Moving the HME Industry Forward

General Healthcare

Due Diligence Checklist – Stock Purchase

March 13, 2017

AMARILLO, TX – In the past, the vast majority of acquisitions of DME suppliers have been “asset purchases.” This is where one company (ABC Medical Equipment, Inc.) purchases the hard assets of the selling DME company (XYZ Medical Equipment, Inc.). In addition, subject to patient choice, XYZ will transfer its patient files to ABC. The good news for ABC is that, as a general rule, it does not pick up any of XYZ’s liabilities. The challenge for ABC is that if, for example, ABC desires to take over XYZ’s location, then ABC will need to become accredited and obtain a PTAN for XYZ’s location.

Over the last several years, we have seen an increase in the number of “stock acquisitions.” This is where James Johnson, the owner of the stock of XYZ sells his stock certificate to ABC. The end result is that XYZ becomes a wholly-owned subsidiary corporation of ABC. The good news for ABC is that its subsidiary corporation (XYZ) will just keep “humming along” as it always has: same NPI, same Tax ID #, same accreditation, same PTAN, etc. XYZ will need to file change of ownership (“CHOW”) notifications with multiple entities, organizations, and governmental agencies. In some states, XYZ will need to obtain a new DME license and Medicaid provider number.

The challenge for ABC is that whatever liabilities XYZ had before the sale occurred will remain with XYZ after the sale occurs. Notwithstanding this challenge, an increasing number of purchasers are going with the “stock acquisition route.” Their rationale is that the benefit of fewer regulatory hurdles outweighs the risk of XYZ retaining its pre-closing liabilities.

This brings us to the concept of “due diligence.” Before a person buys a house, he has it inspected. The same holds true with purchasing a DME company. Before “closing” (i.e., the seller hands the “keys to the store” to the buyer, and the buyer hands a check to the seller), the buyer needs to “kick the tires” of the selling company to determine if there are any “skeletons in the closet.” The buyer is OK with there being “skeletons in the closet” so long as the buyer knows in advance what they are. In short, the buyer does not want any surprises after closing. While the buyer might get away with being somewhat cavalier in its due diligence involving an asset purchase, the buyer cannot be so cavalier with its due diligence pertaining to a stock purchase.

A mechanism to ensure that a buyer’s due diligence (pertaining to a stock purchase) is thorough is for the buyer to use a “due diligence checklist.” Set out below is a template checklist. Note that in this checklist, the selling company is a competitive bid contract supplier. Before a buyer uses a due diligence checklist, the buyer needs to customize the checklist to comply with the specific requirements of the state where the selling DME company is located.
This checklist assumes that buyer will purchase 100% of the stock of XYZ Medical Equipment, Inc. (the “Company”) from Seller.  

Notify Accreditation Organization
Buyer and Seller should coordinate with the Company’s Accreditation Organization to update the Company’s ownership information from Seller to Buyer. The Accreditation Organization will determine the process for updating the Company’s ownership information, so communication should be made ASAP, but the actual change may not take place until after closing. The due date is before Closing.

Notify Surety Bond Issuer
Buyer and Seller should coordinate to ensure that the Company’s Surety Bond Issuer updates the Company’s ownership information from Seller to Buyer. The Surety Bond Issuer will determine the process for updating the Company’s ownership information, so communication should be made ASAP, but the actual change may not take place until after closing. The due date is before Closing.

Notify Liability Insurance Carrier
Buyer and Seller should coordinate to ensure that the Company’s liability insurance carrier is apprised of the transfer of stock and that any required notices are timely submitted. The due date is before Closing.

Notify Individual Payors
Buyer and Seller should coordinate to provide the proper notice to the individual payors with which the Company is contracted: (i) whether and what notice is required is governed by the individual payor contracts; (ii) Buyer’s attorney will conduct a review of the payor contracts provided by Seller and provide Buyer with a summary of notice requirements; and (iii) a stock transaction does not guarantee that Company will be able to retain all payor contracts. The due date varies.

[Name of State] DME Licensure
Per the [Name of State] Board of Pharmacy, which issues the Medical Device, Equipment & Gas Outlet – Class C Registration, the Company will have to complete a new Medical Device, Equipment & Gas Drug Outlet Form. The Form should be mailed to:

[Name of State] Board of Pharmacy
[Address]

Board rules require the new application and fee to be submitted within 15 days of the change. [Citation of Regulation]. As long as the current license is active, the Company is permitted to continue operations while the application is pending. [Name of Person] with the Board of Pharmacy advised that it would take approximately 7-10 business days to process the application. The due date is within 15 days of Closing.

Notify [Name of State] Medicaid
Per [Name of Person] with the [Name of State] Health Plan, a 100% stock transfer requires the completion of an entirely new application.  Provider enrollment forms are found on the [Name of State] Health Plan website.  Once you access the page, using the drop down bar, select “Durable Medical Equipment (DME)” to locate the required forms.  The required forms are: (i) [Form Number] – Provider Enrollment Attachment; (ii) [Form Number] – Provider Enrollment Information; (iii) [Form Number] – Provider Enrollment Disclosure Statement; and (iv) [Form Number] – Provider Enrollment Agreement.

Use the EDMS Coversheet and fax the entire application to:
[Fax Number]

On the EDMS Coversheet, include the following note “Do not re-enroll provider #_____.  Application submitted to update ownership information only.” Per [Name of Person], the new application should not affect the Company’s ability to continue billing the [Name of State] Health Plan.  The Company will not get a new provider number. [Name of Person] can be reached at _____@_____state.__.us. The due date is Closing.

Notify the CBIC of the Change in Ownership
The Seller should notify the CBIC of the stock transfer.  Seller should submit a notice letter to the CBIC and include a redacted copy of the stock purchase agreement. Mail the letter and redacted agreement to:

Palmetto GBA
Competitive Bidding Implementation Contractor
2743 Perimeter Pkwy, Ste. 200-400
Augusta, GA 30909-6499

Refer to the Stock Purchases section of the Round 2 Recompete Fact Sheet for more information. Buyer’s attorney can prepare a draft letter to the CBIC. Once the Company’s ownership information is updated by the National Supplier Clearinghouse to reflect the Buyer, the Buyer may submit a supplier location add/remove request through Connexion. The due date is Closing.

Submit Change of Information to Medicare for DME
Buyer must submit a revised CMS 855S to update the Company’s information with Medicare.  
Complete the appropriate sections identified in Section 1D, based on the information being updated, and mail the application to:

National Supplier Clearinghouse
P.O. Box 100142
Columbia, SC 29202-3142

The sections to be updated for ownership information updates are: 1, 7, 8 and/or 9, 11 (optional), 12 (if applicable), and either 14 or 15. Alternatively, this application can be completed online. The Buyer should submit this application on the date of closing to avoid delays in updating the Company’s information.  The Buyer will not be able to add any locations to the Company’s competitive bid contract until these updates are made. If Buyer desires to update the application online, Seller should have or create a PECOS account with user name and password. Since this is not considered a change of ownership (“CHOW”), as defined by Medicare, the Company will not have to obtain a new PTAN. The Company should be able to continue billing Medicare patients without any breaks in billing. A copy of the stock purchase agreement will be required by the NSC to evidence that the Sellers no longer hold an ownership interest in the Company. The due date is within 30 days of Closing.

Update NPI Ownership Information with NPPES
Buyer must submit an updated National Provider Identifier (“NPI”) Application/Update Form to the NPI Enumerator. Complete the appropriate sections of the Form and submit the application to:

NPI Enumerator
P.O. Box 6059
Fargo, ND 58108-6059

Alternatively, this application can be completed online. If the Company will be utilizing a new Authorized Official (as defined in the Form), we would recommend including a cover letter explaining the change and signed by the current and new Authorized Officials. The due date is within 30 days of Closing.

Jeff Baird and Mark Higley will be presenting the following webinar:
AAHOMECARE’S EDUCATIONAL WEBINAR
Competitive Bidding: “Buying Into” a Contract, Exiting a Contract, Meeting Capacity, and Other Important Issues

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C. & Mark J. Higley, Vice President – Regulatory Affairs, VGM Group, Inc.

Tuesday, March 14, 2017
2:30-4:00 p.m. EASTERN TIME
Now that competitive bidding has … unfortunately … been in place for several years, a number of legal issues have arisen and have been addressed by CMS. This webinar will discuss these legal issues. In particular: (i) we will examine if the DME supplier can cease serving competitive bid patients if the supplier’s business has exceeded the capacity stated in the supplier’s bid package; (ii) we will look at the options the contract supplier has if it concludes that it simply cannot profitably continue to serving patients under the competitive bid contract; (iii) we will examine what the supplier must do if it discovers that it has not met the “physical location” requirements of a state; (iv) we will look at the requirements a contract supplier must follow in order to “carve out” a portion of its competitive bid contract; and (v) will examine how a contract supplier should prepare a Corrective Action Plan when CMS threatens to terminate the competitive bid contract.

Register for Competitive Bidding: “Buying Into” a Contract, Exiting a Contract, Meeting Capacity, and Other Important Issues on Tuesday, March 14, 2017, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., of  Brown & Fortunato, PC and Mark Higley, Vice President – Regulatory Affairs, VGM Group, Inc.

Please contact Ika Sukh at ikas@aahomecare.org if you experience any difficulties registering.

FEES:        
Member: $99.00    Non-Member: $129.00
Webinar sponsored by Mediware Information Systems, Inc.
Waiver or Reduction of Medicare and Commercial Co-Payments: What DME Providers Can and Can’t Do

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Thursday, April 20, 2017

1:00 p.m. CENTRAL TIME
When every dollar counts in the DME industry, it is vital that suppliers make every effort to collect copayments and deductibles. In many cases, it is challenging when patients do not have supplemental insurance, and the supplier gets in the habit of routinely waiving co-payments. This is why DME suppliers need to understand that this behavior can result in an investigation from the OIG for potential fraud.

Join Jeffrey S. Baird, Esq., Chairman of the Health Care Group of Brown & Fortunato, P.C., to learn the latest DME requirements regarding co-payments from Medicare beneficiaries and commercial patients, and the steps that the supplier should take before waiving a co-payment.

This presentation will help attendees:
• Learn why the collection of copayments and deductibles is critical to the success of a business
• Analyze when it is legally acceptable to waive copayments and deductibles
• Understand what the OIG considers to be a kickback, inducement, or false claim

Register for “Waiver or Reduction of Medicare and Commercial Co-Payments:  What DME Providers Can and Can’t Do” on Thursday, April 20, 2017, 1:00 p.m. CT, with Jeffrey S. Baird, Esq., of  Brown & Fortunato, PC.

Please contact Kolby Wegener at Kolby.Wegener@mediware.com if you experience any difficulties registering.
This webinar is free for attendees.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or jbaird@bf-law.com