Federal And State Regulatory Concerns For HealthCare M&A

According to the U.S Department of Health Services[1], the five most critical Federal regulations applicable to physicians are the False Claims Act (FCA), the Anti-Kickback Statute (AKS), The physicians Self-Referral Law (Stark Law), the Exclusion Authorities and the Civil Monetary Penalties Law (CMPL). These laws and their state counterparts were enacted to prevent healthcare providers from obtaining an improper benefit at the expense of the government or their patients. Violation of these laws can result in hefty fines and civil and criminal charges.

  • The Civil Monetary Penalty Laws and The False Claims Act makes it illegal for healthcare practitioners from submitting fraudulent claims of payments to Medicare and Medicaid.[2]
  • The Anti-Kickback Statute makes it illegal to pay referral fees when involving reimbursement from a Federal Healthcare program.[3]
  • Physicians Self-Referral Law Stark Laws prohibit physicians from making referrals of Medicare “designated health services” to any entity in which a physician or family member has a financial interest[4].
  • The Exclusion Statutes prohibits individuals who were convicted of healthcare crimes and fraud from participating in Federal Healthcare programs.[5]

Healthcare M&A transaction requires an extensive amount of due diligence to ensure compliance. To ensure compliance with the various laws state above, proper due diligence for Healthcare M&A transactions should consist of a review of all physician’s contracts and financial relationships, evaluation of claims processes and procedures and billing and collections processes for accuracy and compliance with Federal regulations.

At the state level, healthcare M&A transaction must determine whether the state has restrictions on who can employ physicians. State Corporate Practice of Medicine (CPOM) restrict the employment of physicians by non-physicians.      Plainly speaking, these laws are design to prevent corporations from influencing healthcare practices by only allowing physicians or those designated by the state, to hire physicians.[6]

Other regulatory concerns which directly affect Healthcare M&A transaction are anti-trust laws, privacy and data security laws, and licensing and certification requirements.

The Federal Trade Commission (FTC) and the Department of Justice (DOJ) have extensive scrutiny on healthcare M&A transactions that involve consolidation or affiliation. In 2017 the JOD denied the merger between Aetna Inc. and Humana Inc two of the most significant health insurance providers. The court ruled that the merger would “substantially . . . lessen competition” of the sale of Medicare Advantage plans and individual commercial health insurance[7]. In the current marketplace, the DOJ looks favourable on vertical merges when the parties are willing to divest themselves of potential antitrust risks. A recent DOJ ruling approved a merger of CVS Health and Aetna to proceed provided that Aetna divested itself of its Medicare prescription drug business.[8] Although this acquisition involved the same party (Aetna) as the 2015 case, the DOJ approved the merger because at the core CVS and Aetna provide different services. By divesting the deal of its directly competing market, the risk that the merger would substantially lessen competition in that market space was removed.


[1] https://oig.hhs.gov/compliance/physician-education/01laws.asp

[2] False Claims Act [31 U.S.C. § § 3729-3733]

[3] Anti-Kickback Statute [42 U.S.C. § 1320a-7b(b)]

[4] Physician Self-Referral Law [42 U.S.C. § 1395nn]

[5] Exclusion Statute [42 U.S.C. § 1320a-7]

[6] Painless Parker v. Board of Dental Examiners, 216 Cal. 285, 14 P.2d 67 (1932

[7] U.S v Aetna Inc, https://www.justice.gov/opa/press-release/file/930356/download

[8] https://www.justice.gov/opa/pr/justice-department-requires-cvs-and-aetna-divest-aetna-s-medicare-individual-part-d

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