Researching hospital liabilities in a healthcare M&A is part of the due diligence process to uncover any malpractice suits. The legal due diligence will uncover the target’s history of malpractice lawsuits and current or potential future litigation. According to the National Practitioner Data Bank, [1] medical malpractice payouts amounted to $3.9BN in 2017.[2] All states require healthcare facilities to carry adequate malpractice insurance. The standard amount of coverage varies by state and may be up to $3M per year. Insurance due diligence is designed to analyze the target’s current insurance to verify adequate coverage. High litigation payout will increase the hospital’s insurance premiums, which may significantly devalue the target and put the deal in jeopardy.
The Doctor-Patient Relationship is Key
Malpractice lawsuits can have a substantial effect on a hospital’s bottom line regardless of the outcome. The doctor-patient relationship is the cornerstone of the healthcare market. News of news negligence or other suites may make patients reluctant to seek medical help from that facility.[3] Malpractice may also drive the overall cost of healthcare up. Malpractice suits commonly result in million-dollar settlements. The cost of which is transferred to the consumer. Liability insurance premiums can skyrocket after a lawsuit which may result in a doctor seeking new jurisdictions from which they can work. Also, defensive medicine will be a concern for doctors prescribing unneeded medical tests to protect themselves from malpractice claims. [4] All of these factors are considerations made during the due diligence process in an M&A transaction.
In conclusion, researching hospital liabilities in a healthcare M&A is an important part of the due diligence process. Uncovering any malpractice suits and analyzing the target’s insurance coverage is crucial to assessing the potential risks and liabilities of the deal. Malpractice lawsuits can have a significant impact on a hospital’s financial and reputational well-being, as well as the overall cost of healthcare. It’s important for all parties involved in an M&A transaction to thoroughly review and consider the potential liabilities and risks associated with a healthcare facility, in order to make informed decisions about the deal.
[2] https://www.capson.com/medical-malpractice-insurance-by-state
[3] https://online.tamucc.edu/articles/malpractice-and-its-effects-on-the-healthcare-industry.aspx
[4] https://online.tamucc.edu/articles/malpractice-and-its-effects-on-the-healthcare-industry.aspx
