Selling a healthcare business is uniquely complex and demands a specialized team of advisors who understand the intricacies involved.
Selecting the Right Team
The first priority is assembling the right team long before the planned transaction (ideally at least 12 months). The two crucial members are a healthcare lawyer and a healthcare accountant. They must have spent the majority of the last decade representing healthcare professionals and businesses, and should possess extensive experience with the specific type of healthcare business you are buying or selling. Without this expertise, they may be unaware of critical issues such as the moratorium on new home health licenses in Florida, preparatory work required to optimize financials for the sale, or the lengthy process to obtain a healthcare clinic license (HCCL) for non-physician owners. The right team will do three essential things: (1) facilitate a transaction instead of learning about it on your dime, (2) expedite it by having “been there” many times, and (3) close is so you get what you came for. Frankly many don’t close because surprises in the transaction created deal fatigue that cause the buyer to run off. The right team finds and clears those issues before the risk of scaring a buyer off becomes a factor.
Structuring the Sale or Purchase
With your team in place, the next step is structuring the healthcare business sale or purchase. This often involves deciding between selling assets or ownership interests. Sellers prefer selling ownership interests (e.g., stock) due to favorable tax treatment, while buyers might favor purchasing assets to mitigate risks. However, buyers may also consider acquiring the entity for continuity, particularly if the business earns income through contractual relationships such as insurance contracts. Even so, most contracts aren’t assignable and parties will reopen contract negotiations when they find out you need their approval to close a deal. These high-level considerations typically go into a Letter of Intent (LOI).
Due Diligence
If you’re purchasing a healthcare business, a thorough due diligence period is essential. During this time, accountants review financials, and a professional coding consultant examines coding and billing practices to avoid liabilities from payer clawbacks and penalties. It’s also critical to engage a healthcare regulatory compliance expert to review regulatory issues comprehensively. This is something best done even before LOI, since the more surprises a buyer experiences, the less likely the deal is to close. Investing time and money in detailed due diligence is crucial for any serious buyer.
Contract Preparation
Once the decision to proceed is made, the process accelerates with contract preparation. Buyers generally prefer their attorneys to draft contracts, especially when purchasing ownership interests or stock, to avoid inheriting significant liabilities. Governmental payers, like Medicare, hold the buyer accountable for any existing liabilities, regardless of the buyer’s awareness. Only the most sophisticated parties know this and adjust he deal and the deal agreements accordingly.
Expert Document Preparation
Drafting documents for buying a healthcare business is distinct from other corporate transactions. While corporate lawyers may be adept at asset or stock purchase agreements, their experience is futile without an understanding of the specific issues pertinent to healthcare transactions and businesses. For healthcare lawyers experienced in forming the right deal team, these transactions are straightforward. Surprises are best left out of healthcare business purchases or sales. If the attorney doesn’t know how the business and money in a client flows, what it’s tied to and the risks of issues like clawbacks and audits and contracts that are terminable without cause with little notice, move along!
Clients who work with the Florida Healthcare Law Firm benefit from our deep industry experience and dedicated legal support. Our team doesn’t merely dabble in healthcare law; we specialize in comprehensive representation of healthcare providers and almost every type of healthcare business. We are aligned with your success and committed to navigating the complexities of healthcare transactions to protect your interests and ensure a smooth and successful sale.
By: Jeff Cohen
Founder, Florida Healthcare Law Firm
