What Rheumatologists Should Know about Purchasing a Healthcare Practice

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.

Therefore, it is critical to understand whether the practice has been billing timely and appropriately and whether the appropriate payments have been made to the practice.

Another issue to understand related to payers is that rates set by payers in their contracts are often specific to a particular practice. When a change of control in ownership occurs, the payer may terminate the existing contract and create a new contract with the practice, which may have different reimbursement rates. Therefore, a potential buyer must realize that rates may change and anticipate this change of rates when determining whether to invest in the practice.

Knowing these issues exist, evaluating whether they are going to be hurdles to your transaction & discussing them with your attorney at the onset of the transaction may help determine what actions are necessary.

Anti-Kickback & Stark Law Concerns

Another issue associated with a healthcare transaction is whether the sale violates any federal or state law, including the Anti-Kickback Statute and the Stark Law (also known as the Physician Self-Referral Law).

The Anti-Kickback Statute (under 42 U.S.C. §1320a-7b[b]) prohibits anyone from offering, soliciting, paying or receiving anything of value to induce referrals of items or services covered by federally funded healthcare programs, including Medicare and Medicaid. The purpose of the statute is to ensure that physicians’ medical decisions are based on the needs of individual patients instead of improper incentives or drivers.

The Stark Law (under 42 U.S.C. §1395[nn]) is a set of regulations that prohibits physician referrals of Designated Health Services under Medicare and Medicaid to an entity when a physician (or his or her immediate family members) has a direct or indirect financial relationship with that entity, unless the referral fits into a specific exception outlined in the regulations. There are multiple exceptions to the Stark Law, including referrals made to other physicians in the referring physician’s group and in-office ancillary services.

These laws can be implicated in a number of ways, including if you have another practice that may be a referral source of the acquired medical practice.

It’s important to note that each state may also have its own anti-kickback rules. Therefore, before deciding to purchase a practice, you should consider consulting with a healthcare attorney to ensure that you are in compliance with laws at both the federal and state levels.

Of course, these issues can be addressed throughout the transaction. However, knowing that these issues exist, evaluating whether they are going to be hurdles to your transaction and discussing them with your attorney at the onset of the transaction may help determine what actions are necessary. This can be extremely beneficial for all parties involved in the transaction and can make the process more efficient and that much smoother.

Steven M. Harris, Esq., is a nationally recognized healthcare attorney and a member of the law firm McDonald Hopkins LLC. Contact him via email at [email protected].