CHICAGO — With increased state attorneys general scrutinizing business transactions, senior living and other providers would be best served by “getting their house in order” before contemplating a merger, affiliation or other change in control, according to legal experts.
Attorneys general are asserting greater oversight — and often imposing restrictions — on sales, mergers, affiliations, strategic alliances, certain joint ventures and other financial transactions to promote the public interest, according to a panel of legal experts speaking in a session on the first day of the LeadingAge Annual Meeting, providing their perspectives on what is becoming a national trend.
Pamela Kaufmann, a partner with California-based Hanson Bridgett, said there has been an “extreme rise” in long-term care-related transactions, in part, as a result of the COVID-19 pandemic. Single-site providers or those that had been struggling with occupancy before the pandemic were hit hardest, she said.
Staffing challenges also brought an influx of buyers purchasing stand-alone nonprofit facilities that are finding it increasingly difficult to sustain their missions, according to Paula Sanders, a principal with Pennsylvania-based Post & Schell. For the past couple of years, money was cheap compared with today’s tightening lending market, she said.
To prepare for the likelihood of a deeper dive into those deals by state legal authorities, the panelists recommended that organizations coordinate all state approvals ahead of time, engage with “competent counsel” and know the other party involved in the transaction.
Healthcare providers face most scrutiny
Taking a big-picture, California view of the process, Kaufmann said, the increased scrutiny of such deals can be traced back to deals involving nonprofit hospitals. However, any nonprofit seller that operates a health facility, including a continuing care retirement community or multilevel retirement community that includes a skilled nursing facility, has to provide notice to the state and go through a potentially lengthy and complicated review process.
In addition, Kaufmann said the public notice and public hearing requirements can lead to public pressure — including from staff and residents of affected communities — to look more closely at such deals.
Sanders said that nonprofits looking to exit the healthcare business are going to be asked about what will be done with the proceeds and what will happen to their charitable assets. Case law is developing around nonprofits trying to take the sale proceeds and put them into a foundation or create another avenue of fundraising or grantmaking, she said, adding that it’s a whole new dimension brought into a deal, particularly if a nonprofit has had a long history of receiving restricted grants or funds.
“Each one of those restricted assets goes through this attorney general review to make sure the proposed plan is consistent with what that the beneficiary designated,” Sanders said. “It’s very complicated.”
Many times that scrutiny is triggered by residents and staff members who notify the attorneys general of concerns regarding deals and how they will be affected, she said. In most cases, misunderstandings surround deals by residents, but attorneys general are more inclined to consider them, she said.
Glenn Fox, executive vice president and general counsel for Pennsylvania-based not-for-profit operator Acts Retirement–Life Communities, said operators have to work through those as best they can and answer the questions of the attorney general.
Although most of this scrutiny is taking place in 11 states — California, Connecticut, Delaware, Massachusetts, Nevada, New Jersey, New York, Pennsylvania, Oregon, Rhode Island and Washington — Fox warned attendees not to be fooled that it can’t happen in other states.
Fox pointed to the failed merger in Minnesota between Sanford Health, a large health system that includes the Evangelical Lutheran Good Samaritan Society, and Fairview Health Services, which includes Ebenezer Senior Living. The Minnesota attorney general received “thousands” of complaints that eventually led to the two organizations withdrawing from discussions of a merger.
Kaufmann said that attorneys should be prepared to explain the context of the deal and not assume that the attorney general is necessarily familiar with the intricacies of the business transaction or the history of the client.
“One big frustration is the time allotted to the review and public hearing process, which can take 135 days or longer,” she said. “At some point, either the seller fails financially or the market changes and the buyer changes its mind. Delays can cause a deal to crater.”
Kaufmann said that sellers need to “get their house in order” before starting down the path of a merger or sale.
The LeadingAge Annual Meeting, which had attracted 5,497 total registrants as of Sunday morning, already more than last year’s annual meeting in Denver, according to an association spokesperson, continues through Wednesday.
