The Organized Medical Staff in Health Care M&A: Three Key Considerations for Avoiding Unnecessary Surprises and Delays

Mergers and acquisitions in the health care industry present unique challenges that are not often present when undertaking similar transactions in other industries. Because of health care’s highly regulated nature, parties may falter if a health care transaction is not reviewed and negotiated carefully with respect to the distinct concerns that health care presents. This article discusses certain key considerations related to the organized Medical Staff in the context of such transactions.

Federal and state law, as well as accreditation standards, universally require that a licensed hospital (as well as certain other health care entities) maintain a formally organized Medical Staff. The Medical Staff is accountable to the hospital governing body for the general quality of care provided at the hospital. For this reason, the Medical Staff has primary responsibility for credentialing and recredentialing recommendations, as well as engaging in ongoing and focused quality review of those physicians and other health care providers who are clinical privileged at the hospital.

Given its role and responsibilities, due consideration of the Medical Staff organization is critical to any health care transaction. Not only is it imperative to understand the organization and effectiveness of a subject Medical Staff, but the Medical Staff often provides the best pathway to evaluate the risk attendant to or resulting from professional review investigations, professional review actions and legal compliance concerns. Accordingly, each party to a health care transaction involving an organized Medical Staff should consider the following:

Due Diligence. Any transaction involving an organized Medical Staff should include a thorough review and assessment of the target Medical Staff’s organizational and operational governing documents. These include the Medical Staff Bylaws, Rules and Regulations, as well as any Medical Staff Policies related to credentialing and quality review. Such documents should be reviewed for compliance with applicable law – including Medicare Conditions of Participation and state facility licensure standards, applicable accreditation standards and best practices. Additionally, a thorough review of certain Medical Staff Committee minutes (Medical Executive Committee, Credentialing Committee, and other primary peer review committees as applicable) with a lookback a period of at least two years may provide critical information relevant to prior, pending, and/or potential professional review matters, as well as valuable insight into medical staff function, culture and relationships. This information may prove invaluable for buyers and sellers alike when assessing potential risks, liabilities or integration pain points.
Confidentiality. The need to prepare for and conduct due diligence is by no means unique to the Medical Staff context and is often conducted under the cover of some form of confidentiality agreement. However, it is important to bear in mind that certain Medical Staff materials may constitute “peer review” materials, which are typically “privileged” pursuant to applicable state law. It is important for both parties to recognize what does and does not constitute peer review information and to treat such information in the manner prescribed by state law. Misuse of peer review materials may result in enhanced risks and potential liabilities for one or both parties.
System Integration and Alignment. The transition work necessary between sign and close and immediately post-close is often overlooked in a transaction workplan. It is important to consider how the target’s medical staff will be incorporated into the buyer’s organizational structure, and the physician buy-in necessary to effectuate any changes. Additionally, many Medical Staff processes and best practices are adopted or implemented at the system level in an effort to achieve enterprise alignment and consistency. For example, decisions to use credentialing verification organizations or delegated credentialing procedures are often made at the system level. Similarly, clinical privileging requirements may be established or informed by decisions made by system-level operating committees. In other cases, a single unified Medical Staff may provide oversight of the quality of care, treatment and services delivered by practitioners across all facilities within a health system. Ultimately, a meaningful understanding of the various aspects of the organized Medical Staffs involved in a transaction is necessary to ensure a smooth transition and integration post-closing. As such, parties to transactions should evaluate the Medical Staff operational processes of both the target and the buyer facilities to determine the extent to which such processes are aligned. Efficiencies may be created based on such review and the parties should plan and prepare to implement integration and alignment strategies as part of a detailed transition plan.

Understanding the complexities of Medical Staff organization, governance and operation is critical to successfully consummating any health care transaction and avoiding delays and undue risk. Hall Render’s Medical Staff Service Line has experience handling the Medical Staff component of various transaction types throughout the country. For more information on Hall Render’s Medical Staff services, click here.

If you have any questions or would like additional information, please contact:

Christopher C. Eades at (317) 977-1460 or ceades@hallrender.com;
Mayo B. Alao at (317) 977-1480 or malao@hallrender.com;
John F. Bowen at (317) 429-3629 or jbowen@hallrender.com;
Katie J. Miller at (317) 977-1404 or kmiller@hallrender.com; or
Your regular Hall Render attorney.

***

Throughout 2020, Hall Render’s Mergers & Acquisitions Service Line will be publishing a series of articles identifying important, and often unique, aspects of health care transactions that should not be overlooked. Ranging from Real Estate to Reimbursement, this series is designed to highlight key issues and considerations relating to niche components of health care transactions.