By: Kevin Brady. Esq.
While businesses that are considering a potential merger or acquisition have a lot on their plates, one thing that should always be addressed is the impact that the transaction may have on the benefit plans of both the buyer and the seller. While it probably does not represent the biggest concern, overlooking the potential impact on benefit plans can cause major headaches when it comes to potential mergers and acquisitions.
Because the impact on the benefit plans will often be determined by the nature of the transaction and the specific agreement between the buyer and seller, it is important that both parties are aligned when determining how benefits will be provided to the affected employees after the transaction is complete.
For our limited purposes, there are typically three types of transactions (that all have varying impacts on the benefits side) when it comes to mergers and acquisitions — an asset sale, a stock sale and a merger.
In an asset sale, the buyer will typically purchase selected assets from another business, such as a particular department, facility or service line. The employees who are affected by the transaction are typically considered terminated and immediately rehired by the new employer.
The buyer does not have a legal obligation to hire those employees but often will do so if it aligns with their business practices. Those employees, while they may not notice a significant change in their employment or benefits, are most likely going to be considered terminated and immediately transitioned to the new employer’s health plans.
Generally speaking, buyers do not continue ERISA benefit plans in asset purchases. Some, if not most, continue to offer similar benefits either under an existing employer group health plan or a new plan established after the purchase of the assets. If the buyer intends to offer similar benefits under their existing plan, they must ensure that their plan document supports coverage for these individuals.
On the other hand, in the event of a stock purchase, the buyer will typically “step into the shoes of the seller” in terms of the rights and responsibilities of owning said business. This includes health benefit plans. The employees of the seller are generally not considered terminated in the event of a stock purchase, although this does not guarantee future employment, and plans in effect at the time of the sale are typically continued after the stock purchase has taken place.
Finally, in a merger, two entities will combine to become one business entity. As with the other types of transactions, changes to health plans during a merger are likely to occur. In this situation, similar to a stock purchase, the employees are not considered terminated at the time of the merger, and if a benefit plan was in effect at the time of the merger, those benefits will likely be continued after the transaction is complete. However, the impact on a particular entity's benefit plan will often be determined based on the specific agreement between the parties.
The current state of the economy could make providers more likely to consolidate as healthcare providers face unprecedented financial pressure. This is why it is so crucial to understand how the different types of transactions could affect health plans.
As the nature of the transaction will have a major impact on benefit plans, it is always important to discuss the intent of both parties as it relates to the affected employees and their benefits.
Often, a potential merger or acquisition will include a thorough review of an entity’s compliance and may address the following concerns:
These are all questions, among many more, that should be asked and answered before moving forward with a potential merger or acquisition.
It is crucial that the buyer or the new entity ensure that they are in compliance as it relates to their new employees and the benefits being offered to them. Buyers and sellers who could find themselves in a potential merger or acquisition should keep these things in mind as they move forward with those decisions. While a potential merger or acquisition can be a great thing for those involved, it would be a shame for unidentified issues with a benefit plan to hold things up or even prevent a potential transaction.
As described above, mergers and acquisitions have a significant impact on employer-sponsored benefit plans, especially when they are self-funded. Mergers and acquisitions at the healthcare provider level may have an impact on plan participants as well.
The consolidation of healthcare providers through mergers and acquisitions can also impact the quality of patient care. The impact tends to be either neutral or negative, sometimes impacting care quality or resulting in poorer outcomes. Many healthcare transactions are proposed to improve access to services and better care coordination, but there is not much evidence that shows consolidation improves the quality of care.
However, in some cases, mergers do lead to better patient outcomes. Rural hospitals that undergo mergers, for example, tend to experience better patient outcomes compared to those hospitals that remain independent. Mergers can also allow rural hospitals to remain open. Additionally, mergers may lead to fewer infections acquired in the hospital and reduced in-hospital mortality rates.
In some cases, mergers and acquisitions may also help lower healthcare costs. Since mergers can reduce operating expenses, acquired hospitals can save significant amounts annually. Certain types of mergers can also lead to lower hospital costs, such as reductions in discharge costs.
That said, hospital mergers and acquisitions could lead to increases in healthcare prices. Mergers also diminish market competition, which can give a hospital the ability to charge higher fees and negotiate a higher price from insurance companies. With less competition, this could lead to patients needing to pay steeper expenses.
The impact on healthcare staff can be overlooked, and during a time when physician practices and hospitals are facing labor shortages, recognizing the effect on employees is crucial. Employees going through a merger tend to be more likely to experience burnout and less willing to stay at the organization. A merger or acquisition can result in organizational changes and workflow disruptions that increase employee workloads and burdens. Since technological transitions like new EHR implementation often require additional training, they can also lead to staff frustration.
Finally, the buyer or the new entity must ensure that they are in compliance as it relates to their new employees and the benefits being offered to them. The impact on healthcare staff can be overlooked, and during a time when physician practices and hospitals are facing labor shortages, recognizing the effect on employees is crucial. Employees going through a merger tend to be more likely to experience burnout and less willing to stay at the organization.
A merger or acquisition can result in organizational changes and workflow disruptions that increase employee workloads and burdens. Since technological transitions like new EHR implementation often require additional training, they can also lead to staff frustration.
Buyers and sellers who could find themselves in a potential merger or acquisition should keep these things in mind as they move forward with those decisions. While a potential merger or acquisition can be a great thing for those involved, it would be a shame for unidentified issues with a benefit plan to hold things up or even prevent a potential transaction.
At The Phia Group, LLC, we are familiar with health plan changes during mergers. We are an experienced provider of techniques for healthcare cost containment. Our goal is to reduce healthcare costs via legal expertise, innovative technology and high-quality customer service. We offer several services, including:
Our services are designed to protect plan assets and control costs. We are a one-stop shop for all of your healthcare needs. Contact us at The Phia Group to learn more about healthcare plan changes after acquisitions and how we can help you perfect your health plans.