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25 Health Law. 42 (2012-2013)
Pitfalls in Healthcare Mergers and Acquisitions - Emerging Issues

handle is hein.journals/healaw25 and id is 42 raw text is: PITFALLS IN HEALTHCARE MERGERS AND ACQUISITIONS - EMERGING ISSUES Deborah A. Daccord, Esq. Rachel Irving, Esq. Mintz, Levin, Cohn, Ferris, Glovsky & Popeo Boston, MA Mergers and acquisitions in any industry present challenges for both buyer and seller. With the passage of healthcare reform legislation,' the ongoing publication of its imple- menting regulations, and increased scrutiny from both state and federal enforcement agencies, healthcare mergers and acquisitions present addi- tional risks and pitfalls. The current trend in the healthcare industry is toward consolidation, emerging from incentives to form accountable care organizations (ACOs), intensive capital requirements for providing healthcare (such as those relating to electronic health record (EHR) sys- tems), reimbursement changes from fee-for-service to bundled and global payments, and new prohibitions on physician ownership, among other factors. Consolidation is driven by both healthcare reform and an industry desire for scale.' But without proper planning, integration, and attention to risks, mere consolidation is not a solution. There are a few tools that parties and attorneys should keep in mind when dealing with the new dangers in healthcare mergers and acquisitions. New Pitfalls in Healthcare Transactions Despite a degree of stagnation in health industry transactions in the months leading up to the passage of The Patient Protection and Afford- able Care Act (PPACA) and during the months of constitutional chal- lenges winding their way to the Supreme Court, the eventual passage and Supreme Court confirmation of healthcare reform legislation has not 42 drastically altered the way deals are done. There certainly are areas of increased risk - many of them enforce- ment-related - but most of the risks are not new. Rather, these are areas that have experienced renewed impor- tance and, in some cases, increased scrutiny under the Obama administra- tion.3 Arguably, the most significant pitfall for current healthcare transac- tions is the not yet finalized regulations to implement PPACA. While the gov- ernment agencies work through the regulatory process and continue to piece these rules together, market par- ticipants will labor to lower costs and increase value and accountability, all while attempting to comply with an ever-evolving regulatory landscape. Healthcare has long been a highly regulated arena, and enforce- ment agencies are increasing their focus on the healthcare industry across the board. With the ongoing evolution of PPACA regulations as an overlay, regulatory compliance is even more difficult for healthcare pro- viders, payors, and vendors, while at the same time buyers are focused particularly on regulatory compli- ance during due diligence. There are federal and state reimbursement conditions and requirements, state licensing and certification issues (for individual professionals and entities), quasi-governmental inspection agen- cies and accreditations, and payment regulation affecting both payors and providers. There are also federal and state anti-kickback statutes, prohibi- tions against physician self-referrals and beneficiary inducement, and corporate practice of medicine prohi- bitions. Under PPACA, both the anti-kickback statute (AKS) and the False Claims Act (FCA) now reach even further, lessening the gov- ernment's burden on proving intent for AKS violations, linking AKS vio- lations to violations of the FCA, and providing enhanced civil and crimi- nal penalties for violations, to name a few changes.4 Because the penalty of exclusion from federal healthcare programs can be an effective death sentence for a healthcare company, it is important to know that a business has been operated within the scope of the law. Beyond the uncertainty caused by changing rules and regulations under PPACA, healthcare transac- tions face increased scrutiny by antitrust enforcement officials under the Obama administration. Although a review of current antitrust enforce- ment and prosecution activities is beyond the scope of this article, the Federal Trade Commission (FTC) and Department of Justice (DOJ) are increasing their scrutiny of transactions that appear to have a competitive concern.5 But antitrust considerations are also not new to the healthcare industry, and the FTC and DOJ use the same analytical frame- work to scrutinize a healthcare transaction's effects as they do for other mergers. In any event, buyers, sellers and potential partners should familiarize themselves with the anti- trust laws and guidelines when considering a merger, acquisition, or any other transaction that may have anti-competitive effects. Another area of increased risk in healthcare transactions involves data privacy and security issues. Covered entities have been guarding protected health information under the Health Insurance Portability and Account- ability Act (HIPAA)6 for well over a decade. Now, under the Health Information Technology for Economic and Clinical Health (HITECH) Act,7 business associates are directly subject to the HIPAA privacy and security requirements for health infor- mation. Along with the broader reach of HIPAA, there has been and will Volume 25, Number 1, October 2012 The Healt Lawyer