Healthcare M&A: A Legal Guide for Physician Practices, ASCs, and Health Systems

A healthcare acquisition has to work on two tracks. The buyer and seller negotiate price, assets, liabilities, and closing terms. They also need to understand whether the business can continue operating and billing under the proposed ownership. A signed purchase agreement alone does not answer those regulatory questions.

Start with the target's actual services, locations, legal entities, clinicians, licenses, and payer relationships. A physician practice, ambulatory surgery center, and health system can each present a different mix of approvals and restrictions. Map those facts against the proposed transaction before treating a closing date or a revenue forecast as settled.

Begin with the business and the transaction structure

An asset purchase identifies the assets and liabilities the buyer will acquire or assume. An equity purchase transfers ownership interests in the entity that operates the business. A merger combines entities under the applicable transaction documents and governing law. The label in the letter of intent is only a starting point: the documents, licenses, contracts, and governing rules determine the consequences for the particular transaction.

Build an entity and operations map

Ask the seller for an organization chart showing each entity, owner, facility, provider number, material contract, and license. Compare the chart with the entity that actually employs clinicians, bills payers, owns equipment, and holds real estate leases. A gap between the chart and the operating records can change what the buyer needs to acquire or what consent is required.

For each location, list its services and revenue sources. Identify which legal entity holds the relevant enrollment and who will provide clinical services after closing. Use the resulting map to assign diligence requests to legal counsel, billing specialists, accountants, and operational leaders. The buyer can then connect a particular risk to the entity or contract that creates it.

Compare the paths before committing to a structure

The parties should compare how each proposed structure affects ownership restrictions, payer contracts, enrollment, taxes, employees, and known liabilities. An asset purchase can permit selective acquisition in the purchase agreement, but the agreement cannot by itself determine every regulatory consequence. An equity purchase can preserve the operating entity while leaving the buyer to assess the entity's existing obligations. Have transaction and regulatory counsel assess the alternatives against the facts and relevant jurisdictions.

Review referral relationships and compensation

The federal physician self-referral law, often called Stark Law, restricts a physician's referrals for certain designated health services payable by Medicare to an entity with which the physician or an immediate family member has a financial relationship, unless an applicable exception is satisfied. The entity also faces a related billing prohibition. CMS explains that the financial relationship can involve ownership, investment, or compensation. CMS physician self-referral overview.

The federal Anti-Kickback Statute addresses knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or reward referrals of federal healthcare program business. Its analysis is distinct from the Stark analysis. HHS Office of Inspector General overview. See also our guide to Stark Law and anti-kickback diligence.

Inventory arrangements against actual conduct

Collect physician employment and professional services agreements, medical director contracts, leases, equity documents, referral-related arrangements, and amendments. Review how compensation was calculated and paid, not just the form of agreement. Compare the parties, services, term, signatures, and payment records with the facts relevant to any potentially applicable exception or safe harbor. Document open questions so the purchase agreement can address them.

Understand the role of safe harbors

OIG states that safe harbor compliance is voluntary and that an arrangement outside a safe harbor is not automatically illegal. To receive the protection of a safe harbor, the arrangement must satisfy all of its conditions; OIG assesses arrangements without that protection on their facts and circumstances, including intent. OIG safe harbor questions.

If diligence identifies a concern, counsel can evaluate the facts, potential corrective action, and whether a disclosure process is appropriate. Avoid assuming that a purchase agreement representation cures an underlying compliance issue. The parties need an allocation and a plan for addressing the actual arrangement.

Check ownership, clinical control, and state approvals

State rules can affect who may own a practice, employ clinicians, control clinical decisions, or receive fees. Requirements depend on the jurisdiction, profession, entity, and services involved. A management services organization may be part of a proposed structure, but the contract's label does not establish compliance. Review the ownership documents, management agreement, compensation, reserved clinical decisions, and actual operating practices under the applicable state rules.

For facilities, identify each license, the issuing authority, the named holder, and the action proposed at closing. Determine whether a transaction requires notice, consent, a new application, or another filing. Certificate of need requirements are jurisdiction and service specific, so check the current rule for the particular facility and transaction. Build the expected steps into the transaction schedule and identify who is responsible for each application. Confirm the requirements with local regulatory counsel and the relevant agency.

Plan Medicare enrollment and payer continuity

Medicare enrollment requires analysis of the provider type, legal entity, and transaction. The CMS-855A institutional provider application distinguishes a formal change of ownership from some ownership changes reported as changes of information. It notes that a stock transfer may be an ownership change without being a formal CHOW, and directs applicants with classification questions to their Medicare Administrative Contractor or CMS location.

The same application asks whether a new owner will accept assignment of the existing provider agreement and describes the application consequences of declining assignment. Determine the rules for the specific provider and structure rather than assuming every asset transaction requires a new agreement or that every stock transaction is a CHOW. CMS maintains a directory of Medicare enrollment applications, including the forms used by different provider and supplier types.

Map each payer relationship

Medicaid enrollment and commercial payer contracts need their own review. Identify the contracting entity, applicable notification or consent language, assignment provisions, credentialing requirements, and the proposed post-closing billing arrangement. Confirm requirements with the applicable state program and payers. A provider's license, Medicare enrollment, Medicaid enrollment, and commercial contracts are separate workstreams; completion of one should not be assumed to complete the others.

Tie the findings to the closing plan

Create a tracker showing the responsible party, submission, decision maker, required evidence, and closing dependency for each item. If an approval remains open, the parties should decide whether closing must wait, whether a lawful interim arrangement exists, and how the agreement will address the resulting risk. The operating plan should identify who will provide services and bill for them at each stage.

Protect patient information during diligence

Healthcare diligence often requires review of billing, quality, and operational information. First decide what the buyer needs to answer a specific question and whether aggregated or de-identified information can answer it. Restrict access, use an appropriate secure process, and involve privacy counsel before sharing protected health information.

HHS identifies sale or transfer of assets among activities that may fall within healthcare operations. The applicable permission and any business associate obligations depend on the parties, purpose, and information involved. HHS guidance on uses and disclosures for healthcare operations. Assess the actual relationship and proposed disclosure instead of assuming every adviser automatically needs the same agreement. Review vendor arrangements and transition responsibilities as part of the closing plan.

Allocate identified risks in the purchase agreement

The diligence findings should affect the agreement. Representations can describe the seller's statements about licenses, contracts, billing, and compliance. Covenants can assign responsibility for filings and operating conduct between signing and closing. Closing conditions can identify approvals or other events required before the transaction proceeds.

Indemnification, escrow, and other negotiated provisions can allocate specified financial risks, subject to the agreement's limits and applicable law. They are not substitutes for evaluating and correcting a problem. If an issue concerns an ongoing physician arrangement or billing process, the buyer needs to know who will investigate it, what action is required, and how operations will continue while it is addressed.

Prepare a decision list for signing and closing

Separate confirmed conditions from open questions. For every material issue, record the evidence reviewed, the decision needed, the responsible person, and the effect on the transaction if the answer is unfavorable. Update the list as diligence proceeds. That makes it easier to see whether a proposed closing date is supported by the actual approval and operational work.

Questions to resolve before moving forward

Does an asset purchase eliminate all healthcare liabilities?

The purchase agreement can allocate specified liabilities between the parties, but the effect of a transaction on a particular obligation requires analysis of the governing law, contract, and regulatory program. Review the actual enrollment and provider agreement as part of that analysis.

Does an arrangement outside an Anti-Kickback Statute safe harbor automatically violate the law?

No. OIG says compliance with safe harbors is voluntary and that an arrangement outside a safe harbor requires a facts-and-circumstances assessment. Full protection requires meeting every condition of the applicable safe harbor.

Can a buyer use a management company to acquire a physician practice?

The answer depends on state law and the structure and operation of the arrangement. Review ownership, clinical control, fees, and the applicable professional restrictions before committing to a structure.

When should the parties start regulatory diligence?

Begin when the proposed transaction and target operations are sufficiently defined to identify the relevant entities, services, licenses, and payer relationships. Early identification helps the parties build filing and consent work into the transaction schedule.