Behavioral Health Merger & Acquisition Considerations

Transcription

1 W W W. H E A L T H M A N A G E M E N T. C O M Meggan Schilkie, Principal, HMA Richard Zall, Partner, Proskauer Behavioral Health Merger & Acquisition Considerations

2 HealthManagement.com

3 HealthManagement.com

4 HealthManagement.com

5 Adding value to behavioral healthcare nationwide 5

6 ABOUT PROSKAUER Who We Are. We are 725+ lawyers serving clients from 13 offices located in the leading financial and business centers in North and South America, Europe and Asia. Go-to Firm. Proskauer has a sophisticated health care practice with lawyers across different service offerings bringing unrivalled experience and a keen understanding of the industry's dynamics. Our team combines specialized health law and industry experience with specific practice concentrations that allow us to provide the full range of services for clients across the industry. We act as a trusted advisor, partnering on the most important, complex and sensitive challenges facing health care organizations today. Thought Leaders in Health Care. We regularly host industry events and webinars to meet the demand for our advice and expertise. In July 2017 we hosted a roundtable discussing growth in the behavioral health space and for the past four years have hosted a Health Care Deal Summit with Deloitte. 6

7 AGENDA Trends in consolidation Why Merge? Pre-Merger Planning Merger Negotiation & Execution Post-Merger Lessons Learned from Real Life Examples Questions and Discussion 7

8 TRENDS IN CONSOLIDATION

9 GROWTH IN FOR PROFIT BH MERGERS AND ACQUISITIONS * Source: Behavioral Healthcare Services Q Capstone Partners. *Data projected from mergers as of 9/30/17. 9

10 CHANGE IN OWNERSHIP OF BH PROVIDERS 7% 3% % 2% Private Non- Profit Private For- Profit Local Govt 2% 3% 3% 5% State Govt 25% 61% Federal Govt Other 32% 55% Source: Industry Insights: Behavioral Health, Duff & Phelps. 10

11 SHOULD THE BH INDUSTRY CONSOLIDATE? THE NUMBERS TELL A COMPELLING STORY 11,400 Mental Health facilities in the US 1 15,722 SUD facilities in the US Medicaid Managed Care Organizations 3 1,833 non-government Health Systems 4 31,400 group medical practices 5 1: SAMHSA, Center for Behavioral Health Statistics and Quality. (August 7, 2014). The N-MHSS Report: Highlights of the National Mental Health Services Survey, Rockville, MD 2: SAMHSA, Drug and Alcohol Services Information System. (November 21, 2017) National Survey of Substance Abuse Treatment Services (N-SSATS). Rockville, MD 3: Kaiser Family Foundation. Medicaid Managed Care Market Tracker, March : The great consolidation: The potential for rapid consolidation of health systems. Deloitte Center for Health Solutions, : Hing E, et al. Office-based Medical Practices: Methods and Estimates from the National Ambulatory Medical Care Survey. CDC, March 12,

12 OPPORTUNITY TO GENERATE VALUE AAC Holdings ($342m) Acadia Healthcare Company ($7.8b) Civitas Solutions ($1.3b) HCA Healthcare ($64b) HealthSouth ($7.3b) LHC Group ($1.3b) Magellan ($2.3b) Select Medical ($5.5b) Universal Health ($16b) Comparing publicly traded BH owner/operators to the S&P 500, BH has beaten it by over 50% since Jun 2012 Source: M&A Spotlight: Behavioral Health. Baker Tilly Capital. September 5,

13 WHICH SEGMENTS HAVE THE HOTTEST M&A ACTION? Eating Disorders Substance Use Disorders ABA/ASD Child and Adolescent BH MH Centers I/DD Opioid/MAT Substance Use Testing Early Intervention Psych Hospitals Correctional BH Behavioral Contract Management Related Segments (e.g. Rx) Dual Dx Geriatric BH Source: DealReader Behavioral Healthcare 1H Lincoln International. 13

14 WHY MERGE? PRECONTEMPLATION

15 WHY MERGE Increased competitiveness and leverage With size and scale come leverage with payers et. al. Participation in value-based or alternative payment arrangements Participation in VBPs requires scale across which to distribute risk and analytic sophistication Sustainability Improved Quality Opportunity Distribute rising costs of doing business and increase cost effectiveness of both orgs through economies of scale Better, more integrated and coordinated care across a continuum sharing best practices and leveraging joint quality infrastructure A moment presents itself in your organization s evolution retirement of CEO; approached by the right partner. 15

16 COMPREHENSIVE BEHAVIORAL HEALTH PORTFOLIO? SUD Tx MH Tx Psych Rehab: Supported Ed Housing 24x7 Crisis Services Patient-Centered Planning and CM Peer and Family Support Psych Rehab: Supported Employment Screening, Assessment and Diagnosis Medical Screening and Monitoring 16

17 WHO BENEFITS FROM CONSOLIDATION IN THE BEHAVIORAL HEALTH SECTOR Capital Payer Provider Increase efficiency Demand outstrips supply Ability to purchase efficiency and value Reduced administrative burden Change conversation to quality and cost savings Quality Infrastructure Workforce 17

18 PRE-MERGER PLANNING: STRATEGIC ANALYSIS OF OPTIONS

19 ANALYTIC RIGOR Market Analysis and Value Propositions Community Needs Assessment Provider sector Competitor analysis Value Propositions Financial Analysis and Projections Unit Cost Total Cost of Care Evaluation of Growth Opportunities Workforce Development and Training Infrastructure Gap Analysis Compliance and Risk Assessments Legal/Due Diligence Payer/contractual impact Regulatory Political 19

20 Programmatic Administrative d STRATEGIC PARTNERSHIP OPTIONS Low Level of Collaboration Strategic Partnership Alliance/Affiliation Joint Venture Merger Back office collaboration/ Joint purchase of MSO services Management Services Agreement Parent/ Subsidiary High Independent Practice Association Merger Co-sponsored program(s) Federation/ Consortium Accountable Care Organization High Low Level of Autonomy Level of Disruption to Existing Operations Low High 20

21 TRANSACTION STRUCTURE OPTIONS Affiliations or Strategic Partnerships Usually contractual and targeted; often non-exclusive Joint Ventures Maintain current businesses; pursue specified new opportunities together Mergers Combination of operating businesses; can be full-asset mergers or change of control transactions Private equity transactions unique considerations when PE is part of transactions 21

22 VERTICAL VS. HORIZONTAL INTEGRATION Unlike/complimentary organizations Like organizations Conquer the supply chain/full range of services Efficiencies and economies of scale Limited economies of scale Become unavoidable Can facilitate greater coordination, communication and information sharing Grow to eventually integrate vertically while maintaining leverage 22

23 MERGER NEGOTIATION AND EXECUTION

24 MERGERS BASIC LEGAL CONSIDERATIONS Structure of Deal Asset merger; Acquisition of equity or Change of control Non-profit/for-profit merger unique corporate and tax considerations Financial Terms Cash at closing; Future payments or capital commitments to business Management and Employment Arrangements Post- Closing Regulatory Considerations Impact on licenses; change of ownership approvals Antitrust issues (potentially) Reimbursement issues (e.g., rate changes) 24

25 DUE DILIGENCE REQUEST LIST + Corporate Records + Government Compliance + Financing + Real Estate + Environmental Matters + Tangible Personal Property + Intangible Personal + Creditors + Employee Matters + Reimbursement + Financial Documentation + List of All Related Party Transactions + Agreements + Miscellaneous + Litigation 25

26 MERGER COMMITTEE Constitute a Merger Committee including both Board members and staff from each agency charged with negotiating the details of the merger Have Merger Committee make, document, and communicate: Type of merger Future corporate structure Name of the future merged organization Structure of the Newco Board New organizational chart Agreement on the acceptable financial parameters Merger timeline How staffing decisions will be made How infrastructure (including HIT) will be integrated 26

27 MERGER PHASE 1 KEY MILESTONES AND AGREEMENTS From NDA to Letter of Intent (LOI) Diligence and Reverse Diligence Meetings among principals to evaluate fit and align assumptions about the transaction and post-merger business LOI (reflecting key transaction terms and next steps) Structure of deal Assets (included/excluded); Liabilities (included; excluded) Financial terms Governance terms Treatment of management and employees Allocation of risk for pre-closing liabilities Required consents and approvals (regulatory and commercial) Exclusivity to Definitive Agreement and Closing 27

28 PHASE II: LOI TO DEFINITIVE AGREEMENTS AND CLOSING Definitive Agreements Merger or Purchase Agreement Employment Agreements Organizational Documents of New Entities Closing Conditions Regulatory Approvals Licenses; Antitrust clearance; Reimbursement Consents (if required) Payers, vendors, contract partners Financing (if applicable) 28

29 POST-MERGER Operations Plan Workforce assessment Integration Cultural Operational Post-merger implementation committee Establish feedback loop Communications plan Strategic plan for NewCo/NewOrg 29

30 LEGAL ISSUES (E.G. DISSOLUTION OF THE LEGAL ENTITY AND ITS BOARD OF DIRECTORS) POST-MERGER STAGE Culture is often a function of leadership style, the two go hand in hand Is there always an acquirer and acquiree? Leadership strategy may be based on assessment or pre-agreement May be natural path to determine where leadership will fit within new organization or partnership arrangement Buy-out or a transition period can be negotiated 30

31 LESSONS LEARNED Know when to walk away Overcommunicate Anticipate New Competitors 31

32 Q&A MEGGAN SCHILKIE Principal HMA RICHARD ZALL Partner Proskauer 32