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What is due diligence when buying a healthcare business?

Buying into a healthcare business means entering a profitable and highly regulated market. When done wisely, this can mean you gain more than just financially, it can also mean you help increase the quality of care provided to patients in the community. When done without proper consideration, it can leave you and your business open to financial liability for another organization’s failures.

You can and should mitigate this risk with proper due diligence. Three key areas of due diligence to complete when purchasing a healthcare business include the following.

#1: Review the target group’s compliance program.

Check that the target business has a program and written policies to better ensure compliance with applicable rules and regulations like the Stark Law, Anti-Kickback Statute (AKS), and Eliminating Kickbacks in Recovery Act (EKRA).

Another key area of review involves partnerships. The government has strict rules when it comes to collaboration between healthcare organizations. Although officials state the nation is shifting to collaborative care the reality is much more complicated. An ill formed business arrangement can result in allegations of illegal bribes or kickbacks that can come with criminal charges. The government has held more than the offending actor responsible for these violations, there are cases where the government has also held the investors financially liable.

#2: Check for government investigations.

Make sure there are not current investigations into allegations of wrongdoing before moving forward with the deal. Once the deal is complete, the government may also attempt to hold your business liable if the investigation results in evidence of a violation.

#3: Delegate risk.

It may be possible to include a provision within the agreement to help allocate the risk in the event of allegations of a violation. This could include use of an indemnity agreement to keep a portion of the purchase price set aside after the deal is complete to help cover the costs resulting from such allegations.

This is just one portion of due diligence to complete when purchasing a healthcare business. It is wise to seek legal counsel to address additional considerations and better ensure a smooth and profitable transition.

Attorney John Rivas is responsible for this communication.