Due Diligence Checklist for Healthcare Entity Transactions

When engaging in healthcare entity transactions, whether it’s the acquisition of a medical practice, the merger of healthcare entities, or the purchase of a pharmacy, due diligence is a critical step that cannot be overlooked. The complexities of healthcare law, coupled with the regulatory environment in California, make thorough due diligence essential for mitigating risk and ensuring compliance. Below is a comprehensive due diligence checklist that healthcare providers should consider when involved in such transactions. For professional legal assistance tailored to your specific needs, contact the Law Offices of Art Kalantar to speak with an experienced California healthcare entity transaction attorney.

1. Licensing and Regulatory Compliance

One of the first steps in due diligence is to verify that the healthcare entity is in full compliance with all licensing requirements. This includes:

• Medical Licenses: Ensure that all healthcare professionals associated with the entity have current, valid licenses.
• Facility Licenses: Confirm that the entity holds all necessary facility licenses, such as those required for hospitals, clinics, or pharmacies.
• Regulatory Filings: Review the entity’s compliance with federal and state regulations, including those enforced by the California Department of Public Health (CDPH) and the Centers for Medicare & Medicaid Services (CMS).

2. Financial Health and Revenue Cycle

A thorough examination of the entity’s financial health is paramount. Key areas to focus on include:

• Financial Statements: Analyze the entity’s financial statements, including income statements, balance sheets, and cash flow statements, for the past three to five years.
• Revenue Cycle Management: Evaluate the effectiveness of the entity’s revenue cycle management, including billing practices, collections, and claims processing.
• Debt Obligations: Identify any outstanding debts or financial obligations, such as loans, leases, or lines of credit, and assess their impact on the entity’s financial stability.

3. Contracts and Agreements

Reviewing existing contracts and agreements is crucial for understanding the entity’s obligations and relationships with third parties. This includes:

• Employment Contracts: Examine contracts with physicians, nurses, and other healthcare staff to understand their terms, non-compete clauses, and potential liabilities.
• Vendor Agreements: Review contracts with suppliers, service providers, and other vendors to ensure they are current and favorable.
• Managed Care Contracts: Assess agreements with insurance companies, HMOs, and other payers to ensure they align with the entity’s financial goals and compliance standards.

4. Patient Care and Quality Metrics

The quality of patient care provided by the entity is a key consideration in any healthcare transaction. Areas to review include:

• Patient Records: Ensure that patient records are accurate, complete, and maintained in compliance with HIPAA and other privacy laws.
• Quality of Care: Evaluate the entity’s performance on quality metrics, including patient satisfaction scores, outcomes, and adherence to best practices.
• Malpractice Claims: Review any history of malpractice claims or litigation, as well as the entity’s insurance coverage and risk management practices.

5. Intellectual Property and Technology

In today’s healthcare environment, technology and intellectual property play a significant role. Due diligence should include:

• Electronic Health Records (EHR) Systems: Assess the EHR systems in use, including their functionality, compliance with federal standards, and any associated vendor agreements.
• Intellectual Property: Identify any intellectual property owned by the entity, such as patents, trademarks, or proprietary technology, and evaluate their protection and value.
• Data Security: Review the entity’s data security measures, including compliance with cybersecurity regulations and protocols for protecting sensitive information.

6. Legal and Regulatory Risks

Healthcare entities operate in a highly regulated environment, making it essential to identify and assess any legal risks. This includes:

• Pending Litigation: Identify any ongoing or potential litigation involving the entity, including disputes with patients, employees, or regulatory bodies.
• Regulatory Investigations: Determine whether the entity is subject to any current or past regulatory investigations or enforcement actions.
• Stark Law and Anti-Kickback Compliance: Ensure that the entity’s operations comply with the federal Stark Law, Anti-Kickback Statute, and California’s own anti-referral laws.

7. Human Resources and Employee Benefits

The workforce is often the backbone of a healthcare entity. Due diligence should include:

• Employee Records: Review employee records, including qualifications, training, and compliance with mandatory education and certification requirements.
• Employee Benefits: Assess the employee benefits package, including health insurance, retirement plans, and any other perks or incentives.
• Labor Issues: Identify any labor disputes, union activities, or other employee-related issues that could impact the transaction.

8. Environmental and Facility Inspections

For transactions involving physical facilities, environmental and structural assessments are necessary. This includes:

• Facility Condition: Inspect the physical condition of the entity’s facilities, including buildings, equipment, and infrastructure.
• Environmental Compliance: Ensure the entity complies with environmental regulations, including hazardous waste disposal, radiation safety, and any other relevant laws.

9. Community and Market Position

Understanding the entity’s market position and community reputation can provide valuable insights. Consider the following:

• Market Share: Analyze the entity’s market share within its geographic area and specialty.
• Reputation: Assess the entity’s reputation in the community, including patient reviews, media coverage, and relationships with other healthcare providers.
• Competitor Analysis: Evaluate the competitive landscape, including the strengths and weaknesses of other healthcare entities in the area.

Contact the Law Offices of Art Kalantar for Help With Healthcare Entity Transactions in California

Given the complexity of healthcare law and the specific requirements in California, it’s advisable to work closely with an experienced healthcare attorney to guide you through the due diligence process and protect your interests. If you have questions about due diligence in healthcare transactions or need legal assistance, contact the Law Offices of Art Kalantar today. Call 310-773-0001 for immediate assistance, or fill out our online contact form to schedule a free consultation. Our team is here to provide you with the expertise and support you need to navigate your healthcare transaction successfully.