Since the industry healthcare is a highly regulated industry, due diligence in a healthcare acquisition should never be overlooked or minimized. In order to ensure compliance on the part of a seller in a healthcare merger and acquisition, a buyer should thoroughly review the sellers records and controlling in order to ensure that the seller is in compliance with all appropriate state and federal law. As such, in a healthcare transaction, representations and warranties are absolutely critical.
If the parties to a transaction are subject to Federal Health Care Programs (FHCPs), the brief list below should be reviewed and scrutinized in any healthcare acquisition.
In order to participate in Federal Health Care Programs (FHCPs), health care related businesses agree to comply with the requirements for participation in FHCPs, as well as specific regulations regarding the submission of claims for services rendered.
Material risks arise from the failure to meet specific regulatory requirements relating to participation in FHCPs. The penalty for the failure to meet participation requirements can result in substantial civil fines and penalties. The failure to pay civil fines may result in the termination of participation in one or more FHCPs. In addition, non-compliance with the claims submission process may result in demands for recoupment (clawbacks), allegations of overpayment, and in some cases violation of the False Claims Act (FCA) liability.
Fraud and Abuse
Fraud and abuse in Federal Health Care Programs (FHCP’s) should be of paramount concern in any healthcare transaction. The fraud and abuse laws that should be reviewed in a transaction include the Anti-Kickback Statute (AKS), 42 U.S.C. §1320a-7b(b); the Physician Self-Referral Prohibition (the Stark Law), 42 U.S.C. §1395nn; and the Criminal and Civil False Claims Acts, 18 U.S.C. §287 and 31 U.S.C. §3729. These particular laws prohibit certain conduct and provide for substantial penalties that relate to fraudulent claims involving FHCPs. Depending on the conduct involved, liability can be civil and/or criminal
The license requirements in a healthcare business are very specific and in some cases must meet specific regulatory compliance. A buyer’s failure to conduct due diligence as to licenses and permits that are required in a healthcare transaction may wipe out the buyers financial investment overnight.
The importance of a conducting due diligence is a healthcare transaction can not be understated. The failure to conduct proper due diligence may have a substantial financial impact on a byer of a healthcare business.
Stuart J. Oberman, Esq.
Stuart J. Oberman is the founder and President of Oberman Law Firm. Mr. Oberman graduated from Urbana University and received his law degree from John Marshall Law School. Mr. Oberman has been practicing law for over 28 years, and before going into private practice, Mr. Oberman was in-house counsel for a Fortune 500 Company.
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