AMARILLO, TX – It is often said that, by the time the parties reach the closing table, a buyer will know the business being acquired better than seller. While the degree to which this quippy assertion is literally true varies from transaction to transaction, it arises from a feature common to substantially all business acquisitions. Specifically, a buyer’s due diligence investigation will subject a business to extreme scrutiny, including with regard to matters that most sellers probably do not think about as part of the day-to-day operation of their business.
Very few businesses are entirely free of diligence “red flags,” but DME suppliers are of course subject to additional regulatory requirements that both necessitate additional review and—at least potentially—increase the stakes for any problems that are identified. Many of the issues that commonly come up in diligence are not insurmountable with timely identification and flexibility from the parties. However, the best-case scenario is for a seller to anticipate a buyer’s investigation and identify and correct potential problems before diligence begins or at lease come prepared with explanations and risk mitigation proposals where correction is not feasible. This article will explore some areas of particular concern to buyers with the goal of helping a potential seller position their business for a smooth diligence process.
Accreditation Deficiencies
Accreditation is understandably viewed as a baseline requirement for a successful DME business, and buyers expect accreditation records to be complete, current, well-maintained, and to reflect a consistent history of successful accreditation surveys and prompt remediation of any identified deficiencies. Concerns arise when documentation is missing, corrective action plans remain unresolved, or prior survey findings reveal recurring operational weaknesses. Many sellers underestimate how closely buyers evaluate accreditation history, but an unresolved accreditation issue may suggest broader operational concerns regarding quality controls, management oversight, or compliance culture.
On the other hand, where a seller is able to show (with appropriate supporting records and documentation) that any issues identified in prior surveys or reviews were timely and fully addressed, this is often enough to satisfy the subject diligence questions without significant impact on the transaction. Importantly, a seller than can provide also evidences a business and its management takes compliance seriously and engenders buyer confidence that operational systems are functioning effectively.
Billing and Coding
In healthcare transactions, buyers frequently view billing and coding issues as some of the most significant risks. DME providers operate within a reimbursement environment that is heavily regulated and subject to government oversight, and improper billing practices, inadequate documentation, unsupported claims, or coding inaccuracies can create substantial liability exposure. Particular in the case of equity sales, a buyer may inherit repayment obligations, audit exposure, or potential enforcement actions following closing.
As a result, buyers routinely examine audit histories, repayment demands, overpayment investigations, and historical billing practices as part of their diligence investigation. They may also engage reimbursement consultants or healthcare regulatory counsel to analyze whether identified issues represent isolated problems or systemic deficiencies.
A seller that cannot demonstrate compliance with reimbursement requirements may encounter valuation reductions, larger escrow requirements, expanded indemnification obligations, or, in extreme cases, deal termination.
Licensing and Enrollment Problems
Because licensing and enrollment issues can create significant transaction risk (particularly for providers operating in multiple states), state licensing and Medicare enrollment obligations are often central components of DME transaction checklists, and a seller should expect that a buyer will require verification that all necessary licenses, permits, registrations, and Medicare enrollments remain active and accurate. Buyers will often also review whether prior ownership changes, address changes, and organizational restructurings were properly reported to applicable agencies.
Problems can arise when records contain inconsistencies, ownership information is outdated, or change-of-ownership requirements were not properly addressed (and documented) in any prior transactions or restructurings. Issues that may seem administrative in nature can create significant closing concerns if they threaten reimbursement rights or regulatory or enrollment status.
Buyers want confidence that the regulatory foundation of the business is secure, and even minor discrepancies can result in extensive diligence requests that delay closing and increase transaction costs. To prevent delays, a seller should be ready to provide to a buyer early in the diligence process current evidence of all licenses, permits, registrations, and enrollments. Additionally, seller should be prepared to discuss any steps taken by the seller to address prior changes of ownership or—if applicable—any gaps in licensure or enrollments.
Medicare Enrollment and the 36-Month Rule
Recent regulatory developments have increased buyer attention on Medicare enrollment history.
The expansion of CMS’s 36-month rule to Medicare-enrolled DMEPOS suppliers has made ownership history an increasingly important diligence topic. The rule can affect transactions involving majority ownership changes and may have implications for Medicare billing privileges if certain requirements are not satisfied.
As a result, buyers now spend considerable time reviewing corporate records, ownership transfers, recapitalizations, and prior restructuring activities. A transaction that appears straightforward at first glance may become significantly more complex if ownership records are incomplete or prior changes were not properly documented. Sellers should not assume that an established supplier is insulated from these concerns. Buyers increasingly request ownership timelines, enrollment records, and supporting documentation early in the diligence process. Companies that maintain accurate records and understand their enrollment history place themselves in a far stronger negotiating position.
Corporate Governance and Record Keeping
Many deals encounter unnecessary complications or delays because basic corporate records are incomplete. Buyers almost always request organizational documents, ownership records, governing agreements, minutes, resolutions, equity ledgers, and records documenting prior ownership changes. After all, a buyer is going to want to be certain that they understand who the seller is and who has authority to consummate the transaction. When these materials are disorganized, outdated, or missing altogether, buyers may begin questioning what other deficiencies exist.
Corporate recordkeeping has become particularly important in light of increased scrutiny surrounding ownership changes and Medicare enrollment requirements. Additionally, complete records of historical ownership and any relevant elections made by the target are often important to both buyer’s tax diligence as well as the parties’ evaluation of the transaction’s tax impact.
Fortunately, this is one of the easiest issues to address before beginning a sale process. Companies that maintain organized corporate records, document material decisions, and keep ownership information current often experience a smoother diligence process and fewer closing delays.
Proactive Steps to Preserve Deal Value
In summary, owners who are considering a potential sale in the next several years should conduct an internal diligence review long before going to market. This review should examine reimbursement compliance, accreditation records, licenses, Medicare enrollment information, corporate records, and major contracts.
By identifying weaknesses early, a company gains time to implement corrective measures, strengthen its operations, and present a more compelling acquisition opportunity. Notably, even where an identified problem cannot be entirely corrected, that a seller is aware of and prepared to discuss past issues shows commitment to operating a responsible business.
In today’s DME M&A market, buyers are scrutinizing targets more carefully than ever. The providers that achieve the best outcomes are not necessarily the largest organizations or those with the highest revenues. Rather, they are the companies that enter diligence prepared, organized, compliant, and capable of inspiring confidence.
In many cases, the difference between a successful closing and a failed transaction comes down to whether red flags were discovered and addressed before the buyer found them first.
John Hinders, Esq. is a shareholder in the corporate and transactions group at Brown & Fortunato. He represents clients in the purchase and sale of pharmacies, DME suppliers, and home health agencies, as well as non-healthcare businesses. Contact at (806) 345-6305 or [email protected].
AAHOMECARE’S EDUCATIONAL WEBINAR
Artificial Intelligence and the DME Supplier
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Blinn E. Combs, Esq., Brown & Fortunato
Tuesday, October 6, 2026
1:30-2:30 p.m. CENTRAL TIME
We have not entered the dystopian “Brave New World” described by Aldous Huxley…but artificial intelligence (“AI”) is certainly a game changer. At its core, AI is the ability of a digital algorithm (essentially, a computer) to mimic certain functions of human intelligence. AI is touching all aspects of the DME supplier’s operations, including (i) e-prescribing, (ii) patient adherence, (iii) inventory control and resupply management, (iv) billing and prior authorization management, and (v) implementation of predictive patient ordering models. AI is increasingly being used by governmental agencies to investigate fraud and abuse. Examples are (i) flagging high risk prescription activity, (ii) flagging improper reimbursement claims, and (iii) improved coverage and pricing transparency. As stated in its June 23, 2026 press release, the Department of Justice stated: “To enhance the deployment of advanced analytic to target health care fraud…the Fraud Division will be provided cloud computing space in the CMS Integrated Data Repository environment in which to deploy advanced data analytics algorithms and artificial tools.” This program will (i) discuss existing and proposed federal regulations of AI, (ii) discuss examples of state regulations of AI, (iii) how DME suppliers can use AI to streamline operations and promote efficiency, and (iv) legal pitfalls DME suppliers need to be aware of as they utilize AI.
Register for Artificial Intelligence and the DME Supplier on Tuesday, October 6, 2026, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. and Blinn E. Combs, Esq., of Brown & Fortunato.
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AAHOMECARE’S EDUCATIONAL WEBINAR
Loan Closets, Employee Liaisons, and Other Arrangements with Referral Sources
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Noel Neil, ACU-Serve
Tuesday, November 10, 2026
1:30-2:30 p.m. CENTRAL TIME
In the non-health care world, businesses (e.g., auto parts stores) have very few restrictions regarding their relationships with referral sources. By contrast, the health care world is a totally different animal. Because a large portion of a DME supplier’s revenue is derived directly (or indirectly) from tax dollars, there are myriad federal and state laws designed to protect the tax dollars from fraud. Many of these laws focus on relationships health care providers have with physicians, hospitals, and other referral sources. This program will discuss such relationships between DME suppliers and referral sources. These arrangements include (i) loan closets (also known as consignment closets and stock and bill arrangements), (ii) employee liaisons, (iii) Medical Director Agreements, (iv) physician advisory boards, (v) preferred provider agreements, (vi) patient service agreements, (vii) marketing service arrangements, and (viii) subcontract agreements. The program will discuss how these relationships can be legally entered into…and pitfalls that need to be avoided.
Register for Loan Closets, Employee Liaisons, and Other Arrangements with Referral Sources on Tuesday, November 10, 2026, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. and Noel Neil.