What Is A Member Substitution Agreement

1. Membership Replacement / Share Transfer. This structure is most common for hospital businesses and typically involves a nonprofit buyer and seller, Carnell said. These are often non-cash operations where the largest hospital takes over the responsibilities of the smaller hospital and one of the parties becomes the corporate member of the other. One of the benefits of this type of transaction is improved access to clinical resources. An example of this type of transaction is the agreement announced last year between Meriter Health Services in Madison, Wisconsin, and UnityPoint Health, based in Des Moines, Iowa. Meriter continued to join UnityPoint and ended up retaining a significant amount of local authority, Carnell said. There are three main ways to acquire or sell a business: a purchase of assets, a merger or sale of shares (or the substitution of members in the case of a not-for-profit corporation). 4.

Management Services Agreement. According to Walker, hospitals and healthcare systems may also choose to look for “alternative” transaction models that are not sold in full, one of which is a management contract. Under a management agreement, a health care system typically provides management services to a hospital for a fee. This is the most common structure between the merger of non-profit hospital systems and corresponds to a share sale transaction: the seller transfers his ownership to the non-profit acquirer who becomes the new “member”. The seller`s business structure usually remains intact, but ownership and control are transferred to the new parent company, which is usually also responsible for the seller`s debts. “We`re finding that our customers have a vague, broad understanding of what many, but not all, of these structures offer,” Shields said, “and they`re excluding things because of that general understanding.” Instead of deciding, for example, that only a seller`s joint venture makes sense, a hospital should go to market, receive various suggestions in real time, make comparisons – and only then make M&A decisions. An example of a management services agreement is the proposed affiliation between Nash Health Care Systems in Rocky Mount, N.C., and UnC Health Care, based in Chapel Hill, N.C. The proposed agreement does not involve the sale or exchange of assets, and Nash retains ownership while gaining access to UNC`s management and operating resources. Management agreements have some drawbacks.

They tend to achieve fewer economies of scale than mergers, according to Shields. Although the hospital retains local ownership in the legal sense, control shifts in practical terms, and these agreements have the potential to turn into progressive gifts where the hospital is taken over by the system for little or no economic or non-economic consideration. The hospital can benefit from better contractual services, integration of billing and IT, and access to system resources, while maintaining local governance and legal independence. If organizations want to terminate this type of agreement, it is also much easier to cancel a merger than to cancel a merger. These relationships are usually long-term contracts of 10 to 25 years. Member Replacement Transaction: The buyer will usually become the only member of the target company with the power to appoint all or some of the members to the board of directors of the target company….