The U.S. Department of Health and Human Services Office of Inspector General (OIG), has produced literature regarding their intention to prosecute private equity firms who do not conduct proper due diligence in healthcare deals. At this time, a few private equity firms have been charged in civil litigation cases for healthcare fraud related civil allegations. However, the OIG has stated that healthcare laws with criminal penalties are not off the table. How does this impact deal flow? Knowing who now stands over the shoulder of private equity, venture capital, family offices (“PE Groups”) is essential, because it dictates what they will have to look for in acquisitions to come.
Compliance with billing and coding practices should be at the top of the list for PE Groups conducting a sort of regulatory due diligence. Medicare Advantage has become an area of concern as well, as the government is aware and realizes that there is opportunity for improper billing under Medicare Advantage coding and billing procedures, also known as MRA gaming. PE Group dollars will be more than ever looking for medical group sellers who are compliant. In the past these hurdles and issues were simply used as deficiencies that effectively reduced the purchase price. A medical group seller must ensure that their structure, contractual arrangements, tax filings, compliance with COVID-19 aid, billing and coding, and internal policies and procedures are in tip top shape. The foundation to continuing revenue in healthcare is compliance, and PE Groups have learned that if a Medical Group is non-compliant, the money faucet is turned off.
Medical Groups of all sizes, from solo practitioners to thousands of providers, shall require compliance plans that are both properly followed and enforced. The need for a compliance officer within a medical practice (not the owner), is a requirement when seeking reimbursement from a governmental payor. Commercial carriers will surely follow any requirements set out by the OIG as it relates to government payor enforcement.
The DOJ has also released guidance that deal documents shall be subject to scrutiny where due diligence and representation and warranties shall be parts of the deals which are reviewed. These are the areas where a buyer and a seller can prove that proper due diligence was conducted, and if any bad acts (healthcare fraud) were discovered, it was self-reported.
The Biden-Harris Administration has released guidance over healthcare spending in the United States and has directly blamed the involvement of private equity in the healthcare space as the main driver for increased spending on healthcare. Healthcare was 17.3% of the national GDP in spending in 2022. That was a 4.1% increase from the previous year. The Executive branch is committed to curtailing the involvement of PE Groups in the healthcare sector and will continue to do so via OIG and DOJ enforcement, and Anti-Trust legislation. Before going to market, medical groups need to be aware of and prepare for the level of scrutiny that the current regulatory landscape is dictating.
