October 17, 2016
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Taylor Porter Partner and health care attorney Cindy Amedee was interviewed in The Ambulatory M&A Advisor's article, "A Physician Owner's First Steps to a Start-Up HCB (Health Care Business)." The article discusses that a healthcare business start-up can be a physician owner’s first steps towards building the next urgent care or ASC empire; however, it should be duly noted that in the healthcare world there are several regulatory and financial planning steps that need to be taken into account when making the move to create a healthcare start up.
According to Amedee, usually the state agency in charge of licensing will need to know the type of health care entity seeking licensure, whether it is outpatient or inpatient, where it is located, whether it shares space with other businesses, the types of services that will be offered, whether invasive procedures will be performed, and other logistical information. “Depending upon the type of health care services provided, the physical space may have to meet certain criteria. So it’s important for the new business owner to have this information early in the process,” Amedee says.
During the start up phase, Amedee says state law will also govern the retention of medical records, HIPAA policies and procedures must be drafted and adopted by the practice, all staff must be trained on these policies and procedures. “A physician should understand Stark Law. Generally, Stark Law prohibits the self-referral of patients to an entity in which the referring physician or an immediate family member has an ownership, investment or structure compensation arrangement, if the services for which the patient is referred falls into one of several categories of services. There are exceptions to this prohibition, and the new physician should familiarize himself with the rules,” Amedee says.
“All health care entities should be familiar with the Anti-Kickback Statute. The AKS is a criminal statute that prohibits the exchange (or offer to exchange), of anything of value, in an effort to induce/reward the referral of patients whose treatment will be paid for by federal health care programs. It establishes penalties for individuals and entities on both sides of the prohibited transaction.”
On the topic of business owners identifying a healthcare specialist both legally and financially, Amedee added that a prospective healthcare lawyer should be able to assist with the structure of the deal, state licensing, analysis of healthcare regulatory and compliance issues that may be implicated in the transaction, and other business issues that must be analyzed. “Look for a lawyer who practices mainly or exclusively in the health care area with expertise in mergers, acquisitions, business start ups, and heath care federal and state compliance and regulatory expertise,” Amedee says.
On business owners being first-time buyers starting a business, Amedee says first time buyers should have a list of representations and warranties it expects the seller to make in the acquisition/merger agreement, as well as an indemnity clause that obligates the seller to reimburse the buyer for any damage the buyer incurs that was actually caused by the seller. That is not enough, however–the buyer needs to do its due diligence. “Some suggested due diligence items include investigating the business being acquired, as well as all employees that will be retained, to be sure they are not excluded from federal or state health care programs; conduct an independent valuation of the business to be sure the price is fair market value, search court records to see if there is any pending litigation,” Amedee says.
“If purchasing or merging hospitals, consider whether keeping the hospital’s Medicare provider number is in the buyer’s best interest. The Medicare provider number represents the hospital’s payor contract with Medicare, and all liabilities associated with the number will transfer to the purchasing entity. Check with the state health department to see if there are licensing infractions that have not been cured. The foregoing is only an example of some of the necessary due diligence. Depending upon the type of health care entity being acquired/merged, the history of the entity, and the buyer’s preliminary findings, additional due diligence will be warranted.”