Merger and Acquisition Considerations for Healthcare Providers

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 personnelDepending 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.

NYS Operationalizes the Healthcare Worker Bonus Program

Your Employees may be Eligible for a $3,000 One-Time Bonus, paid mostly by the federal Government

As we reported in our April alert, the New York State Budget established a healthcare worker bonus (the “Bonus”) program that would pay up to $3,000 to qualified healthcare workers that are employed by qualified providers. On August 3, the Department of Health notified providers through eMEdNY that the healthcare worker bonus program (“HWBP”) has been activated, and that a portal has been established through which providers would submit required information to apply for their employees’ bonuses. The Department’s website for the HWBP is generally robust, and available here. The information that is plainly on the website will not be repeated here. Instead, this alert will focus on some common outstanding questions that have not been addressed by the Department, as they relate to home care providers. Clearly, the HWBP was designed around the hospital and, a little less so, the nursing home setting. Thus, much of the Department’s guidance and interpretation of the HWBP does not translate easily to the home care context.

Initially, insofar as entity eligibility, we know that CHHAs and LHCSAs are covered by the HWBP. There is generally a requirement that the provider be enrolled in Medicaid, but some avenues for non-Medicaid providers also appear to exist. In addition, although not mentioned by the Department on its website, the HWBP law itself states that other Medicaid-billing providers may participate in the program, so long as “at least [20%] of the provider’s patients or persons served are eligible” for Medicaid services. Thus, this 20% threshold is relevant to providers who not only operate a home care program but may offer related healthcare services.  

Providers who rely on staffing agencies for healthcare labor cannot seek and obtain bonuses for those healthcare staff that is assigned by the staffing agency, as per the DOH’s FAQs (available here).

Fiscal Intermediaries are outright considered ineligible employers by the Department, per the DOH’s FAQs.

Separately, insofar as employee eligibility, we know that New York State has determined that direct care staff, such as HHAs and PCAs, are not eligible for the Bonus. In their FAQs, the State has explained that, due to the $2.00 minimum wage increase taking effect October 1, home care workers have, effectively, been rewarded sufficiently.  However, other clinical staff employed by home care agencies are eligible for the Bonus, such as nurses and therapists. It Is not clear if such clinical staff, to the extent they worked remotely (as they were authorized to do during the vesting period under various regulatory waivers), would be eligible for the Bonus. This question has not been addressed, but we know that there is an emphasis in the HWBP in rewarding “front line” workers.

In addition, it is not clear if other office staff, such as coordinators, HR intake, and compliance employees would qualify for the Bonus. In the DOH’s list of eligible employees, various clerical and clerk positions are identified as “other health care support workers” who would be eligible for the Bonus. The names of these titles suggest that they are hospital and nursing home-setting positions, where there would be some potential of front-line work and patient-facing responsibilities. It is unclear if this rationale extends to home care, where the office staff rarely, if ever, interacts directly with patients of home care services. This is a pivotal issue for LHCSAs and CHHAs. In our conversations with the DOH, we were not given an explanation or any guidance. Rather, the DOH suggested that providers begin the enrollment process on the portal and address these worker eligibility issues through the application process. 

Separately, another outstanding issue has to do with the salary cap of $125,000. The HWBP limits the Bonus to individuals whose annualized base salary is $125,000, excluding overtime and bonuses. However, it is not clear whether other compensation (such as shift differentials, vacation pay) can be considered as part of the base salary.

Insofar as taxes and payroll obligations, the DOH takes the position that the $3,000 bonus is not subject to New York personal income tax. There is no mention of federal income tax implications.  There is also no mention of unemployment insurance or workers’ compensation implications of the $3,000 payment. We have sought clarification of these items, since there is no reimbursement to covered employers for these ancillary related costs of paying a $3,000 bonus.

Lastly, the HWBP is a mandatory-participation program. Employers must submit claims and seek the Bonus for their eligible employees’ bonuses. Any employee who does not receive a bonus that they may be entitled to is directed to complain to OMIG’s Fraud Hotline. Thus, for any employer that might be overly frustrated by the lack of clarity, or potential payroll and overhead obligations of the HWBP, such employer does not have the option to waive participation.

We will be following up with the DOH on these outstanding issues, and others. In the meantime, if you have any questions about the program, please let us know.

FMAP Awards have been Distributed. How to Lawfully Spend those Funds.

LHCSA providers that were selected to receive FMAP funding have began to see deposits of the FMAP in their accounts and are now busy contemplating how to spend these funds in a compliant fashion.  In this alert, we review some common questions and concerns we have received from clients.

When to Spend

Initially, there is no requirement that the funds be spent immediately within the first quarter of 2022. Indeed, there is no obligation that the funds be allocated or that vendors be hired and paid in the first quarter of 2022. Providers can certainly hold on to the funds and spend them leisurely over the next several months, so long as they do so by April 1, 2023.  

FMAP For Wage Parity or Minimum Wage Increases

At this time, the funds cannot be used to fund the $2.00 minimum wage increase that is slated to take effect October 1, 2022, because the intention of FMAP funding is to cover and pay for new expenses, not ongoing or statutory obligations. For the same reason, FMAP cannot be used for the same expenses as those covered by the Wage Parity total compensation requirements of $18.22 or $19.09.

Bonuses and Pay Changes 

Providers should be mindful that any bonuses or incentives involving increases in pay are likely going to be taxable as wages. Paying a bonus on a gift card does not change this outcome. Further, for most types of pay incentives, such as bonuses, depending on how the bonus is structured, the amount of the bonus may have to go into the overtime rate for the employees receiving the bonus. For example, if the employee’s wage is $15.00, their overtime rate is generally going to be $22.50/hour. However, if a bonus is paid for work associated with the week when the overtime was worked, that overtime rate will have to be adjusted and will no longer be $22.50. Trying to pay a bonus in a week when overtime was not worked is also not going to compliant, and it is not practical. Technically, certain bonuses must be allocated to the week, or weeks, over which the bonus was earned. Similarly, premiums for travel, difficult shifts, or other similar pay-increases may also have to be accounted for in the overtime rate calculation.   It is not clear if new overtime premiums that result from these wage increases can be covered by FMAP. 


Training programs are certainly encouraged by the FMAP program, but providers should be mindful of the types of training programs that will qualify. The DOH has posted some guidance in this regard. 


Only certain types of marketing activities will qualify for FMAP spending. Capital expenses, such as new recruitment offices, are a clear NO insofar as FMAP is concerned. 

Union Issues

Some unions are aggressively proposing the idea of a “hazard pay bonus” to the agencies employing the unions’ members.  Initially, it bears noting that some aspects of the FMAP are subject to mandatory negotiation with the union while other aspects of the FMAP are not.  Thus, not everything surrounding the FMAP is open to negotiation.  In terms of wage and benefits proposals that may be made, a hazard pay bonus would seem to be a permissible expenditure of FMAP under the DOH’s guidelines. The DOH specifically notes that payments can be made based on past performance, as long as those payments are made to current employees, among other conditions. 

Home Care Technologies

Certain technology providers have pitched the idea of developing, on behalf of providers, a certain SaaS, a platform, software, or system. Providers should ensure that the service being proposed by these vendors would qualify for FMAP. Not all technology is deemed qualifying under FMAP. 

Separately, providers should carefully consider contracting to pay a developer FMAP funds to develop a service or software at this point in time. While the funds for the development costs would theoretically be expended now, there is no guarantee that the service/software will be available within the time period within which the FMAP funds have to be spent. And, per FMAP, the funds are permitted to be used for a technology service, not the development cost without a service. 

Lastly, providers should negotiate with any vendor proposing to develop a software using the provider’s FMAP award about the provider’s intellectual property rights, royalties, and other similar benefits if/when the software is developed.  

Making Your Dollar Go Far

Lastly, providers who were selected to receive these funds should diligently consider which incentives and programs will have the greatest impact on their operations’ future, and which programs will position them for a successful RFO and MLTC rate negotiations.  Pay increases, such as bonuses and similar incentive programs will only have an impact so long as they are being paid and the FMAP award is finite.  These pay programs will not have a long-term impact.  And we now know from the Comptroller’s report and DOH statements that this type of an investment and grant is unlikely to be repeated soon.  Thus, providers should consider creative strategies to develop quality aides that will feel engaged with their work and committed to their agency employers.

If you have any questions about FMAP and how to properly structure your FMA award, please let us know.