Regulations Regarding Physician Practice Acquisitions

The Federal Anti-Kickback Statute (42 USC § 1320a-7b), is one of the primary laws addressing sales, acquisitions, and mergers of physician practices. The legislative intent is to prevent buyers of physician practices from camouflaging payments designed to elicit future referrals from the seller (Rossman, n.d.). Furthermore, The Anti-Kickback Statute prevents the seller from providing a discount to receive referrals from the buyer (Rossman, n.d.). In more general terms, the Anti-Kickback Statute governs activities that affect Medicare, Medicaid, and other federal/state funded medical programs by curtailing potentially harmful monetary influences on medical decisions. The result is a layer of protection for patients and federal healthcare programs (Rossman, n.d.).

A scenario where an acquisition would fall under the Anti-Kickback Statute is if the physician practice is being acquired by either a hospital or another entity acquiring one or more hospitals/healthcare providers (Thornton, 1992). One of the primary reasons the aforementioned acquisition would require oversight is because, during the purchase, a substantial sum is paid to the seller and if the seller is later employed by the buyer or continues providing services to patients, the seller will then be receiving further payments. Consequently, the acquisition directly affects physician compensation which falls under the jurisdiction of the Federal Anti-Kickback Statute (Thornton, 1992). In addition, hospitals could use the purchase of private physician practices as a means of retaining current referrals or acquiring new referrals. Thus, any amount paid above the fair market value is subject to scrutiny as established in the court case, United States v Lipkis, 770 F2d 1447 (Thornton, 1992).
The acquisition price may be above the fair market value if the following payments are present in the acquisition deal (Thornton, 1992):

1. Payment for goodwill;
2. Payment for value of ongoing business unit;
3. Payment for covenants not to compete;
4. Payment for exclusive dealing agreements;
5. Payment for patient lists, or;
6. Payment for patient records.

One method of determining if one or more of the above payments are a significant cause for concern is to analyze the financial welfare of all the physicians involved by comparing current financials with the projected financial gains resulting from the acquisition. A sudden, excessive economic improvement for these physicians could indicate that the purchase payment involves compensations for referrals (Thornton, 1992).

Clearly, acquisitions in the healthcare industry are uniquely complex, a direct result of the multitude of regulatory requirements that apply. Therefore, one of the most vital steps in any acquisition process is accurately obtaining the appropriate fair market valuation. Hiring a third-party valuation firm would enable both accuracy and cost-effectiveness while providing solid backup to justify a fair market value that satisfies regulatory requirements.

1. Rossman, C. Esq. (n.d.) [Web] Buying, Selling, Merging and Valuation: Regulatory Issues. Retrieved from: https://wwwfoleycom/files/Event/a88f49fc-d709-438f-b863 fcfdd9444720/Presentation/Event Attach ment/9269f47c-7b33-4e16-82a9-05bb17392f9b/CCBSHandoutRossmanpdf

2. Thornton, M. (1992)[Web]. Letter Concerning the Application of the Medicare and Medicaid Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b), to Certain Types of Situations Involving the Acquisition of Physician Practices. Retrieved from: https://oighhsgov/fraud/docs/safeharborrgulation s/acquisition122292htm