Core Regulatory Issues for Healthcare Transactions

healthcare transactionBy: James Saling

Regulatory issues in healthcare transactions have the potential to drive a transaction.  A healthcare transaction is very different from your typical corporate transaction. This is so because the healthcare industry is highly regulated at many different levels, and the issues tend to be complicated and not necessarily intuitive.  Whenever a provider is contemplating a sale of their healthcare business, they can expect a number of regulatory hurdles as they navigate the transaction.  Typical regulatory issues in healthcare transactions include: (1) fraud and abuse; (2) compensation; (3) investigations and audits; (4) compliance; and (5) licensure.  Of course, there are other regulatory issues that may arise, but these are, by far, the most common:

Fraud and Abuse

Fraud and abuse issues come up in several aspects of a transaction. As part of due diligence, buyers will analyze compensation and ownership relationships to determine if those are in compliance with the Stark Law (and state physician self-referral laws), Anti-Kickback Law (state and federal), Patient Brokering Acts, and other state and federal laws that are intended to limit overutilization and improper inducements in exchange for referrals.  Fraud and abuse issues are also present when structuring the transaction and the compensation arrangements in the deal documents.

Investigations and Audits

As part of every healthcare transaction, the buyer will require strong representations and warranties that the healthcare business is not currently and has never been investigated by a state or federal regulatory body or commercial payor.  The buyer will look at the severity of the investigation and where it originated.  If the investigation is an OIG or DOJ investigation, the buyer may require specific indemnification for any future liability, restructure the deal, or back out of the deal all together.  An investigation or an audit is one of the most significant regulatory issues that can arise as part of a healthcare transaction.


Compensation in the form of a purchase price, earnouts, or as compensation under an employment/services agreement can raise regulatory issues.  The purchase price for a healthcare business oftentimes must be fair market value to meet the various fraud and abuse laws, especially as it relates to acquisitions where the healthcare providers will continue as providers of medical services.  As part of the payment of the purchase price, buyers may structure a portion of the price paid as an earnout which would be paid upon hitting certain financial targets.  Earnouts are not favored in many healthcare transactions where the seller continues to provide medical services because it could be construed as a kickback or violation of other fraud and abuse laws.  Further, compensation of healthcare providers must be structured in compliance with the Stark Law, Anti-Kickback Law, and other state and federal fraud and abuse laws.


Buyers also review general compliance issues.  A healthcare business should have the appropriate plans and policies in place, including HIPAA, billing and coding, compliance with laws, etc.  Not only is it important that the business have the plans and policies in place, the business should also implement and follow these plans and policies.  Other compliance issues include reporting any violations of law that require self-reporting.  An example of required self-reporting is the 60-day rule that requires Rule requires that overpayments (e.g., payment for coding errors) be reported and returned to CMS within 60 days after the date on which the overpayment was identified.


Licensure issues come in the form of approvals for change of ownership, and new licenses required as a result of the transaction.  A change of ownership requires a state regulatory body to approve of the transaction and transfer of the license which could significantly affect timing of a transaction.  Obtaining a new license is also a major time drain in a transaction.


James will be presenting live lunch n’ learn webinar on this topic July 27th, from 12-1pm EST. He will cover all of the issues mentioned above, give examples and provide slides.

Registration is FREE and available through this link.

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