This is the third in a six-part series on incentive design, deal structure, and how these issues surface in transactions and enforcement. Other relevant topics will be discussed in our upcoming presentation, Physician Owner Mindset, Compliance Guardrails: Growth Without the Gotchas, to be given at the American Alliance of Orthopaedic Executives on Tuesday, April 21.

Deal teams spend months building a story.
Quality of earnings.
Payer mix.
Capacity.
Growth.

The story lives in a deck, a model, and a set of emails. The material is often pulled together fast, under deadlines. It gets recycled and edited by multiple people.

A single loose phrase can change how a buyer views risk, how counsel drafts reps, and how quickly a process moves.

In some cases, it reads as if the business plan depends on referrals.

That is avoidable.

Where the Risk Starts

In many cases, the economics are defensible. The language used to describe them creates the problem.

In physician organizations, the people closest to the business often describe growth in shorthand:

• “We have an internal pipeline.”
• “We can keep more cases.”
• “We can move volume.”
• “We can capture ancillaries.”
• “We can drive cases to the ASC.”

In another industry, those phrases might be ordinary.

In healthcare, they can be interpreted as a plan to steer referrals for financial return. They can also be interpreted as statements about intent. That can surface in diligence. It can also surface later in a dispute or investigation.

A buyer does not need to accuse anyone of wrongdoing to treat this as risk. The buyer can price it. The buyer can require protections.

How Diligence Teams Read Deal Materials

Sophisticated buyers and their counsel review decks with a different mindset than the people who drafted them.

They assume:

• The deck reflects what the sellers believe is important.
• The deck reflects how growth will occur.
• The deck reflects what drives the financial model.
• The deck reflects how leadership thinks about behavior change.

If a deck suggests that growth depends on physicians changing referral patterns, it becomes a diligence question. If the answer is unclear, it becomes a risk allocation issue.

Common Problem Areas in Decks and Models

These issues show up repeatedly in healthcare services transactions.

1. Growth slides that link volume to ownership economics

Examples:

• “More cases through the ASC increases distributions.”
• “Keeping cases in-house increases returns.”
• “We can improve enterprise value by moving volume.”

Even if the business point is capacity utilization, the phrasing can read like a referral plan.

If the same slide also discusses ownership by referral sources, the optics worsen.

2. Referral language disguised as operational planning

The more common version is softer. It still creates risk.

Examples:

• “Tighten physician alignment.”
• “Drive integration across service lines.”
• “Increase internal conversion.”

Those phrases are vague. They invite the reader to fill in the blanks. In healthcare, those blanks are often read as referral direction.

3. Physician-by-physician metrics in deal rooms

Buyers often want productivity data. That is normal.

The problem is how it is presented and discussed.

Physician-level dashboards can look like the group is managing physicians as referral engines. The risk increases when the materials tie performance discussions to compensation, ownership opportunity, or deal value.

Group-level operational metrics usually carry less risk than physician-by-physician narratives, especially if the discussion avoids routing.

4. Draft emails that should never be in the data room

The deck is not the only source of risk.

The data room often includes:

• Prior investor materials.
• Board decks.
• Internal strategy memos.
• Email strings from leadership.

If those materials include casual statements about “getting more referrals,” “keeping cases,” or “driving volume to the ASC,” they create a record that is hard to explain later.

Practical Rules for Deal Messaging

The goal is to describe the business in a way that matches how you would want the record to read later.

A few rules help.

Describe capacity and access, not routing

If the business has unused ASC capacity, say that. If patients want shorter wait times, say that. If the group is expanding OR blocks, say that.

Avoid language that implies physicians will change referral patterns to make the model work.

Keep the story grounded in services and operations

Topics to emphasize:

• Staffing and recruiting
• Clinic throughput
• Scheduling and block time management
• Patient access
• Call coverage
• Payer contracting and coding discipline
• Service line additions supported by demand and resources

These stand on their own.

Separate economics from “who sends cases”

When discussing ownership economics, stick to:

• Historical performance.
• Capacity and operating constraints.
• Market demand.
• Documented business plans not tied to referral shifts.

Be disciplined about what is included in the deck and what is kept out of it.

Control who drafts and who edits

Many decks get touched by too many people. A single comment from someone who is not trained in this issue can introduce language that later creates problems.

It helps to have one responsible reviewer for messaging risk. That person should have authority to rewrite, not just comment.

How These Issues Affect Deals

When deal materials include loose phrasing, the effects show up quickly:

• Diligence expands.
• Counsel asks for additional representations.
• Buyers ask for compliance comfort that is hard to provide.
• Escrows increase.
• Timelines stretch.
• The seller loses control of how the issue is framed.

Sometimes the buyer walks. More often, the buyer stays and demands price or structure changes.

This pattern repeats.

The same language issues that affect valuation can also affect regulatory exposure.

Government Scrutiny and Internal Communications

Investigations often begin with a working theory.

When dollars correlate with referral patterns, investigators will begin with skepticism about the arrangement. Going into the investigation, the government’s goal is to show that the dollars caused the referrals themselves, or in some way rewarded the referrals.

Investigators aim to prove causation and the mindset of organizations through document requests that show why arrangements are structured the way they are.

In physician organizations, that first set of materials requested by investigators is often internal communications:

• Emails
• Texts
• Draft decks
• Meeting notes
• Spreadsheets used to discuss compensation, ownership, or growth

Those materials are often written quickly for an internal audience. Once scrutiny starts, they become the record.

In a future post in this series, we will discuss how to respond to these investigators. The short answer for now is to use counsel to guide the process.

How This Affects Transactions

Scrutiny changes deal dynamics even when nothing has been proven:

• Buyers ask for more.
• Timelines stretch.
• Insurance becomes harder to place.
• Escrows increase.
• Price discussions shift.

Even if the issue resolves, the process is expensive and distracting. The record created early influences how far the issue travels.

Deal teams review the same materials the government requests. In some cases, the buyer’s diligence questions arrive before any government inquiry. The underlying exposure is the same.

Closing Observation

Most organizations do not face problems because of one email.

Problems arise when informal communications and compensation structures point in the same direction. Once scrutiny starts, the first materials collected often shape the entire review.

The groundwork for a defensible position is laid long before any inquiry. The response after an inquiry should not create new problems.

Next in the series will be The Call You Hope Never Comes (and the Emails That Trigger It).