(Real) Compliance is Part of the Sell

Two recent experiences called out to me, as good reminders for me personally, and teachable blog insights. First, I was approached by a prospective client, a well-established specialty medical practice. Like so many others these days, they were interested in selling to a private equity-backed management service organization. They wisely anticipated that they would be asked about compliance, and wanted to show prospective buyers that they had a solid program, in place and running. They asked me whether I could pull together such a program in a month. I responded that I could; at least set up the components of a program. Meaning, draft a compliance plan, designate a compliance officer, assemble a committee, draft key policies, establish a hotline, etc. This would be far more than what they had, which was nothing.

After some discussion, they decided not to use me, and instead opted to cobble together something using an internal resource who was new to compliance. I don’t know whether they ever built a program or not. But I ended the experience wondering if they honestly believed that any reasonably savvy buyer wouldn’t immediately see through such a spontaneously built, superficial program. I also wondered about what might have been, had they thought about compliance sooner. Would they have a value-added compliance program, that actually did what effective compliance programs do? Namely, to find, fix and prevent compliance issues? A while later, I had a second experience. Different from but related to the first. A private equity -backed management services organization client had engaged me early in its growth journey. Over several years, through visionary leadership, strong management and execution, and in spite of the pandemic, it grew to five times its original size, and expanded from 2 to 11 states. Ultimately increasing its revenues by a multiple and selling itself at a presumably handsome premium. In this case, they really did have a completely built out, fully integrated, strategic compliance program. I know this because I built it myself. Practically from scratch. Their corporate buyer obviously agreed.

Without doubt, sophisticated buyers generally expect to see fully functioning compliance programs when they buy medical practices. Of course, smaller practices would ideally have more modest programs in place. But at least something, to evidence that they value ethics and integrity.

So what did I learn (or maybe relearn) from these experiences? First, that real compliance, rather than impulsive, shotgun compliance, is expected (or at least hoped for) by most buyers. In fact, whether an organization has a bona fide program will certainly be asked about, if not during negotiations then certainly in the final due diligence before completing the transaction. Second, that nearly every buyer, will easily be able to tell the difference between a superficial, checkbox program, hatched overnight, and a fully integrated one, which clearly demonstrates an organization’s commitment to compliance (ie, being rules and process driven), which is baked into its DNA.

In this situation, there is no wrong time to decide to take action, whether based on new awareness or a change of heart. If you are even remotely considering a sale at some point, and you’re not doing much or any compliance work, then you should seriously consider doing more. After all, much like the beautiful kitchen upgrade I once did to ready my home for sale, but only just before listing it, you may similarly ask: why didn’t I act sooner, and get both the benefits of a compliance program now PLUS adding value to my practice for an eventual buyer?

Reid Pearlman, JD, CCEP is an independent healthcare compliance consultant in Atlanta, Georgia. He advises healthcare entities of all types on compliance program development, integration and administration. He welcomes comments and inquiries, including from medical practices considering an eventual sales transaction, at Reid@MyComplianceOfficer.net.