How to Structure Healthcare Acquisition Deals?
New Opportunities in Healthcare Facility Investments Pose Risks for the Uninitiated
By Edward A. Meyer*
The financial downturn in various health care investments due to Covid-19 may look like a buying opportunity for investors seeking to purchase health care facilities at a discount. Certainly, the nation-wide shut down of elective surgeries due to Covid-19 mitigation mandates has resulted in major financial losses for health care facilities, such that the current owners may be looking to get out of their original investments. For investor uninitiated in the health care field, a word of caution is needed as this field is highly regulated and filled with regulatory landmines not otherwise found in business acquisition arrangements outside of the health care field.
Failure to consider fully the regulated nature of these investments can result in violations of civil and even criminal laws that regulate this field. As such the federal Stark Law, the federal Anti-kickback Statute, the Federal False Claims Act, HIPAA regulations, and Medicare and Medicaid certification rules, among other laws and regulations, need to be considered when structuring any acquisition deal in the health care field.
For example, if the sellers of a facility include physicians, the federal Stark Law and Antikickback laws will likely come into play. The Stark Law prohibits physicians from making referrals of a distinct list of designated health services to entities with which they have a financial arrangement – and prohibits those facilities for billing for those services, unless each element of an exception in that Stark Law is met. Billing for a prohibited referral can give rise to fines of up to $11,500 for each billed service under the Federal False Claims Act, which can quickly aggregate into millions of dollars.
Thus, if physician investors in, for example, an imaging center sell their imaging and remain a referral source for the imaging center they just sold, the terms of the sale likely constitutes a financial arrangement that must meet a Stark Law exception for the imaging center to bill Medicare for many services or even Medicaid. Depending how the terms of a referring physician seller's recognition of purchase price is structured, the federal anti-kickback statute – a criminal statute comes into play. This may be the case where the terms of the purchase incentives the physicians to continue generating business reimbursable by Medicare, Medicaid or other federal health care programs to the investment they have sold.
Similarly, pre-acquisition due diligence needs to be structured in a manner that does not run afoul of patient health information privacy rules under HIPAA, violations of which can result in significant fines and penalties.
Consideration of structuring the acquisition as an asset deal, rather than a stock deal, need also consider the affect of certification rules with commercial and government payers and whether such a structure will result in delayed reimbursement or no-reimbursement at all for services performed before the reconstituted entity becomes certified by these payers.
This article has only touched briefly on this area of regulated health care acquisitions. Investors seeking to purchase health care facilities and other investments in the health care field, should assemble advisors that are not only knowledgeable about purchase and sale arrangements, but also the nuances of health law, health care financing and reimbursement, claims coding, and valuation.
This article is not intended to provide legal advice. Please consult with your legal counsel on any questions.
*Mr. Meyer, a California licensed attorney, is not admitted in the State Bar of Florida.
If you have a unique situation that you would like to talk through, call or text me for a free consult at (530)313-3173.
Edward A. Meyer, Esq., Admitted to the California Bar
Mirza Healthcare Law Partners