Getting it Right: Buying a Florida-Based Healthcare Business
According to a recent report released by the Legislature’s Office of Economic & Demographic Research, Florida’s population is increasing at an estimated rate of 808 people per day, or a total of 294,796 new residents per year. Well known for its beautiful beaches and sunshine, Florida’s population is estimated to increase at this rate for at least the next five years, due in part to a migration within the U.S. population that has occurred due to the COVID-19 pandemic. Economists claim that Florida's senior population will account for almost 60 percent of the state's population growth over the next two decades, and surge to more than 6 million. With over 20% of Florida’s twenty-one million residents being age 65 or older, there will continue to be a steady and growing demand for a wide range of healthcare services, including home healthcare and long-term care services. As a result of these population increases, it is a great time to consider purchasing an existing healthcare provider, well-established in their care for Florida communities.
While the timing may be right to acquire a healthcare provider, the process of buying a business that is licensed and regulated through Florida’s Agency for Health Care Administration (AHCA) and other regulatory entities is complex. Mistakes can cause costly delays, sour the relationship with the seller, and ultimately cause gaps in revenues or loss of staff and assets that are the driving force behind buying an established business. Buyers and sellers in this market share the same goal of a successful transaction and passing on the legacy of their success, so here are five things you need to know to ensure the overall process goes smoothly— ensuring you save time, money, and frustration.
Hire the Right Team
Every business owner quickly learns that having the right team in place is the key to acquiring and running a successful business. When purchasing an existing healthcare provider, it is important to bring on a team who already has proven experience in the industry and this specific line of work. In many instances, your in-house counsel or accounting department will not have AHCA-specific experience to ensure a smooth transaction and licensing process. Your team should consist of a reputable, knowledgeable business broker, lawyer, accountant, and healthcare consultant. Each of these resources will provide valuable insight into the process, cost, transaction, timeline, and requirements for transferring and re-assigning business licenses, permits, the provider license, Medicare and/Medicaid program enrollments, and existing payer contracts. Each of the above professionals will bring their expertise and experience to the table in a way that ensures the overall selection, transaction, and acquisition of the company goes smoothly and as quickly as possible.
The Right Timing is Essential
After hiring the right people, the next thing every buyer should do is to become informed on what the process of purchasing an existing healthcare provider entails from a regulatory standpoint. In Florida, most healthcare providers cannot operate a business without a state license, issued through the Agency for Health Care Administration (AHCA). Current law states that AHCA must receive notification, in writing, of the intent to purchase a licensed provider at least 60 days in advance of the closing. Many buyers and sellers sign written agreements regarding the purchase and sale of a business and assign a closing date that does not align with state requirements. While AHCA does allow a closing date to be pushed back with written notification, a buyer will be fined $500 for not providing sufficient advance notice to the state of an upcoming change of ownership. Other state, federal, and accrediting organizations have their own rules when it comes to reporting any changes tied to the business, as well.
Report the Ownership Change the Right Way
When purchasing an existing healthcare provider, buyers need to report the change of ownership to all state, federal, accreditor, and private insurers who mandate it. A buyer cannot assume that contracts are immediately transferable when a change of ownership occurs, so communication with these entities is important and vital to safeguarding ongoing operations throughout the process of the acquisition. The type of purchase, whether stock or asset, also influences the type of reporting that is done with federal entities, such as the Medicare program. In some instances, acquiring a company will require the submission of a change of information whereas others will require a new application to be submitted. Buyers will need to file paperwork with the Florida Division of Corporations, and depending on how the business operates, report ownership changes on their local, state, and federal permits, NPI, Medicare, Medicaid, emergency plans submitted through the Department of Health, as well as accreditors and private insurance companies.
Fill Out the Right Application
As soon as a buyer is aware of the reporting that needs to be done when acquiring an existing healthcare provider, the next step is to understand the Change of Ownership (CHOW) application process through AHCA. The state licensing application is completed from the standpoint of the buyer as the applicant. Depending on how the controlling interests are changing, the buyer may need to obtain new documentation in the name of their business entity as a part of the application process. This could include zoning verification, liability insurance, Department of Health or fire inspections, and an executed lease or right to occupy the property where the provider is located. It is important to note that not all transactions meet the criteria defined in state law requiring a complete CHOW application to be submitted. When this type of application is required, however, certain buyers will need to utilize the services of an accountant to obtain financial projections. This state-specific pro-forma must be completed according to state rules and demonstrate the buyer’s financial ability to operate the existing business. Obtaining the right documentation and ensuring all required elements of the application are met will ensure the application is approved and business operations are not jeopardized.
Have the Right Expectations
Acquiring a business does not happen overnight and it’s not without its challenges. It is important to remember that buying a company takes time, and when regulatory entities are involved, delays in processing can occur. It is important to remember that sellers in the State of Florida continue to remain legally responsible for their provider license until AHCA approves the Change of Ownership (CHOW) application, which will only occur after a Bill of Sale and closing documents are submitted for review. You read that right—buyers will not officially gain AHCA’s approval and have a state license issued until after the transaction has occurred. As a buyer, you can either enter into a management company agreement in order to begin overseeing operations as of the closing date or decide to take over the company when the state license is officially re-assigned. Either way, this decision needs to be made prior to the purchase date and the state needs to know this information as a part of the application process. Additionally, the change of ownership process related to state licensure takes up to 4 months and applicants are only given one chance at correcting any omissions made in the initial submission to AHCA. Many buyers think the state simply needs to be notified of the change in controlling interests, however, there are several steps to the overall notification and application process. For instance, new controlling interests in the business are required to obtain background screening and gain access to a state-run Clearinghouse database to maintain and oversee an ownership/employee roster. For these reasons, and several more, having the right expectations around how the process works as well as how and when the state license transfers to the buyer is of utmost importance.
What Happens When You Don’t Get it Right?
If the process of buying a Florida-based healthcare business is not managed the right way, a buyer will likely encounter consequences that cost valuable time and money. Making mistakes throughout the process can jeopardize the entire deal with a seller, which would leave a buyer to start from scratch. Or worse, a buyer could end up legally owning a business that no longer has a license to operate, has lost critical reimbursement contracts, or is experiencing interrupted cash flow. This can have a devastating impact on the business and ultimately negate the reason for acquiring it in the first place. Even the smallest mistakes can create a significant operational and financial burden on the business and its new owners to re-establish its stability and success after an acquisition.
As previously mentioned, the seller remains responsible for a state license until the Agency for Health Care Administration gives its final approval for it to transfer to the buyer and this does not occur until after closing on the sale of the business. A buyer only has two chances at submitting a complete and accurate application to AHCA. If the wrong application or incorrect documentation is submitted, AHCA will issue an Omission Notice and allow the buyer one additional opportunity to resolve any issues with the application. If the errors, omissions, or revisions are not corrected by the buyer within 21 days, AHCA will issue a Notice of Intent to Deny the application. The buyer then enters a complicated, drawn-out timeframe during which they attempt to save the application and fees initially submitted to AHCA. At a minimum, the buyer is looking at being assessed additional fees and extending the timeline for the acquisition of the business when these mistakes are made. Additionally, when regulatory entities or private insurance companies are not notified of a change of ownership in accordance with their rules, provider enrollment can be terminated. The application and notification process must be managed correctly to ensure the business continues to keep its doors open throughout the transition to new owners.
Healthcare providers of all types have seen a recent rise in mergers and acquisitions, both in Florida and nationwide. Florida’s growing population offers small and large business owners alike a unique opportunity to purchase a provider within a thriving healthcare sector—but the process can be messy, complicated, and burdensome without the right knowledge going into it. There is a significant learning curve and time commitment when it comes to taking over a business, so this makes hiring the right support team for your acquisition even more vital. When you hire the right team, mistakes are minimized and, ultimately, changes in ownership are seamless, successful, and as time and cost-effective as possible. When you have the right team, timing, reporting, applications, and expectations—you are bound to avoid the common pitfalls of buying a Florida-based healthcare business.
This Blog Post was written by Guest Blog Post writer Karen Farley. Karen Farley is an Industry Consultant who works for Alliance Consulting Services of Florida, Inc. She specializes in assisting business owners and executives with business startup, changes of ownership or acquisitions, state licensing, and enrollment into the Medicare and Medicaid programs. She currently holds the position of Administrator at a home health agency serving the Palm Beach County area in Florida. Karen has the demonstrated ability to educate clients on all business startup processes, compliance with state and federal requirements, licensing, and resolves any issues or concerns a client may encounter throughout the process. Karen acts as a primary contact, advocate for, and liaison between the client and state, federal, and accrediting organizations. If you would like to learn more about Karen or about Alliance Consulting Services of Florida, Inc. please follow the link https://www.floridaconsulting.net/
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