Merger and Acquisition (M&A) transactions are complex for both the buyer side and the seller side. M&A in the healthcare industry adds an additional layer of challenges when it comes to regulatory compliance under Medicare/Medicaid, and obligations under third party contracts.

Medicare and Medicaid are two federally organized programs that provide health insurance coverage to Americans. Medicare provides services for the elderly and disabled populations, whereas Medicaid supports those with low-income households. The federal expenditure of Medicare and Medicaid alone portions approximately one-third of the United States national healthcare expenditure. Many health care providers and medical suppliers accept Medicare and Medicaid patients; however, it is important to note that those accepting payments from the Centers for Medicare and Medicaid (CMS) are subject to strict regulations. Breaching CMS regulations may result in payment withdrawals, heavy penalties, and liability corresponding with the False Claims Act. For these reasons, it is important for healthcare providers involved in Medicare and Medicaid, on both the seller side and buyer side in a (M&A) transaction to be aware of all the moving parts during negotiation and closing. 

In this article, the overview of M&A transaction process will specifically cover those participating in Medicare Part A and Medicare Part B.

Transaction classification determines important key features for a buyer and a seller of a healthcare business. These features may include billing/payment disruption, timing of notices/approval, and the potential acquisition of pre-closing overpayments or penalties.  Generally, such M&A transactions have impact to and/ or may fall under three categories as outlined below.

1) Change in ownership

2) Change in information

3) New Medicare enrollment

This article will cover key considerations under Change in Ownership.

Change of Ownership Transaction

Change of ownership occurs when a separate legal entity assumes ownership of a currently Medicare-enrolled provider. Change of ownership must follow Medicare  regulations (42 C.F.R. § 489.18). There are four main standard categories under this type of transaction that are most frequently utilized. To find out which type of transaction your M&A, or buy/sell of a provider practice falls under, please contact our firm.

1) Merger/consolidation with a separate company.

This means the transition of one entity housing Medicare providers into another, as well as conglomeration of two or more providers into a single entity. This is considered a change in ownership. 

2) Change in partner

The addition, subtraction, or swap in current partners is also known as change in ownership. However, it is important to note that this is dependent on individual state laws and regulations. If your state permits continuation despite an alteration in partnership, this would be simply a change in information, rather than a complete change in ownership. Contact our firm for a state law specific analysis.

3) Sale of Assets

Although Medicare regulations do not specifically address asset sale transactions, when a transfer of assets occurs to another entity entailing the complete transition of ownership and operation of a Medicare provider, a change in ownership occurs.

4) Facility Lease

A partial or complete lease of a provider facility which results in another entity operating a Medicare provider typically constitutes a change of ownership under Medicare regulations. However, if this lease is incorporated as a sale-leaseback agreement whereas the seller continues to hold responsibility for the providers, a change in ownership does not occur. 

Other types of less common changes in ownership exist; however, they will not be expanded within the realm of this article. 

Whether a change of tax identification number (TIN) of a provider constitute a change of ownership is more complex. Keep in mind that a provider’s TIN can change without triggering a change of ownership, and a change of ownership can take place even if the provider’s TIN does not change. If you have questions in this area, contact us for a consultation.