Macon: Atlanta:

231 Riverside Drive 3399 Peachtree Road NE Suite 1700

Macon, Georgia 31201 Atlanta, Georgia 30326

Main (478) 742-4280 Main (404) 997-6020

www.jamesbatesllp.com

An Overview of a Healthcare Transaction

Dana S. Durrett, Of Counsel, and Whalen J. Kuller, Of Counsel

Corporate, taxation, and due diligence considerations when

contemplating a merger or acquisition, and regulatory factors that should

be considered, including change of ownership, competitive bidding

contracting, Medicare, and Medicaid laws.

Presented at the:

Georgia Association of Medical Equipment Suppliers (GAMES) 2014 Spring Meeting -

Safeguard your Operation! – May 1-2, 2014; Savannah, Georgia

Macon: Atlanta:

231 Riverside Drive 3399 Peachtree Road NE Suite 1700

Macon, Georgia 31201 Atlanta, Georgia 30326

Main (478) 742-4280 Main (404) 997-6020

www.jamesbatesllp.com

Dana S. Durrett

Mr. Durrett is Of Counsel in the firm’s Healthcare Practice, where he focuses his practice on litigation, regulatory and transactional matters. Mr. Durrett has over ten years of experience in the healthcare arena representing a broad array of providers, including hospitals, physician practices, skilled nursing facilities, assisted living facilities, hospices, portable x-ray providers, IDTFs, and other healthcare providers.

Direct: (404) 844-2761

E-mail: ddurrett@jamesbatesllp.com

Whalen J. Kuller

Mr. Kuller is Of Counsel in the firm’s Corporate Practice. Mr. Kuller has represented a broad variety of healthcare companies, including optical laboratories, doctor and doctor practices, dentists and dental practices, ambulatory surgical centers, physical therapy practices, hospitals, nursing homes, DME suppliers, infusion companies, and long-term care companies. Direct: (404) 997-7505

E-mail: wkuller@jamesbatesllp.com

An Overview of a Healthcare

Transaction

May 2, 2014

Whalen Kuller; Dana Durrett

This presentation intended for informational purposes and is

not intended to be utilized as legal advice.

1

Overview of a Healthcare

Transaction

• Transaction structure

• Engaging a buyer

• Due diligence

• Employee considerations

• Other transaction issues

• Terminating the transaction

2

Transaction Structures

Stock purchase

Asset purchase

Merger

3

Stock Purchase

Advantages

• No transfer of title to

business assets

• Capital gains treatment

• No double taxation (C corps)

Disadvantages

• Transfers liability to buyer

• Securities laws

• Minority owners

• Change-of-control provisions

4

Considerations

• Stock ownership

• How assets are titled

Asset Purchase

Advantages

• No securities law issues

• Favorable to buy part of a

company

• Most liabilities remain with

the seller

Disadvantages

• Employees transfer

• Must transfer title to assets

• Bulk sales law

• Double taxation of

proceeds (C corps.)

5

Considerations

• Who owns assets?

• Assets sufficient to operate

business?

Engaging Buyer and Seller

• Confidentiality agreement

• Letter of intent

o Confidentiality

o Earnest money deposit

o No-shop provision

o Conditions to termination

6

DUE DILIGENCE

• Financial

• Contracts, leases

• Corporate records

• Good standing

• Intellectual Property

• Lien, litigation searches

• Regulatory issues

• Environmental issues

• Title transfers at closing

7

Post-Closing Employee

Considerations

• Transition of employees

• Seller involvement

o Training

o Consulting or employment

o Non-compete

8

Other IssuesStatutory issues

• Bulk sales laws

• WARN act

Purchase price payment

• Cash

• Seller financing

• Earn-outs

• Working capital

Reps and warranties

Indemnification and escrow

• Baskets and caps

• Indemnification time limits

• Indemnification as exclusive remedy?

• Legal opinions

9

Terminating the Transaction

• Earnest money?

• Other liabilities for terminating party?

• Obligations post-termination

10

Healthcare Considerations in a

DMEPOS Transaction

• Healthcare Due Diligence

• Change of Ownership

• State Specific Considerations

11

Healthcare Due Diligence• Medicare and Medicaid audit reports describing pending

reimbursement claims which are in any stage of administrative or

judicial adjudication, including a description of the claim, amount in

controversy, prospective trial or hearing dates, and the name of

counsel

• Management or consulting contracts

• Agreements whereby any person provides personal services as an

independent contractor

• Contracts with physician groups

• Business associate agreements

• Competitive bidding contracts

• List of all accreditations currently held and accreditations previously

held within the past three years

12

Healthcare Due Diligence• Documents establishing Medicare and Medicaid certification

• Copies of all licenses, permits and certifications

• All documents relating to pending or threatened actions, audits or inquiries by a

private person or a governmental agency, including the OIG of DHHS, CMS, any

Medicare intermediary or carrier or by any state agency

• The last two annual survey reports by issuers of permits, Medicare, Medicaid,

JCAHO, or any other inspection agency regarding the Provider as well as any

plans of correction relating to any outstanding deficiencies in such reports

• All manuals and handbooks used in connection with the billing of goods and

services by the Provider

• Any and all materials distributed by the provider to instruct provider employees

how to resolve any billing and reimbursement issues

• Any and all documents related to the provider’s corporate compliance or

integrity program(s), including the provider’s compliance plan and HIPAA

compliance plan (if not part of the overall corporate compliance plan)

13

Change of Ownership (“CHOW”)

• Medicare

• CBIC

• Medicaid

14

CHOW Rules Under Medicare

Medicare CHOW Rules

If a CHOW will result, then a DMEPOS supplier must notify the MAC

within 30 days of the transaction.

If a CHOW will not result, then a DMEPOS need only file a change of

information.

15

Medicare CHOW Rules –

What Constitutes a CHOW?

16

Transaction Description of Transaction CHOW?

Asset purchase “The purchase of the assets of the business only.

The buyer will be operating the business under a

new tax identification number.”

Yes

Stock purchase “The purchase of all assets and liabilities where the

buyer will retain and operate the business under its

existing TIN.”

No.

Medicare CHOW Rules – What must the buyer do in a stock purchase?

Submit a Change of Information within 30 days of the purchase

17

Medicare CHOW Rules – Asset purchase

1. File a new CMS 855S and submit all required documentation

and bill of sale within 30 days of the transaction

2. File a form CMS 588 for each location

18

Medicare CHOW Rules – What must the seller do in an asset purchase

scenario?

Submit a voluntary termination within 30 days of the purchase

19

CHOW Rules Concerning DMEPOS Suppliers

Participating in the Competitive Bidding Program

20

Overview:

• If a CHOW results, then a DMEPOS supplier has certain pre-

closing obligations:

o Notifying the CBIC at least 60 days before the CHOW

o Submitting certain documents within 30 days of the

CHOW

• If a CHOW does not result, only post-closing obligations

result

CBC – Is there a CHOW?

21

A CHOW occurs where the transaction results in the formation of:

1. A “new entity”: An entity that “is formed as a result of a merger or

acquisition and that did not exist prior to the transaction.”

Ex: A + B = C

2. A “successor entity”: An existing entity that “merges with or acquires a

contract supplier and continues to exist after the CHOW as it existed

before the transaction.”

Ex: A + B (a contract supplier) = A

CBC – Is there a CHOW?

22

Company

Name

Company

Name

Entity CHOW?

1 Company A

(CB Contract)

+ Company B

(Non-Contract)

= Company A No

2 Company A

(Non-Contract)+ Company B

(CB Contract)

= Company A Yes

3 Company A

(CB Contract)+ Company B

(CB Contract)

= Company A Yes

4 Company A

(CB Contract)+ Company B

(Non-Contract)

= Company C Yes

It is sometimes difficult to tell whether a CHOW results:

CBC – Is there a CHOW?

23

Asset Purchase vs. Stock Purchase:

• Under traditional CHOW legal principles, an asset purchase

results in a CHOW, but a stock purchase does not.

• Under CBC principles, both an asset purchase and a stock

purchase result in a CHOW.

o “A stock purchase involving the purchase of assets and

liabilities is considered a CHOW, and the CHOW

requirements must be followed.”

o However, a sale of corporate stock (as in shares possessed by

a stockholder) does not constitute a change of ownership.”

CBC – If a CHOW will result, what must the DMEPOS

supplier do?

24

At least 60 days before

•Notify CBIC online

Within 30 days

•Submit a novation agreement

•Submit document describing the transaction

•Submit CHOW Purchaser Form

•List all locations

•Submit transferee's corporate documents

Date of transaction (CHOW)

•Close transaction

CBC – If a CHOW will NOT result, what must the

DMEPOS supplier do?

25

The entity should do the following:

• Complete the Contract Supplier Change of

Information Form

• Complete the Contract Supplier Location Update

Form

When? Within 30 days of the change.

State Law Considerations

26

In Georgia, if a CHOW occurs, the successor provider must submit a

new enrollment application.

What is a CHOW?

A change of ownership includes, but is not limited to, a dissolution,

incorporation, re-incorporation, reorganization, change of

ownership of assets, merger, or joint venture whereby the provider

either becomes a different legal entity or is replaced in the program

by another provider.

To what degree is a successor provider liable for its

predecessor?

27

Any person or entity that is a Medicaid/PeachCare for

Kids provider, and any person or entity that replaces a

provider, shall be deemed to have accepted joint and

several liability, along with its predecessor, for any

overpayment and/or provider fee sought to be

recovered by the Division after the effective date of the

successor provider’s enrollment, regardless of the

successor’s enrollment status or lack of affiliation with

its predecessor at the time the overpayment was made.

When does a provider replace a provider?

28

An entity shall be deemed to have replaced a provider if it

1) effectively became a different legal entity through incorporation,

re-incorporation, merger, joint venture, dissolution, creation of a

partnership, or reorganization,

2) took over more than fifty percent (50%) of the predecessors

assets, Medicaid/PeachCare for Kids clients, or

Medicaid/PeachCare for Kids billings, or

3) has substituted for the predecessor in the program, as evidenced

by all attendant circumstances

Regardless of whether a CHOW has occurred, a supplier must disclose

any person having ownership, financial or control interest in the supplier.

29

• Owner (Ownership Interest) means a person or corporation with an

ownership or control interest that:

• Has an ownership interest totaling 5 percent or more in a disclosing

entity;

• Has an indirect ownership interest equal to 5 percent or more in a

disclosing entity;

• Has a combination of direct and indirect ownership interests equal to 5

percent or more in a disclosing entity;

• Owns an interest of 5 percent or more in any mortgage, deed of trust,

note, or other obligation secured by the disclosing entity if that interest

equals at least 5 percent of the value of the property or assets of the

disclosing entity;

• Is an officer or director of a disclosing entity that is organized as a

corporation; or

• Is a partner in a disclosing entity that is organized as a partnership.

Other Considerations / Questions

30