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© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. ebglaw.com
Add-On Diligence Strategy in
Health Care
Enhancing the Value of Growing Private Equity Platform
Companies via Proactive Compliance Initiatives
October 9, 2018
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 2
This presentation has been provided for informational
purposes only and is not intended and should not be
construed to constitute legal advice. Please consult your
attorneys in connection with any fact-specific situation under
federal, state, and/or local laws that may impose additional
obligations on you and your company.
Cisco WebEx can be used to record webinars/briefings. By
participating in this webinar/briefing, you agree that your
communications may be monitored or recorded at any time
during the webinar/briefing.
Attorney Advertising
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com
Presented by
3
Joshua J. Freemire
Member of the Firm
jfreemire@ebglaw.com
443-663-1352
Anjana D. Patel
Member of the Firm
adpatel@ebglaw.com
973-639-5239
David E. Weiss
Member of the Firm
dweiss@ebglaw.com
212-351-3740
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 4
Agenda
1. Platform vs. Add-On
2. Health Regulatory Diligence Remains Important
3. Key Areas of Focus
4. Keys to Effective “Right-Sized” Diligence
5. Addressing Identified Risks
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 5
Platform vs. Add-On
Scale
Add-on transactions are
smaller, but more
frequent/numerous
Speed
Add-ons are typically more
accelerated – urgency to grow
Scope
Focus must be on true “red
flags” – add-ons unlikely to
change existing
culture/structures of platform
Approach
Smaller teams, focused
diligence, form documents =
efficient, effective diligence
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 6
Health Regulatory Diligence Remains
Important
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 6
 Successor Liability: Asset vs. Stock/Merger
transactions.
 Customer base/brand/patient relationships
– what do you lose with a new brand?
 New entity culture – if they were doing it
wrong before, they will continue after.
 Provider Numbers
• How important is the AR?
• Government may not care that you
have a new number.
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 7
Health Regulatory Diligence Remains
Important (cont’d)
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 7
 Patient Care/Brand
Protection/Sustainability
of Revenues
• Buying a bad name for
yourself
• Impact on future
revenues
 Unknown Unknowns –
Mitigating the Risks
• Deal structures limit
liability
• Form documents protect
against the unforeseen
 Exit Strategy/Liquidity
Events
• Investors/buyers will
want to understand
diligence
• Uniform/robust process
encourages confidence,
bolsters pricing
• No surprises during sell-
side diligence
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 8
 Billing and Coding
• Focused review of known industry billing and coding issues
 Fraud and Abuse: Stark, Anti-kickback and CMP laws
• “How do you get patients?”
• Documentation and fair market value reports
• Patient and employee complaints (whistleblower risk)
 Key Industry Fraud/Reimbursement Risks (e.g., pediatric
Medicaid in the dental space)
 Corporate practice of medicine/dentistry
 HIPAA, Privacy and Security
Key Areas of Focus
Essential “Red Flag” liability areas
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 9
Keys to Effective “Right-Sized” Diligence
 Focused, knowledgeable team
• “trusted advisors”
• Know organizational goals, priorities, budgetary
and timing goals
 Familiarity with industry/business risks and
pitfalls
 Focused document and information requests –
red flags
 Form documents that address unknown
unknowns with catch-all indemnities “safety net”
 Acquisition structures that inherently limit
liability
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 10
Addressing Identified Risks
 Deal Structure – Asset vs. Stock Deal
 Common Post-Closing Protections:
• Indemnification
o Escrows
o Holdbacks
• Reps & Warranty Insurance
• NOTE: Difficulty of Recovery Against Former Sellers
Who May Now Be Employees
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 11
Addressing Identified Risks (cont’d)
Fair Market Value
& Commercial
Reasonableness
Reports
Self-Disclosures Know When to
Walk Away
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com
Questions?
12
Joshua J. Freemire
Member of the Firm
jfreemire@ebglaw.com
443-663-1352
Anjana D. Patel
Member of the Firm
adpatel@ebglaw.com
973-639-5239
David E. Weiss
Member of the Firm
dweiss@ebglaw.com
212-351-3740
© 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 13
 Proactive Employment Compliance (Part 3)
When: October 16, 2018 at 12:00pm – 12:45pm
People: Denise Dadika, Paul DeCamp, Peter Steinmeyer
 Proactive Health Care Regulatory Compliance (Part 4)
When: October 23, 2018 at 12:00pm – 12:45pm
People: John Eriksen, Josh Freemire, Kevin Ryan
 Employee Benefits and Executive Compensation Compliance and Planning (Part 5)
When: October 30, 2018 at 12:00pm – 12:45pm
People: Christopher McMican, Kevin Ryan, Peter Steinmeyer
Registration is complimentary. For additional details, visit www.ebglaw.com/events.
Upcoming Webinars
Proactive Compliance Initiatives for Private Equity Platform Companies
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Add-On Diligence Strategy: Proactive Compliance Initiatives for Private Equity Platform Companies

  • 1. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. ebglaw.com Add-On Diligence Strategy in Health Care Enhancing the Value of Growing Private Equity Platform Companies via Proactive Compliance Initiatives October 9, 2018
  • 2. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 2 This presentation has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation under federal, state, and/or local laws that may impose additional obligations on you and your company. Cisco WebEx can be used to record webinars/briefings. By participating in this webinar/briefing, you agree that your communications may be monitored or recorded at any time during the webinar/briefing. Attorney Advertising
  • 3. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com Presented by 3 Joshua J. Freemire Member of the Firm jfreemire@ebglaw.com 443-663-1352 Anjana D. Patel Member of the Firm adpatel@ebglaw.com 973-639-5239 David E. Weiss Member of the Firm dweiss@ebglaw.com 212-351-3740
  • 4. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 4 Agenda 1. Platform vs. Add-On 2. Health Regulatory Diligence Remains Important 3. Key Areas of Focus 4. Keys to Effective “Right-Sized” Diligence 5. Addressing Identified Risks
  • 5. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 5 Platform vs. Add-On Scale Add-on transactions are smaller, but more frequent/numerous Speed Add-ons are typically more accelerated – urgency to grow Scope Focus must be on true “red flags” – add-ons unlikely to change existing culture/structures of platform Approach Smaller teams, focused diligence, form documents = efficient, effective diligence
  • 6. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 6 Health Regulatory Diligence Remains Important © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 6  Successor Liability: Asset vs. Stock/Merger transactions.  Customer base/brand/patient relationships – what do you lose with a new brand?  New entity culture – if they were doing it wrong before, they will continue after.  Provider Numbers • How important is the AR? • Government may not care that you have a new number.
  • 7. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 7 Health Regulatory Diligence Remains Important (cont’d) © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 7  Patient Care/Brand Protection/Sustainability of Revenues • Buying a bad name for yourself • Impact on future revenues  Unknown Unknowns – Mitigating the Risks • Deal structures limit liability • Form documents protect against the unforeseen  Exit Strategy/Liquidity Events • Investors/buyers will want to understand diligence • Uniform/robust process encourages confidence, bolsters pricing • No surprises during sell- side diligence
  • 8. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 8  Billing and Coding • Focused review of known industry billing and coding issues  Fraud and Abuse: Stark, Anti-kickback and CMP laws • “How do you get patients?” • Documentation and fair market value reports • Patient and employee complaints (whistleblower risk)  Key Industry Fraud/Reimbursement Risks (e.g., pediatric Medicaid in the dental space)  Corporate practice of medicine/dentistry  HIPAA, Privacy and Security Key Areas of Focus Essential “Red Flag” liability areas
  • 9. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 9 Keys to Effective “Right-Sized” Diligence  Focused, knowledgeable team • “trusted advisors” • Know organizational goals, priorities, budgetary and timing goals  Familiarity with industry/business risks and pitfalls  Focused document and information requests – red flags  Form documents that address unknown unknowns with catch-all indemnities “safety net”  Acquisition structures that inherently limit liability
  • 10. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 10 Addressing Identified Risks  Deal Structure – Asset vs. Stock Deal  Common Post-Closing Protections: • Indemnification o Escrows o Holdbacks • Reps & Warranty Insurance • NOTE: Difficulty of Recovery Against Former Sellers Who May Now Be Employees
  • 11. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 11 Addressing Identified Risks (cont’d) Fair Market Value & Commercial Reasonableness Reports Self-Disclosures Know When to Walk Away
  • 12. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com Questions? 12 Joshua J. Freemire Member of the Firm jfreemire@ebglaw.com 443-663-1352 Anjana D. Patel Member of the Firm adpatel@ebglaw.com 973-639-5239 David E. Weiss Member of the Firm dweiss@ebglaw.com 212-351-3740
  • 13. © 2018 Epstein Becker & Green, P.C. | All Rights Reserved. | ebglaw.com 13  Proactive Employment Compliance (Part 3) When: October 16, 2018 at 12:00pm – 12:45pm People: Denise Dadika, Paul DeCamp, Peter Steinmeyer  Proactive Health Care Regulatory Compliance (Part 4) When: October 23, 2018 at 12:00pm – 12:45pm People: John Eriksen, Josh Freemire, Kevin Ryan  Employee Benefits and Executive Compensation Compliance and Planning (Part 5) When: October 30, 2018 at 12:00pm – 12:45pm People: Christopher McMican, Kevin Ryan, Peter Steinmeyer Registration is complimentary. For additional details, visit www.ebglaw.com/events. Upcoming Webinars Proactive Compliance Initiatives for Private Equity Platform Companies Webinar Series