Part IV: Healthcare Regulatory Issues that Arise in Private Equity Transactions

This is the fourth article in our series on “Closing a Private Equity Transaction.” In Part I, the benefits of preparing for a transaction were explained, along with how best to prepare. In Part II, the letter of intent was discussed, and key terms were identified and explained. In Part III, we walked through what to expect during the due diligence process. Here, we identify the various healthcare regulatory issues that arise in private equity transactions.

The Healthcare industry is heavily regulated at both the federal and state levels, and regulatory issues will be the greatest area of concern for a buyer. The buyer will review the information disclosed through the due diligence process to confirm both pre- and post-closing regulatory compliance.

No business is perfect, and it’s not uncommon for areas of past non-compliance to be uncovered. A buyer needs to understand what they will be potentially inheriting in terms of risk. This gives the parties a chance to correct deficiencies, which may include a self-disclosure or refund, and make improvements going forward.
Continue Reading Ultimate Guide to Closing a Private Equity Transaction

As provided in the Texas Register on March 22, 2019, the Texas Health and Human Services Commission (“HHSC”) has proposed several amendments to Title 1 of the Texas Administrative Code, which include amendments to the rules and procedures for preventing and investigating Medicaid fraud and abuse.
Continue Reading Texas Health & Human Services Proposes Amendments to Fraud and Abuse Rules

Roughly $2.95 for each $1 overpaid (plus legal costs and the overpayment) based on an August 24, 2016, U.S. Attorney’s Office press release regarding settlement of State of New York, ex rel. Robert P. Kane v. Healthfirst, Inc. et al case in the U.S. District Court for the Southern District of New York. Defendants previously lost a motion to dismiss this case based, in part, on the fact that defendants actually identified and repaid the overpayments. Specifically, about $1 million in overpayments were presented to the defendants in the form of a spreadsheet in February 2011. Subsequently, defendants repaid the overpayments in more than 30 installments from April 2011 to March 2013. Notwithstanding, the government took the position that, under the False Claims Act, repayment should have been made within 60 days of the date of the claims were identified in the spreadsheet. Defendants argued, among other things, that there was ambiguity about the term “identify” as used in the False Claims Act and that the spreadsheet was merely the first component of an investigation into the overpayments that was ongoing through the repayment process. Almost a year after losing the motion to dismiss, defendants settled the case for $2.95 million.
Continue Reading How much does it cost to identify and repay federal health plan overpayments late?

In some courts in the United States today, a government contractor or a healthcare provider seeking reimbursement from a federal program can violate the False Claims Act even when its work is satisfactory and its invoices are correct. Under the theory of “implied certification,” a minor instance of non-compliance with one of the thousands of applicable statutes, regulations, and contract provisions can be the basis for a federal investigation, years of litigation, as well as fines, penalties, suspension and debarment, even imprisonment of company personnel.
Continue Reading How the Supreme Court will limit False Claims Act liability for implied certification

The Office of Inspector General (OIG) for the U.S. Department of Health & Human Services (HHS) issued a fraud alert on June 9, 2015, targeting physician compensation agreements that potentially violate the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b). The Anti-Kickback Statute prohibits remuneration of payment in exchange for referrals of patients receiving aid from federally funded healthcare programs (i.e. Medicare and Medicaid). The OIG alert references 12 recent settlements with individual physicians who entered into “questionable” medical directorship and office staff arrangements. The key concern in those cases centered on individual physicians entering into arrangements where the compensation did not “reflect [the] fair market value for bona fide services the physicians actually provide[d].”
Continue Reading OIG fraud alert regarding compensation agreements for physicians

The U.S. Court of Appeals for the District of Columbia Circuit issued an opinion June 12, 2015, lambasting the Centers for Medicare & Medicaid Services’ (“CMS”) rationale in implementing the ban on “per-click” space and equipment leases under the Stark Law. This ban, which went into effect Oct. 1, 2009, was effectively challenged by the Council for Urological Interests (“Council”), which was also behind the successful challenge against the application of the Stark Law to hospital lithotripsy services in 2002.

Among the more colorful descriptions used by the Court in describing CMS’s position were that it was “incomprehensible,” “tortured”, and “the stuff of caprice.” And on an even more scathing note, the Court described CMS’s reading of the legislative history of the Stark Law as belonging to the “cross-your-fingers-and-hope-it-goes-away school of statutory interpretation.”
Continue Reading Per-click leases back in business – but for how long?

The District of Columbia reached a settlement agreement with Children’s Hospital, Children’s National Medical Center Inc. and its affiliates (collectively, “CNMC”) on June 15, 2015, to resolve allegations that CNMC violated the False Claims Act by submitting false cost reports and other applications to the U.S. Department of Health & Human Services (“HHS”) as well as to the Virginia and District of Columbia Medicaid programs. Further details can be found in the Department of Justice’s press release announcing the settlement.
Continue Reading Children’s hospital to pay $12.9 million to settle alleged False Claims Act violations

The U.S. Department of Health & Human Services Office of Inspector General (OIG) issued a special fraud alert on June 9, 2015, stating that physician compensation arrangements may result in significant liability. Hopefully this is not a surprise to any physician or entity that treats federal health plan beneficiaries. However, given that, historically, OIG regulatory actions largely (although not exclusively) focused on the entity from which a physician received compensation, such as hospitals, laboratories, durable medical equipment suppliers, pharmacies, etc., the June 9, 2015, fraud alert highlights the potential for physician liability in these arrangements.
Continue Reading Physician compensation caution