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Management Contracts: When Good Intentions Can Lead to Disastrous Results

Bracewell’s Brian Teaff and Todd Greenwalt examine management contracts with co-author Jennifer Gurevitz in a recent American Health Lawyers Association PG Briefing.

After months of meetings among various departments, financial advisors, bond counsel and underwriters, the tax-exempt bonds have been issued and the proceeds have been deposited into various funds. Construction has begun. With a little luck, the much-needed cafeteria expansion should be up and running in no time. The only thing left to do is engage a third-party company to manage the hospital’s food services program. That should be a piece of cake, right? Yes—sort of…

Governmental and tax-exempt health care systems often outsource the management of all or a portion of their facilities to third-party companies to enhance efficiency, mitigate risk, and, in certain cases, increase revenue. However, if not properly structured, a third-party management contract can result in private business use of bond-financed property—that, depending upon the amount, could result in the bonds losing their tax-exempt status.

Download the entire AHLA article below: