Join Cascade Partners Managing Director Raj Kothari and McDonald Hopkins Health Care Practice Chair, Elizabeth Sullivan, as they discuss the unique challenges of healthcare transactions and compliance. Learn why it’s important to have trusted financial and legal advisors engaged to not only help you navigate the transaction, but help advise you on options and their impacts.




Welcome to Cascade Conversations! Join the team at Cascade Partners and their network of trusted advisers as they work to demystify details, terminology and strategies in the world of acquisitions, divestitures and financings.


Rajesh Kothari – Cascade Founder and Managing Director:
Welcome to another Cascade Conversations. Joining me today is Liz Sullivan, Partner with McDonald Hopkins, and she leads the health care and their health care compliance effort. So, Liz, thanks for joining us. And in our conversation today, we want to spend a little bit of time with everybody’s favorite topic: compliance and regulatory matters. But it’s so important when folks are looking at what are they going to do next. How are they going to grow? Whether it’s acquiring another practice, building out your own clinical operations or even potentially exploring a sale.

Many times people are thinking about this and that. And I know you’re a huge advocate, a strong proponent of doing that work up front. But where do you think, practically, if someone’s beginning to look on that next “Hey, where are we going to go from here?,” where do they really need to focus from a compliance and regulatory perspective on the health care side?


Elizabeth Sullivan – Healthcare Practice Chair at McDonal Hopkins
Sure. Well, thank you for having me. I’m glad to be here chatting about this topic, which is one of my favorite topics. I think it’s really important to—for any organization that’s thinking about potentially growth, whether that’s their own growth or through acquisition or a transaction—to really think about what the implications could be of an unrecognized compliance issue. And a compliance issue, we could be talking about a billing issue, maybe it’s a manner of billing.

When I think about compliance, I’m thinking about some error that’s in overpayments—that they’re receiving over payments. But I think as a practical matter can certainly be a billing error that’s an underpayment that might be to the benefit of the organization. It can also be business arrangements and how they’re set up. And it may be something completely innocent, but the documentation is not consistent with what would be expected from a stark perspective or a kickback perspective.

And those are probably the most significant areas that we see come up in diligence of a transaction. Or we see when an organization gets larger or maybe they’re having a wonderful year, and there’s a lot of significant billing, and they end up on the radar of a payer or they end up on the radar of the government payer. And so, I would say those are probably the two areas that we recommend focusing on.

They’re certainly permitting and all sorts of other compliance. It’s a highly regulated industry, so, there’s no question that there’s many, many areas, but I think those are probably the most significant areas. And they’re two areas that can be really intimidating for organizations. So, sometimes those areas aren’t provided maybe as much attention as others because they are intimidating. HIPPA Data privacy is another area that’s important for compliance, and I think there are a lot of solutions out there that organizations can utilize and help them get their arms around their current operations, maybe where they have some exposure.

Those are probably the areas that we think about the most when we’re working with an organization—whether they’re operating, looking to grow or maybe getting ready for a transaction or thinking about selling.


Rajesh Kothari: Well, I know a billing audit. We chatted about doing audits, that they’re a really important tool whether you’re considering a transaction or not. How often are you seeing your clients, actually as a normal part of their operation, doing a periodic billing review? Why can that be advantageous to them regardless if they’re looking to grow or transact or what have you?


Elizabeth Sullivan: It’s a great question. I will say honestly, I wish that we saw more billing on it. But that said, we do have some clients that are large enough that they may take on the expense of a third party audit. We have a lot of organizations that do internal audits, which is great.

I mean, the gold standard is always going to be that independent audit for a number of reasons, partially just because you’ve got somebody who is a fresh set of eyes and also doesn’t necessarily have the same historical perspective. So, they might be able to identify things that maybe the rest of the organization wouldn’t as an internal audit. And then, depending on what the results of the audit are, that third party audit can sort of stand-alone and it is viewed differently when you’re looking at payer or you’re looking at a government entity to say, Well, this was a third party.


Rajesh Kothari: Yeah, like “We thought we were doing it right. We had somebody else help us tell us where we might have got it wrong, but that we did all the right things and try to do it the right way.”


Elizabeth Sullivan: Absolutely. Committed to compliance, really in-tune with trying to do the right thing. And I think those are all additional factors from an audit standpoint that are helpful. Especially if, for some reason, that audit comes back with something that is not ideal. Again, I would also say, we always are going to encourage providers to do that third party audit. Maybe every few years, do your internal audits. Utilize your internal team to do those audits on a more regular basis. But we do have some organizations that are smaller and maybe just haven’t thought about it. And there really is a business benefit to doing it because you may find out you need the bad news—that maybe there’s something that can be improved or maybe there was something that was overlooked.

And you can also get good news. You can find out that maybe…


Rajesh Kothari: You’re underbilling.


Elizabeth Sullivan: Exactly!


Rajesh Kothari: And there is an opportunity to improve and capture more revenue.


Elizabeth Sullivan: More revenue, right. And we talked about that as we were talking about billing audits. It sounds like you’ve seen that, where there are groups that could actually increase their productivity in what they’re doing just by changing how they’re billing.


Rajesh Kothari: And given the complexity; healthcare is an extremely complex, regulated environment. When you’ve seen issues come up, is that the end of the world? I mean, is it killing deals? I know we’ve worked through it, but I’d love your perspective on helping assure that it’s not the end of the world.


Elizabeth Sullivan: Yes, absolutely. I mean, that’s a great question. I’m glad that you asked that so we can talk about it.

It’s not the end of the world. And every transaction where we’ve identified a billing issue—and I know we’ve talked a little bit more focused on compliance issues—if it is not something that has been a deal filler, there’s the chance that it could change the valuation in the deal, which is why it’s so important to do it. Be proactive about it because you want to know, you want to try and correct that, and you want to know what you’re going into and sort of not be caught flat-footed when you’re in the middle of a transaction.

But at the end of the day, it’s something that we’ve never been in the situation where it’s no big deal. It might make things take a little bit longer, it might create a lot of frustration for everyone, it may create more duplication if that’s when it’s recognized because you’ve got all of these parties involved that are now looking at it, asking questions, coming up with different perspectives. But it’s not something that we see.


Rajesh Kothari: It’s much easier to handle if you figure it out before. Because it’s just you and your attorney working through it as opposed to you, your attorney, the buyer, the buyer’s attorney.


Elizabeth Sullivan: Absolutely.


Rajesh Kothari: They’re all looking at it because they’re worried about that liability. But again—because it’s so regulated, it is complex—people of all walks of life have violations and issues. It’s just how you manage to address it. But if we can figure it out ahead of time, the scale and scope, there’s no value in getting all the way through a deal process of getting into diligence and then finding out there’s an issue. And the issue is so big, you’re under fire, right? You’re kind of talking about the difference between kind of anti-kickback versus start issues of the order of magnitude wasn’t as much an issue, but the length of time to resolve those self-disclosures could make it uneconomical to do a transaction because the seller’s got the liability no matter what.


Elizabeth Sullivan: Right, and that’s such a good point you made that I was going to come back to this while we were chatting. And it’s true. I mean, at the end of the day, as an organization, if the seller is billing—and whether it’s under payer contracts or whether it’s as a participant in a government program—there are obligations, there are rules. And every time you submit a claim, you’re basically certifying that you’re in compliance, which means that maybe this comes out in the context of a transaction through diligence, but that obligation existed either way. So, whenever it’s discovered, it’s something that needs to be addressed. And if you can do it where you’re not in a position where you’ve got a buyer, you’ve got another party, there’s a lot of attorneys that are looking at it, also have opinions, then that gives you the opportunity to say, “Okay, I want to take a step back. I’ve got my third party experts. I’m evaluating the situation. This is what we believe the issue to be. This is how we believe we want to correct the issue.”

And so, even again, focusing on the billing side of things, is it a repayment? Is it a self-disclosure? There are different pathways depending on the fact pattern. And if it’s you and your counselors, you can sort of make that decision outside of the context of the transaction when we are in the middle of a transaction, and the buyer may say, “Hey, if we’re going to go forward, this is how we want you to resolve it,” and that may be a different calculation. It may be a different method of repayment or reporting.

And it is really, to your point, best to get out in front of it and be able to deal with it sort of independently from that situation with those additional voices. It just gives more flexibility. A provider organization can feel like they’re sort of in control of those decisions. They’re making the right decision for themselves, not just for purposes of the transaction.


Rajesh Kothari: And when you help us define it and quantify it, that gives us the ability to negotiate and structure it into the transaction—whether that’s figuring out how to carve the liability out and set it aside, whether it’s getting insurance in probably fewer cases or creating the indemnification profile that really manages that risk and lets it stay contained.

Many places we’ve had where we got our clients and, “Look, you have a liability,” A transaction, the liability we’re out of foreclosing as the sellers and what’s after and saying, “Now, at least you have proceeds in which to pay this fee. Otherwise you’d have to come out of pocket.” But you got to make sure your structure, that there’s enough dollars available, and I think you said something at the beginning where we’ve often thought it was helpful for our clients; when you’re doing those audits and you’re keeping that documentation, it actually gives assurances to the potential buyer. Or if you’re looking at doing an acquisition, being able to compare and contrast to, “Oh, we’re in compliance, so, as we adapt, how do we get them in compliance or make sure there is compliance?” Or “No, we might have a potential liability because we know what our documentation says and what we’re supposed to do.” And when you’re going to a buyer, it just says, “Oh no, we follow the process well.”

Everything that you give the buyer assurance, but I often remind people: Sellers are optimists—we’re doing everything right—and buyers are cynics—they’re doing everything wrong until proven otherwise. And so, this helps create that comfort level and ease around that conversation.


Elizabeth Sullivan: That’s such a good point. I think that idea of comfort, trust, sort of the positive objects that go with documentation and being proactive; not only is it helpful in the context of a transaction and sort of giving that comfort to a buyer or knowing what you’re looking for as the buyer when you’re looking at a seller, but it’s sort of essentially the same with payers and with the government. Being able to show that work. Not look like, “Oh no, we just figured it out,” Deer in the headlights. We’re dealing with it immediately. We’re being reactive, and being able to show proactivity really is beneficial. The government expects providers to have compliance plans in place and that those are operating at all times and that things are always sort of being continuously improved.

As a practical matter, that’s hard to do. Everybody’s doing their job, they’re doing their day-to-day work, they’re caring for patients, they’re giving high quality care, and you have all these other regulations and compliance requirements and responsibilities that are out there. So, sometimes it’s hard to maintain that compliance program, but that’s an expectation. So, anything you’re doing to document it and have that and be able to show that work is really beneficial—not only in the context of a transaction, but with the government as well.


Rajesh Kothari: Right. I mean, regulations only get bigger, right? So, your ability to stay on top is crucial. You know, the rule that you used to work under five years ago might not be the same rule today. The rules are evolving and they’re changing your ability to stay on top of that. The key for a team, like quality of care, are standards are changing. If physician teams are staying on top of that, you’ve got to have your operational team staying on top of what’s the best practice in recording, and tracking and reporting on it.

You know, we get a lot of—when we’re working with more entrepreneurial physician practices and other entrepreneurial clinical operations—oftentimes they’re coming to us going, “Well, why do we need all this? We’ve been operating just fine for all these years now, it’s not an issue. Why, all of a sudden, is the buyer making an issue? What are some of the drivers? Why are the buyers looking at this? Why is it such a big issue when these folks are thinking, “Hey, this was never an issue.”?


Elizabeth Sullivan: Yeah, people think, “We’ve always done it this fine. Everything’s been fine. Also, everybody else in the industry is doing it and we can’t keep up unless we do it…” I mean, we hear that so frequently. That’s probably one of the biggest challenges of the compliance side of things. And part of our job is saying, “Just because everybody’s doing it or just because it’s always been done doesn’t mean that it’s going to work.”

And so, I think to your point, we also have a lot of clients who fail and they say, “Well, I got paid, so it must be fine.” Back to that point that you’re making: generally a payer, if they look at a claim and it’s clean, they’re going to pay it and they’ll just audit later. So, you can’t assume that.

And I think when you’re looking at a situation as the seller who might have been on an organization—maybe you’re joining a larger platform or you’re joining a huge organization that has a robust compliance plan. Maybe the reason that organization has a robust compliance plate is because they’ve already been through this with the government. There are some situations you’re actually working with the government on their compliance on an ongoing basis.

And so, I think for an organization that’s always sort of been able to operate in a certain fashion but is being told now, “We’d like to see you do it a different way, your expectations are different about how you’ve operated,” we view this differently in a buyer situation. That may be because of past experience. And you made a really good point as we were chatting, it could very well be just because the platform’s bigger, which means the target is bigger. There’s more chance—whether it’s just the size of the organization, the amount of services provided, the dollars that are being paid to the organization or associated with the various providers within the organization—all of those things are going to increase the potential for an audit, private payer or government audit or even a government investigation.

I know we’ve been kind of focused on the billing side of the auditing, but there is there’s investigation side of things too—which can be civil, can be criminal—and that’s all of those things that everyone is tasked with looking for fraud, waste or abuse, whether they’re a private payer or whether they’re in the government. The larger you are, the more opportunity there is for something to go wrong.


Rajesh Kothari: And it’s the impact on a larger organization that’s a larger mistake. So, we often felt like a single practice might not be on the radar screen, but 50 practices have got a greater shot of being on the radar screen of whoever is going to audit. And when we have these complex arrangements that exist between ancillary services and different groups, and then you start crossing state lines the level of scrutiny goes up.

And so, what might have been great for you operating in the last 15 years as part of a much, much, much larger platform is we’re often trying to tag clients through that dynamic of, “Here are the rules, you got to follow the rules,” even though they never had an issue in the past that ends up being something folks have to at.


Elizabeth Sullivan: Right. And again, to circle back to where we started, this idea of being proactive, when you think about that situation there, it does impact. If you do it proactively and you learn something about your organization or your operations that you want to change—whether it’s billing, whether it’s some other compliance aspect, whether you’re contracting, the way that you’re employing folks or paying folks, whether it’s different types of business arrangements, whether HIPPA—it’s all of those things. If you do it on the front end and you figure out what works for you, it’s not a surprise when you go through a transaction say, “Hey, we need to change a few of your operations, we need to change this or we need to change that.”

I think that’s helpful too because we made this point earlier: knowledge is power. Making those decisions is going to help. People will feel more in control and may be able to give more insight or feedback or think about what does it mean to join: “What am I changing or what have I already changed so that my business operations are more consistent?” Maybe they won’t be as impacted by that large platform if that ultimately is what an organization is doing.


Rajesh Kothari: Well, and whether I’m joining or becoming the new large platform, I’m creating the super group. We often work with physician shareholders as they explore this very active environment. What are their options? When we talk to them about you having the ability to execute the exact same plan the private equity guys do. They have the ability to bring their management team and they’re very successful practices, but they have the same scrutiny and the same issues. As they grow, from a single practice with 10 or 15 providers to a very large group with 100-150 providers, they are going to get on the radar screen of payers and the government of investigators. They have to have good type processes in order to make sure they’re doing current standards, firm requirements, current expectations.


Elizabeth Sullivan: Absolutely, that is such a good point. And I hope, in those instances, you’re already starting to think through all of the things that are going to be required to make that form successful—which you’re absolutely right. We have gone through diligence before where one of the stark requirements relates to how you are compensating your physicians, making sure that designated health services—which would be something like a lab, something that the physician can generate the order for—can be done within the practice.

But you have to be very careful how that is allocated from a compensation standpoint. And we’ll get into diligence. The contract will say we only compensate you on personally performed work. It does not include designating health services, but as we speak with the organization, it might turn out that maybe not everybody appreciated, “What was DHS, what was that designated health service?” And so, it gets maybe into the compensation somewhere. We have to figure that out.

So, to your point of this idea of building that platform and having those controls in place, if it’s a process it’s sort of automatic that can be vetted that somebody is looking at it, it’s much more likely to be success and sort of assume that everybody understands the requirements and has the same grasp on those details because it’s just one of those things that—you mentioned this when you were talking—we’re doing everything right. I think that there is a thought often times in a transaction where it’s all positive. It’s like, “Okay, we’ve got the smartest people, we’re joining two fantastic organizations, three fit, whatever it may be. We’ve all got this figured out. Sky’s the limit.” Not everybody might be operating in that same fashion.

So, for an organization that’s going to scale, it is important to have those protections in place. Make it automatic, and hopefully it’s not anything anybody needs to spend extra time thinking about doing.


Rajesh Kothari:
And I think the key is details matter. You might have it documented one way, but you’re actually not doing what the documentation says because folks farther down the team, it’s not just, “Hey, if we have good documentation.” If it’s okay, practically pragmatically. What are you really doing? That matters just as much?


Elizabeth Sullivan: Right.


Rajesh Kothari: And getting folks through that can be hell.


Elizabeth Sullivan: Absolutely. I think—dare I go back to being a compliance person and “rah rah” for being proactive—but that’s a perfect example of, an organization might get a great document and they spent the time and the effort, and somebody spent time away from clinical to learn and understand that area to get that document ready. So, when it gets rolled out the first few times, there’s no need to go back to the attorney or whomever was helping with it, but maybe that person gives that responsibility. So, there are changes in leadership. There’s things happening. And so, the next person comes into that role—is a physician, depending on the size of the practice agents, an administrator—they come in, they don’t appreciate necessarily what’s in there. Nobody’s kind of going back to their law firm or their attorney talking through that.

So, it is important to have a dialog and say these are the things that we’re building. We’re building out this ancillary service line of work with you. We’ve got these new folks joining. We want to tweak this, that or the other about their arrangements. It is important to go back to your counsel or your, I will say, even any of your..


Rajesh Kothari: Documentation, your function.


Elizabeth Sullivan: You’re right. Yes. No question.


Rajesh Kothari: And in this environment of unprecedented turnover, and changing and staff, if there’s ever a time that folks should go back and look, today is the environment? Because the team that you had doing billing for the team that you had doing all the payroll data has changed, and are they up to speed on the current and what your practices is saying? This is the right thing.


Elizabeth Sullivan: That’s such a good point. I think you’re right. The practical thing to do is go back to the documentation. If there’s any question about it, if someone doesn’t understand what’s in there, it’s worth asking whatever that means—billing consultants, accountants, whomever it is. But make sure that you are going back to the documentation, to your point. And if somebody doesn’t understand it or is in charge of it, ask the question, it’s worth it. If it can truly save a great deal of money, legal expense, resources, sleep and sleepless nights. So, it’s worth it.


Rajesh Kothari: Well, thank you very much for taking the time and sharing your insight and perspective.


Elizabeth Sullivan: Absolutely!


Rajesh Kothari: And thank you for joining us on another Cascade Conversations.