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Home Health Acquisitions On the Run

September 15th, 2020 by

Home health acquisitions private equity transactionBy: Jeff Cohen

Home health agencies everywhere have become the favorite targeted acquisitions of “the financial world.”  Apparently, there is one seminar that every buyer attended convincing buyers or all kinds (buyers with money, buyers without money, buyers in the private equity space) that:

  1. HHAs are ripe for aggregation because the industry is disaggregated; and
  2. HHA owners lack business sophistication necessary to bring their businesses to the “next level.”

Unfortunately, some of the buyers lack any true industry experience and are looking at acquisition targets solely from a financial perspective.  They’re looking principally at business financials and nothing else.  And, worse yet, they’re not focused on the centrality of operational expertise.  All of which can come crushing down on the head of seller financed acquisitions.  In other words, if the buyer is paying the purchase price over time, the seller is effectively financing the transaction because the purchase proceeds are (in theory) coming from seller operational profits. This may make the transaction possible, but operations will ensure company profitability and growth, which is gonna drive seller interest.

So what?  A lot!  As current HHA owners know, the secret sauce is in not financial analytics.  It’s in the operations!  And the financial due diligence is just a part of the equation. What about regulatory due diligence? What about knowing where the bodies are buried (legally speaking)?  What are the payer relationships?  What are the marketing relationships?  What is really driving the business?  Who is the key reason why the HHA is successful?  It is typically one or two people.  And missing that or retiring them is a recipe for disaster for buyers and seller financed sellers.  As is missing illegal payments made to induce patient referrals, which can shut down even a completed transaction in a heartbeat.  None of this is part of the usual [financial] due diligence!

Lawyers might say “Yeah, but there will be plenty or reps and warranties to cover the transaction. And the indemnification sections will be tight.” So what?  The buyer doesn’t want a pig in a poke.  They want a reliable and growing income stream.  Details matter.  Especially the details both buyers and sellers are missing!

Further, if a buyer thinks they can buy an HHA on the cheap (1) without proper due diligence, (2) with lawyers waiting to get paid if the transaction closes and funds, and (3) with heavy seller financing, think again.  If you’re dealing with a buyer with pockets (or you have pockets) and will spend the right money on proper due diligence, the right (and experienced) marketing and management, have at it!  The HHA industry is ripe for aggregation.  But doing it in “the new way” isn’t new at all.  It’s just defective and a recipe for lots of heartache…and litigation.

Real buyers love due diligence. They love to measure twice (three times is even better!) and cut once.  They love either understanding the business they’re buying or buying the operational talent.  And they understand and embrace the notion of putting hard money to work.  They don’t try to buy something for nothing or find lawyers who don’t have enough work to do who are willing to work for free.  Real buyers are not trying to get something for nothing.  And they don’t allow a financial flow focus to blind them to the daily “wax on; wax off” aspects of the business.  Doing so would disappoint both sellers and buyer investors.

It’s great to see so much activity in the HHA space.  But the ones that win and stay will only be the ones that do it the old fashioned away—They’ll Earn It!

Patient Brokering & Money Laundering: Bieda Arrests Raise Serious Issues

September 1st, 2020 by

patient brokering arrest treatment center toxicology lab ownershipThree family members involved in owning an addiction treatment center and/or a toxicology lab were charged in July with patient brokering and money laundering in an alleged scheme involving roughly $2 Million.  The allegations arise out of a complex corporate enterprise involving at least four companies and some common ownership between the treatment center and lab.  While it’s premature to assume that the defendants did anything illegal, there are some interesting things in this case:

Complexity Invites Suspicion.  Every business owner in the addiction treatment and toxicology lab space knows three things:  (1) it’s extremely regulated, (2) law enforcement has an especially sharpened focus on these industries, and (3) insurance companies are very suspect of any situation involving either industry, especially when there is any common ownership.  So why then would one construct an enterprise that even “looks” complex or tricky?  It intensifies suspicion in an already highly scrutinized business space.  This is clearly one of the points of focus in this case.  There’s an old saying woven into the mind of every experienced healthcare lawyer:  if something can’t be done directly, it can’t be done indirectly.  Time will tell if anything in this case was wrong or if there are any good reasons for the corporate structure, but the complexity of the corporate structure certainly invites suspicion. read more

You Don’t Know What You Don’t Know – Acupuncturist Employment Contracts

August 20th, 2020 by

acupuncture doctors floridaBy: Chase Howard

Thinking about joining an integrated or group practice? The average employment contract exceeds twenty pages, not including exhibits. While some parts might seem simple and non-legalistic, many simply do not contemplate important terms that have serious impacts on Acupuncturists daily lives. An employment contract is the most significant financial decision of an Acupuncturists lifetime. The same can be said for each subsequent contract, which means that understanding, and negotiating, your contract is the most valuable investment you can make prior to entering into a contract.

To understand what’s in your employment contract, simply read it over a few times. To understand not only how those terms affect you, but also what isn’t in your contract, hire an experienced health care lawyer. While it’s important to understand what is in your employment contract, it’s equally as important to know what is missing from the contract and what to ask in regards to what is included. The below list considers terms that are important both during and after employment.

The following are nine items you should consider including in or asking about your contract:

read more

Lease Considerations – Acupuncture Practices

August 20th, 2020 by

real estate lease for medical buildingBy: Chase Howard

Reviewing a lease prior signing will save you extreme headache and cost in the long run. Landlords tend to act as if they have all of the power in negotiations and will make their own rules along the way. Lease negotiations are complex and involve significant business and legal considerations.

Here are guidelines to ensuring that your lease is reasonable and fair:

read more

Corporate Start-Up for Acupuncturists

August 19th, 2020 by

acupuncture law in floridaBy: Chase Howard

As an Acupuncturist in a private, solo-practice or group practice, proper start-up is key. Understanding how to set up your business properly with the State and IRS, developing a business plan, and understanding all requirements will help eliminate obstacles that will slow your growth.

When working with new acupuncture businesses, consider the following:

1. Corporate Structure

a. A company is considered a legal entity and recognized by both the IRS and the State. Depending on the number of owners and type of business, different options exist regarding entity type. Specifically, most healthcare professionals choose a limited liability company, corporation or a professional association. Once you choose the appropriate type of entity, you’ll want to meet with your CPA to discuss taxation of the entity and how that affects the owners personally.

2. Obtaining an EIN/TID

a. Before you can open a business bank account, or even do business in your city, you will need to obtain an Employer Identification Number or Tax ID for your business. Properly applying will save you time down the road with IRS tax issues.

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The DME Industry and the COVID-19 Pandemic: What’s Changed & What Hasn’t

August 10th, 2020 by

By: Michael Silverman

On January 31, 2020 the US Department of Health and Human Services (“HHS”) declared a public health emergency surrounding the COVID-19 coronavirus pandemic, which was renewed again for a period of 90 days effective July 25, 2020.

In an attempt to focus on patients over paperwork and to remove obstacles from access to patient care, HHS relaxed or suspended certain healthcare provider requirements. Several such changes directly impact current or prospective providers of durable medical equipment (“DME”) to Medicare Part B beneficiaries.

Here’s a high-level breakdown of some of those changes: read more

Are You Paying TOO LITTLE in Rent?

July 31st, 2020 by

medical office space rent costBy: Douglas Hughes, (Guest Blogger from CARR)

Conventional wisdom tells us that spending less money is the most effective approach to saving money. After all, a penny saved is a penny earned and the more you save, the more you have left over. That logic is hard to argue with, but it is not always fool proof. Saving money for your practice the wrong way can lead to diminished patient care, outdated equipment, the wrong location for your practice and additional negative results.

There are several critical factors often overlooked when a healthcare practice’s primary focus is paying the lowest rent vs. achieving the best combination of overall terms. Let’s look at three factors where paying higher rent could actually increase your profitability.

#1: The Cost to Build

Healthcare buildouts often cost two-to-three times more than a typical commercial real estate space. This is attributed to many factors that are unique to healthcare, including:

  • More durable finishes
  • Millwork and cabinetry
  • Plumbing and sinks in exam rooms, sterilization centers and laboratories
  • Increased electrical and HVAC requirements (heating, ventilation and air conditioning)
  • And several more

read more

A Word is Worth Thousands: Protecting Your Healthcare Brand

July 22nd, 2020 by

trademark lawBy: Chase Howard

Investing in a healthcare related business involves significant time and money. Building a brand takes even more and is extremely important in today’s society. Having the ability to build a recognizable brand, scale, and potentially sell, is the goal of many healthcare business entrepreneurs. With the ever-booming impact of social media, online advertising, and online reviews, healthcare businesses seek to engage at a higher degree than ever before to attract new patients, retain current patients, and establish themselves as experts in their respective fields.

Building a brand is part of it, while protecting that brand is far more important. A well-recognized word or logo can be worth everything to your business. Obtaining ownership and protection over a name or mark is a fairly simply task with significant rewards. Trademarks are the names, slogans, tag lines, and/or logos that identify and represent your business, its services, and mission to the public, and are the foundation for the business’s overall branding and marketing. Trademarks can also be used to protect your business in a specific area or a specific area of expertise. If you do not protect your brand, a competitor could use it (or something similar, which could confuse the public and your patients and therefore potentially draw business away from your brand. read more

DOJ Makes Third Revision to its Compliance Guidance in as Many Years

July 6th, 2020 by

corporate healthcare complianceBy: Jacqueline Bain

In the beginning of June, 2020, the Department of Justice (“DOJ”) revised its Evaluation of Corporate Compliance Programs Guidance Document. The Document is designed to assist prosecutors in making informed decisions as to whether, and to what extent, the company’s compliance program is effective for purposes of determining, when a compliance violation has occurred, the appropriate form of any resolution or prosecution and monetary penalty. It also guides a prosecutor as to the company’s compliance obligations contained in any criminal resolution. The Document has been revised on three occasions since 2017, telegraphing the DOJ’s intent to prosecute those businesses without compliance plans, or without effective compliance plans, more harshly than those taking steps to identify and remedy risks. 

A healthcare business’ failure to have in place a compliance program designed to detect and respond to potential fraud and security risks places it at a serious risk of civil and criminal liability. When a compliance issue is investigated, charged and resolved, DOJ prosecutors are instructed to consider whether the business has invested in and improved its corporate compliance program and internal controls systems. They must also determine whether those improvements have been tested to demonstrate that they would prevent or detect similar misconduct in the future. According to the DOJ, there are three fundamental questions that a prosecutor should ask when determining whether a business’ compliance plan is sound:  read more

The Debate Over Physician Owned Hospitals

June 8th, 2020 by

florida healthcare law firm physician owned hospitalsBy: Dave Davidson

The debate over the pro’s and con’s of physician-owned hospitals has been raging for decades. Physician-owners say their hospitals are more patient-focused, provide higher quality care, obtain better outcomes and therefore receive higher patient satisfaction scores. They also point out their convenience and efficiency.

Opponents argue that physician-ownership leads to overutilization and cherry-picking of only the best patients. The less-desirable patients (both clinically and financially) are then left to be taken care of by the community hospitals. For those reasons, both the American Hospital Association and the Federation of American Hospitals remain strongly opposed to physician-owned hospitals.

Federally, the Stark Law includes an exception which allows a physician to refer patients to a hospital in which the physician has an ownership interest, so long as the ownership interest is in the entire hospital, and not just a subdivision of the hospital. However, in 2010, the federal government weighed in again on the issue, and passed the Affordable Care Act (ACA), which includes provisions which (i) restrict physician referrals to hospitals in which they hold an ownership interest; (ii) restrict any increases in physician-ownership of a hospital; and (iii) restrict expansion of physician-owned hospital facilities. CMS has granted exceptions to these restrictions, but those have been limited to rural hospitals and high Medicaid hospitals, and attempts to amend the law have failed. read more