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Lab Transaction Due Diligence

by admin on December 18, 2020 No comments

laboratory lawyerBy: Dean Viskovich

Laboratory buyers and sellers considering a sale or purchase should have knowledge of issues that can affect the transaction. Due diligence requires conducting measures that provide a buyer confidence that the laboratory for sale is being accurately represented by the seller.

The transaction requires consideration, communication and planning between all parties and their representatives.  A thorough knowledge of laboratory compliance and rules and regulations is imperative as documentation and information that is provided and reviewed will more than likely change the pricing, value and terms of the deal.

Due diligence is required in any healthcare transaction and is performed so that both the buyer and seller fully understand the transaction. An effective and necessary tool regarding laboratory transactions is a due diligence checklist. The checklist will allow both sides to identify and address issues that may be neglected or overlooked. The categories that compromise a laboratory checklist should include, but are not limited to:

  • Legal includes the structure of the corporation and any operating agreements that may be in place. Legal also includes any pending or recently resolved litigation.
  • Financials includes extensive record and document review, including all assets, income tax records, profit and loss statements, current and audited financials, monies borrowed, and guaranties provided.
  • Regulatory includes a review of all accreditation documents (CLIA, COLA, CAP), Medicare, Medicaid and state licenses.  A review of the provider’s EIN, NPI and a search of the OIG exclude list is also required.
  • Third party payor agreements include in-network arrangements, managed care contracts and Medicare and Medicaid arrangements containing rates of reimbursement.
  • Employment agreements includes contracts between employer and employees and independent contractor arrangements, employee benefit programs and pension obligations.
  • Contracts and revenue cycle management Contracts with all vendors for equipment, reagents, supplies and IT services need to be reviewed to determine the ability to terminate, assign or assume the obligations contained in the agreements.  Notice and change of ownership and location provisions must also be considered as part of the due diligence review.

An analysis of a laboratory’s OIG Comprehensive Compliance Program and the policy and procedures also require careful consideration.  A compliance plan that contains provisions regarding education and training as well as the ability to audit and monitor lab processes allows a potential purchaser the opportunity to make a well-informed decision about the value of the laboratory.  The lack of an OIG compliance program by itself is a red flag that needs to be communicated to a potential buyer as the program is designed to prevent fraud and abuse.

The time and effort spent conducting due diligence is immeasurable and is an important step in the purchase process that should not be overlooked.  Trust but verify are wise words to live by as a laboratory buyer or seller.

 

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