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How important is accreditation when looking to acquire a healthcare business?

Merger and acquisition deals are always complex, but those looking to move forward with a transaction involving a healthcare business face unique challenges. Although due diligence is always important, the factors that can impact a healthcare business are different than other industries. In some cases, due diligence in this industry may include a review of the target corporation’s accreditation standing.

Accreditation can signify that a target acquisition provides a high quality of care, making it a favorable option. At the federal level, this can mean checking to see if the target organization has received accreditation from the Joint Commission on Accreditation of Healthcare Organizations JCAHO or Joint Commission) or the American Osteopathic Association (AOA). Accreditation with either organization generally signifies that the business meets safety and health requirements for participation in federally funded programs — like Medicare.

What if our target acquisition does not have accreditation?

This is not necessarily a deal breaker. There are some exceptions — some facilities that still participate in Medicare even though they do not have accreditation. In fact, thousands of hospitals participate without accreditation through one of these organizations. These hospitals are generally located in rural areas and are relatively small. As such, this type of target could still be beneficial, but it will be important to check and see if they qualify for Medicare if the ability to bill Medicare is important.

It is also important to note that although accreditation can signal that the organization has high patient safety standards, these standards are not meaningful unless the organization follows through with enforcement efforts.

Is there anything else we should know before moving forward?

The Joint Commission recently announced that it will delete certain requirements. This move is the result of a Centers for Medicare and Medicaid Services (CMS) announcement that it will waive requirements that were set in place during the COVID-19 pandemic and related public health emergency. This is one example of how these requirements can change and highlights the importance of staying current in changes when moving forward with a big M&A deal.

Attorney John Rivas is responsible for this communication