Specialized due diligence called for on Medicare/Medicaid issues in health care acquisitions

A careful and comprehensive due diligence process is mission-critical to the success of any complex business acquisition. In heavily regulated industries such as health care, a buyer's greatest risks can arise from practices relating to Medicare, Medicaid, and other governmental payors. In particular, the rules of "successor liability" for the seller's sins are fundamentally different in a health care transaction than in other traditional corporate acquisitions. These liabilities may attach not only for expected business debts, but also for unexpected and draconian penalties available as remedies under the False Claims Act, Civil Money Penalties Law, and a number of other enforcement authorities. In addition, because critical cash flow depends on accepting certain liabilities of the seller, in the health care context these risks may be voluntarily assumed. Thus, here, due diligence is not just about finding "deal breakers," it is about helping the provider's management team understand the financial and risk-management components of the transaction at hand.