Payor & Reimbursement Considerations New York ASC Symposium ASC Mergers & Acquisitions October 15, 2015

M&A Insurance Implications ASC Merger or Hospital/ASC JV \344614(pptx) Will reimbursement increase as a result of a merger or JV — myth or fact? Can you share contract/ reimbursement information as part of due diligence? Why and when do you need a Chinese wall or “firewall” to assess the financial implications of an ASC merger or JV? 1

Do the joint venture participants provide any of the same or comparable practice areas or services? In other words, do any of their services overlap or compete with each other? Do the joint venture participants compete in the same geographic service area? Do they draw a significant number of patients from any of the same or overlapping areas? Payor Information & Compliance \344614(pptx) PAYOR CONTRACTS AND RATE INFORMATION Questions to Answer … 123 2

Why are these questions so important? » If the providers are competitors, sharing specific information regarding payment rates or charges, can result in violation of payor contract terms and also have legal implications relevant to antitrust and price fixing » Assessing the financial implications of the merger of competitors, is often conducted by a third party, which creates a “firewall” to ensure that rates and specific payor contract information is not shared amongst providers » The financial implications on each provider is typically assessed in aggregate form, such as total revenue and does not include details on charges, reimbursement rates or specific payor information » Always seek legal counsel to ensure compliance! Payor Information & Compliance (continued) \344614(pptx) 3

Other Insurance Considerations With Mergers and Consolidation \344614(pptx) PAYOR CONFIDENTIALITY AGREEMENTS & CLAUSES Contract Terms and Provisions should be Reviewed! »How does your merger impact the payor’s network? »Patient access? »Service expansion? IMPLICATIONS OF MERGERS & CONSOLIDATION ON PAYOR CONTRACTING 4

What About Payor Confidentiality Agreements? \344614(pptx) » Payor contracts contain confidentiality clauses that prohibit providers from sharing contract and rate information » Sharing contract and rate information as part of due diligence, most likely will violate the terms of an insurance contract and can result in termination of your contract 5

Due Diligence! \344614(pptx) Can You Really Increase Reimbursement by Merging Together? 6

1.The surviving legal entity’s contracts will typically remain in place assuming the merger maintains one TAX ID number and a new legal entity is not formed unless there is M&A language that allows for modification of the contract 2.Check contracts for M&A language that results in lower value contract surviving the merger 3.New legal entity may be subject to a new contract negotiation 1.Payor M&A contract language should be reviewed to assess implications of merging providers together 2.Adding a new provider to an existing contract is typically dependent upon contract language and legal structure 1.Reimbursement implications are highly dependent upon contract language, payment methodologies & ASC case mix 2.Providers that offer access for patients to greater geographic coverage and enhanced services, typically provide greater value to a payors’s network 3.Contracts with affiliate language can improve reimbursement Due Diligence! (continued) \344614(pptx) MERGING YOUR ASC WHICH CONTRACTS PREVAIL? WILL REIMBURSEMENT INCREASE?

Merging & Payor Contract Implications \344614(pptx) If the merger results in forming a new legal entity, third party insurance contracts should be reviewed to determine if contracts may be assigned to the new entity Payors may or may not allow assignment of an existing contract to a new legal entity In New York, many ASCs are single specialty; therefore, merging two ASCs with different specialties may have a meaningful impact on payor contracting and reimbursement Negotiating a new contract may be necessary if there are meaningful differences in the surgical services provided at the new ASC Review of termination clauses, merger and acquisition language is critical to the financial success of a JV or provider consolidation! Do not assume that a contract can be assigned to a new entity or an existing entity as a result of a merger or acquisition; it depends upon the legal structure coupled with the contract terms Review language that may impact the ability to retain payor contracts CHECKLIST… 8

Questions \344614(pptx) Naya Kehayes Principal