A Not So Love Triangle: When PE Met AKS Who Met Stark

It’s not quite when Harry Met Sally.

As you certainly know, there’s been a flood of investor money, notably private equity money, it into many medical specialties over the last decade.

Depending on what specialty you’re in, private equity investment is just beginning to ramp up.

For example, I’m seeing, both here at the law firm and at our M&A advisory firm affiliate, an uptick in deals in dermatology, ophthalmology, and orthopedic surgery. To use a sports analogy, in some medical specialties, the game is just getting started.

There many factors that make your practice an attractive candidate for private equity investment, but that’s not what this post focuses on.

Instead, it’s essential, whether or not you ever plan on doing a private equity deal, to know what makes a practice completely unattractive to any buyer: potential compliance problems, in particular, potential violations of the federal Anti-Kickback Statute or of Stark.

Too many physicians approach compliance problems from the “who’s going to know” perspective. As I’ve written many times in the past, you’d be surprised (as in one of your partners or even an employee in the billing office).

But here, in the mergers and acquisitions context, the “how” has an actual name. It’s called “due diligence,” the investigation of the quality of the to-be-acquired entity that includes a proctological look into potential compliance issues.

The presence of unresolved compliance issues can easily result in a dead deal. And, even if it doesn’t, the representations and warranties – the risk allocation provisions – of the acquisition deal will shift responsibility for undisclosed, pre-closing compliance issues back onto you, the seller. In other words, that planned trip to a faraway tourist district might be swapped for an unplanned trip to District Court.

Whether you’re interested in a potential sale of your practice now, in the future, or never, the first step is always the same and should be taken now: Commission a “red team,” a self-sponsored, deep dive into your group’s compliance risks today.

Questions? Click here for answers.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

www.advisorylawgroup.com

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