Book Review:  Health Care Mergers and Acquisitions Answer Book 2014

by Mark Davis, MUP, MBA, President, Healthcare Transactions Group, Inc.

Health Care Mergers and Acquisitions Answer Book 2014, Edited by Andrew L. Bab, Kevin A. Rinker, Debevoise & Plimpton LLP, New York: Practising Law Institute, 2014. 1,154 pages, $255.00 (print)

Health Care MA AB 2014

As a healthcare mergers and acquisitions intermediary, I am often kidded that I practice law without a license.  If you are a true healthcare M&A advisor, then toiling in the weeds of contract negotiations is part of the job.  Anyone who has experience with this knows it is a demanding exercise.  Resolving questions of structure, elements, risk and benefits of a healthcare business deal requires significant understanding and negotiation between parties, plus industry-specific knowledge.  Memorializing a mutually agreeable and legally binding document with all of the requisite terms, conditions, promises and obligations is required to achieve a successful transaction.  This begs the question of how business types and their advisors can interpret and agree on matters they may not understand.  As a result, you regularly hear, “let the lawyers work it out,” as if esoteric mysteries should best be left to the cognoscenti, but this is a mistake.  The devil is in the details, and the business people or advisors need to learn more about transactions and healthcare regulations to function effectively.

At the outset, owners and M&A advisors need to realize that consensus on price is just the beginning.  Everything is negotiable until the pens are silent and parties finally execute the documents.  I have been in deals where the parties quickly agreed on fundamental economics, but then spent months of haggling over the contract, either by meeting face-to-face, by conference call or by email.  In so doing, there are arguments, gambits, impasses and adjustments for GAAP accounting or regulatory compliance, with iterations of the document going and back and forth multiple times.  If the business people are unfamiliar with or have a superficial understanding of the legal concepts, they may be overwhelmed and unable to evaluate and decide what to accept and to reject.  Alternatively, non-healthcare lawyers hired for their contracts expertise may be insufficiently versed in the healthcare language, regulations and reimbursement that inform and permeate the whole deal.  Now there is a trustworthy guide to the perplexed on healthcare M&A that does not cost $500 or more per hour.

Health Care Mergers and Acquisitions Answer Book 2014 is a complete compendium of information, issues, concepts and parameters in formulating healthcare transactions, which involve sales, purchases, mergers, joint ventures, license agreements and other arrangements.  This work provides expert summations of the customary contractual provisions used in mergers and acquisitions and the corresponding healthcare-specific professional or regulatory issues such as reimbursement, changes of control, licensing, fraud and abuse, changes of ownership, penalties, anti-trust safety zones, provider numbers, patient care, successor liability and privacy, to name but a few.  The book is distinctively organized in a didactic question-and-answer format in digestible kernels of knowledge, handy to practitioners seeking instant reference.  The answers are concise and are about one-half to a page and a half long of text on average.  This volume provides answers from seasoned lawyers and professionals to everything you always wanted to know or should know about healthcare mergers and acquisitions.

Health Care Mergers and Acquisitions Answer Book 2014 is edited by Andrew L. Bab and Kevin A. Rinker, attorneys with Debevoise & Plimpton.  Counsels Bab and Rinker contributed to nine of the forty-four chapters.  There are about fifty chapter contributors, mainly lawyers, although the chapters on valuation, finance, tax and accounting are written in whole or in part by accomplished professionals in these respective fields.

The book’s forty-four chapters are divided into four parts:  I. Structuring the Health Care M&A Transaction, II. Due Diligence, III. Transaction Documentation, and IV. Special Topics.  The volume leads with an overview of healthcare M&A trends in 2014 and a review of the Affordable Care Act.  Part I is an analysis of the elemental ideas undergirding health care transactions, such as deal structures, purchase price adjustments, non-profit vs. for profit issues and valuation, tax, financing and accounting considerations.  I appreciated the inclusion of questions and answers on state notification and approval requirements for sale of non-profit organizations because these regulations are generally not well-known.

Part II focuses on Due Diligence and obligatory and potential areas to scrutinize such as licenses, compliance notifications and investigations, litigation, material contracts, employee benefits and intellectual property.  Part III is dedicated to Transaction Documentation, which encompasses the nuts and bolts of contracts.  Part III is, as expected, a polished section that manages to explain complex legal matters in a readable and lucid fashion.  I now understand more of the nuances of representations, warranties and indemnities, an area that normally accounts for the heavy lifting in deal negotiations.  In particular, distinctions between indemnities for breaches of representation and warranties, and indemnities for losses (with related caps, scope and survival periods), independent of representations and warranties, are well-clarified.  And, of course, the differences between indemnity “tipping baskets” and “deductible baskets” (Question 38.6) are mentioned.

Part IV includes Special Topics chapters on healthcare M&A in France, Germany and Russia and on acquisitions of non U.S. companies by foreign buyers.  Part IV is useful if you are lucky enough to land a foreign engagement.  If you are, after a quick read, you can opine on the characteristics of the healthcare and legal systems of these countries to pass the interview.  These chapters might also offer interesting nuggets for cocktail discussions.

I have used other Practising Law Institute (PLI) volumes on Mergers and Acquisitions and on Health Care M&A before.  Those books were loosely organized, often disparate collections of PowerPoint presentations and boilerplates of uneven quality.  They were helpful, but lacked cohesiveness.  By contrast, Health Care Mergers and Acquisitions Answer Book 2014 is a serious and rigorous production.  It is systematic in format by chapter topic and corresponding numbered questions and answers.  Mirroring a numbered legal contract, each question has an individual number prefixed by a chapter number.  The authors supplement certain answers with instructive practice tips, examples and proposed contract language.  The volume is encyclopedic in scope (1,154 pages), covering a large universe of healthcare M&A variables.  It is intelligently organized, and well-edited, with minimal overlap, although useful cross-references dutifully noted abound.  I compliment Messieurs Bab and Rinker’s editing for ensuring that the writing is clear and lucid throughout the volume, and for their commitment to high standards by completely integrating the contents into a unified whole.  Health Care Mergers and Acquisitions Answer Book 2014 is an excellent healthcare M&A bible for beginners or generalists who wish to enter this growing and vibrant sector, or for deal junkies and pros who wish to reinforce or enhance their knowledge.  I also recommend it for business principals who could use it to comprehend what their lawyers are talking about and what is at stake.

The major challenge of this volume is striking a balance between providing enough detail and covering all the bases.  Consequently, while the book is unabridged and inclusive, explanations vary by depth.  Also a major fault line is how to cover public company deals, usually stock transactions, versus private, middle market deals, usually asset transactions.  As such, Health Care Mergers and Acquisitions Answer Book 2014 consistently highlight these differences while not necessary going into details in each case.  If it had to expound on features of public vs. private, stock vs. asset deals for every question, it would conceivably require another thousand pages.  Health Care Mergers and Acquisitions Answer Book 2014 appears more heavily weighted toward stock transactions involving public companies.  Accordingly, much attention is devoted to pharmaceutical and medical device transactions involving public companies, and on FDA and SEC compliance.  In a volume this large and ambitious, editors have to select what to exclude and to include and thus some chapters are more expansive and filled out than others.  I would have liked a more complete chapter on Real Property (Ch. 33), which is important in healthcare facility transactions, such as for the sale of hospitals and skilled nursing facilities.  Nonetheless, environmental due diligence and compliance are covered effectively and these are key parts of real estate assessments.  In addition, there was only a cursory explanation on setting earn-outs, common in sale of contract therapy and home care businesses.  By contrast, much attention is given to permutations of contingent value payments, common in pharmaceutical and life sciences transactions, consistent with volume’s skew toward public company transactions.  I also expected to find more information on the change of ownership (CHOW) regulations for healthcare facilities and companies.  Inclusion of a table of the CHOW requirements by state would have been useful.  Maybe PLI should sponsor another volume dedicated to the regulatory requirements of healthcare changes of ownership, facility licensing and certificates of need?  Despite these are minor criticisms, the book is educational and valuable for any type of healthcare transactions participant, and I recommend it enthusiastically.

Most important, as stated, Health Care Mergers and Acquisitions Answer Book 2014 is written in plain and clear laymen language, which is a major triumph considering that the book is primarily written by and targeted to attorneys.  The book can be a trusted go-to desktop manual and quick-reference for healthcare M&A transaction intermediaries, lawyers, accountants and prospective investors, buyers, sellers or joint venture partners.  There is a Table of Contents of the chapters, a Table of Contents of numbered questions within each chapter, a large Glossary and Abbreviations for regulatory agencies, laws and practices, and a thorough Index, which collectively enable readers to find items right at their fingertips.  For any practitioner in the healthcare M&A field, this book is an authoritative primer of basic and advanced topics and factors that comprise and affect transactions in this space.  This is a welcome addition to the field, and an indispensable tool for any healthcare M&A practitioner committed to their craft.