Understanding Post-Closing Liability in Healthcare Acquisitions
Even after you finally close a health care acquisition, you need to understand the potential for post-closing liability. Once everything seems “done,” you need to consider ongoing regulatory and financial obligations. Buyers and sellers continue to remain obligated after the close of the transaction, and many deals may create ongoing relationships. Knowing how post-closing liability works is critical to protecting both sides in the transaction.
The medical transaction attorneys at Daniels, Porco & Lusardi, LLP are ready to help with post-closing liability prevention and management.
Why Post-Closing Liability Matters in New York Healthcare Deals
New York’s healthcare regulatory environment is uniquely strict. CPOM rules, fee-splitting prohibitions, Medicaid and Medicare billing requirements, and professional entity ownership laws all create potential exposure that can follow the parties long after closing. Because many liabilities cannot be fully discovered during due diligence, or may arise from post-closing conduct, buyers and sellers must clearly define who is responsible for what.
Post-closing liability can affect:
- Financial performance
- Regulatory compliance
- Professional license exposure
- Reimbursement eligibility
- Contractual obligations
- Litigation risk
A well-structured acquisition agreement anticipates these risks and allocates them clearly.
Common Sources of Post-Closing Liability
1. Pre-Closing Billing and Coding Issues
Improper billing, upcoding, unbundling, or documentation gaps can trigger audits or repayment demands months or years after closing. Even if the conduct occurred before the acquisition, payors may pursue the current owner or operator.
To address this, healthcare acquisition agreements often include:
- Representations and warranties about billing compliance
- Indemnification provisions for pre-closing violations
- Escrow or holdback funds to cover potential liabilities
2. Regulatory Violations and CPOM Compliance
New York’s CPOM doctrine prohibits non-physicians from owning or controlling medical practices. If the pre-closing structure violated CPOM rules, or if the MSO arrangement is deemed to exert too much control, regulators may impose penalties or require restructuring.
Post-closing liability may arise from:
- Improper fee-splitting arrangements
- Excessive MSO control over clinical decisions
- Non-compliant management fees
- Unlicensed ownership or influence
Buyers must ensure the post-closing structure complies with CPOM from day one.
3. Employment and HR-Related Claims
Healthcare practices often have complex employment relationships, including physicians, nurses, administrative staff, and contractors. Claims such as wage-and-hour violations, discrimination, wrongful termination, or unpaid benefits can surface after closing.
Acquisition agreements typically address this through:
- Allocation of responsibility for pre-closing employment claims
- Tail coverage for employment practices liability insurance
- Clear delineation of which employees transfer and under what terms
4. Contractual Obligations and Vendor Agreements
Many healthcare practices have long-term contracts with vendors, landlords, equipment lessors, and service providers. Some obligations automatically transfer to the buyer; others remain with the seller unless expressly assigned.
Post-closing liability may involve:
- Auto-renewing contracts
- Personal guarantees
- Equipment leases
- IT and EHR service agreements
- Payor contracts
5. Malpractice and Professional Liability
Even if the buyer does not assume responsibility for pre-closing clinical care, malpractice claims can arise after closing. New York’s statute of limitations allows patients to bring claims years after treatment.
To mitigate this risk, parties often use:
- Tail insurance for pre-closing acts
- Occurrence-based malpractice policies
- Indemnification for pre-closing clinical liability
6. Post-Closing Operational Compliance
Not all post-closing liability stems from past conduct. Buyers can also face exposure from:
- Failure to maintain proper licensure
- Improper supervision of mid-level providers
- Non-compliant marketing or referral practices
- HIPAA violations
- Inadequate documentation
A strong compliance program is essential immediately after closing.
How Buyers and Sellers Allocate Post-Closing Liability
Representations and Warranties
These statements assure the buyer that the practice has complied with laws, contracts, and financial obligations. Breaches can trigger indemnification.
Indemnification Provisions
Indemnification clauses specify who pays for certain liabilities and how claims are handled. They often include:
- Survival periods
- Caps and baskets
- Carve-outs for fraud or regulatory violations
Escrow or Holdback Funds
A portion of the purchase price may be held in escrow to cover potential post-closing claims.
Insurance Coverage
Tail coverage, cyber liability insurance, and directors and officers (D&O) insurance can help manage risk.
Post-Closing Covenants
These obligations ensure cooperation, record access, and compliance during the transition period.
Get Help with Post-Closing Liability Issues in Healthcare Acquisitions
From the beginning to the end of the deal, and beyond, you must always consider liability. Even when everything seems signed and done with, there are additional and continuing considerations. The attorneys at Daniels, Porco & Lusardi, LLP are ready to help. Contact us today for a consultation.