Buy and Employ Transactions - Part 2: Buyer's Side Due Diligence
As mentioned in my last post, hospitals are increasingly buying physician practices and then entering into productivity based employment arrangements with the individual physicians. These buy and employ transactions generally make good business sense for both the hospital and physician(s) but also include certain risks – especially for the hospital. Accordingly, an appropriately structured “buyer’s side” due diligence engagement can be an effective way to minimize those risks.
Buyer’s side due diligence is generally focused on the assets being acquired and liabilities assumed - including those not directly reflected on the balance sheet. Additionally, some level of due diligence regarding practice operations is also helpful for purposes of identifying future operating risks and/or opportunities for improvement. Such due diligence can vary substantially depending on the circumstances. For example, large physician practices with multiple offices and substantial ancillary revenue will generally require more in-depth due diligence than small practices with no ancillary revenue. Accordingly, each due diligence engagement will vary depending upon the particular facts and circumstances of the practice.
Although most physician practice acquisitions are structured as asset purchases with representations and warranties from the seller, appropriate buyer’s side due diligence will assist with identifying and minimizing the hospital’s risk associated with the transaction. Such risks are not only from a financial “benefit of the bargain” standpoint but also from a regulatory compliance perspective as well; since paying more than fair market value for the practice could result in penalties or sanctions under the Stark law and/or Anti-Kickback Statute.
For more information regarding buyer’s side due diligence in connection with hospital acquisitions of physician practices, see my article “Financial Due Diligence Issues in Connection with Hospital Acquisitions of Physician Practices.”
Also, you may view the Buyer’s Side Due Diligence Checklist - Hospital Acquisitions of Physician Practices below, or you may download the PDF of the checklist here.
