Taking a Closer Look at Healthcare Trends & Contract Language

Between the ever-shifting regulatory landscape and negotiating intricate contract language, general counsel at healthcare companies have one of the most complex jobs in the legal business.

Recently, attorneys, general counsel and top decision makers across the healthcare landscape gathered at the 2019 Health Law Institute meeting in Philadelphia to discuss these complexities and the various legal challenges and trends facing the industry in the months ahead.

At Buchanan, our attorneys have been on the front lines tackling these issues and offering legal advice for our healthcare clients for decades. Four of our most experienced healthcare lawyers led discussions at the conference surrounding issues relevant to the industry’s legal landscape.

From an overview on big changes ahead to insight on some of the most overlooked aspects of healthcare contracting, here’s a quick snapshot of some of the important topics we covered.

3 Key Developments Shifting the Legal & Regulatory Footing

1. Last year, the shaky status of the Affordable Care Act (ACA) continued to dominate the headlines and will be worth watching again in 2019. Last December, a Texas court issued an order that found the ACA’s individual mandate to be unconstitutional. This decision is being appealed and it will likely take some time before the appellate court makes a decision. In the meantime, the Department of Health and Human Services (HHS) will continue administering and enforcing all aspects of the ACA. However, this order could have big implications for the entire healthcare industry in 2019 because of the uncertainty it raises regarding the future of the individual insurance marketplace.
2. Changes to the Medicare Shared Savings Program (MSSP) are also on the way. The Centers for Medicare and Medicaid Services (CMS) recently issued a final rule regarding the MSSP that contained a number of significant changes to the program, including new rules intended to increase savings, reduce “gaming opportunities,” and promote regulatory flexibility. With this final rule, CMS is indicating it remains strongly committed to alternative payment program design. But whether or not this plays out in the near term or takes longer to come to fruition is yet to be determined.
3. Healthcare companies are no stranger to red tape, which is why CMS Administrator Seema Verma is mulling over how to provide the industry with some regulatory relief. Verma is leading a “Patients Over Paperwork” initiative designed to reduce burdensome regulations that do nothing to advance clinical care. She is also undertaking a “Meaningful Measures” initiative that takes a new approach to reducing the burden of reporting on all providers. If either of these initiatives make any progress in 2019, it could result in an easier, more simplified operating environment for the industry.

Negotiating Boilerplate Provisions

Trivialized by some, boilerplate provisions are perhaps the most overlooked portion of a legal agreement. In some cases, the reader doesn’t realize these provisions are important or substantive in any way, and in other instances, the reader is simply suffering from tired eyes by the time they reach the end of a long legal contract and chooses to gloss over them. And that’s a problem.

Boilerplate provisions are substantive provisions that deserve the same detail and attention as the rest of an agreement. When negotiating agreements, here are three examples of boilerplates provisions that parties should pay closer attention to.

• Entire agreement clauses, when written effectively, these provisions can prevent any prior negotiations or preliminary agreements from being of any further force and effect after a subsequent agreement is entered into. But these clauses, if not correctly drafted, fail to limit the scope of the limitation to the subject matter of the specific agreement, and thus potentially negate all other agreements between the parties. Additionally, an entire agreement clause should include other necessary agreements by name that are intended to be part of the agreement, and likewise list specific agreements that are intended to be superseded. Moreover, the parties should not rely on a generic entire agreement clause to terminate a prior agreement, but rather should include language in the entire agreement clause, other sections of the agreement, or in a separate agreement between the parties to expressly terminate a prior agreement.
• Arbitration provisions are key to keeping disputes related to the contract outside of the courts, if desired by the parties. But attorneys must set the scope of the arbitration in these provisions. Does it include all disputes or claims? How about equitable remedies? These provisions should also specify the location for the arbitration, indicate the number of arbitrators, how the arbitrators are selected, and set forth whether the arbitrators should have any expertise. Additionally, the parties should consider timing for arbitration and make sure that the arbitration procedures match the applicable arbitration rules.
• Remedy provisions are another area where parties may run into difficulty. Many times, an agreement provides that the indemnification provisions of the agreement (together with permitted equitable remedies) are the sole remedies available to the parties. These limitations are often the subject of many hours of negotiation between the parties. In the boilerplate provisions, however, there is often a statement that remedies are cumulative, which can override and contradict the heavily negotiated sole remedy provisions set forth in the indemnification section of an agreement. This contradiction may expose a party to greater liability than was anticipated.

The Art of the Term Sheet & Letter of Intent

In any healthcare transaction, the term sheet or letter of intent (LOI) serves as an important document that sets the tone for the rest of the contract. In this stage of the transaction, parties can identify key issues or potential points of contention early in the process. This can spare hours of negotiating time later on and even save the transaction from terminating in some cases.

Put simply, when parties circumvent the LOI and term sheet stage, they often incur significant costs when they inevitably confront fundamental issues that could have been dealt with and discussed at the onset. While general in scope, attorneys must follow these fundamentals when negotiating term sheets and LOIs in healthcare transactions:

• Be as specific as is practical on fundamental terms, including limits and buckets on indemnification.
• Anticipate breakups or withdrawals before and after the transaction has closed.
• State that both parties will bear their own costs and expenses throughout the transaction process.
• Always obtain signature of parties to the LOI or term sheet, no matter what.
• Subject legal binding of the transaction to the delivery and execution of definitive documents.
• Define termination events and effects with precision and specificity.

To be successful in 2019, general counsel in the healthcare industry must keep an eye on the regulatory and legal developments that will define the industry while still focusing on contract negotiation fundamentals. Whether it be writing boilerplate provisions or a letter of intent, no detail is too small, and healthcare attorneys must do everything they can to make sure the contract is iron clad.