On March 25th McGuireWoods hosted a webinar for private equity investors that provided an overview of key business issues and due diligence process for investments in the dialysis and physician practice spaces. If you missed the webinar, an archived copy of the webinar is available on our webite. This entry provides a brief summary of one of the most important aspects of making an investment in any space: due diligence.
The dialysis market has been a lucrative area for investment by a number of private equity funds. Here are a few key areas for conducting diligence on these investments:
- Referral streams – understanding where referrals for the facilities come from is essential. Further, investors must ensure that relationships with referral sources are in compliance with the Anti-Kickback Statute and Stark Act.
- Medical Director Agreements – ensuring that facilities are properly staffed with CMS-mandated medical directors and that medical director relationships meet appropriate regulatory requirements and include enforceable non-competes.
- Payor Contracting – conducting an analysis of reimbursement rates and ability to retain payor contractrs from commercial payors.
After being decimated in the late 90s, the physician practice management space is again seeing interest from investors. When investing in this market, a few key diligence areas include:
- Structural Issues – state corporate practice of medicine laws typically prohibit employment of physicians by corporations that are owned by non-physicians. As such, physician practice management companies are typically structured as a management relationship with a "professional corporation."
- Management Agreement Structure – state laws prohibiting fee splitting impact the structure of management agreements. It is important to confirm compliance with fee splitting laws to ensure enforceability of management agreements.