Creating a Healthy Deal Environment in Hospital–Imaging Transactions

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When contemplating a potential transaction between an imaging center and a hospital, including the appropriate people and committing to transparent communication between the parties are essential to promoting a successful transaction environment. In order to achieve the desired goals of both parties, several key individuals should be active participants during the entire deal cycle, including the administrator and/or key executive from the center, a hospital representative, legal counsel for both parties, and an experienced valuation company. Center Administrator The center administrator and/or key executive should expect to be heavily involved throughout the entire transaction process. This involvement usually begins as soon as the two parties start discussing a potential agreement and is unlikely to end until the transaction has been signed and finalized. Initially, administrators should expect to be asked to provide a lot of information regarding the historical operations of the center, from both financial and productivity perspectives. The more transparent and upfront the center’s managers can be regarding any potential historical issues or disparities, the more quickly those concerns can be discussed (and the sooner all parties can become comfortable with the results). In addition to the historical operations of the center, its managers should spend a significant amount of time considering expected future operations. These might range from expected volumes to future reimbursement expectations (and potential changes) to future capital-expenditure requirements to current and potential competition in the local market. Hospital Representative A hospital representative who is appointed to participate in the transaction serves a critical role in fostering a successful transaction. This individual is typically regarded as a key decision maker for the hospital, with titles ranging from CEO to business-development officer. If the terms of a potential transaction have not been fully considered prior to valuation of the center, the hospital representative might be able to provide a great deal of guidance in creating the potential transaction’s structure. If the radiology group is to remain involved in the business after the sale, it might be necessary to include any expected posttransaction agreements in the valuation analysis; these could include agreements covering professional radiology services (if the center bills globally), billing services, management services, and a medical director’s services. In addition, the hospital’s representative might have an established working relationship with the center’s managers, making him or her capable of filling a crucial role in opening communication lines and facilitating the flow of requested information from the center to the appropriate parties. Once the valuation has been completed, the hospital’s representative might be pivotal in negotiating the terms of the transaction on behalf of the hospital or health system. Legal Counsel It is common practice for both parties in a transaction to retain separate legal counsel (to ensure that their respective interests are maintained). Depending on the hospital or health system and its internal policies, both internal and external counsel might be engaged in the transaction. While the roles and duties of attorneys can vary in scope, depending on the transaction, they are typically relied on to providing regulatory counsel and guidance on myriad complex legal issues and concerns. These include (but not limited to) the federal Stark law, anti-kickback statutes, and the private-inurement concerns of the IRS. In addition, they are likely to be responsible for the drafting of any impending agreements, potentially including the terms of the transaction (in a letter of intent), an asset-purchase agreement, a bill of sale, and an operating agreement for the new center. Due to the complex nature of acquiring or selling an imaging center, there are invariably a number of issues and questions that might arise; these make the legal counsel of both parties critical to the overall transaction process. The earlier in the transaction process that legal counsel can be engaged, the sooner these issues can be resolved (and the more likely a transaction is to be completed with the desired results). Experienced Valuation Company The evolving obstacles throughout the health-care industry have caused fair-market valuations to become a critical component of any transaction. When considering a valuation company to assist in providing a valuation opinion of an imaging center, it’s important to consider the contemplated transaction and any potential issues that might arise. If the transaction requires multiple analyses, a full-service valuation company will be able address fair market value pertaining to the center’s business valuation, furniture and equipment, real estate, and professional-services agreements. Choosing a health-care–focused valuation company with the knowledge and relevant experience is essential to completing a successful transaction. Conclusion Creating a healthy deal structure requires many different components, but there should be a high level of trust among all parties involved in the transaction. Including the appropriate parties and committing to opening the lines of communication early in the process will ensure the attainment of a successful transaction for both entities. Stephen H. Schulte is a manager with VMG Health, a national health-care transaction and advisory company.