressures of the marketplace .

Speaker 2:

That's very , very helpful . Andrew, anything to add to that?

Speaker 4:

No, I think Earl hit the nail on the head with that. It , when you start bringing, you know, from his perspective, when you start bringing a hospital system and another joint venture partner, or even from our perspective too, where we're dealing in the independent physician practice space, if both parties don't know what they're good at, you know, their strengths, their weaknesses, and where their opportunities are, and if they can't be honest and , and , and have a , a very solid dialogue around that, you really do run the risk of, of having a poor partnership. Um, and I , I , Earl's absolutely right having that introspective focus, especially on , um, especially as the organization that may be initiating this type of transaction or, or , um, type of a , a partnership arrangement or an agreement you , the more you know about yourself and the more, I think the impetus falls to each individual entity to , to figure out what they're good. Like I said, what they're good at, what they're bad at , um, and, and drive to solutions using those, leveraging the, the , the strengths , um, and then figuring out where your weaknesses can come together, where you could dovetail those with another partners, strength , um, and, and build synergies off of that.

Speaker 2:

That's very helpful Connor . So maybe taking a , a different lens on kinda clarity of purpose, or, you know, objective of a partnership I'm interested, if, and how does the, the purpose and objective of a partnership influence the antitrust view of that specific , um, you know, transaction?

Speaker 5:

Sure. Yeah. There's a couple ways you can look at it. You know, one, I , I think from a overall strategic perspective, you know, the antitrust is not necessarily , um, playing a role in the , in the clarity of purpose, but the clarity of purpose is a key role in, in the antitrust considerations. You know, a as Andrew , uh, spoke to when you're, you're talking about what are the strengths and the weaknesses of a respective organizations , um, that really plays into , um, the antitrust analysis, you know, what are , uh, what are those , uh, strengths, you know, do they play together? Uh , do they, do they , uh, compliment each other? Are there opportunities for synergies? That's a really key question. Um, you know, usually, you know, the, if there's a strong , uh, combination of strength and weaknesses, you're , you're going to get those sorts of , uh, synergies where you can show that, you know, combined the, you know, the , the , the two partners will be even better competitors. They'll , they'll better serve the community's health needs, all of those sorts of things. And , and those sorts of benefits are , um, are helpful from manager's perspective. Um , you know, you always wanna have a deal where the parties are coming together for the right reasons, you know, they're, they're looking to help each other , um, satisfy , uh, you know, different strengths and weaknesses of , of the partners and, you know, rather than just coming together and combining strength to strength, to, you know, be even stronger. Um, so, you know, sometimes those deals make sense as well, but, you know, from, from an perspective, you know, having that , um, having that clarity of, of purpose of how you're going to combine to better serve the community is, is always going to , uh, be helpful , uh, in explaining to the regulators and why this, why this deal makes sense and why , uh, it , it , it doesn't have , uh, problems .

Speaker 2:

Right . Um , and so just sort of sticking to the, the topic of purpose for a moment. So , um, you know, I , I think the clarity of purpose is, is important on, you know, both, both sides of a transaction. Um, and it's certainly in addition to having clarity of purpose around your own kind of objectives , um, probably important to understand those of your partner or those of the, you know, the, the potential partner. So , um, maybe, you know, thinking specifically about , uh, some physician , uh, partnerships and transactions , uh, that you all have experienced, what lessons , um, learnings can you share related to managing expectations and balancing , um, the other parties , purpose and objectives , um, including things like, you know , desire for capital in, in negotiating and ultimately getting to, you know, a deal that that's comfortable for, for both of you. Um, Andrew, do you wanna take that one?

Speaker 4:

Sure. I'll, I'll kick that one off. Yeah, I , I , so Danielle , what you said at the, at the beginning of that, that question there , I think is the operative word partners. Um, if you don't look at the party across the table as a partner , um, you're never going to find a , a mutually mutually agreeable position. Um, and you're really setting yourself up for , for failure, or at least a very difficult, very difficult time moving forward. So that , and that's, if we wanna talk about the first lesson , um, you know, for , for balancing what the other side wants, you have to treat them as partners. Um, and that's, that's the lesson number one, always, but I , I think before getting into the lessons , it's helpful to understand where the other party is coming from what they're looking for out of a transaction. Um , so you can make this a win-win situation rather than a win, lose prisoners dilemma type situation. So when we think about the partners that fit AOP the best , um, and what we typically see out in the market, we , we see organizations and , and practices that want to be part of a national network. Uh , they want to be able to share best practices. They want to , um, drive clinical excellence and , and they want to become better physicians. They also, like you mentioned, are looking for capital and resources to help grow their practice. Maybe they want , uh, a new physical therapy division within their practice. Uh , more time in an operating room at a local ASC , um, you know, access to , uh, equity in an ASC, something along those lines. Uh , but most importantly, they wanna maintain their independence. Um, and sorry, Earl, a lot of times they don't want to join a health system or a hospital down the road. They, they wanna stay where they are. Um, and, and that's, those are the kind of partners that tend to gravitate toward us. So when you, when we think about that kind of that overall universe of what our partners are looking for, I think that , um, that helps kind of define what our lessons are . So one, like you alluded to Danielle is being good stewards of the capital available. Um, money is finite. It doesn't grow on trees. And as much as we would love to , uh, um, as much as we'd love to, to build an ASC for every physician practice that partners with us, it's just not feasible. So we really have to do a good job. Our finance team has to do a good job of balancing what's the, the , uh, ROI on this, how does this impact patients? And so we have to really take those into account when we make , uh, big decisions on, on access capital or resources , um, you know, and taking a step back. I , I think you also have to know who you are, like we talked about in your last question, and be willing to walk away from a transaction or a potential partnership, if doesn't seem like there's alignment. I think that's, there's gotta be a , a point where you can reasonably cut bait and say, this is just, it's not gonna work. It's not in our best interest. It's not in your best interest. And, you know, you have to be able to look your potential partner in the eye and say, we really do want what's best for you. And we just don't think that's with us. Um, and lastly, you can't forget about your existing partners. You can't forget about the people that you're already , uh, you know, in agreements with, you're already operating with those who have helped you get to where you are. If you get shiny new object syndrome and you start chasing the new practice or the new health system, and , uh, whatever else is out there, the , the next JV partner, you , you lose sight of who you are. Um, and so that's that puts that can put you in a difficult situation. Um, if you're not being open, honest, and transparent with your current partners, and we do our best to do that , um, loop in the , the presidents of our , uh, existing practice partners , um, and the other physicians , um, employed by those practices and , and let them know where, what we're doing, where , where are we headed? Are we changing course? Are we , uh, making a slight correction? Are we staying the course because we want them to be looped in, we want them to know what's going on. Um, and we want them to know that there's still a valued member. This isn't, this isn't all about just the transaction or the deal. This is about building a , a cohesive partnership, new partners and existing partners.

Speaker 2:

That's very, very helpful. Um, I'm curious in terms of the, you know, often governance can be something, you know, whether it's formal governance or, you know, the ability to have a say, how, what strategies have you taken to involve physicians in, in decision making or, you know, clinical leadership in the absence of sort of, you know, formal control. Um, and how has that sort of worked in terms of their feeling like they have , um, you know, a say and an impact on , um, the organization?

Speaker 4:

Yeah, that's a great question. So we have a , a somewhat of a , if you guess you could call it a bifurcated approach. So we have a governance , uh, structure at the local , what we call the local practice. So the individual practice partners, they have their own what we call a local practice board. Um, and that's governed by a charter , uh, where all the , the parties agree here. Um , here's , here's the scope of clinical decision making that, that the practice is gonna maintain. We're not going to , uh, step on your toes. We want you to continue to operate and do make the clinical decisions and make the , the operational decisions that have helped make you successful. And that will help make , um, AOP and the practice good partners together. Um, and, and we , we provide significant amount of, of say and, and voice for the physicians at the local practice level , um, to voice their concerns, to make recommendations , um, and to also cycle through. So there's not a , um, a bureaucracy you will , of physician partners at the, at the local practice level, right. They all get a , say, they all get an opportunity to, to be involved , um, with a decision making there, and then what you , so you kind of zoom out a level and move up more toward what one might consider to be the corporate level. We have a , uh, what we call a president's council . And so this is a , uh, one physician from each of the local practice boards is elected or nominated to serve on this, this committee. Um, and this is a committee that meets with our chief medical officer on a monthly basis, and we hammer out big issues, big topics keep, like I , uh, mentioned in previously, we keep the , the practices updated on what's going on , um, and make sure that they are looped into decision making . They , they understand they're not being blindsided. Mm-hmm <affirmative> , um, it's part of being a good partner is making sure that we're, we're communicating well. And maybe even in some cases over communicating , um, because we're a national practice, it's hard. We can't just walk down the street or, you know, pop across , uh, the aisle and , and find these physician partners. We have to really schedule this in advance and , um, make sure that we're, like I said, over communicating or, or maybe even over communicating to them. So we , we have this kind of a , a dual structure and it's been very successful. Um, we get excellent input, especially at our, our , uh, president's council level. We have very engaged partners. We're very fortunate , um, in that regard and , and that continues to drive the engagement whenever they know, Hey, every month I've got an opportunity to air out my grievances, if I need to, to voice my support, or to just recommend some changes, or maybe I have a development opportunity to bring to the table. Maybe I know a physician , uh, who I went to med school with, who has an independent practice who may be looking for a , a , a partner. And , and so they're able to, we're able to , to collaborate together and share best practices. Um, it , it's a , it's a great way to keep engagement at all levels of the, of the national practice.

Speaker 2:

Yeah, that's , that's great. And Earl, I think, I , I believe I recall from the, the panel discussion that you also touched on the importance of, you know, in partnerships with physicians, them having, you know, continued , uh, engagement in , in some form, anything to add to Andrew's comments.

Speaker 3:

Uh , well, I, I would say, I mean, I , I think wonderful comments and , you know, I know that the , the , a lot of the ambulatory build out that, that we've engaged in over the years , uh, that I've been involved with , uh, with physicians , uh, has, has centered around that, that ability to set up a structure that, that might have a hospital partner , uh, could have a proprietary management partner and would certainly have a physician component and partnership and setting up an appropriate governance structure that allows everyone to have a say in what's going on. And , um, you know, many times I've found that, you know, the physicians have a, a very , uh, sensible way of wanting to conduct their practices. They're usually very efficient in terms of what they want to do and what they , what they would like to achieve on behalf of their patients. And so you , you need to make sure that that structure is flexible enough, that that model can find its way into their practice. Uh , within, let's say an ambulatory surgery center, and, you know, many times the hospitals bring to the really bring to the game , uh, some of the back office component , um, and some of just the overall market knowhow and, and again, a , a great opportunity to have synergy. And the management companies bring the day to day , uh, you know, they're gonna be responsible for making sure that the lights are on every day and , uh, that the rooms are clean and that the doctors have what they need in order to , uh, provide services. So I , you know, again, a great opportunity for wins on all sides, but it takes some real understanding. And, you know, there will be times that , that people will not agree. And, and I think what hospitals in particular have had to learn , uh, that they cannot always be fully in control of , of that dynamic and everything that goes on. You have to actually do some listening , um, and you have to be open to some new ideas , um, but you also need to bring some practicality to everything. And, and so, you know, we do what we do and there's a mission behind it, but if you're losing money , uh, on the enterprise , uh, there's something wrong. And so you need to find a way to make sure that, that you're, you're running a good sound solid business , um, that that is at least breaking even, and should be quite frankly, should be somewhat profitable , uh, in the community. I think you can do it. Uh , I just think that it requires all parties really to, to be open minded and in working together towards a common goal.

Speaker 2:

Yeah. And , and sort of building on that. I mean, you know, that, that can take time. So, you know, being thoughtful about how , um, a partnership is structured and, you know, what the kinda operating environment is post transaction can take time. Mm-hmm , <affirmative> , um, given how tight, you know, deal timelines have gotten. I mean, they're , they're fast mm-hmm <affirmative> . How, how do you, you know, balance that with your business team, how do you help sort of manage the, you know, working towards a thoughtful diligent process while, you know, staying competitive in, in a market where, you know, people want deals done as quickly as possible?

Speaker 3:

Yeah, well, I think, I think , uh, health systems in particular have had to learn how to move faster. Um, and so, you know, most of us have models for how we like to see these , these deals structured. And quite frankly, I think being able to show other deals that are working fine , um, and that have physician partners and maybe have a proprietary partner. Those that's, that's always a great help when you're sitting at the table trying to decide on whether or not you're able to get another deal done. Um, I , if you can point to a past instance , um, or multiple instances in the past where here's what we put in place, here's how it's worked. And , um, you know, I , again, I think the proof is, is in, in that really in terms of being able to demonstrate that your model works and it can be successful, I will tell you it is difficult in my mind. I mean, each one of these deals is slightly different. Wow . But the, the deals that get cut that, that are, that are what I call one-offs or , or unique transactions, those by definition are going to take longer. And they're gonna require far more far more discussion and introspection in terms of , um, uh, whether you're gonna find a way , uh, to bring all the parties together. But, but some of these others have been done frequently enough , um, where , uh, you , you can just show examples. And I think many times partners are willing to come forward and, and, you know, move forward with the process. I will tell you a lot of these deals have outs. They're not, they're not forever deals. So they do have, this is a great example of one that, that, you know, you don't, you always do have the language that kind of spells how one party or the other can make a decision about moving on. And , um, I I've found that we've been successful with those , uh, within the , uh, the , you know, kind of the hospital healthcare , uh, network.

Speaker 2:

Yeah. It seems like, you know, given the , how quickly this , this industry changes and markets change, mm-hmm , <affirmative> , um, we've also seen, you know, those making their way into deal structures more frequently. Mm-hmm <affirmative> um , so switching gears for a moment, one of the other consistent themes you all raised during the panel discussion related to due diligence, which, you know, we all know is a, a critical , um, step in ensuring that , uh, the parties get to a deal. That makes sense. So I'm interested , uh, in your experience, are there, are there types of risks or success factors that are particularly difficult to tease out in diligence? Um, you know, and , and what those might be, and if so, if you have any sort of lessons learned or strategies to , um, to try to, to get insight into those areas during that diligence period , uh, Andrew , do you wanna lead off with that one?

Speaker 4:

Sure. Sounds good. So, one of the strategies that we've , um, we , we've kind of tinkered with this a little bit since , um, since our first deal is moving integration , um, into kind of this like con conductor of due diligence role and moving integration under our, our business development umbrella, if you will, because we want integration to flow directly from due diligence. And so we have our integration team directly involved, directly involved with, with the due diligence process , um, and that we found that, and we're finding , uh, continue to find that that helps eliminate gaps in communication. And it makes sure that we have a consistency of understanding from the day that diligence starts, the day we sign the LOI and we , we kick off diligence the next day. There's no gaps in our understanding between the beginning of diligence. And then when we go live with a , um, a practice partner , uh, the day after close, and it's, you know, now it's this brave new world of how do we, how do we integrate this practice in with the , with the national practice? And so that's, I think that's the , the strategy we've seen that helps the most. Um, you just, you avoid any balls getting dropped in , in terms of specific challenges. I think that we, that we've had to monitor for, or that we will monitor for maybe a little bit more moving forward , um, contracts on the diligence side contracts are, so at least in the physician practice realm , um, when we start talking to partners, a lot of times they may have incomplete contracts. They may have an amendment, but not the original contract or the contract, but not the amendment. Um, you know , in terms of the services, agreements, payer contracts, which may be outdated. Um, so we have there , we have lots of, I shouldn't say lots, we have , uh, issues with , with that. And that's just a pain point for us. Uh , we wanna make sure we know exactly what we're walking into. We assume these contracts , um, sometimes we have to go through a, a lengthy or an arduous change of control approval with a payer contract or another service agreement. Um , that there's, there's another , um, another pain point. Um, and , but making sure that we have that full universe and this full understanding of the contracts and, and what are the risks, what are the upsides, what are our limits of liability, all the terms that come within that , um, that's, that's difficult. Um, and I guess one way that we're, we're working on , um, combating that or a strategy that we've used to try to better understand the contracts and the language that we have in them and our, our risks and liabilities is implementing a robust contract life cycle management system. Uh , we implemented one about four months ago, and so we're able to actually take our deal documents, the contracts that we received from the practice during diligence and drop those into our , um, our contract management software. Then we use , we're able to use this kind of high powered AI in the background and pull out quite a few of those terms and start categorizing our risks. Um , so that's something we are we're using now , and , and we'll continue to , to use moving forward , um, billing and coding, if you wanna talk about under the umbrella, the umbrella of compliance , um, within due diligence, that's just difficult. Um, every physician practice has their own EMR. Um, typically they're not on, on epic, which Epic's a fantastic system, very robust, you know, he , a lot of health systems and hospitals use that it's the most commonly used , uh, most popular EMR. So w but with some of the other systems, they , they don't have quite the same robust reporting capabilities. Um, and sometimes the physician practices just that's, that's a , that's a challenge for them . Um, like we talked about earlier, resources are maybe scarce and thin, and so getting good data on billing and, and coding , um, is , is another issue with, with diligence , um, you know, something you just have to get comfortable with the data that you have. Um , but OB , you know , obviously you want as much complete data in that realm as , as possible. I don't know if I have a good strategy for that. Um, it's, you know , kind of one of the, the risks that you just get into , um, but you just, we , it's one thing we are , are learning to deal with and just taking it for what it is, and , and doing the best that we can. And , um, you know, not allowing the transaction to slow down , um, and you know, not holding our partners up because of that.

Speaker 2:

Yeah . Earl , uh, similar thoughts. What , what areas have you found, you know, to be particularly important to diligence, but maybe also particularly difficult to, to get a sense for during diligence?

Speaker 3:

So my, one of my greatest struggles actually with diligence is, you know, we all start out with this great process. We understand it's gonna take X period of time. And then the pressure starts to Mount, oh boy, we need to move this deal faster. And so, you know, what, what starts as a true, full blown due diligence type exercise among the parties suddenly turns into more of a confirmatory due diligence process. And so, I , I mean, that's, and that's more of an internal battle mm-hmm <affirmative> , um, that I've had to kind of deal with in a number of transactions and, you know, really making folks aware of the risks of doing that. I mean, because, you know, just if you're gonna do confirmatory due diligence, I mean, there are going to be things that are missed. And so you're assuming that in my mind, at least you're assuming there are going to be things that, that will need to be cleaned up , uh, kind of post transaction. And the goal really is making sure that your board is aware of that , uh, and that they're comfortable with that, that process. And, you know, that you've done appropriate reserving from a financial standpoint , uh, because again, likely there are going to be things that you find , um, that, that will need to be dealt with on a post closed basis. And so that's been one thing. The other thing quite frankly, is when you do that type of due diligence , um, it , it means that other things are being forgotten as well or not dealt with. And so, you know, I was, I was at one organization where we did a transaction and , um, you know, the organization I was at didn't at the time didn't have that many vice presidents , uh, the organization that we were acquiring had a lot of vice presidents. Um, and so, you know, in order to get the deal done, everybody came over , uh, with the same titles. And so, you know, suddenly you had an organization that had very few , uh, vice presidents that acquired another entity that was significantly smaller, that had far, far greater number of vice presidents, and it created this internal friction that didn't need to exist. Um , but it existed , uh, because we hadn't done the appropriate planning on the front end. Um , and you know, I , and again, I think we learned a lot from that. And so the next time out , uh, we knew how to correct for that and how to , how to deal for deal with it. But, you know, things like talking about that, making sure that comp levels are, are , are the same, figuring out, you know, whether there's going to be redundancy once you've come together , um, in terms of positioning positions. And, and if there is, how are you going to deal with those issues? Um , I think you've seen many a deal that that's been put together recently where this concept of co CEOs that's thrown out mm-hmm <affirmative> well, you know, the nice thing about that is, is that everyone knows that that does not work , uh, but it still is being used as a vehicle for getting these deals done quickly. Um, and, and in my view, at least it , it only means that you're going to have a , a , a significant pain point for at least two or three years post transaction. Uh , when you're trying to kind of sort out who is the, what , what will the management team look like, and who's in charge, so to speak. So those are some of the, the bigger things that I've, I've experienced, at least in the transactions I've been involved with.

Speaker 2:

Yeah, that's great. And we've definitely seen that a lot lately. <laugh> so Connor , I wanna , I don't, I don't want the, the time to expire before we touch on some of the , um, the excellent insight you shared , uh, related to the current state of antitrust enforcement and what that might look like , uh, in the near future. So we talked a bit in the beginning about potential impacts on , uh, transaction volume and structure. I mean, what are your other thoughts on how, you know, the increase in antitrust enforcement , uh, you know, of the current administration is likely to impact, you know, healthcare organizations, hospitals, and , um, you know, other healthcare organizations in the next few years.

Speaker 5:

Sure. And , and just a reminder, you know , healthcare really has been in the spotlight for the government for, you know, a number of years now in terms of enforcement. So in , in some ways this isn't new , um, but in , in some ways it , it is a little bit new in terms of the threshold , uh, for challenging deals, I think has , um, you know, decreased a little bit, in other words, you know, more transactions are being looked at more closely. Um, and you know, that does have a, a little bit of a chilling effect. You know, you , when you're, you're talking with clients about potential deal , uh, there's, there's more uncertainty about whether the, the government will , uh, allow the deal to go forward or challenge it. And you know, that uncertainty is , um, as everyone knows, never good for, for deals, you know, there , there still is a lot of learning in terms of , um, you know, what deals are challenged and what are not. Um, and so there , there still is a pretty good idea of, you know, where approximately the line is, even if it may be shifting a little bit , um, I would say one area in particular where there, there is more of a shift in enforcement. Um, it is sorry to say this Andrew , in , in the , the private equity space, where there really is a , a focus both from FTC and DOJ on private equity deals, in a particular , uh, roll up deals. And, you know, previously , uh, you know, with private equity, there would be a lot of smaller deals that fly under the radar for , um, reported to the government. You know, the , the threshold for reporting government is about a hundred million dollars currently , um, 101 million . Um, and so a lot of the smaller, you know, physician practice deals , um, don't necessarily get reported in the first instance. Um, so it, it's a little bit harder for the , uh, the government to enforce , uh, you know , uh, in that area. Um, and now they're having more focus on, you know, those smaller deals and, and , and the roll up transactions , um, and trying to implement , um, more prophylactic rules when , uh, when there are , um, companies that are , uh, making , uh, anti-competitive acquisitions. Um , we've seen a couple instances where , um, and , and recently where , uh, private equity firms have been, had a roll up strategy where they acquire a number of different, smaller , uh, uh, companies , um, are , are eventually one of their deals is reviewed by , uh, the FTC and the FTC imposes , uh, basically additional restrictions on future deals by requiring even , uh, deals that are not traditionally reported to government to be reported to them , um, in , in advance of closing. So , um, you are seeing that greater focus. And I , I , I think at least from, from our private equity clients, we're , we're seeing that they understand that they are a little bit more in the spotlight and, you know , they're , their smaller deals , uh, may be more in the spotlight than in previous years,

Speaker 2:

Andrew and Earl I'm , I'm interested in, you know, the perspective that you all have on this is, is the current level of antitrust enforcement or the changing, evolving focus of antitrust enforcement impacting how you all think about , um, what your transaction activity might look like going forward, or how you think about certain , um, transaction opportunities Earl , maybe you wanna start. Yeah,

Speaker 3:

Yeah. Happy to. So the answer is yes, and , and I, I think that , um, you know, particularly since from our perspective , uh, you know, they're far more competitors in the market that, that I'm not so certain or factored into , uh, antitrust analysis , um, that then , you know , and , and therefore, and I believe should be. So, you know, for instance, we now see that we've got , uh, many payers that have entered the, what I'll call the , uh, health and hospital space over the years. And so, you know, they're , they're owning their own , uh, primary care practices. In some cases they're owning their own , um, hospitals , uh, certainly owning their own surgical centers. And so, you know, we've got competition that , that are really , um, that that's hitting us from a lot of different angles. Um, and , uh, you know, I think, I think that it's made it very, very difficult and some instances , uh, just with this heightened enforcement, it's made it very difficult in some instances for organizations that have a good reason , um, to seriously look at opportunities to do things in a collaborative fashion, within a particular , um, uh, geography it's made it very difficult for those organizations to find a way to come together and provide those services.

Speaker 2:

Yeah, absolutely. Andrew , uh, Connor just mentioned, you know, the , the fo there being greater focus on some of the, the PE act , um, platforms and, you know, quote unquote , roll up . Ha has there been any, you know, how has this sort of factored in, you know, for you ?

Speaker 4:

So we haven't, we haven't had to , uh, be concerned yet with the , uh, the reporting threshold. Um , but it's absolutely something that we monitor on an ongoing basis. Um , and it's something that we are prepared and, and we continue to evolve the evolve, this , and continue to prepare to discuss this with our potential practice partners is , gets brought up. Um , actually we just had a , a , a potential partner about a week and a half ago, ask this question too , with all the recent enforcement from the FTC, you know, what , what are you all doing? Should we be concerned? Uh , you know, we're not , we're not concerned, we're , we're gonna do the, the right thing. We we'll follow the guidelines that the government lays out for us to the best of our ability. Um , but it's absolutely something that we, we are monitoring. And , and frankly, Danielle, we wouldn't be doing our jobs if, if we didn't , um, you know, we , we wanna be, like I mentioned earlier, good stewards to our private equity sponsor, but we also wanna be good stewards to our, our existing partners as well. And if, if we're not keeping an eye on this, then we're , we're, we're letting them down.

Speaker 2:

Any closing thoughts from the group?

Speaker 3:

No , that's a , that's a tall order, I guess , you know, at the end of the day, for me, it's just as I , I would just hearken back to what we started with, which is, you know, go into these transactions and these thoughts with, with, you know, wide eyed and truly , uh, giving , uh, some long , shorter and longer term thought to what you think will be successful for your business , um, into the future and, and then have the discipline to stick to that plan. Um , because I think that that many times , uh, you know, opportunities come available in the market and people attempt to do an incredibly quick pivot in order to take advantage of it. And sometimes I think that the , those decisions are, are not well founded. Um, and this certainly the, the time needed to evaluate the opportunity is not there and it's not given and you end up making some big mistakes. So be mindful. That's my, my advice

Speaker 5:

<laugh> , and that would add from an editor's perspective, you know, I touch on this earlier, but , uh, you know, really going back to a lot of what we've discussed on this call, you know, if you're going into a deal for the, the right reasons , uh, you know , uh, what , why you're going into , uh, what the partners want out of the deal. Um, you know, you're gonna be a lot stronger footing , uh, even in this heightened , uh, address , uh, enforcement environment.

Speaker 2:

Well , excellent perspective . I appreciate all of your time. This is a great discussion. Um , and thank you for , uh, sharing your perspective today .

Speaker 3:

Thank you .

Speaker 5:

Thank you .

Speaker 4:

Thanks Danielle.

Speaker 1:

Thank you for listening. If you enjoyed this episode, be sure to subscribe to ALA speaking of health law, wherever you get your podcasts to learn more about ALA and the educational resources available to the health law community, visit American health law.org .