The healthcare transaction environment is unique in many respects, compared to most other industries, making it challenging to understand for the casual observer and experienced professional alike. Depending on the buyer and seller, geographic location, and type of business, there are a myriad of nuanced business-specific issues and state and federal regulatory considerations that can dramatically affect deal structure, terms, and ultimately the valuation at which a transaction can occur.
In most industries, buyers can be classified as financial or strategic. The corresponding valuation each type of buyer might be willing to pay can vary dramatically. Sellers are generally aware of how much strategic value a buyer can unlock post-transaction, and in a typical bidding situation, some of that strategic value often ends up in higher deal valuation or better terms. To the extent buyers overpay or structure deals poorly, they are left with poor returns and perhaps a reputation for mismanaging shareholder value.
In healthcare, however, overpaying or inappropriately structuring a transaction can be outright illegal, resulting in severe criminal and civil penalties for those involved in the deal. Before going further, this article should not be construed as legal advice. References to laws and regulations are for illustrative purposes and should be viewed from a valuation, not legal, perspective.
Within the healthcare setting, typical buyers and sellers involve for-profit and not-for-profit hospitals and health systems, investor- and physician-owned surgery and diagnostic businesses, and medical groups, to name a few. Healthcare delivery is highly fragmented and extremely localized at its core, and at the local level, competitive relationships among participants can be complex. In addition, most healthcare enterprises participate in the federal Medicare and state Medicaid healthcare programs.
This means that the body of law and regulations pertaining to these programs applies to healthcare sector transactions as well.