N.J. Health-Care Transaction Attorneys Should Be Wary After State Supreme Court Decision


 

Health-care transaction attorneys in New Jersey may not want to wait for clarification before reviewing all recent transactions and advising clients to ensure that the corporate structures of any joint ownership deals allow the licensed provider to retain control.

It has been almost five months since the New Jersey Supreme Court decided an attorney and a chiropractor may have violated the state’s Insurance Fraud Prevention Act by establishing a joint medical and chiropractic practice that was ostensibly controlled by the chiropractor and not the medical doctor (Allstate Ins. Co. v. Northfield Med. Ctr., P.C., N.J., No. 076069A-27 September Term 2015, 5/4/17).

The court’s decision has left health-care transaction attorneys in the state running back through their files to make sure recent deals didn’t run afoul of the court’s reasoning.

“It’s like walking on a wall where you have sharp sticks on one side and soft pillows on the other,” Michael F. Schaff, an attorney with Wilentz, Goldman & Spitzer PA in Woodbridge, N.J., told me. “It is the little things that you and your clients do while putting together a transaction that steer you either toward the sharp sticks or the soft pillows, and it isn’t easy to navigate.”

John D. Fanburg, an attorney with Brach Eichler LLC in Roseland, N.J., told me he has already seen some deals changed as a result of the court’s decision.

“I have been involved in a private equity transaction that post-dated this decision, and the traditional form of the agreement between the medical practice and the acquirer had to be significantly modified to come as close as possible to the requirements of this decision,” he said.

The fact that the court in Allstate said the attorney who advised on the corporate structure may also be liable under the state civil fraud law presents extra danger for attorneys who assist in these deals. All of the attorneys I talked with said the court’s decision could force some attorneys to think twice before getting involved in a health-care transaction in the state.

Grace Mack, also from Wilentz, told me an added wrinkle to the court’s decision is that even the most thorough review of the transaction documents may not save a deal from running afoul of the fraud law.

“The real issue is who is controlling the health-care practice, and if it’s an unlicensed party that takes precedence no matter what is written down in the documents,” she told me.

Although clarification of the limits of the court’s decision may be on its way, attorneys I spoke with warned of the dangers that lurk, while transactions attorneys or their clients wait for that clarification, were too severe to justify taking a chance.

“It’s very important that attorneys not take a wait-and-see attitude with this decision that could end up causing them or their clients major problems down the line,” Schaff said.

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