Health Care Alliances and Conversions

JAMES R. SCHWARTZ is deputy attorney general with the California Attorney General's Office. He is the author of the California Attorney General's Review Protocol for Ownership of Control Transfers of Non-Profit Health Facilities and the principal drafter of California's hospital conversion law. Since 1995, Schwartz has had primary responsibility for overseeing all conversions of nonprofit hospitals within the state of California. H. CHESTER HORN is a deputy attorney general in the Charitable Trusts Section of the California Attorney General's office. Horn drafted the regulations implementing California's hospital conversion law and is coauthor of Deal Makers, Deal Breakers. Horn has reviewed more than a dozen hospital conversions valued at more than $1.5 billion.

• AcknowledgmentsThe AuthorsForewordIntroductionIntroductionFiduciary ObligationsDuty of Obedience to Charitable PurposeStep 1: Find Out to WhetherYou Can Convert Your Hospital at AllStep 2: Determine How You CanSpAnd the Charity's MoneyDuty of LoyaltyDuty of Due CareConclusionStrategic PlanningGet the Board Involved EarlyIdentify the Legally Permissible OptionsDetermine RestrictionsAvoidCommon ErrorsAssemble the Right Team of Experts to Work with Your Management,Identify the Problems, and RecommAnd SolutionsShape Your Options to meet Your Goals and Work with YourCommunityMeeting Your GoalsEngaging the CommunityGive Yourself Enough Time to Make a Reasoned DecisionConclusionPlanning for the Post-Conversion CharityGoal 1: Educate the Affected Community and Involve It in theDecision-making ProcessGoal 2: Create a Structure for the Post-Conversion Charity That IsConsistent with Your State LawGoal 3: Create a Charitable-SpAnding Plan for Your Post-ConversionFoundationThe Historical-Services OptionThe Charitable-ComponentOptionThe Supporting-Organization OptionEstablish an Investment and Management Structure for the ConversionProceedsStep 1:Setting Your Investment GoalsStep 2: Selecting anInvestment AdviserStep 3: Establishing Written InvestmentGuidelines That Include DiversificationStep 4: MonitoringInvestment PerformanceStep 5: Negotiating Terms to Protect theCharity from Loss or Excessive FeesConclusionSelling Your HospitalThe Sale ProcessGetting the Right Advice atthe Right Price: Marketing and Valuation Experts, NegotiatingExpert FeesAvoiding Conflicts of InterestObtaining a FormalValuation: Necessity, Timing, Source and CostUnderstandingValuation Advice: Fairness Opinions and Valuation Opinions,Valuation MethodologiesMarketing Your Hospital: Soliciting Interestby Buyers, Getting the Bidding Started, Auction Sales: Optimizingthe Possibility of Obtaining Fair Market Value, Single-BidderSales: "Shopping the Deal" and Protecting the Price, Choosing the"Best" OfferDocumenting the Agreement: Letter of Intent, DefinitiveAgreementConclusionJoint VenturesKeys to a Successful Joint-Venture AgreementTheTypical Joint-Venture Model: Advantages, RisksPolicyAnalysisInvestment Analysis: What Percentage of Your Assets WillYou Invest? Will Your Returns Equal the Value of the Assets YouInvested? Could You Do Better Elsewhere?Process: Understanding theIssues, Get Fair Market Value, Make Sure the Deal Documents ProtectYouProtecting Yourself and Your Hospital: Understand theLimitations of Your Expert(s), Let the Market Work for You, PursueYour Values, Not Someone Else's, Evaluate Comparable Proposals, BeWary About Using Selection Criteria Other Than PriceStructuring theTransaction: Letter of Intent, Contribution and Sale Agreement,Operating Agreement, The "Put," ConclusionLegal Protections for Directors and Trustees--and the Consequencesfor Failing to Use ThemLegal Protections: Business Judgemnet andCareful Conduct Rules, Delegation, Reliance, and Other SafeHarbors, Directors' and Officers' Liability Insurance,IndemnificationLegal Consequences: Charitable-Trust Civil Actions,Internal Revenue ServiceConclusionAppAndix A: GlossaryAppAndix B: The Law of Fiduciary Duties Affecting Directors andTrustees of Nonprofit HospitalsDuty of Obedience to CharitablePurpose: Defining the Trust, Adapting the Trust to Changing Timesand Circiumstances, Restrictions on he bUse of ConversionProceedsDuty of Loyalty: General Standards, Trust-Law Standard,Corporate-LAw Standard, california standard, real-Life ExamplesDutyof Due Care: Standards in Practice: Good Faith, reasonable Inquiry,Dure Diligence, Process ProtectionsIndex

"James Schwartz and Chet Horn . . . are now the nation's leadingexperts on not-for-profit hospital sales and conversions. Readingthis book is truly learning at the knee of the master. It isindispensable for not-for-profit boards of directors." --from theForeword by Linda Miller, president, Volunteer Trustees Foundationfor Research and Education "This book is a comprehensive primer in the arcane world ofnonprofit hospital asset conversions. It is a ?must read' fornonprofit hospital trustees who are contemplating a sale, lease, orjoint venture with a for-profit company." --Bud Lee, president,California Association of Catholic Hospitals "The guide for decision makers, a how-to-do-it manual for everynonprofit hospital director in America. Our country's health carewill be much improved if directors buy and read this book."--Phillip L. Isenberg, counsel with the firm of Hyde, Miller, Owen& Trost, Sacramento, California; former California StateAssemblyman and author of California's law regulating the sale orjoint venturing of nonprofit hospitals with for-profits