Recent trends point to more nuanced regulatory-compliance structures in healthcare, especially around billing and payment. When considering a transaction, buyers and sellers must be able to assess these potential compliance risks in advance of the sale.
This article outlines just a few of the hot-button compliance issues for home-health and home-care agency acquisitions. A comprehensive assessment should be part of the diligence process with assistance from industry experts who can identify both risks and remedies — and weigh their net impact.
For additional information, please view our webinar, Getting Your Home (Care) in Order: What You Need to Know When Structuring A Home Care Acquisition. The webinar features:
- James C.H. Lee, Partner, Proskauer
- Whitney M. Phelps, Partner, Proskauer
- Sharon Harder, Vice President of Home and Community-Based Care, Canton & Company
1. Medicare conditions of payment
Regulations around Medicare payment policy present the most financial risk to the buyer in a transaction, according to Harder. In fact, Medicare can review payment for up to six years after a service is rendered and billed, she said, causing long-term exposure for the buyer.
Harder cautioned that payment-related due diligence is especially important now because of a recent uptick in Medicare payment audits that aim to examine claims and recoup any improper overpayments. She noted that the Patient-Driven Groupings Model has opened the door for claims reviewers to become more aggressive in their tactics and to find more binding ways to deny claims.
“The last thing a buyer wants is to find out there’s a compliance audit months after the closing,” she said.
2. Medicare Advantage and Medicaid commercial payer audits
As more beneficiaries enroll in Medicare Advantage (MA) plans and managed Medicaid, agencies in the midst of a sale must be prepared for additional audits from commercial payers. Harder said plan policies can often impose requirements that go beyond Medicare conditions of payment, and some even go beyond applicable state regulation.
“They are very active in review, and they typically hire predatory contractors to review these plans. And they get away with denials on technicalities all the time,” she said.
That’s why it’s especially important for agencies to have a foundational commitment to compliance and why buyers must evaluate the rigor of that commitment as part of the dealmaking process.
3. Compliance and revenue cycle
All agencies need to have a formal compliance program for billing practices, which should be driven by a board of directors with an active compliance officer. Ideally, the officer should have the support of a compliance committee, Harder said.
Additionally, internal and external compliance audits should include ongoing performance improvement processes to close the loop on deficiencies. Established billing and revenue cycle compliance programs could improve the organization’s appeal to potential buyers.
“If a compliance program is in place […] then the agency, even in the event of an issue later on, can in theory avoid penalties and interest, even though there may be overpayments that need to be returned,” Harder said.
As a rule of thumb, an external audit that objectively finds issues with only 5% of the records reviewed would result in a positive evaluation, confirming the agency has good compliance. An audit that demonstrates issues with 15% of records calls for corrective action, however.
Every program must include a process for self-reporting and returning overpayments within a 60-day timeframe if they occur, according to Harder.
4. Survey considerations
Surveys to ensure agencies meet federal requirements occur at three year intervals, however, a change in ownership may trigger a survey. Likewise, if new locations are added or different types of services will be provided, a new survey may be required.
“You need to be aware of the survey readiness both on the seller’s and the buyer’s part to make sure that you’re going to be on the right side of that,” Harder said. “Whenever there is a survey, there is always a lag because the survey cannot happen until after the transaction is completed, which means there is going to be a cashflow lag associated with the timeliness of the survey. That needs to be very carefully planned for in the process.”
5. Wages and worker classification
Key labor considerations related to home-health agencies relate to enforcement of the Fair Labor Standards Act regarding exempt versus non-exempt employees as well as classifications for who might be considered an independent contractor.
“A few years ago, we had a large number of issues with agencies saying all of their workers, including aides and LPNs, were independent contractors, and that is not something that is permitted,” Harder said. She recommended looking at W2 forms annually to verify that workers are classified correctly.
In addition, she recommended reviewing minimum wage rules for all service areas, noting that some subdivisions — Chicago is one example — may have specific wage and/or time off requirements that differ from the broader geographic area.
Finally, she cautioned that sales and marketing teams must be properly trained to ensure that no compensation, gift, or other reward is offered in exchange for patient referrals. Such exchanges, even when inadvertent, are considered kickbacks and can result in financial penalties or legal issues.
For a confidential consultation to discuss how you can meet your intended goals with all your healthcare transactions, contact Canton’s team of experts: REQUEST CONSULTATION