Evaluation of Corporate Compliance Programs: Buying and Selling

Dear friends,

The following article is about new guidance from the Department of Justice
regarding the evaluation of compliance plans, specifically with regard to
buying and selling businesses. Feel free to share this information. If you
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Elizabeth E. Hogue, Esq.

Office: (877) 871-4062

Fax: (877) 871-9739

Twitter: @HogueHomecare


Part 9 - Evaluation of Corporate Compliance Programs: Buying and Selling

Fraud enforcers recently declared that their expectation is that every
provider has a Compliance Program. Consequently, enforcers will now focus
on implementation of quality Compliance Programs. As part of this new
focus, the U. S. Department of Justice (DOJ) issued additional guidance on
February 8, 2017, entitled "Evaluation of Corporate Compliance Programs."
This new guidance provides a "road map" for buyers and sellers to use to
evaluate Compliance Programs.

First, based on the DOJ's statement above, buyers of healthcare businesses
must determine during the due diligence process whether sellers have an
updated Compliance Program that is fully implemented. This aspect of due
diligence is important for these reasons:

- As a practical matter, when providers establish and maintain
Compliance Programs, they discourage regulators and whistleblowers from
pursuing allegations of fraud and abuse violations. Compliance Programs may,
for example, make it clear that employees have an obligation to bring any
potential fraud and abuse issues to the attention of their employers first.

- Technically speaking, the Federal Sentencing Guidelines make it
clear that establishment and implementation of Compliance Programs is
considered to be a mitigating factor. That is, if accusations of criminal
conduct are made, the consequences may be substantially less severe as a
result of a properly implemented Compliance Plan.

- In addition, the federal Affordable Care Act (ACA) requires
providers to have Compliance Plans.

- Finally, the Deficit Reduction Act (DRA) requires providers who
receive more than $5 million in monies from the Medicaid Programs per year
to implement policies and procedures, provide education to employees, and
put information in their employee handbooks about fraud and abuse
compliance. These requirements should be met through implementation of a
Fraud and Abuse Compliance Program.

Since the representations and warranties by sellers in Purchase Agreements
usually include compliance with all applicable laws and regulations, buyers
are increasingly likely to walk away from sellers if the above requirements
are not met. The effect on businesses of regulatory and enforcements
actions can be devastating, even if sellers ultimately prevail. So, buyers
want to minimize risk by verifying compliance.

As indicated above, the U.S. DOJ provided sample topics and questions it is
likely to use to evaluate Mergers and Acquisitions. With regard to the
specific factors, the OIG is likely to review:

- Due Diligence Process - Was the misconduct or the risk of
misconduct identified during due diligence? Who conducted the risk review
for the acquired/merged entities and how was it done? What has been the due
diligence process generally?

- Integration in the Merger and Acquisition Process - How has the
compliance function been integrated into the merger, acquisition and
integration process?

- Process Connecting Due Diligence to Implementation - What has been
providers' process for tracking and remediating misconduct or misconduct
risks identified during the due diligence process? What are the company's
processes for implementation of compliance policies and procedures at new

Many providers have invested enormous resources in the establishment and
growth of their businesses and consolidation in the healthcare industry is
ongoing. When transactions "go south" because of fraud and abuse compliance
issues, the losses for both buyers and sellers can be significant.

C2017 Elizabeth E. Hogue, Esq. All rights reserved.

No portion of this material may be reproduced in any form without the
advance written permission of the author.
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