AMARILLO, TX – There are a number of steps that a buyer must take in order to purchase a DME supplier. These are:
- Mutual Nondisclosure Agreement (“MNDA”) – At the outset, the buyer and seller will sign an MNDA. Essentially, this states that the parties will disclose confidential information to each other…and they will keep the information confidential.
- Disclosure of Financial Information – The seller will disclose financial statements, tax returns and related documents to the buyer.
- Letter of Intent (“LOI”) – The parties will sign a (mostly) non-binding, but detailed, LOI. This will set out the “terms of the deal.” Among other provisions, the LOI will contain (i) the purchase price; (ii) how the purchase price will be paid; (iii) when closing will occur; (iv) whether the former owner will work at the business for a while after closing; and (v) whether the former owner will be bound by a noncompete agreement after closing.
- Due Diligence – See the discussion, below.
- Closing – If the acquisition is an asset purchase, then an Asset Purchase Agreement, a Bill of Sale, and related documents will be signed. If the acquisition is a stock purchase, then a Stock Purchase Agreement, a Stock Transfer, and related documents will be signed.
Let us focus on due diligence. This is the most important component of an acquisition. This is where the buyer “kicks the tires” of the seller so that the buyer knows what it is that it is purchasing. For example, with an asset purchase, assume that ABC Medical Equipment, Inc. purchases the assets (inventory, computers, delivery vans, patient files, etc.) of XYZ Medical Equipment, Inc. Assume that John Smith owns XYZ. Assume that closing is on November 1, 2020. After closing, Smith will continue to own XYZ. However, XYZ will essentially be a shell corporation. Generally speaking, in an asset purchase ABC does not assume any of XYZ’s liabilities. And so if on April 1, 2021, XYZ is subjected to an audit or investigation for its pre-closing actions, then ABC should not be liable for the results of the audit/investigation.
The story is somewhat different with a stock purchase. Assume that ABC purchases the stock, not the assets, of XYZ. In this scenario, Smith (not XYZ) is the seller, Smith will sell his stock certificate to ABC. After closing, XYZ will be a wholly-owned subsidiary corporation of ABC. XYZ will continue as an operating entity: same Tax ID#, same PTAN, same third party payor (“TPP”) contracts, etc. The only difference is that Smith is “out” as the owner of XYZ and ABC is “in” as the owner of XYZ. Assume that closing occurs on November 1, 2020. Assume that on April 1, 2021, XYX is hit with an audit/investigation for its pre-closing actions. XYZ’s parent (ABC) should not be liable for XYZ’s pre-closing actions. However, if ABC wants to protect its investment in XYZ, ABC will need to direct XYZ to resolve the audit/investigation.
And so while due diligence is important with an asset purchase, it is even more important with a stock purchase. In conducting due diligence, ABC should obtain the following information:
- Name of each shareholder, director, and officer of XYZ.
- A copy of the formation and governance documents, including but not limited to, Articles of Incorporation, Bylaws, Shareholders’ Agreement, stock certificates, stock transfer ledger and minute book.
- Has any shareholder, member, former owner, officer, director, manager or employee of XYZ ever been convicted of a felony, or been excluded from any private health care benefit program or any state or federal health care benefit program including the Medicare or Medicaid programs? If yes, please explain.
- List of all states (and counties therein) in which XYZ has physically operated.
- Copies of Certificates of Good Standing from the Secretary of State of _______ and from all states in which XYZ is registered as a foreign corporation.
- A list of all website addresses, phone numbers, fax numbers, email addresses, social media accounts, etc. owned or controlled by XYZ.
- A list of all trademarks, patents and copyrights owned, controlled or used by XYZ and copies of all filings.
- A list of all assumed names, trade names or d/b/as (doing business as) utilized by XYZ and/or filed with the Secretary of State.
- XYZ’s audited and/or unaudited consolidated financial statements for the last three years.
- A list of all tangible and intangible assets owned and/or controlled by XYZ. Include copies of vehicle registration and title, if applicable. Please note if any assets will be retained by the seller after XYZ or otherwise excluded from the sale.
- Copies of all agreements and indentures relating to the borrowing of money or to mortgaging, pledging or otherwise placing a lien on any of XYZ’s assets and letter of credit arrangements and any guaranties of any obligation for borrowed money or otherwise.
- Provide a separate schedule of current inventory.
- Provide copies of all tax returns for calendar years ____, ____ and ____.
- Provide the balance sheets and income statements for ____, ____ and ____.
- Provide a schedule of outstanding accounts receivable with aging information.
- Provide a schedule of outstanding accounts payable with aging information.
- A list of all outstanding liabilities, if any. This includes all open lines of credit or other open or outstanding debt obligations. Include all lender and all vendor account agreements and details.
- A list of the names and addresses of all wholesalers in which XYZ uses to purchase inventory for its business.
- A list of all bank accounts, checking accounts, and other deposit accounts in the name of XYZ. Please include the type of account, bank name and address, and a list of all authorized signatories to each account.
- List of all employees of XYZ, including, name, title, current salary, and years of service.
- Copies of XYZ employment agreements, independent contractor agreements, confidentiality/nondisclosure agreements and/or non-compete agreements with past and present employees.
- Data related to all claims or complaints filed by past and present employees, including (without limitation) workers compensation claims, discrimination or harassment claims, unemployment claims and disability claims.
- Does XYZ provide health insurance and other insurance coverage for employees? If yes, please provide summary of same.
- Does XYZ provide retirement or other benefits for employees? If yes, please provide summary of same.
- Does XYZ have any issues regarding compliance with the Americans with Disabilities Act, age discrimination laws, or any other non-discrimination laws?
- Please provide copies of all written contracts signed by XYZ. These include promissory notes; loan agreements; contracts with vendors; loan closet agreements; security agreements; equipment leases; real estate leases; indemnity agreements; professional services agreements; consulting agreements; managed care agreements, insurance agreements, third party payor agreements; financing agreements; guaranty agreements; transfer tax agreements; franchise agreements; and agreements pertaining to computers, copiers, IT services, and phones.
- Please provide a list and description of all verbal contracts or arrangements related to XYZ or its business.
- Please provide a list of hospitals or other health care entities that XYZ provides services to/for. Include contact information for a representative of each such entity.
- Provide proof of general liability and professional liability insurance coverage.
- Details of all past, pending, and threatened litigation.
- Details of all past and pending arbitration and/or mediation proceedings.
- Copies of all state DME licenses, accreditations, Medicare Part B supplier numbers, Medicaid provider numbers, and all numbers issued by federal, state, county or local governmental entities required for XYZ (or its officers/employees) to operate its business.
- Copies of surety bonds.
- Copies of findings/outcomes of the last two accrediting organization surveys.
- Copies of all documents and correspondence pertaining to past, pending and threatened investigations, audits and claims reviews by governmental agencies, government contractors, and/or by third party payors, and the results of such investigations, audits and claims reviews.
- Does XYZ have any written or verbal relationships or arrangements with any referral sources including (but not limited to) physicians, physician employees, hospitals, hospital employees, home health agencies, home health agency employees, or with any other individual or entity (regardless of whether or not he/she/it is engaged in the health care space).
- Does XYZ have any marketing representatives? If yes, list their names, designate whether they are W2 employees or 1099 independent contractors, describe their duties and compensation, and attach copies of any contracts with the marketing representatives.
- Has XYZ ever been involved in any litigation, audit, overpayment request/demand, review or dispute with any third party payor, governmental agency, governmental contractor, or accrediting organization? If yes, please explain.
- Provide a copy of XYZ’s most recent Medicare 855S enrollment and re-enrollment applications and subsequent changes of information for each location, including all attachments to same. Provide a print-off from PECOS of the current information related to XYZ’s enrollment.
- Is XYZ compliant with all of the DME supplier standards. If not, please explain.
- Does XYZ pay any money to, or otherwise provide anything of value to, physicians, physician employees, hospitals, hospital employees, home health agencies, home health agency employees, or to any other referral sources? If yes, please provide details of same.
- Does XYZ have an arrangement with a marketing company, lead generation company, call center, or telehealth company? If yes, please provide details of same (including any contracts with any of such companies).
- Describe XYZ’s policy towards collecting, reducing, or waiving customer copayment obligations. If yes, what is the policy? Does XYZ have a written copayment policy? If yes, please provide it.
- Does XYZ have a written compliance program? If yes, please provide it.
- Does XYZ have a written HIPAA policy? If yes, please provide it.
- Has XYZ ever incurred a HIPAA breach? If so, please provide details of same.
- Provide all correspondence to and from the Office for Civil Rights.
Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm with a national health care practice based in Texas. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or firstname.lastname@example.org.
AAHOMECARE’S EDUCATIONAL WEBINAR
Targeted Probe and Education Review: What It Is and How to Respond
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C. & Denise M. Leard, Esq., Brown & Fortunato, P.C.
Tuesday, October 20, 2020
2:30-3:30 p.m. EASTERN TIME
Well, it is an understatement to say that we are living in uncertain times. However, what is certain is that the demand for DME will continue to increase. This is due to the aging of the 78 million Baby Boomers, the impact of COVID-19, and the need to keep people out of the hospital. As we eventually return to a semblance of normalcy, DME suppliers will have to respond to post-payment audits. Over the years, post-payment audits have been unfair to DME suppliers. CMS has attempted to address this unfairness by implementing the Targeted Probe and Educate (“TPE”) program. Under the TPE program, the supplier is not subjected to unlimited requests for documentation … followed by vague denials. Rather, under the program, the DME MAC (i) requests a limited number of patient files, (ii) reviews the files, (iii) explains any denials, and (iv) provides education to the supplier that addresses the denials. This webinar will discuss what the TPE program is and how the DME supplier should respond to a TPE request. Equally important, this webinar will talk about the steps the supplier should take to ensure that its documentation will pass TPE review.
Register for Targeted Probe and Education Review: What It Is and How to Respond on Tuesday, October 20, 2020, 2:30-3:30 p.m. ET, with Jeffrey S. Baird, Esq. and Denise M. Leard, Esq., of Brown & Fortunato, PC.
AAHomecare’s Retail Work Group
The Retail Work Group is a vibrant network of DME industry stakeholders (suppliers, manufacturers, consultants) that meets once a month via video conference during which (i) an expert guest will present a topic on an aspect of selling products at retail, and (ii) a question and answer period will follow. The next Retail Work Group video conference is scheduled for November 12, 2020, at 11:00 a.m. Central. Lisa Wells of NATURALLY ABLE will address “Reaching Your Retail Audience Beyond Google Ads.” Participation in the Retail Work Group is free to AAHomecare members. For more information, contact Ashley Plauché, Manager of Member & Public Relations, AAHomecare (email@example.com).