3. How Much Rollover from PPM 1.0 is Enough Rollover for PPM 2.0? Considerations for PPMs Structures Related to Physician Rollover Equity in the Second Sale Transaction BY ANGELA HUMPHREYS Many first-generation physician practice management (PPM) platforms have experienced myriad physician alignment issues with recruiting and retaining their physician partners. In addition, first-generation platforms that provide physicians with full tag-along rights have had to navigate physician buy-in and rollover equity in their “second transaction” exits. Many of these issues can be addressed on the front end with modifications to transaction structures. When evaluating new physician platforms or add-on transactions in the coming year, consideration should be given to items such as: • Tying a portion of the rollover equity vesting schedule (anywhere from 20-50%) to a parent company exit transaction. • Limiting tag-along rights to only a portion of the rollover equity (50-70%) so that physicians still have some skin in the game with the second buyer following the first parent company exit transaction. • A clawback of cash proceeds (such as 20% per year) if a physician stays less than some time period (typically five years), including mandating that the sellers address this issue with an escrow on the sell-side of the transaction. • Including local MSO joint ventures in combination with parent rollover equity to allow for ongoing distributions to physicians at the local practice level, either with or without put/call liquidity for some or all of the local MSO equity in a parent company exit transaction. 4. Employee Retention Tactics and Trends for 2023 BY LYMARI CROMWELL Staffing shortages and the constantly-evolving landscape of employment laws are current complicating factors with respect to employee retention. Below are some ideas to keep in mind when facing shortages or retention issues: • Using benefits such as mental health days; unlimited PTO; four-day workweeks; and monetary incentives, such as rolling retention bonuses (i.e., retention payment every quarter or every month), instant reward apps and on- demand wage payments. Employers should seek counsel before rolling out these benefits and incentives, as they may implicate state or federal laws related to wages, hours, paid time off, etc. • Using independent contractors to fill hard-to-fill positions. However, some states – such as California, Illinois and Massachusetts – have stringent requirements to properly classify a worker as an independent contractor. Also, the U.S. Department of Labor (DOL) has issued a proposed rule to rescind the DOL’s current independent contractor rule adopted under the Trump administration. The proposed rule would restore the DOL’s prior multi-factor test, a more stringent rule when analyzing the classification of independent contractors. A legal review of any proposed engagement of an independent contractor is essential to avoid potential liability. • Using contractual obligations to combat turnover, such as entering into an employment agreement with an employee and including a liquidated damages provision in the event the employee fails to provide a certain notice period (i.e., 30 days, 60 days, etc.) upon resignation. Another example is adding a liquidated damages provision to an employee non-solicitation provision in an employment or restrictive covenant agreement. The goal is to prevent employee raiding by employees who leave the employer and go elsewhere. There is no question that employers today must be creative and flexible to recruit and maintain a stable workforce, but they should do so in a manner that does not run afoul of local, state and federal employment laws.
3 HEALTHCARE PRIVATE EQUITY: 2023 OUTLOOK & TRENDS IN M&A |
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