Avoiding Litigation in Healthcare Deals That Go Sideways
Healthcare deals in New York are very complicated. To avoid litigation, you have to watch for regulatory issues, financial concerns, and complex corporate practice of medicine (CPOM) laws. In New York careful planning and the guidance of a highly experienced attorney is essential.
The medical transaction attorneys at Daniels, Porco & Lusardi, LLP know how to help you avoid litigation whenever possible. Just because things have gone sideways doesn’t necessarily mean this has to end up in court. The right negotiation and clean-up could make all the difference.
Why New York Healthcare Deals Are Prone to Disputes
New York’s regulatory environment is one of the strictest in the country. The Corporate Practice of Medicine doctrine, fee-splitting prohibitions, professional entity ownership rules, and heightened scrutiny of management services organizations (MSOs) all create structural risks. Add in private equity investment, physician employment transitions, and post-closing performance metrics, and it becomes clear why disputes arise.
Common triggers include:
- Disagreements over MSO fees, scope of services, or compliance with CPOM
- Earn-out or performance-based compensation disputes
- Alleged breaches of non-compete, non-solicitation, or restrictive covenant provisions
- Claims of improper control over clinical decision-making
- Breakdowns in governance or voting rights within professional entities
- Post-closing financial surprises or misrepresentations
- Conflicts over patient data access, EHR migration, or record retention
Strengthen Pre-Closing Due Diligence
One of the most effective ways to avoid litigation is to identify and address risks before the deal closes. In New York healthcare transactions, due diligence must go beyond financials and operations.
Key areas to scrutinize include:
- Regulatory Compliance: CPOM, fee-splitting, billing practices, licensure, and scope-of-practice issues
- Corporate Structure: Whether the professional entity and MSO arrangement is properly designed
- Employment and Contractor Agreements: Compensation models, restrictive covenants, and termination rights
- Financial Representations: Accuracy of revenue, payer mix, accounts receivable, and liabilities
- Data and Technology: EHR ownership, data-sharing rights, and HIPAA compliance
Draft Clear, Detailed Transaction Documents
Ambiguous or poorly drafted documents are one of the biggest issues—and a common reason for litigation. Parties should invest the time and resources to structure agreements properly from the outset.
Important provisions include:
- MSO service descriptions and fee structures that align with New York CPOM rules
- Governance and voting rights for professional entities
- Earn-out formulas with objective, measurable criteria
- Dispute resolution mechanisms
- Termination rights
- Consequences for both parties
- Data ownership and access rights, especially during transitions
- Post-closing cooperation obligations for billing, credentialing, and regulatory filings
Maintain Strong Communication After Closing
Many deals go sideways because of poor communication, even without other legal issues. The different parties might have different expectations of the deal, or may not fully understand New York law and its limitations.
To reduce communication issues, you should:
- Establish regular governance meetings
- Document key decisions and approvals
- Communicate financial performance clearly
- Address operational concerns early
- Ensure physicians understand compliance obligations and reporting structures
A well-managed relationship is far less likely to devolve into litigation.
Use Dispute Resolution Tools Before Litigation
When disagreements happen, you can take steps besides litigation to try to resolve them. Many agreements spell out what those options include, while others do not. Either way, effective tools often include:
- Mediation: A neutral mediator can help parties find common ground before positions harden
- Arbitration: Faster and more private than litigation, often preferred for sensitive healthcare disputes
Work With a New York Healthcare Transaction Attorney To Fix Your Healthcare Deal
Have a deal that’s gone sideways? Or, do you want to avoid it ever going sideways to begin with? Our highly skilled healthcare transaction attorneys know what it takes to avoid litigation in these situations and what to look for from the outset.
The attorneys at Daniels, Porco & Lusardi, LLP are ready to help. Contact us today for a consultation.