Our hospital affiliation team works with nonprofit and governmental hospitals nationwide to structure responses to the challenges currently facing providers resulting from reductions in reimbursement, cost increases and the inevitable need to produce efficiencies and respond to competitive pressures. Our focus is nationwide, but our local presence as financial advisor in many of the states where our affiliation transactions occur provides a knowledge base that our competitors lack.

We advise primarily nonprofit and governmental healthcare providers across a number of sectors on a wide variety of transactions and engagements ranging from long-range financial and capital planning services to strategic transactions such as mergers and acquisitions, sales, long-term leases, recapitalizations and joint ventures as well as the implementation of strategies such as hospital/ physician alignment and joint operating, affiliation and management agreements. Some structures can produce required efficiencies without a change in control. Other structures are utilized typically where capital needs predominate and do result in a change in control. We will not recommend a structure that effects a change in control if something less will suffice.  Providers are considering a number of structures, depending on objectives.

Strategic Affiliation. In situations where the parties wish to avoid a change of control (and in which financial pressures don’t predominate), a strategic affiliation agreement can provide benefits to both parties by permitting the smaller entity access to services provided by the larger entity, permitting the larger entity to transfer some costs to the smaller entity and allowing the smaller entity the ability to access those services without duplicating the total cost of providing them. A strategic affiliation can produce a variety of benefits to the smaller entity, including system branding, access to system GPO pricing, access to system expertise and quality initiatives and leadership development and education opportunities.

Special Membership Transaction. Changes in control between nonprofit entities can be effectuated by the nonprofit “acquirer’ becoming the sole member of the nonprofit entity to be acquired. In situations in which the parties do not wish to effectuate a change in control, a nonprofit entity can acquire a minority membership interest in the smaller entity in return for a capital infusion or other benefits to the smaller entity and would receive (minority) board representation consistent with its investment and would retain certain reserved powers to protect its investment.

Acquisition or Sale. A sale (including an asset sale, a sole member substitution and a whole hospital joint venture) involves a change in control. It can be implemented as a result of a desire to produce efficiencies; it is often implemented following a decision that the prospective seller cannot survive long term as a stand-alone facility. The buyer can be a for profit or nonprofit entity. Negotiations revolve principally around purchase price and the type of commitments required by the entity proposed to be acquired. We will provide valuation services and will negotiate the terms of the transaction, including financial (capital commitment), mission (maintenance of healthcare quality in service area), and governance (board seats, other retained powers) issues. Change in control transactions between nonprofits are often effectuate by the nonprofit “acquirer” become then sole member of the nonprofit entity to be “acquired”.

Long Term Lease. Public hospitals are most often acquired by “lease”. Our healthcare team represents a significant number of public hospitals and has developed an expertise managing lease negotiations between governmental lessors and provider lessees. In recent years a long term (prepaid) lease structure has been utilized by nongovernmental hospitals to effectuate a change in control while maintaining certain reserved powers.

Whole Hospital Joint Venture. In a whole hospital joint venture, the hospital is sold or leased (on a fully prepaid basis) to a joint venture entity. The joint venture has two partners: a for profit entity owning a majority interest in the joint venture and the nonprofit entity owning a minority interest in the joint venture. Governance of the joint venture is split 50-50 between the for profit and nonprofit entities and block voting prevails The nonprofit owner retains the unilateral power to name the chairman of the joint venture governing board, terminate the Chief Executive Officer of the hospital and terminate the joint venture itself if it fails to meet Community Benefit standards.

Limited Joint Venture. A limited joint venture is utilized in a variety of situations to provide for the sharing of costs of a major capital improvement or for needed capital or management expertise to an existing facility or system. Typically, governance is shared based upon the relative amounts of property contributed by each, but is influenced by other factors as well.

Management Contract. A management contract transfers day-to-day operations to a third party manager while maintaining ultimate control in the managed entity’s board.

Representative experience includes:

  • Advising a multi hospital nonprofit system in connection with the sale of its facilities to two investor-owned systems following completion of a rigorous auction process
  • Advising a governmental hospital in connection with a strategic affiliation with a major nonprofit healthcare system that produced, for our client, system branding, participation in system GPO pricing and access to system leadership development and quality initiatives, with no change in control.
  • Advising a sole community provider in connection with the long term prepaid lease to an investor-owned system of its facility and of a replacement facility financed with the proceeds of the prepaid lease
  • Advising a specialty hospital operator on joint ventures with a publicly-held hospital management company and a nonprofit health system
  • Advising a nonprofit hospital in connection with the acquisition of its investor-owned competitor
  • Advising a physician owned hospital in connection with its sale to a nonprofit system
  • Advising a state university medical school on a joint venture with an operating and capital partner to build an academic teaching hospital
  • Advising several nonprofit health systems in connection with the sale of their hospitals in processes involving both nonprofit and investor-owned healthcare delivery systems
  • Coordinating the sale of a nonprofit healthcare system through a Section 363 Bankruptcy proceeding
  • Advising nonprofit healthcare systems in connection with the disposition of such as home health, hospice and personal care business lines as well as extended care and senior living facilities
  • Advising a governmental-owned health system on a long term lease Agreement with a joint venture comprised of a nonprofit and an Investor-owned hospital management company
  • Advising a governmental-owned health system on the sale, lease or joint venture of its healthcare facilities
  • Advising an investor-owned hospital management company on a joint venture with a nonprofit physician led organization
  • Advising a publicly-held hospital management company on multiple purchases of acute care hospitals and health systems, including bankruptcy 363 acquisitions
  • Assisting one of the largest academic children's health systems in the United States with the development of its long-range financial plan
  • Assisting a major academic medical center in the preparation of a long-range financial plan reflecting the benefits of a merger with its affiliated medical

To learn more about our nonprofit and governmental hospital affiliation services, please contact:

Bruce Kelley
602.224.7111
bruce.kelley@hilltopsecurities.com
Christopher Janning
214.953.4042
christopher.janning@hilltopsecurities.com
Michael Newman
214.953.8875
Michael.newman@hilltopsecurities.com
Jonathan Church
713.654.8687
jonathan.church@hilltopsecurities

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