As the year comes to a close and operators continue seeking ways to grow through acquisitions and capitalize on some of the COVID relief to grow their businesses, we provide this article and overview of the key issues to consider in corporate transactions.
While mergers and acquisitions present considerable potential benefit, they can also present substantial compliance risks. Key regulatory and employment law considerations include:
- Regulatory considerations. In home care, a license does not “transfer” with the sale of stock or membership interests of an organization. Thus, the duration of any change of ownership process should be considered, as well as the practical operational issues related to the business as the buyer is waiting for the license transfer process to be completed. Who will run the business until the change of ownership is complete, and what protections will the seller have while the license is still under their name from any liabilities that the buyer-operator may incur? These are important issues to address before signing off on a transaction.
- Implications of federal, state and local laws applicable to the specific type of service being provided by the seller. In home care, wage parity is a major financial and operational burden that, upstate or out-of-state buyers should carefully consider and analyze before undertaking the acquisition of a downstate entity.
- Proper classification of workers that qualify as exempt or independent contractors, especially sales personnel. Depending on the nature of the transaction, wage and hour issues that exist with the seller entity could be deemed assumed, or “inherited,” by the surviving or buyer entity. Thus, these issues should be carefully reviewed to ensure the buyer is not buying a liability. Further, in healthcare generally, 1099 relationships with marketing and business development professionals could carry significant antikickback violations that the buyer might not wish to assume.
- The status of the license, if any, or contracts for services that the seller holds. The value of a business or an asset for licensed providers depends in large part on the contracts and licenses that the business holds. Thus, a buyer will want to ensure that the license or contract is “secure” with the seller. Did the seller have a bad survey recently that could result in revocation proceedings? Is the seller a CDPAP FI that did not receive the “lead” FI award and, thus, will have to cease operations at one point? Is the seller currently under investigation by regulators for fraud or other serious issues that could result in asset diminution? These are all issues that should be considered by a buyer.
- Inclusion of non-discretionary bonuses when calculating overtime. For a bonus to qualify as discretionary, three key standards must be met: the employer has the sole discretion in determining whether to pay the bonus; the employer has the sole discretion in determining the amount of the bonus; and the bonus payment is not made according to any prior contract, agreement or promise.
- Billing errors. If the seller bills any government payors, a prudent buyer will conduct a review of the claims submitted and paid, as well as claims submission process, to assess the level, if any, of noncompliance with federal, state or contractual billing requirements. Depending on the structure of the transaction, regulators, like the Attorney General or OMIG, may seek recoupment of wrongfully paid claims against a third-party buyer.
- Successorship obligations when acquiring a unionized workforce. If a purchaser is deemed to be a successor, the purchaser is obligated to recognize and bargain with the union representing the seller’s employees. Therefore, the obligations and costs of the union contract must be carefully assessed.
- Immigration employment issues and associated I-9 obligations. Does the seller retain all the documentation necessary to comply with immigration laws? Common problems include incomplete or fraudulent documents, failure to retain documents, and failure to track expiration dates, among others.
- Employee background check obligations and prohibitions. Employers must meet specific obligations at three different stages: before a background check is requested; before “adverse” action is taken based on a background check; and after adverse action is taken based a background check. In addition, exclusion checks in the healthcare field have to be conducted on staff as a condition of billing for such staff services. The seller’s procedures in regards to background checks should be a subject of due diligence.
- Affordable Care Act requirements and the penalties associated with non-compliance. Under the Act, employers with 50 or more full-time employees, or with a part-time employee equivalent of 50 full-time employees, must offer affordable minimum-value health insurance to employees working 30 or more hours per week. Employers failing to comply must pay considerable penalties.
- Federal and state tax consequences of “Golden Parachute” arrangements. For example, such payments often are not deductible by the corporation and are subject to an excise tax on the recipient.
- Federal and state Worker Adjustment and Retraining Notice (WARN) obligations. Generally, employers with 100 or more employees who work more than 20 hours per week must assess whether compliance with the federal WARN Act is required relative to any certain job-reduction action. The same assessment must be made concerning compliance with the New York State WARN Act.
- OSHA COVID prevention and mitigation requirements. OSHA’s enforcement of Covid and non-Covid related workplace hazards remains robust. Employers must have in place a Covid-19 prevention and mitigation policy, and that policy must be distributed to employees.
Today, the Department of Health announced that it would be postponing the wage parity certification deadlines once again. As relevant to home care providers covered by the Wage Parity Law, LHCSAs and FIs are now required to submit completed LS300 forms by December 1, 2022. The LS300 form will be revised by the DOH before December 1, thus providers should not rush to sign the current LS300 version.
The LS301 requirement for an independently audited financial statement for calendar year 2021 has been further delayed. Statements for calendar years 2021 and 2022 are now due on October 1, 2023.
CHHAs and MLTCs are required to receive and review network providers’ LS300 forms by December 1, 2022. The compliance date for CHHAs’ and MLTCs’ receipt and review of independently audited financial statements for the LS300 forms for calendar years 2021 and 2022 is October 1, 2023.
The Department’s announcement also makes clear that, going forward, the deadline for compliance and certification under the LS300 and LS301 requirements will be October 1 of each year.
Lastly, any LS300, LS301 or audited financial statements already submitted by LHCSAs or FIs prior to the Department’s guidance may be reviewed and considered completed for the 2022 year. LHCSAs and FIs who have completed these requirements do not have to revise or resubmit to their contracted CHHAs, LTHHCPs or MCOs once revised forms or procedures are posted by the Department.
If you have any questions about this development, please let us know.
Today, the New York State Department of Health released extensive information and GUIDELINES regarding changes of ownership for LHCSAs and applications for licensure. This guidance has been in the making since 2018, when the Public Health Law was amended to prohibit the Public Health and Health Planning Council from approving new LHCSA applications unless there was a “public need” for such a LHCSA, the character, competence and “standing in the community” of the LHCSA’s owners, directors, and other stakeholders was established, and the LHCSA demonstrated that it had financial resources to operate the agency.
Today’s Dear Administrator Letter establishes that:
- The public need methodology will apply to all LHCSA applications submitted on or after April 1, 2020.
- The public need methodology includes a rebuttable presumption of no need for additional LHCSAs in a county if there are 5 or more LHCSAs actively serving patients within the county as of April 1, 2020.
- A LHCSA applicant can overcome the presumption of no need based on local factors related to an applicant’s services or planning area, including, but not limited to:
- the demographics and/or health status of the patients in the planning area or the State, as applicable;
- documented evidence of the unduplicated number of patients on waiting lists who are appropriate for and desire admission to a LHCSA, but who experience a long waiting time for placement;
- the number and capacity of currently operating LHCSAs;
- the quality of services provided by existing agencies;
- the availability and accessibility of workforce;
- personnel and resources dedicated to adding and training additional members of the workforce including committed resources in an organized training program;
- cultural competency of existing agencies; and,
- subpopulations requiring specialty services.
Applications for licensure based on change of ownership for LHCSAs actively serving at least 25 patients will not be subject to public need review and shall be evaluated only on financial feasibility and the character and competence of the proposed operator, unless the proposed operator seeks to serve patients outside of the agency’s approved counties.
LHCSAs affiliated with an Assisted Living Program (ALP), Program of All-Inclusive Care for the Elderly (PACE), Nurse Family Partnership (NFP), or Continuing Care Retirement Community (CCRC) will be exempt from the public need methodology if the agency exclusively serves patients within those programs.
All applications will be reviewed for character and competence.
The DOH’s DAL also provided a link to a new application for licensure, available HERE, and FAQs, which can be accessed HERE
If you are considering a LHCSA acquisition or sale, or are in the process of a change of ownership, or if you have general questions about this development, please contact us.
In a recent federal court decision out of Pennsylvania, Walsh vs. Elder Resource Management, et. al., a judge determined after a bench trial that a home care provider, a related staffing firm, and their owners were joint employers and, thus, jointly responsible for underpaying home health aides that had split their time working for both the home care agency and the staffing company. The judge in essence held that there was intentional scheduling and case splitting between the two companies, with the intent to deprive the employees of overtime. The two companies shared common ownership and coordinated operations, and the staffing company was not truly independent because it only existed to service the one commonly-owned home care entity. Thus, the Court found, instead of aggregating the total work hours across the two companies, the company’s practice of paying for work hours separately and independently by each company resulted in the aides not receiving earned overtime pay.
The U.S Department of Labor sued on behalf of the workers, and the Judge ordered the two companies and their owners to pay nearly $2.5 million in unpaid wages and liquidated damages.
Home care providers are under increasing pressure to control overtime costs while maintaining continuity of care for high-hour cases. MLTCs will urge the provider to have their aide hired and work for two separate home care agencies in order to service a single patient. Home care providers must be very careful of these arrangements, as this Pennsylvania court decision illustrates. Collusion between two employers in this manner, with the intent to deprive workers of overtime, is unlawful. If you have any questions about this article or its implications, please contact us.