Steven M. Harris, Esq.
After extensive research and careful deliberation, you have finally made the exciting but daunting decision to purchase a healthcare practice. You know that in the next couple of months you are going to need to examine the practice from a different perspective—one of a future owner. You also recognize that in order to facilitate the transaction process, you are going to need to hire sophisticated legal and accounting teams that will be able to help negotiate the transaction and memorialize the parties’ mutual understanding in fair and definitive documents. But what else should you expect with respect to acquiring your future practice? How can you prepare?
Much of the diligence, documentation and negotiation in healthcare transactions resemble other types of transactions. However, healthcare-specific transactions also present unique, complex issues and requirements. Knowing what to expect and how to navigate through the transaction process will not only help curtail your legal fees, but will also help alleviate some inevitable stress throughout the transaction. Although a wide variety of issues may present during a healthcare transaction, two critical matters definitely need to be addressed.
Payer Issues
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When purchasing any business, it’s critical to understand the business’ financial strengths and weaknesses by analyzing its financial statements, books and records. This analysis is important not only to understand the value of the business, which will help determine the purchase price, but also to understand the future growth potential of the business and whether purchasing it would be a lucrative investment. One financial area that is specific to healthcare transactions, and may be worth having an expert examine, is the history of payments made by payers. It is critical to understand whether the practice has been billing insurance payers appropriately or, alternatively, whether the payers have been paying the practice correctly.
This is critical for a potential buyer because of the possible ramifications of overbilling or underbilling. For example, in some transactions, such as stock deals, a buyer is responsible for the company’s liabilities, some of which the buyer may not have known about during the transaction. If a medical practice has been overbilling its payers and the buyer purchases the practice in a stock deal, after the transaction is closed, the reimbursement of those payers would generally be the buyer’s responsibility. Even in an asset purchase, a buyer needs to understand that any purchased accounts receivable are subject to recoupment by the payers if payments were made in excess of allowable reimbursement.
