As we move well into the fourth quarter, we enter the time of year in which the pressure to complete healthcare acquisitions (and acquisitions of all kinds) typically ramps up. Meetings are held and decisions are made that certain deals must be completed by the end of the year (or sooner). Letters of intent, followed by due process review, and intense preparation and negotiation of deal documents, exhibits, and schedules follow in the flurry of activity — while the deadline for closing the deal looms closer and closer.
Did Anyone Check Licensure and Certification Requirements?
Timing of the Deal
With the swift pace of healthcare deals it can be easy to race toward documentation of the deal. Due diligence and negotiating business points can be completed without stopping to consider whether the timing of a given deal is possible, from a licensing and certification perspective, until relatively late in the process. However, failure to do that can result in significant delay in closing the deal or causing the deal to go off track completely.
For instance, in California, an asset purchase of a hospital will trigger hospital (and likely several other) licensure requirements and will require extensive dealings with the California Department of Public Health. Depending upon the complexity of the transaction, the particular hospital facility at issue and the particular region of the state that the hospital is in, among other factors, processing of a hospital license application in connection with the transaction can take at least 60 to 90 days from the date that a complete application is submitted. Hospital license applications in California are voluminous and often take weeks or longer to prepare, even with a dedicated and diligent effort to move them along as quickly as possible. Moreover, this particular license is nontransferable between the seller and the new hospital owner, so if timing of this important licensing process is not coordinated carefully at the outset of the deal, it can have the effect of delaying closing of the transaction.
The hospital licensure process in California, discussed briefly above, is offered only as an example. Given that state licensure requirements can and do vary widely depending upon the state and the specific type of license involved, early and careful attention to how licensing aspects can affect a given healthcare transaction is strongly advised.
Structure of the Deal
Licensing and certification questions can influence not only the timing of a given healthcare deal, but can influence the overall structure of the deal as well. For example, staying with the hospital example, most hospital transactions will involve certification and participation in the Medicare program, along with several attendant Medicare provider numbers that the parties may either wish to terminate or possibly transfer to the party that is acquiring the hospital at the close of the transaction.
If speed and simplicity are paramount to the buyer and Medicare-related (and other) liabilities of the seller are not a major concern, the buyer may consider structuring the acquisition as a stock purchase. This typically offers buyers the most seamless method for assuming control of a seller's existing Medicare provider numbers, keeping Medicare funds flowing into the hospital and avoiding a significant lead time for submission of Medicare applications that could potentially have the effect of delaying the closing date of the acquisition. By contrast, if the buyer is very concerned about Medicare-related (and other) liabilities and is willing to assume risk of a delay or gap in Medicare payment while its Medicare application is processed, which could take several months, it may consider structuring the deal as an asset purchase arrangement, reject assignment of the existing Medicare provider numbers of the seller, and submit an application for new, separate Medicare provider numbers.
The two Medicare-related options described briefly above are for illustrative purposes only. There are additional options and considerations that can and should be evaluated, depending upon the particular kind of healthcare provider and circumstances at issue in a given transaction.
Take Away
Instead of being relegated to the status of ancillary or even trivial matters, licensure, certification requirements, and related timing issues should receive early and serious attention in the course of a given healthcare transaction. Neglecting to do so could potentially result in a delayed transaction, or worse, failure of the transaction to close at all — particularly if time is of the essence. The risk of these potential unfavorable results can be reduced significantly by appropriate advance planning and recognition of the importance of considering necessary licensure and certification approvals early enough in the process.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.