From an M&A perspective, healthcare is an interesting frontier that you may want to look into as an investor. On the other hand, as the industry works itself through the COVID-19 pandemic, it is a good time for owners who want an exit to start contemplating a sell. Whether you’re an owner looking to sell or an investor looking to dip their toes into healthcare, you’d be surprised to know that there is so much to learn about regulation and valuation in M&A transactions in this particular industry. Before entering a transaction, you may want to consider talking to your regulatory attorney. Dive right into this conversation between Domenic Rinaldi and healthcare regulatory attorney, Joshua Freemire of Epstein Becker & Green to learn more.

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M&A Concerns For Healthcare Businesses During COVID-19 With Joshua Freemire

In our episode, I talk with Josh Freemire of Epstein Becker & Green law firm about regulatory issues, valuations, and other considerations related to private practice, mergers, and acquisitions. Josh is a healthcare regulatory attorney that spends much of his time advising buyers and sellers of healthcare companies. The M&A environment for professional practices is forecasted to pick up steam as more and more providers decide to cash in their chips. Given the challenges around COVID, these M&A transactions will be much harder to navigate. You will need an experienced attorney on your transaction like Josh, who is up to speed on the latest regulatory compliance and risk issues.

Before we get into the interview, please head over to K2 Adviser and take our free seller or buyer assessment. These assessments will help you understand how ready you are for an acquisition or sale. The Buyer Readiness Assessment is at the bottom of the Acquire tab and the Seller Readiness Assessment is at the bottom of the Exit tab. Understanding how prepared you are for an acquisition or sale is imperative to ensure that you maximize returns and minimize risks. Thank you for being here and hope you enjoy my conversation with Josh.

Josh, thanks for being here with the M&A Unplugged Community. It’s nice to have you.

I am glad to be here. It is my pleasure.

Josh, quickly for the audience, if you could give them a quick background on yourself. A little more texture to your background and your bio would be great.

I’ve been a healthcare regulatory signed healthcare attorney since I left law school. I started out at a firm in Baltimore that focused exclusively on representing providers. When you talk about healthcare law and regulatory law, it’s usually divided or it used to be divided between providers and insurance companies. I worked with providers so hospitals, doctors, labs, and long-term care facilities. Almost every provider side business that you can think of. I did every facet of regulatory work while I was there that you can think of from reimbursement, fraud and abuse, which is historic and any kickback law compliance, state licensing, reimbursement work, and healthcare privacy work.

I worked with some of the largest healthcare companies in the country around their rollout for EHR systems when they first started doing incentive programs for that. I came to Epstein Becker & Green in 2013. I focused my practice here more on the investor side. I still represent a lot of providers and I represent providers, especially those who are looking to sell into larger sponsor-backed entities. I do that frequently. I also represent a lot of sponsors and other investors in terms of either building platforms or doing small add-ons to existing platforms.

You’ve been in and around this environment for a long time. Healthcare is a healthy sector when it comes to M&A. We’ve got a number of deals now in the healthcare sector. It’s remained very strong, but there are some real challenges. COVID is presenting some interesting challenges for the healthcare business in general. What do you see from your vantage point?

A lot of the work I’ve done has been with PPMs, we call them Physician Practice Management companies, but that extends out and covers a broader spectrum than physicians. It also includes physical therapists, optometrists, veterinarians, and dentists. All of those have been very popular areas for acquisition. All of those are consumer-facing businesses. As a result, they ran into a brick wall with the shutdowns around COVID. The comeback from that has been a little stronger than some people feared.

It hasn’t done a V-shaped curve that people were necessarily hoping for both because of virus resurgence that we’re seeing across the Southwest now in the South, but also because people are a little timid to go back for a dental cleaning, for instance, when they don’t have to. Regulatory oversight also has changed around those businesses a little bit. Again, dental’s a great example. It requires a fair amount of elbow grease. You have a mouth open, there’s spray, there are water droplets that become aerosolized, especially in a COVID environment. People are concerned about that. You’ve seen state boards in a lot of these spaces, dental, optometry, others step-in terms of changing regulations around how you can practice, how you can see patients, what equipment, what PPE is necessary, and how they expect businesses to go about the reopening process. That played a role as well.

I was at the dentist’s office for an annual cleaning or biannual cleaning. I’ve been putting it off for six months, so I was supposed to go a while back, I put it off. They kept on calling me, and I’m like, “I’m not ready to come back.” They finally convinced me that all the safety measures that were in place. I have to say, the way they handled it, it was perfect. They’re only letting people in when your appointment is there. They ask you to stay in the car. They bring you back to your room, you go out a separate entrance, and all the safety measures, while you’re there, are in place, but that said, there’s exposure, so you have to be very careful.

For docs looking for an exit, now is a great opportunity to back off and let someone else deal with the headaches. Click To Tweet

How are buyers in the marketplace looking at this? Obviously, revenues fell off the cliff for a lot of these practices. Now, they’re coming back. I even talked to my dentist about it, which he runs a large practice, multiple doctors. They’ve got a lot of technicians. His businesses come back, not back to where it was, but it’s a comeback. For a while there, he was essentially shut down. He’s not looking to sell, but for companies like that that are looking to sell, how are the buyers looking at that knowing that it’s fallen off the cliff? You’re not quite certain what recovery is going to look like. What are they thinking?

A lot of them are expecting to see discounts on asking prices and they’re not quite yet. I can tell you from conversations in the market with a lot of different sponsors, there’s a lot of interest, especially from smaller organizations looking to take shelter in a larger platform. Now is the time to finally go part-time, retire, or to let someone else take over the business concerns around the practice. There are serious issues around trying to figure out what’s the business worth, given the changes in how the marketplace is going to function and the uncertainty around the timeframe for that. Also, how has compliance changed? We’ll use dental again as an example. I know there are several states that have required additional equipment or thinking about requiring significant additional equipment for dental offices, putting ventilation equipment, different kinds of shields, and PPE.

If a practice didn’t have any of those things and it’s looking to reopen, it is at the same time looking to join a larger platform. One of the questions is going to be, “Are you worth the same as you were a year ago or two years ago?” Even if you were, even if we say that you are, what are the changes? How are they going to impact a cashflow over the next year or two? It’s slower patient demand but also all the additional expenses required with compliance, modernizing practice, and the facility that may not be in that spot.

Let’s talk a little bit about compliance. What do you think these individual practices are going to be faced with? We’re going to have federal involvement and state involvement. What does that look like? Are any of them coordinating their efforts at the moment? Are there state and federal discussions that are happening so that there’s a standard across the board and across the country? How do you think this rolls out at the end of the day? I know we’re trying to paint a broad brush across many disciplines but let’s discuss it the best we can.

It split up into two sections. One of those is going to be Federal Fraud and Abuse Laws, which is the Stark, Anti-Kickback Statute, and compliance with federal programs like the Paycheck Protection Act, loans and grants. Those are going to be uniform across the country. I will say that there has not been a ton of enforcement effort around those. The OIG and CMS collaboratively waived some of the requirements around Stark earlier in the pandemic to allow for ease of operations for healthcare entities. Those waivers are mostly expired at this point. We’re going to see more of an enforcement focus from the federal government, especially as the pain of all these expenditures comes home to roost. The OIG and the DOJ both see part of their mission is recouping ill-gotten gains regarding healthcare.

We’ll see more aggressive enforcement from federal authorities. At the state level, states are going to widely both based on how the virus affected them but also based on the industry you’re talking about. Whether you are talking eyecare, dental, gastro, or what, your State Licensing Board is also going to be interested in compliance activities both because of any state programs that you participated in and some states have their own incentive or loan programs out there for people. Compliance with ongoing regulatory requirements around changes to the business because of COVID. PPE again, equipment, or operational necessities around separate exits and entrances, social distancing, and those issues. All that’s going to matter and buyers are certainly going to need to look at that very close.

It stands to reason that with all this additional expense, these practices are going to be looking to increase their rates or change their models in some way. The consumer’s going to wind up, having more out of pocket. I would imagine because the insurance companies are not going to change their rates of reimbursement.

I’ve heard a lot of talk from larger entities talking about the fundamental unfairness of a system where lots of people are paying for insurance. No one can use that insurance. At the same time, all these practices across the healthcare spectrum were financially devastated. A lot of insurance companies received a windfall because, during that same period, no one made any claims or few claims. There is a fair amount of talk. I don’t know whether it’s ultimately going to express itself in a legislative effort or individual larger entities renegotiating their rates with payers or payments structured. There certainly has been a lot of interest in moving towards risk-bearing and capitative rates because practices that were in that environment, where they were paid per person per month rate, they didn’t see an impact from this. They continue to be paid the same amount. That rate structure and the capitation or risk-taking side becoming a lot more attractive, especially to physician practices.

Let’s talk about that, whether it’s a physician practice management group or any other acquirer in the market who’s looking to make an acquisition of individual practices or small groups. What diligence and things do they need to be thinking about now in this COVID environment that they weren’t thinking about before?

Compliance with the various loan and grant programs that are out there is going to be a hot button issue. More than ever, I’ll take, for instance, compliance of the Anti-Kickback Statute. Relationships with referral sources is a common thing that you look at in almost any healthcare business. Compliance around that is going to be a little more fraught because it is almost always a risk assessment. Relationships don’t fit within safe harbors that are available. There are always facts and circumstances analysis to determine how much risk do we think this has. The risks are going to be elevated in an environment where the government is actively looking to recoup a lot of lost money. That’s a significant consideration for sellers in this market.

There’s been a trend over the past years. These structures have been very popular. What that has unfortunately invited is a lot of people getting into them that aren’t the best suited to operate a physician practice management company. They weren’t necessarily the best partner. They didn’t understand the ins and outs of a healthcare business the way they might need to. You’ve seen some of those larger platform struggles. That’s going to continue. For sellers, a big consideration is not getting the best bang for your buck. It’s going to be, who am I partnering with? What is their secret sauce for growing this company over the next years? What is my stock going to be worth three years down the road? Do I feel confident that these guys understand either the optometry business, veterinary business, dental business, or orthotics business to drive this organization to the next level?

MAU 62 | Healthcare M&A

Healthcare M&A: There is a lot of interest, especially from smaller organizations looking to take shelter in a larger platform.


That’s a good warning for sellers, especially in this environment. You already talked about it at the top of the show that valuations are going to be hard to nail down. Either the valuations are going to be compressed or if an owner wants to hold value, they’re going to wind up having to tape some good percentage in an earn-out. If you’re taking an earn-out payment, you’re putting the future of the practice in the hands of this PPM or this other buyer group. You better be confident that it’s in good hands, they’re going to be good stewards of the business that they’re going to be able to grow it. Otherwise, you’re never going to see your earn-outs.

Think about the leverage that the business you already have or it’s planning for the future. A lot of the PPM entities are either highly levered or even over-levered, you may be in a situation where you’re receiving an earn-out promise, receiving stock, or phantom stock in the entity, but it may never be able to get to the point that it can pay that because it’s already got a bunch of loans that were predicated on 120% of the revenue it did a few years ago. We’re looking at 60% of that or for 75%.

What about from a buyer’s perspective? If you’re doing diligence here, the obvious risks that your workforce and your patients are at risk every day. How do you think buyers are going to look at that from a risk perspective, but from a valuation perspective and a deal-making perspective?

Concerns about liability for COVID have been talked about a lot. It’s obviously unknown at this point. We haven’t seen the late-night infomercials about, “Call us now, if you’ve been exposed, or someone in your family.” We may eventually get to that point. We see a very strong public outcry for more social distancing requirements, more in the way of mask requirements, at least online, which is not always the best representative of the world at large. People would like to be done with this. They’re going to be more aggressive about businesses that haven’t been great about maintaining those things.

You’re right, the movie hasn’t played out, but if I’m a buyer, what steps am I taking proactively to make sure that I’m not assuming too much risk or unnecessary risk. You’ve got your typical reps, warranties, and indemnifications? Is there something else or is there an expanded scope that people need to be thinking about to protect themselves?

It’s around what kind of protection is the business has in place, not the one you’re buying, but the one you’re operating. There aren’t guidelines in most states on exactly how to do that. There is going to be a little research involved in talking to trade organizations, state licensing boards, and working with practitioners. It’s important there that your sponsors have a good relationship with the actual practitioners. They can talk about these issues in a knowledgeable way with them and help drive the right decisions for the business as a whole, whether that be changes in operational considerations, physical plan, and PPE. All of those things are going to matter. You have to look to what authority is out there and think about ways that you can at least meet or even exceed expectations in terms of patient and employee safety.

As you’re providing that guidance and perspective, I think this seems to be quicksand at the moment. It’s shifting sands. We don’t know where this is going to settle. It will be good to have this conversation in the future to see what’s changed between this conversation, then because you know it’s going to be imperfect. It’s going to take a lot of thinking around how you protect yourself, both of your practice and if you’re looking to buy in a new practice.

As I’ve said to a lot of my clients, chaos is always an opportunity and ugly party masks. It’s a mess now but if you looked at it before, the complaints I was getting around practices and all PPM businesses where people are demanding way too much money. It’s hard to turn a profit given what we’re paying the docs. You will have a situation where the docs are desperate to be bought in a lot of circumstances. There’s an opportunity here to grow a business that months ago, you weren’t able to get your foot in the door in this or that market but in this circumstance, you can’t. For docs that were out there looking for an exit, this is a great opportunity to back off and let someone else deal with the headaches. I still think the fundamental factors around healthcare and the markets, there’s a lot of dry powder in the industry. Healthcare is an eternal sea. They’re always going to be churning in there. The need is high. There’s a great opportunity for people to jump in.

That’s a great point because as you point to the capital markets are still wide open, interest rates are still very low, and you probably have a very high percentage of practices who are owned and operated by Baby Boomers who are going to be looking to get out. The exit exists. It may not be as rosy as it was but the exit opportunities are still going to be there. Both parties, as you’re pointing out, need to go into it eyes wide open because there’s much more risk all the way around.

It’s more of a shifting sand environment.

Josh, is there anything else from a regulatory compliance perspective that you think buyers and sellers need to be thinking about?

From the M&A perspective, healthcare is a fascinating and exciting frontier. That hasn't changed despite COVID-19. Click To Tweet

One interesting area that both should be considering is telemedicine and remote operations. One of the things that COVID is driven home to every business, including yours and mine is you can’t do this from home. Everyone argued about that for a while, but now you can. Telemedicine was a bit of a struggle for a lot of years. There is much more activity at the state board level and not for actual physician visits. You also see it for optometry, dentistry in certain circumstances, and a lot of different kinds of healthcare fields. Telemedicine is a new frontier. People who are the first to develop the technology that will allow for remote visits that produce the same or better outcome as inpatient face-to-face encounters, they’re going to have a great business model. You’re seeing a lot of pressure on payers and officials to not permit but promote those business models.

What are the regulations as it relates to telemedicine? Are they there? Do they have ways to go? What’s the state of the state as far as telemedicine goes?

It’s state-by-state. Part of that is because the state in licensure for professionals is a state-by-state issue. Telemedicine is going to fall under those licensure rules for the most part. Whether or not you’re paid by Medicaid is obviously a federal consideration or how much you paid, but even Medicaid is going to be on a state-by-state basis. What can you do? What are the protocols? What licenses are required? It’s very much on a state-to-state basis. Some states, Florida, jumps to mind. They’ve aggressively embraced telemedicine. They have all set up there.

The Valley permits it but has a state registration structure in place. They very much are looking to the future. The other states on, I won’t use any names to disparage them, have been very aggressive about it. The worst protective instincts from state licensing boards that you can imagine where they’d say no, you have to physically come to the state. You have to physically get a license in the state. You can only see patients in the state. It’s all over the map but a lot of companies out there are fighting to standardize it and they’re getting a lot of success now.

Do you think that this is the new frontier for businesses that this brings the technology component into delivering medicine and people that embrace this are going to be the winners in the long run?

I’m talking to you through a magical video window. That’s on a tiny little box that has all the information in the world in it that I carry in my pocket. There’s no question in my mind that within the next years, I am not going to have to go to see my doctor to get the vast majority of prescriptions and doctors are going to be well compensated for that.

Truth be told, my wife is a physician assistant and she has been for many years. There was a period where she was doing telemedicine because they weren’t taking people in the office. She said outside of helping some patients get over the technology hurdles, she found it to be incredibly efficient. You still have to see some patients. She said, “There’s no doubt. Some people need to be seen, but for so many things, this is a great medium for that.” She found it to be productive.

One of the things that I think we’re going to see from COVID generally is a diaspora to more suburban and rural locations out of densely packed for urban centers. That’s already happened a little bit. Rural healthcare is already a big concern because this is difficult to have the expertise of someone who does 10,000 knee replacements in the past couple of years in the middle of nowhere in West Virginia. If you can tell a medicine those people in, it opens up a lot more of the country to high-quality medical care. It makes it much more accessible.

Am I right though in saying that the insurance companies don’t view telemedicine the same way they view an in-person, in-office visit and that the reimbursement levels are nowhere near what you would be if you saw a physician or any other doctor?

It’s something that’s going to have to change. There’s a little bit of change because of volume. You’re going to be able to see a little bit more volume telemedicine-wise, but certainly, from my clients that I spoke with that dove into telemedicine in traditional healthcare, traditional physician practice spaces, they did not see a revenue replacement. They saw revenue replacement of 60% or 70%, but nowhere near 100%. The reimbursement rates are much lower. That’s something that’s being fought about. We talked a little bit about earlier, the insurance companies are going to have to meet people halfway.

Does it have to happen first before you see a real embracing of telemedicine by practices?

MAU 62 | Healthcare M&A

Healthcare M&A: The first people to develop the technology that will allow for remote visits that produce the same or better outcome as inpatient services are going to have a great business model.


You’re going to see a real embracing of it over the next year or so, no matter what because of the opportunity to recoup 70% of the revenue that is otherwise lost the opportunity. Even if you want to leave aside the business considerations from an actual practitioner doctor-patient relationship point of view, the ability to check-in with a patient who has advanced COPD, advanced heart disease, or heart failure, you want to touch base with them. You want to see them and say, “How are you feeling? Are you keeping up on your medication?” There’s been a lot of work over the years on solutions for that but now it’s necessitated.

It’s going to be interesting to see what happens to valuations of practices as telemedicine becomes a bigger piece of what everybody is doing. The evaluations go down or do they go up because you’re able to reduce your footprint, increases your margins, and that is not the most important question. The more important question is, can we deliver good services to people who need it? I don’t mean to diminish that at all but this is a show-up and sellers worry about valuations and buyers worry about buying solid practices. With that disclaimer in there that the delivery of medical services is the most important thing. I wonder how this is going to impact valuations long-term.

I agree with you. It’ll be interesting to see as the technology develops, who ultimately controls the content there and the way that it works. A while ago, you saw a lot of physician practices that a lot of medical device work. Docs became multimillionaires because they patented the mesh best knee or most best shoulder. You’ll see a similar scenario around telemedicine and the ability to remotely control equipment and better preserve video records. There are lots of aspects of technology that can be improved. We’ll see that going forward.

It’s been a tremendous conversation. I enjoyed it. Your parting comments, anything that you would leave the M&A Unplugged Community with as it relates to this?

I find healthcare to be a fascinating, exciting frontier that hasn’t changed in COVID. I wake up every day and learn new things. I’m more excited about the future than I was the day before. If you’re not already into healthcare as an investor, I encourage you to take a look at it. If you’re a seller, I encourage you to talk to your friendly neighborhood regulatory attorney because you’d be amazed at what you don’t know.

I believe that. If people want to get in touch with you, how could they reach you, Josh?

I’m on the interwebs, Josh Freemire. Google search me, you’ll get me on That’s our website. I’m on LinkedIn. I’m very easy to track down.

Josh, thanks for being here. I appreciate it.

It is my pleasure. Thank you for having me.

I hope you enjoyed this episode. If you enjoy our content, please remember to subscribe and review our show. I look forward to seeing you again on the next episode. Until then, please remember that scaling, acquiring, or selling a business takes time, preparation, and proper knowledge.

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About Josh Freemire

MAU 62 | Healthcare M&AJosh is a health care regulatory attorney that spends the much of his time advising buyers and sellers of health care companies with regard to fraud & abuse laws, compliance, reimbursement, corporate structuring, licensing and related permitting requirements, corporate practice, fee-splitting, and privacy law (among many other health regulatory topics). He’s been a provider-side health care attorney for his entire career and lately has been focused on practice management roll-ups across the health care spectrum, including dermatology, plastic surgery, anesthesia, gastro, ortho, women’s health, home health and hospice, eyecare, dental, medi-spas, veterinary, PT and rehab, audiology, DME, staffing, and many other provider types. In the wake of COVID’s initial lock down, he has spent a great deal of time talking to sponsors, portcos, and lenders about the M&A markets, the changing regulatory environment, and what the next 6 months to 2 years will look like for buyers and sellers.

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