"Sunshine Law Shining a Light on Governmental Hospital Transactions" Ken Marlow in The Governance Institute's Public Focus 

December, 2019 - Ken Marlow

Governance and social factors play a significant role in determining a hospital’s openness to change and its ability to complete a business transaction, be that a merger, acquisition, or other strategic partnership. For government-owned hospitals, tension between the goals of government entities and the goals of a hospital’s board, in addition to added legal complexities, may result in failed or generally avoided transactions.

One of those complexities, sunshine laws, require governmental hospitals to make certain proceedings and information available to the public. While the goal of increased transparency of a hospital’s financial relationships is arguably noble, the additional disclosure requirements placed on governmental hospitals can put them at a disadvantage in terms of executing a partnership process.

As one of the factors behind the more arduous and subsequently slower innovation among governmental hospitals, sunshine laws should receive due attention from governmental hospital owners, hospital board members, and any system that seeks to form a partnership or other combination with a governmental hospital.

Impact to Hospital Transactions

Sunshine laws require transparency with regard to the details of pending hospital transactions, but that transparency is often counter to the interests of a competitive partnership process. A competitive process depends, to some degree, on the various parties not knowing the financial and non-financial terms offered by their competitors. Sunshine laws may run in opposition to this premise by pushing the parties’ terms into the public sphere.

Similarly, sunshine laws may allow competitors to review materials associated with a partnershipproposal, including strategic information or other valuable competitive intelligence. Other non-governmental parties, like nonprofit health systems seeking to enter into a new relationship with a governmental hospital, are also wary of the public nature of the process, fearing that the release of proposal terms may impact their ability to negotiate effectively in future transactions with other parties.

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