Insights

Insurance Almost Every Healthcare Business Needs, Especially for M&A
POSTED 1.30.19 M&A

There is an insurance product that almost every business in the healthcare sector and even individual providers needs, especially those that bill patients and payors (like insurance companies or the government through Medicare).

It’s just as important as malpractice insurance. And, if you’re ever thinking about selling your dental practice, doctor’s office, or other medical business, it’s critical you get this coverage right away.

It’s called Healthcare Regulatory and Billing Liability insurance.

Even if a company in healthcare isn’t directly billing patients, they could still be at risk. Anybody providing resources to care for patients should be covered, and it’s not just those who provide care for patients directly.

Here is a short list of some types of companies that should be covered:

  • Medical device companies
  • Medical technology companies
  • Medical staffing companies
  • Ambulatory surgery facilities
  • Walk in clinics
  • Pharmacies
  • Medical billing companies
  • Dental clinics
  • Doctor’s offices

The benchmark: If they deliver goods or services that contribute to patient care, and bill Medicare/Medicaid for those services there is an exposure.

How Your Policy Works

This insurance covers you for losses related to violation of healthcare regulations, such as, Medicare and Medicaid fraud, billing errors, Stark Law violations (or other anti-kickback violations), and more. Instances in which there are violations of HIIPA, which protects patient privacy, or data breaches, are also covered with this insurance.

The Stark Law prohibits physicians from referring patients to other providers in which they have a financial interest. If you have a stake in a diagnostic clinic and you refer all your patients there, that would be a violation. Even if a fellow physician you know, say in the same practice, referred patients to that diagnostic clinic, that could also be a violation. When Medicare billing is involved the government is very strict on financial matters.

The primary purpose of healthcare regulations is to prevent waste, fraud and abuse; a lot of money changes hands in this industry and billing is complicated. It’s easy to make mistakes. Billing errors are the main way this product comes into action.

In more cases than not, billing errors are caused by human error. Somebody was mis-trained. A vaguely worded Medicare rule is misinterpreted. The IT system or compliance officer didn’t catch the error. And now that person – or maybe even a whole office – has made the same mistake hundreds or thousands of times.

Healthcare Regulatory and Billing Liability insurance is relatively inexpensive, and we can put a policy structure in place so that the coverage runs into the future, post-sale. So, if there is a specific regulatory breach – the legal costs to respond to a government action, including related fines, penalties and audit expenses – the insurer will pay.

Often we find that medical companies could have a compliance program to keep them in step. But it’s not current and doesn’t reflect new regulations… and neither are their systems.

Sometimes healthcare companies have a consultant set up that compliance program. Or they use an outside billing company. But if there is a violation, the government goes after the doctor not the service provider.

Why It’s Necessary for M&A

Exposures related to healthcare regulation and billing issues are excluded from Representations and Warranty (R&W) policies. If there are breaches, the burden goes to the Seller. This is why it’s so important for a Seller of a medical business to put this extra coverage in place now, and well before any sort of M&A deal.

Healthcare Regulatory and Billing Liability insurance is the ideal way for the Seller to reduce their liability and mitigate risk. Several categories of regulatory exposures are not covered unless the business specifically has this specialized type of insurance in place.

And you can bet the Buyer will be happy to know that they won’t have to chase down the Seller for funds if something goes wrong. It also provides peace of mind, pre-sale. Even if the Buyer finds something during due diligence, it’s covered.

A trend now is larger healthcare organizations acquiring physician networks, dialysis clinics, lab networks, and dental practices. With so much complex billing and Medicare filing going on, it’s just about impossible for the Buyer to conduct detailed enough due diligence to catch every instance of error, negligence, fraud, or regulation violation. Therefore, the Buyer forces the target to retain all this liability as a condition of the deal – often withholding a large portion of the proceeds in escrow for a year or more.

But Healthcare Regulatory and Billing Liability insurance will cover any exposure or liability, thus there’s no need to withhold the Seller’s funds.

Putting Your Insurance Coverage in Place

Ideally, a Seller will put this coverage in place a year before the M&A deal. Pricing for this insurance is significantly lower if a deal isn’t imminent. As with any insurance, Underwriters want to feel comfortable with the risk. 

If there have been no incidents in the last year, those are points in your favor. If the business has a compliance officer tasked with complying with government regulations, more points. (Most larger organizations have this.)

If there have been violations in the past, you can still get coverage. But the Underwriter wants to know the details. If the issue was isolated to one person, and they are no longer working at the company, the policy will most likely be issued.

Healthcare Regulatory and Billing Liability insurance can be tailored to the specific needs of your healthcare business. To discuss your options, please call Rubicon Insurance Services at 650-931-2321 or email Patrick Stroth at pstroth@rubiconins.com.