Moving the HME Industry Forward

General Healthcare

Federal Laws Governing Transfer of Assets

October 12, 2015

AMARILLO, TX – DME suppliers are caught in the “perfect storm” of competitive bidding, out-of-control audits, ALJ delays into the next century, stringent documentation requirements and reimbursement cuts.

A not-uncommon scenario is for a DME supplier to be dealing with multiple Medicare audits and multiple Medicare recoupment demands. While the supplier is in the redetermination and reconsideration stages, a supplier can stop Medicare collection efforts. However, after the reconsideration decision is issued, Medicare will take steps to recoup the alleged overpayment. This is unfair to the DME supplier in light of the fact that it will be several years before the supplier makes it in front of an ALJ.

While entangled in this administrative appeals morass, the DME supplier may decide to sell all of its assets and close its doors. In so doing, the supplier may want to use the sale proceeds to pay debts (e.g., to the bank) and to distribute some of the proceeds to the owner of the DME supplier. Ultimately, there might not be enough money for the DME supplier to pay all of the money that Medicare claims is owed by the supplier.

And so when the DME supplier is contemplating selling its assets while it is entangled in the various administrative appeals stages, the supplier needs to be aware of federal and state laws addressing the sale of assets. This article addresses a couple of the federal laws.

28 U.S.C. § 3304 governs the fraudulent transfer of assets as to a debt to the United States.  This provision applies to all claims, whether or not they have been reduced to judgment or whether they are secured or unsecured.  28 U.S.C. § 3304(a) states:

[e]xcept as provided in section 3307, a transfer made or obligation incurred by a debtor is fraudulent as to a debt to the United States which arises before the transfer is made or the obligation is incurred if-

(1)(A) the debtor makes the transfer or incurs the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation; and
(B) the debtor is insolvent at that time or the debtor becomes insolvent as a result of the transfer or obligation; or

(2)(A) the transfer was made to an insider for an antecedent debt, the debtor was insolvent at the time; and
(B) the insider had reasonable cause to believe that the debtor was insolvent.

28 U.S.C. § 3302 of the USC states that a debtor is “insolvent” when “the sum of the debtor’s debts is greater than all of the debtor’s assets at a fair valuation.”  28 U.S.C. § 3302 further presumes that a debtor that “is generally not paying debts as they become due” is insolvent.  

Even if 28 U.S.C. § 3304(a) does not apply, 28 U.S.C. § 3304(b) states:

[e]xcept as provided in section 3307, a transfer made or obligation incurred by a debtor is fraudulent as to a debt to the United States, whether such debt arises before or after the transfer is made or the obligation is incurred, if the debtor makes the transfer or incurs the obligation-

(A) with actual intent to hinder, delay, or defraud a creditor; or
(B) without receiving a reasonably equivalent value in exchange for the transfer or obligation if the debtor-
(i) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.

Essentially, where there is actual intent to hinder, delay, or defraud the creditor, the statute states that the transfer will be considered fraudulent regardless of whether the debt arises before or after transfer is made. “Actual intent” is determined by examining various factors outlined in the statute, including whether: the transfer or obligation was to an insider; the debtor retained possession or control of the property transferred after the transfer; the transfer or obligation was disclosed or concealed; before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; the transfer was of substantially all the debtor’s assets; the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; the transfer occurred shortly before or shortly after a substantial debt was incurred; and, the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor. 42 U.S.C. § 3304(b)(2).

Jeff Baird will be presenting the following webinar:
AAHomecare’s Educational Webinar
Buying and Selling a DME Supplier
Presented by:  Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Thursday, October 15, 2015
2:30-4:00 p.m. EASTERN TIME
When a person intends to buy…or sell…a DME supplier, there are a number of documentation and regulatory issues that must be addressed.  First, the seller must take a number of steps to make itself more “attractive.” The buyer and seller need to decide whether the transaction will be an “asset” sale or a “stock” sale. The parties will need to engage in the normal transactional steps: mutual nondisclosure agreement, letter of intent, stock purchase agreement/asset purchase agreement, and other closing documents. The buyer will need to engage in three types of due diligence: financial, corporate and regulatory. And the parties will need to meet a number of regulatory requirements such as submitting change of ownership notifications. This program will discuss all of these (and other) issues associated with the purchase and sale of a supplier.

Register for “Buying and Selling a DME Supplier” on Thursday, October 15, 2015, 2:30-4:00 pm ET, with Jeffrey S. Baird, of Brown & Fortunato, PC. Contact Ika Sukh at ikas@aahomecare.org to register
FEES
Member: $99.00       
Non-Member: $129.00

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.