Buyers Side Due Dil Chklist(3)

Financial Buyer’s side due diligence checklist hospital acquisitions of Physician Practices Hospitals and physicians are continuously seeking ways to strategically align themselves in an effort to be more effective and efficient at providing high-quality patient care. One such alignment strategy is the “buy and employ” model, whereby hospitals acquire physician practices and employ the physician(s) under productivity-based compensation arrangements. This buy-and-employ strategy often makes good
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  Financial Buyer’s sidedue diligence checklist hop aqo of P P Hospitals and physicians are continuously seeking ways to strategically alignthemselves in an eort to be more eective and efcient at providinghigh-quality patient care. One such alignment strategy is the “buy and employ” model, whereby hospitals acquire physician practices and employthe physician(s) under productivity-based compensation arrangements. This buy-and-employ strategy oten makes goodbusiness sense or both the hospital and physician(s) but also includes certain risks. As such, attorneys, certied publicaccountants, and healthcare consultants are oten called upon to provide “b’ ”   services orpurposes o identiying and minimizing these risks. Buyer’s side due diligence | Buyer’s side due diligence is generally ocused on assets being acquired and liabilitiesassumed—including those not directly reected on the balance sheet. Additionally, some level o due diligence regardingpractice operations is also helpul or purposes o identiying uture operating risks and/or opportunities or improvement. the checklist | The checklists on the ollowing pages will guide you through the necessary topics that must beaddressed concerning assets and liabilites. There is also a checklist concerning operations topics. AdvAntAges of Buyer’s side due diligence | Although most physician practice acquisitions are structured asasset purchases with representations and warranties rom the seller, appropriate buyer’s side due diligence will assist withidentiying and minimizing the risks associated with the transaction. Such risks are not only rom a nancial “benet o thebargain” standpoint but also rom a regulatory compliance perspective, since paying more than air market value or thepractice could result in penalties or sanctions under the Stark law and/or Anti-Kickback Statute. AtlAntA | Austin | knoxville | tAmpA BAy (800) 270-9629 | Assets And liABilities topics 1. F sp2. c3. ao rvb4. spp ivo5. Fx a--Ow6. Fx a--l7. ib a8. ao Pb  a exp9. db Obo10. co lb operAtions topics 1. rv2. Op exp3. Po Mx4. P c  due diligence checklist:assets and liaBilities due diligence | Assets And liABilities 1. F sp Gain a clear understanding o the proposed ❑ transaction, including the intended dealstructure (e.g. asset or stock purchase) andidentity o excluded assets or liabilities. 2. c Cash is generally not included in acquisi- ❑ tions structured as asset purchases. However,some level o cash due diligence may be ap-propriate depending upon the circumstances,such as the practice’s size and complexityReview bank accounts or unusual trans- ❑ actions such as signicant checks writ-ten to cash or large cash transersReview bank reconciliations and compare to ❑ the balance sheet or the same time periodInvestigate usual reconciling items ❑ 3. ao rvb Most physician practices utilize the “cash” ❑ method o accounting or purposes o prepar-ing their internal nancial statements and/ortax returns. Thereore, accounts receivable willgenerally be omitted rom the balance sheet.Obtain and review a current aged accounts receiv- ❑ able listing and determine whether such amounts arestated on a “gross” or “net” basis. For this purpose,gross reers to beore contractual adjustments andnet reers to ater contractual adjustments. Note:It is common or physician groups to initially recordaccounts receivable on a gross basis and then makethe contractual adjustment upon receipt o thethird-party payor’s payment. The remaining balancewill be the net amount due rom the patient (i.e. neto the contractual adjustment). In such cases, theaccounts receivable listing could include amountsthat are stated on both a gross and net basis andappropriate adjustments may be necessary.Inquire about accounts receivable balances more ❑ than ninety days old and determine whether anallowance or uncollectible accounts is necessary 4. spp ivo Most physician practices expense medi- ❑ cal supplies when purchased. However,depending upon the type o practice, medi-cal supplies could be a signicant asset.Inquire about medical supplies inventory on ❑ hand and determine whether such amountsare material under the circumstances.I a material amount o medical supplies ex- ❑ ists, obtain a detailed list o items includ-ing quantities and related cost inormationor purposes o estimating the value. 5. Fx a—Ow Obtain a detailed list o xed assets ❑ owned and compare the total cost to theamount reected on the balance sheet. In-quire about any material dierences.Group the xed assets by major type such as: ofce ❑ urnishings, computer equipment, medical equip-ment, and leasehold improvements and deter-mine whether all assets are still being utilized.I applicable, compare the personal prop- ❑ erty assets to the most recent personal prop-erty tax report and the real property assetsto the most recent real estate tax report.Identiy and inspect all major medical equip- ❑ ment assets and determine whether such as-sets are under third-party service contracts.Determine i any o the major medical equip- ❑ ment assets have undergone signicant up-grades or are in need o signicant upgrades.Determine i any xed assets are pledged as security ❑ or third-party loans or other debt obligations. AtlAntA | Austin | knoxville | tAmpA BAy (800) 270-9629 |  due diligence checklist:assets and liaBilities 6. Fx a—l Obtain a list o all leased assets including: medi- ❑ cal equipment, ofce equipment, and acilities.Obtain copies o all lease agreements ❑ and summarize relevant terms.Determine whether such leases are capital leases ❑ or operating leases. I capital leases, such assetsshould be reected on the balance sheet.Veriy that leases can be assigned to ❑ the buyer, i that is the intention. 7. ib a Determine whether the practice has signicant intan- ❑ gible assets such as purchased goodwill, trademarks,trade names, licenses, certicates o need, etc.I such intangible assets exist, obtain cop- ❑ ies o relevant documentation and in-ormation regarding their value.Determine whether the practice has non-compe- ❑ tition or similar agreements with prior employeesor owners. I such agreements exist, determinewhether they are transerrable to the buyer. 8. ao Pb  a exp I the practice nancial statements are prepared ❑ on the cash basis o accounting, accounts payableand accrued expenses will generally be omit-ted. Thereore, additional inquires will be neces-sary to identiy and quantiy such liabilities.Obtain a list o all incurred but unpaid ac- ❑ counts payable and accrued expenses aso the appropriate balance sheet date.Veriy that all payroll taxes due have been paid. ❑ 9. db Obo Identiy all outstanding loans and/or ❑ other third-party debt obligations.Obtain copies o all outstanding debt agree- ❑ ments and summarize relevant terms such ascovenants, assets pledged as security, repaymentterms, and personal guarantees i applicable.Veriy that loans are not in deault. ❑ 10. co lb Determine i the practice has contingent li- ❑ abilities such as: potential malpractice claims,lawsuits with ormer employees or own-ers, and claims rom third-party payors.Review invoices and correspondence ❑ rom law rms or purposes o identiy-ing potential lawsuits or other claims. AtlAntA | Austin | knoxville | tAmpA BAy (800) 270-9629 |  due diligence checklist:OPeratiOns due diligence | operAtions 1. rv Risk actors generally include: overstated revenues ❑ due to inaccurate or inappropriate coding (e.g.over-charging or up-coding practices), high depen-dence on a limited number o reerral sources, highdependence on a small number o providers, capac-ity constraints, and declining reimbursement rates.Analyze practice revenue over a relevant period ❑ o time and compare to appropriate benchmarkdata or reasonableness. Depending upon the typeo practice, such revenue metrics may include:Net revenue per physician/providerºNet revenue per procedure/encounterºObtain a listing o total procedure volume by CPT ❑ code over a relevant period o time and comparethe distribution o procedure codes to appro-priate benchmark data or reasonableness.Analyze revenue by specic provider to determine ❑ whether a disproportionate amount is being gener-ated by a relatively small number o physicians.Determine age and expected u- ❑ ture work lie o each physician.Determine whether the practice has non-com- ❑ petition agreements with the physicians. I suchagreements exist, determine i transerrable.Consider capacity constraints that could limit ❑ the practice’s ability to grow. Examples o ca-pacity constraints include: space limitations,equipment being utilized near capacity, andthe number o providers in the practice.Determine i the practice has sig- ❑ nicant ancillary revenue.I such ancillary revenue exists, obtain details byºtype o service over a relevant period o time.Determine certicate o need and li-ºcensure requirements, i any, in connec-tion with ancillary revenue sources. 2. Op exp Compare operating expenses, in total and by ❑ major category, over time and against appropri-ate benchmark data. Substantial variances and/or unusual trends should be investigated.Review employment agreements with phy- ❑ sicians and summarize relevant terms in-cluding compensation arrangement.Analyze physician compensation and compare to ❑ relevant benchmark data based on productivitymetrics such as: net collections per physician and/or work relative value units (wRVUs) per physi-cian. Signicant variances should be explained. 3. Po Mx Determine the practice’s payor mix over a ❑ relevant period o time and evaluate or rea-sonableness under the circumstances.The payor mix should be determined based on the ❑ relative percentage o gross charges attributableto each type o payor such as: Medicare, Medicaid,commercial insurance carriers, and sel-pay patients. 4. P c Some physician practices (such as amily medi- ❑ cine) will have recurring patients; whereas oth-ers (such as general surgery) will not.I applicable, determine the number o active pa- ❑ tients currently and over a relevant period o time. Note: The defnition o an active pa-tient will vary by specialty. AtlAntA | Austin | knoxville | tAmpA BAy (800) 270-9629 |


Sep 19, 2017
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