The challenges and costs imposed
by healthcare reform, coupled with
maintaining aging facilities and
coping with declining reimbursement,
rising wages, and the shift of care
from an inpatient (hospital) setting to
a lower cost outpatient setting, have
created financial distress for many
community hospitals. As distressed
hospitals face these headwinds, many
determine that a sale to a larger health
system is an attractive option.
As reflected in Figure 1 (page 18),
hospital transactions have increased
substantially since the ACA became
law. A sale to a larger health system or
for-profit hospital operator can provide
a range of benefits to a community
hospital, including access to capital
markets to fund necessary investments
in facilities and technology, greater
negotiating power with payors and
vendors, additional clinical expertise,
Hospitals play an important role in local
economies and are often one of the
largest employers in the communities
they serve. The decision to sell a
distressed community hospital can be
a politically charged event that will be
heavily scrutinized by stakeholders,
the local business community,
regulatory authorities, and creditors.
The hospital board will be under
significant pressure to “get it right”
and to defend its decision process.
When a board begins contemplating a
sale, it should retain experienced legal
counsel and an investment banker to
assist in evaluating strategic options.
Separately engaging an independent
financial advisor to perform a valuation
of the hospital early in this process
can provide another valuable tool
as the board explores its options.
Defending Sale Decisions
Nonprofit board members are fiduciaries
of a hospital and are entrusted with
overseeing its charitable mission.
Specific duties of the board include:
• Duty of Care. Board members
must actively oversee the hospital’s
affairs and be informed about
decisions for which the board is
responsible. Board members must
question information that appears
to be incomplete or lack validity.
• Duty of Loyalty. Board members
must put their duty to the hospital
ahead of any personal interests.
• Duty of Obedience. Board members
have a duty to adhere to the
hospital’s charitable mission. 3
continued on page 18