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Buyers Beware: Five Common Risk Areas in Healthcare Provider Transactions

March 07, 2019
Compliance, Documentation, Billing, & Coding By Rob Senska, Director and General Counsel

It is imperative for potential buyers of healthcare providers to perform healthcare-specific transactional due diligence prior to closing a transaction. Due diligence should include analyzing the seller’s sources of value and risks that are unique to the healthcare sector.

There are some common areas of high risk germane to a healthcare seller that buyers should strongly consider scrutinizing as part of their due diligence process. It is important for a buyer to know the liabilities and hidden costs because these factors could undermine the entire feasibility of the transaction. By not vetting these potential pitfalls, the buyer runs the risk of major financial loss and even regulatory headaches. Often, potential liabilities and risks may not be entirely discernible from what deal makers consider part of the usual and customary operational and financial due diligence activities.


Below are the five common risk areas that should be carefully examined by buyers:

  1. Quality of Healthcare Services Risks
    A buyer must understand where the provider acquisition target scores in terms of quality. Given the push by both government and private payers under recent programs like Value-Based Purchasing (VBP), Accountable Care Organizations (ACO) and the Centers for Medicare & Medicaid Services (CMS) Merit-Based Incentive Payment System (MIPS), it is important to understand how your target is competing in the marketplace on quality of services. Ultimately, quality of services will drive value irrespective of the reimbursement model.

  2. Healthcare Contractual Regulatory Risks
    A buyer should carefully assess all of the seller’s contractual arrangements from the lens of compliance with the Anti-Kickback Statute (AKS) and the physician self-referral prohibition (Stark Law), as well as state law corollaries of these federal laws. Failing to do so could lead to major unresolved regulatory issues that the buyer may have to deal with subsequent to closing the transaction.

  3. Revenue Integrity Risks
    Part of due diligence efforts should be to assess the revenue integrity of the organization. The best way to assess this is to conduct an audit of the paid claims across the major payers for a designated period of time. During this audit, it is important to look at individual provider documentation, coding and billing practices, as well as potential coding/billing operational risks that may be systemic to the target's standard operating process.

  4. HIPAA Compliance Risks
    The diligence process should include review of the acquisition target’s HIPAA compliance activities, including its HIPAA training initiative, HIPAA policies and procedures and its history of any HIPAA incidents, complaints and breaches.

  5. Medicare/Medicaid Reimbursement Risks
    If the buyer plans to assume the seller’s National Provider Identifier (NPI), then part of the due diligence must include a review of the seller’s outstanding payment appeals, as well as any other recoupment, recovery and offset activities for a certain look back period. Furthermore, by assuming the NPI, the buyer automatically agrees to successor liability under the government reimbursement programs and potentially under the False Claims Act (FCA). Thus, it is essential that the buyer understands both the current state of the laws as well as the target’s current reimbursement risk profile.

LW Consulting, Inc. has a team of experienced consultants, who have significant expertise in physician practice and hospital transactions. Our areas of expertise include due diligence, managed care contracting, payer reviews and negotiations, compliance  and corporate integrity—including fraud and abuse—and strategy development and implementation.


Don't risk the success of your next healthcare provider acquisition transaction. Contact the experts at LW Consulting, Inc.

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