Part III: Due Diligence

This is the third article in our series on “Closing a Private Equity Transaction.” In Part I, the benefits of preparing for a transaction were explained, along with how best to prepare. In Part II, the letter of intent (LOI) was discussed, and key terms were identified and explained. Next, we walk through the due diligence process, which begins immediately after the parties execute the LOI.

Due diligence is used by both the buyer and seller to confirm the decision to proceed with an ultimate closing. Typically, the buyer’s examination of the seller’s business will be comprehensive and include information covering the past three to five years. This is necessary in order for buyer to understand what it will be purchasing, in terms of profitability, operations, business relationships, and potential liabilities. 
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Private equity buyers have become a significant player in the healthcare M&A space and they continue to focus on those types of healthcare services that have the greatest opportunities for aggregating. Traditional health system buyers have continued to focus on which physician specialties will assist most with alignment and care coordination strategies. While there are many similarities in transactions with these two types of buyers, there are often just as many differences. The following examples illustrate how those interests may vary:
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Part II: Negotiating the Letter of Intent

This is the second article in our series on “Closing a Private Equity Transaction.” As discussed in “Part I,” advance preparation is critical to getting a deal done. Once preparation for a potential transaction is complete, and an interested buyer or investor is identified, the parties will proceed with negotiating a letter of intent (LOI).

With a few exceptions (which are mentioned below), the LOI is a nonbinding document, but should include those terms essential for both parties to close the transaction. This is the moment when the parties will be in the best position to ensure that the time and expense that will be required for negotiating a definitive purchase agreement will be justified.  Such terms can include:
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Part I: Preparing for a Transaction
First in the series.

To increase the likelihood of ultimately closing a transaction with a private equity investor or buyer, the key is preparation.  Preparation is divided up into several steps.

First, before seeking a potential investor or buyer, the owners of the business should go through a semi-formal process to confirm the owners and key members of the business have shared, or at least compatible, motivations and priorities in a pursuing a potential transaction (e.g., capital for improving or growing the business, building a brand, creating value for a future exit, or cashing out). This will allow the business to focus on those investors/buyers with aligned expectations, and ultimately gain the required approval to close a transaction from the owners and key members of the business.
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The weather has cleared and SXSW is well underway! The HBInnovate team has been sharing its experiences via Twitter and blog, keeping everyone up-to-date on the innovations and creative ideas on display.

Hot at SXSW continues to be healthcare products and services that rely upon a phone or tablet. Everyone sees the tremendous potential phones and tablets have in supporting our health and wellness.  One of the most common concerns from healthcare startups has been how to do roll-out products and services compliant with The Food and Drug Administration (FDA).


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Childrens_Hopsital_Shuttle_1xThe Department of Health and Human Services Office of Inspector General (OIG) recently implemented a new safe harbor to the federal Anti-Kickback Statute and beneficiary inducement statute, which went into effect on January 6, 2017.1 The new safe harbor, which was published by the OIG in a final rule dated December 7, 2016,2 protects the provision of free or discounted local transportation by eligible entities to Medicare or Medicaid beneficiaries, provided that certain conditions are met. While non-compliance with the safe harbor does not necessarily mean that a transportation arrangement will violate the Anti-Kickback Statute, children’s hospitals should take note of the safe harbor requirements and assess whether any of their existing transportation arrangements should be restructured.
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On June 9, 2016, the Texas Medical Board proposed for comment new rules regarding physician call coverage. The proposed new rule originated from the Board’s Telemedicine Committee and changes the current telemedicine call coverage rule. The rule would apply to all physician call coverage relationships, not just telemedicine.

During the meetings last week, the Board’s Executive Director stated that the proposed rule was created at the request of the Texas Medical Association and leadership from Children’s Medical Center of Dallas with input from the Texas e-Health Alliance. An earlier draft was withdrawn during the Board’s March 2016 meeting. The current draft was reviewed and discussed during a recent meeting of the Board’s telemedicine stakeholder group.
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TelehealthBlogPicThe Texas Medical Board (TMB) Telemedicine Committee met on Thursday, August 27, 2015. During the meeting they discussed potential changes to the on-call services telemedicine rule (174.11). At the end of the meeting, they instructed board staff to draft proposed revisions to the rule to allow for changes to the rule.

Although the direction to staff was verbal, they focused on several items: expanding the scope of on-call physician specialties a physician can choose from for their on-call services; a diminishing of the current requirement that the on-call physician provide reciprocal services to the original physician; and there also appeared to be consensus that the rule should include a provision which requires the original physician to have responsibility for the on-call care.


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TexasFlagOn Thursday, July 16, 2015, the Texas Health and Human Services Commission (HHSC) held a public meeting regarding its request to seek an extension of its Section 1115 Medicaid Transformation Waiver. The current waiver covered a five year period ending September 30, 2016. Under the waiver Texas has expanded Medicaid managed care, created a funding pool to offset uncompensated care and provided incentives for hospitals and other providers to develop delivery system infrastructure in Texas. Over the waiver period, Texas will commit $29 Billion to the uncompensated care and delivery system payment pools (approximately 58% or $16.82 Billion represent federal funds).
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HB initials LogoNational healthcare publication Modern Healthcare yesterday announced Husch Blackwell LLP is the seventh-largest healthcare law firm in the U.S. according to its 2015 rankings, up from No. 12 last year. Utilizing differing measurement techniques, American Health Lawyers Association also ranked healthcare practices, placing Husch Blackwell as fifth-largest in the country in its 2015 list, released