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Macon: Atlanta:
231 Riverside Drive 3399 Peachtree Road NE Suite 1700
Macon, Georgia 31201 Atlanta, Georgia 30326
Main (478) 742-4280 Main (404) 997-6020
www.jamesbatesllp.com
An Overview of a Healthcare Transaction
Dana S. Durrett, Of Counsel, and Whalen J. Kuller, Of Counsel
Corporate, taxation, and due diligence considerations when
contemplating a merger or acquisition, and regulatory factors that should
be considered, including change of ownership, competitive bidding
contracting, Medicare, and Medicaid laws.
Presented at the:
Georgia Association of Medical Equipment Suppliers (GAMES) 2014 Spring Meeting -
Safeguard your Operation! – May 1-2, 2014; Savannah, Georgia
Macon: Atlanta:
231 Riverside Drive 3399 Peachtree Road NE Suite 1700
Macon, Georgia 31201 Atlanta, Georgia 30326
Main (478) 742-4280 Main (404) 997-6020
www.jamesbatesllp.com
Dana S. Durrett
Mr. Durrett is Of Counsel in the firm’s Healthcare Practice, where he focuses his practice on litigation, regulatory and transactional matters. Mr. Durrett has over ten years of experience in the healthcare arena representing a broad array of providers, including hospitals, physician practices, skilled nursing facilities, assisted living facilities, hospices, portable x-ray providers, IDTFs, and other healthcare providers.
Direct: (404) 844-2761
E-mail: [email protected]
Whalen J. Kuller
Mr. Kuller is Of Counsel in the firm’s Corporate Practice. Mr. Kuller has represented a broad variety of healthcare companies, including optical laboratories, doctor and doctor practices, dentists and dental practices, ambulatory surgical centers, physical therapy practices, hospitals, nursing homes, DME suppliers, infusion companies, and long-term care companies. Direct: (404) 997-7505
E-mail: [email protected]
An Overview of a Healthcare
Transaction
May 2, 2014
Whalen Kuller; Dana Durrett
This presentation intended for informational purposes and is
not intended to be utilized as legal advice.
1
Overview of a Healthcare
Transaction
• Transaction structure
• Engaging a buyer
• Due diligence
• Employee considerations
• Other transaction issues
• Terminating the transaction
2
Stock Purchase
Advantages
• No transfer of title to
business assets
• Capital gains treatment
• No double taxation (C corps)
Disadvantages
• Transfers liability to buyer
• Securities laws
• Minority owners
• Change-of-control provisions
4
Considerations
• Stock ownership
• How assets are titled
Asset Purchase
Advantages
• No securities law issues
• Favorable to buy part of a
company
• Most liabilities remain with
the seller
Disadvantages
• Employees transfer
• Must transfer title to assets
• Bulk sales law
• Double taxation of
proceeds (C corps.)
5
Considerations
• Who owns assets?
• Assets sufficient to operate
business?
Engaging Buyer and Seller
• Confidentiality agreement
• Letter of intent
o Confidentiality
o Earnest money deposit
o No-shop provision
o Conditions to termination
6
DUE DILIGENCE
• Financial
• Contracts, leases
• Corporate records
• Good standing
• Intellectual Property
• Lien, litigation searches
• Regulatory issues
• Environmental issues
• Title transfers at closing
7
Post-Closing Employee
Considerations
• Transition of employees
• Seller involvement
o Training
o Consulting or employment
o Non-compete
8
Other IssuesStatutory issues
• Bulk sales laws
• WARN act
Purchase price payment
• Cash
• Seller financing
• Earn-outs
• Working capital
Reps and warranties
Indemnification and escrow
• Baskets and caps
• Indemnification time limits
• Indemnification as exclusive remedy?
• Legal opinions
9
Terminating the Transaction
• Earnest money?
• Other liabilities for terminating party?
• Obligations post-termination
10
Healthcare Considerations in a
DMEPOS Transaction
• Healthcare Due Diligence
• Change of Ownership
• State Specific Considerations
11
Healthcare Due Diligence• Medicare and Medicaid audit reports describing pending
reimbursement claims which are in any stage of administrative or
judicial adjudication, including a description of the claim, amount in
controversy, prospective trial or hearing dates, and the name of
counsel
• Management or consulting contracts
• Agreements whereby any person provides personal services as an
independent contractor
• Contracts with physician groups
• Business associate agreements
• Competitive bidding contracts
• List of all accreditations currently held and accreditations previously
held within the past three years
12
Healthcare Due Diligence• Documents establishing Medicare and Medicaid certification
• Copies of all licenses, permits and certifications
• All documents relating to pending or threatened actions, audits or inquiries by a
private person or a governmental agency, including the OIG of DHHS, CMS, any
Medicare intermediary or carrier or by any state agency
• The last two annual survey reports by issuers of permits, Medicare, Medicaid,
JCAHO, or any other inspection agency regarding the Provider as well as any
plans of correction relating to any outstanding deficiencies in such reports
• All manuals and handbooks used in connection with the billing of goods and
services by the Provider
• Any and all materials distributed by the provider to instruct provider employees
how to resolve any billing and reimbursement issues
• Any and all documents related to the provider’s corporate compliance or
integrity program(s), including the provider’s compliance plan and HIPAA
compliance plan (if not part of the overall corporate compliance plan)
13
CHOW Rules Under Medicare
Medicare CHOW Rules
If a CHOW will result, then a DMEPOS supplier must notify the MAC
within 30 days of the transaction.
If a CHOW will not result, then a DMEPOS need only file a change of
information.
15
Medicare CHOW Rules –
What Constitutes a CHOW?
16
Transaction Description of Transaction CHOW?
Asset purchase “The purchase of the assets of the business only.
The buyer will be operating the business under a
new tax identification number.”
Yes
Stock purchase “The purchase of all assets and liabilities where the
buyer will retain and operate the business under its
existing TIN.”
No.
Medicare CHOW Rules – What must the buyer do in a stock purchase?
Submit a Change of Information within 30 days of the purchase
17
Medicare CHOW Rules – Asset purchase
1. File a new CMS 855S and submit all required documentation
and bill of sale within 30 days of the transaction
2. File a form CMS 588 for each location
18
Medicare CHOW Rules – What must the seller do in an asset purchase
scenario?
Submit a voluntary termination within 30 days of the purchase
19
CHOW Rules Concerning DMEPOS Suppliers
Participating in the Competitive Bidding Program
20
Overview:
• If a CHOW results, then a DMEPOS supplier has certain pre-
closing obligations:
o Notifying the CBIC at least 60 days before the CHOW
o Submitting certain documents within 30 days of the
CHOW
• If a CHOW does not result, only post-closing obligations
result
CBC – Is there a CHOW?
21
A CHOW occurs where the transaction results in the formation of:
1. A “new entity”: An entity that “is formed as a result of a merger or
acquisition and that did not exist prior to the transaction.”
Ex: A + B = C
2. A “successor entity”: An existing entity that “merges with or acquires a
contract supplier and continues to exist after the CHOW as it existed
before the transaction.”
Ex: A + B (a contract supplier) = A
CBC – Is there a CHOW?
22
Company
Name
Company
Name
Entity CHOW?
1 Company A
(CB Contract)
+ Company B
(Non-Contract)
= Company A No
2 Company A
(Non-Contract)+ Company B
(CB Contract)
= Company A Yes
3 Company A
(CB Contract)+ Company B
(CB Contract)
= Company A Yes
4 Company A
(CB Contract)+ Company B
(Non-Contract)
= Company C Yes
It is sometimes difficult to tell whether a CHOW results:
CBC – Is there a CHOW?
23
Asset Purchase vs. Stock Purchase:
• Under traditional CHOW legal principles, an asset purchase
results in a CHOW, but a stock purchase does not.
• Under CBC principles, both an asset purchase and a stock
purchase result in a CHOW.
o “A stock purchase involving the purchase of assets and
liabilities is considered a CHOW, and the CHOW
requirements must be followed.”
o However, a sale of corporate stock (as in shares possessed by
a stockholder) does not constitute a change of ownership.”
CBC – If a CHOW will result, what must the DMEPOS
supplier do?
24
At least 60 days before
•Notify CBIC online
Within 30 days
•Submit a novation agreement
•Submit document describing the transaction
•Submit CHOW Purchaser Form
•List all locations
•Submit transferee's corporate documents
Date of transaction (CHOW)
•Close transaction
CBC – If a CHOW will NOT result, what must the
DMEPOS supplier do?
25
The entity should do the following:
• Complete the Contract Supplier Change of
Information Form
• Complete the Contract Supplier Location Update
Form
When? Within 30 days of the change.
State Law Considerations
26
In Georgia, if a CHOW occurs, the successor provider must submit a
new enrollment application.
What is a CHOW?
A change of ownership includes, but is not limited to, a dissolution,
incorporation, re-incorporation, reorganization, change of
ownership of assets, merger, or joint venture whereby the provider
either becomes a different legal entity or is replaced in the program
by another provider.
To what degree is a successor provider liable for its
predecessor?
27
Any person or entity that is a Medicaid/PeachCare for
Kids provider, and any person or entity that replaces a
provider, shall be deemed to have accepted joint and
several liability, along with its predecessor, for any
overpayment and/or provider fee sought to be
recovered by the Division after the effective date of the
successor provider’s enrollment, regardless of the
successor’s enrollment status or lack of affiliation with
its predecessor at the time the overpayment was made.
When does a provider replace a provider?
28
An entity shall be deemed to have replaced a provider if it
1) effectively became a different legal entity through incorporation,
re-incorporation, merger, joint venture, dissolution, creation of a
partnership, or reorganization,
2) took over more than fifty percent (50%) of the predecessors
assets, Medicaid/PeachCare for Kids clients, or
Medicaid/PeachCare for Kids billings, or
3) has substituted for the predecessor in the program, as evidenced
by all attendant circumstances
Regardless of whether a CHOW has occurred, a supplier must disclose
any person having ownership, financial or control interest in the supplier.
29
• Owner (Ownership Interest) means a person or corporation with an
ownership or control interest that:
• Has an ownership interest totaling 5 percent or more in a disclosing
entity;
• Has an indirect ownership interest equal to 5 percent or more in a
disclosing entity;
• Has a combination of direct and indirect ownership interests equal to 5
percent or more in a disclosing entity;
• Owns an interest of 5 percent or more in any mortgage, deed of trust,
note, or other obligation secured by the disclosing entity if that interest
equals at least 5 percent of the value of the property or assets of the
disclosing entity;
• Is an officer or director of a disclosing entity that is organized as a
corporation; or
• Is a partner in a disclosing entity that is organized as a partnership.