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, MidCap Financial, LLC Following the passage of health reform, the healthcare industry is experiencing greater regulatory certainty, consolidation and integration. In order to avoid reimbursement cuts and compete, healthcare providers need to invest in technology to measure and demonstrate quality, integrate and/or invest in capital improvements. In general, these activities require capital. However, this trend is on the heels of an extended period during which access to capital has been largely unavailable. During the recession, many lenders and sources of capital dramatically changed the terms of any extensions of funds, and many stopped making new loans or investments altogether. However, with respect to the healthcare industry, the demand and need for capital is as great as ever. Many healthcare providers are looking to clinical integration and investments in alternative delivery systems. Similarly, healthcare providers need to meet the demand for
improvements in technology and equipment; comply with ever-expanding safety and quality standards; invest in electronic medical record technology; respond to increased litigation in areas such as wage-hour class actions, false claims and malpractice; and implement pay for performance standards, as well as other regulatory compliance requirements. Healthcare
providers need capital in response to these demands, as well as to meet obligations on existing debt. As such, despite the increase of demand, healthcare providers are also facing increased costs. While the need for capital in the healthcare industry grows, many lenders and sources of capital have been reluctant to deploy such capital in the healthcare industry. For example, the
healthcare industry often faces low-margins and high costs. In addition, even during good economic times, the healthcare industry involves a host of regulatory complexities and uncertainty. While the passage of healthcare reform provides a framework for the future, the full impact of the legislation and its future remain unknown. On the other hand, the options for capital have dramatically improved, especially over the past year. Lenders and funding sources have seen the growth of the industry, despite the recent effects of the recession. Further, the recent trend of consolidation of the healthcare market is attractive to many healthcare lenders and investors. 1. Overview of Funding Options. Healthcare providers and companies have
various options available to fund working capital, make acquisitions, invest in new capital and otherwise provide financing for business operations and growth. (a) Current Cash. Many healthcare providers have cash on hand to fund growth and
working capital needs. Providers may need to review their existing bond or bank covenants to make sure they continue in compliance. For example, large outlays of cash could negatively affect certain financial covenants. In addition, many loan or bond documents have restrictions on large acquisitions without the lender’s or trustee’s consent. (i) Bonds. For tax-exempt entities, the most common financing option is in
the form of tax-exempt bonds. Bonds are a form of long-term financing for capital projects whereby the borrower or, in the case of tax-exempt bonds, a governmental issuer, for the benefit of the borrower, issues notes or other debt instruments. Bonds can be either taxable or taxexempt. The bonds are then sold to investors in a private placement or a public offering. The proceeds of the sale of the bonds are used by the borrower to finance its project. A bond offering
A Federal Housing Administration insured mortgage can cover up to 90% of the replacement of the collateral. The Federal Housing Administration’s Section 242 mortgage insurance program provides lower interest rates and credit enhancement to mortgage debt for a maximum 25-year mortgage term. to long-term care facilities through its Section 232 program. The Section 242 program supports the financing of new hospitals or capital improvements of facilities. Qualification for the Section 242 program generally requires a facility to have positive operating margins. The Department of Housing and Urban Development (HUD) provides mortgage insurance. although the process of obtaining a HUD loan can be onerous and lengthy. The HUD Section 232 program insures HUDapproved lenders against loss for mortgage defaults. This has caused some coordination issues with working capital or A/R 3 . The Federal Housing Administration has approved certain mortgage lenders for these loans. The Section 232 program can provide loans with up to 35-year amortization for refinancing. Required loan-toproperty value for HUD loans is up to 85% (or 90% for non-profit facilities). including construction loans and long-term capital.(ii) HUD. Interest rates on HUD loans are relatively low. HUD recently required a security interest in the accounts receivable of the operator or licensee of the facility.
Given the current interest rate market. Loan volumes for refinancings are relatively high since many pre-recession loans are now reaching their maturity dates. or base amount. working capital lines of credit and term loans. asset-based credit facilities. Cash flow lending looks to future cash flows as collateral for a loan. HUD has adopted a form of intercreditor agreement to be adopted in these circumstances. often to fund an acquisition or refinance other debt. 4 1 . Mortgage loans may have a longer term (such as 30 years) and are often set at a flat.lenders to those facilities. loans are secured and lenders generally impose various covenants and conditions to borrowing. or fixed interest rate. A specific loan to finance an acquisition generally involves a term loan for a percentage of the purchase price. and real property). 1 The commercial lending market has begun to open again with many transactions involving refinancings or acquisition financing. short term loans or lines of credit may be available from commercial banks or finance companies. such as cash flow loans (or “leveraged” loans). Asset-based lending focuses on the value of the assets pledged as collateral to determine the size of the loan and often fund the ongoing business needs of a company. floating interest rates generally have a floor. Generally. Typically. The interest rate is generally floating and based upon a prime rate or LIBOR. Since most healthcare facilities involve operating businesses with a combination of collateral (accounts receivable. Term loans represent a one-time outlay of loan proceeds. healthcare facilities often have a variety of loan products available. As such. bridge loans. equipment. (iii) Commercial Lending. receivables are pledged as collateral and the loan is revolving in nature. hard assets. meaning that the borrower is not liable beyond the collateral except for specific carve-outs. For single purpose cash needs or on-going working capital needs. Mortgage loans may be non-recourse to the borrower. Mortgages are longer term loans secured with real estate.
the seller will also need to grant the lender a security interest in the purchased receivables. If accounts receivable are also being purchased.Lenders remain fairly conservative in terms of underwriting loans. Medicare providers will have the option of forming accountable care organizations (ACOs). joint ventures to share risk. Therefore. 5 . ACOs will likely be funded through the current cash or existing lines of credit of the participants. healthcare providers have considered. lenders will require that the buyer (or borrower) finance a significant portion of the purchase price (e. An ACO is. especially given the lack of tangible collateral to secure the financing. Many hospitals are taking the lead in the formation of ACOs. financing will review all of the acquisition documents. If traditional sources of financing are unavailable. such as professional fees and software costs. in essence. Under the health reform legislation. as an alternative strategy. warranties and indemnities.. 25% to 40%) to ensure that there is sufficient collateral to cover the size of the loan. (iv) Joint Ventures. a joint venture.g. For loans to finance an acquisition. Soft costs. soft costs are difficult to finance. The goal of an ACO is to align the interests of healthcare providers as it relates to quality and efficiency. The details of the ACO remain to be seen. provide access to capital. and reduce costs. Joint ventures often occur between different types of healthcare providers or service companies to integrate clinical systems or find economies of scale. will likely comprise the bulk of the start-up expense for an ACO. Joint ventures require careful structuring from a regulatory perspective and can be a source of legal scrutiny. In general. Some acquisition financing transactions also involve some working capital or A lender for an acquisition revolving loans to provide working capital post-acquisition. Lenders will also conduct extensive due diligence on the seller and look to obtain a collateral assignment of the representation.
These types of arrangements need to be carefully considered as the purchaser of real estate often requires a grant of a security interest in the assets of the operator to secure the future lease payments. 2010 study conducted by Pepperdine University’s Graziadio School of Business and Management found that since the summer of 2010.(v) Equity. Most financing transactions undergo a similar process. Many hospitals and health systems have contemplated sales of medical office buildings. For-profit entities can look to the equity market for capital. the number of private equity funds expecting to invest in health care companies has doubled. insurance companies. structural and legal due diligence. a lender will undertake a preliminary review of the companies’ financials and other business.edu/privatecapital. 2 Some commercial finance companies may also receive warrants in connection with a traditional debt financing. 2. and sale-leaseback of real estate as additional sources for capital. it then needs to coordinate these intercreditor issues between the landlord and the new lender. See also. (vi) Sale of Assets and Sale-Leaseback Transactions. Modern 2 6 .pepperdine. To the extent the operator later seeks working capital financing. “Gambling on Change”. After discussing a provider’s need for financing. Typical Market Terms and Structure of Financing Transactions. investment in medical office buildings. A December 13. In addition. Many private equity sources are looking to expand their reach into healthcare. See report at http://bschool. the pursuit of clinical integration. or investment in information systems. and other investors have expressed an interest in medical facilities and medical office buildings as an attractive investment. By selling assets. healthcare providers obtain cash to invest in more “core” delivery systems. many REITs. such as venture capital or private equity.
zoning report and/or seismic report. collateral and whether any guarantees are required. The term sheet will typically state the amount of the loan. interest rates. some mortgage lenders will utilize an application process. financial covenants. The term sheet is a non-binding statement of the basic terms of the loan. Following execution of a term sheet. which provides for more detail and includes specific loan terms. (b) Underwriting and Due Diligence. describing how five major health systems have put up to $50 million to form a health care venture fund. The term sheet also calls for a good faith deposit by the potential borrower to allow the lender to start expending costs.(a) Term Sheet. Alternatively. it is seen as having greater formality than the term sheet. The lender’s attorneys will also review title reports and surveys for the property. such as further due diligence and legal fees. lenders will undertake a more detailed audit of the payment history of the accounts receivable and financial Healthcare (January 31. While the commitment letter still contains numerous caveats to the lender’s obligation to make the loan. If real estate is involved. which typically include an appraisal and environmental assessment. 2011). the parties often put together an initial term sheet. Often a borrower is asked to produce a commitment letter if the borrower has a financing contingency in an acquisition or is asking a current lender for an extension of a maturity date pending a refinancing. terms of the loan. 7 . the lender will proceed to undertake a more in-depth review of due diligence. A commitment letter provides greater detail regarding loan terms. For loans based on accounts receivable as the underlying collateral. this process will involve engaging several third party consultants to provide reports. Lenders may also be asked to issue a commitment letter. If the preliminary information supports further discussions. and often a property condition report.
environmental indemnity. During this stage. such as the loan amount. events of default. warranties and covenants made by the borrowers in favor of the lender. In addition. net worth. and liquidity. since the mortgage or deed of trust is a recorded document. the main. repayment terms. legal opinion (from the borrower’s counsel) and various certificates. a mortgage lender may use the mortgage or deed of trust as the definitive agreement. However. Other loan documents often include a separate. In some circumstances. The borrower will also agree to comply with certain financial covenants. total leverage. Typically. lenders often require the borrower to complete an information certificate or perfection certificate to provide additional information regarding the borrower and its collateral. the counsel to the lender will prepare draft legal documents. interest rate. (i) Loan Documents. The lender’s counsel will also undertake a review of regulatory issues and licensing. negotiable promissory note.review of the borrower’s financial performance. Provided no red flags emerge in the due diligence process. fees and the grant of a security interest in all or some of the borrower’s assets. that party enters into a separate guaranty and if a parent company pledges its 8 . the loan agreement contains representations. and therefore available to the public many mortgage lenders will still utilize a loan agreement to preserve the confidentiality of their loan terms with the borrower. The loan agreement will contain the major provisions of the loan. which are designed to test the borrower’s financial strength and ability to repay the loan. the lender’s counsel will manage the legal documentation process with a loan checklist. remedies upon default. In most loan transactions. If a related party guarantees the loan. definitive document is the loan agreement or credit agreement. The checklist will outline all expected loan documents. Some financial covenant examples are testing of the borrower’s fixed charges. maturity date. required due diligence and track the status of each. (c) Legal Process.
specialized. If real estate is involved. it is essential to understand the regulatory issues involved. the parties will set a date to close the loan. since the issuance of a title policy and the recording of the mortgage or deed of trust is an essential part of a real estate loan.(ii) Loan Closing. the lender will require original signed loan documents as well as all conditions to closing to be met. by its nature. Once all of the legal documentation is complete. Any transaction involving the pharmaceutical industry often requires knowledge with respect to FDA and intellectual property issues. 9 . investment or financing in the healthcare industry is. Regardless of the type of loan. it is important to understand how a drug approval or license may be pledged as collateral. For fixed rate mortgage loans. For a lender or investor. the lenders will lock the interest rate in advance of closing. the loan closing generally occurs through a title company. If the loan will refinance existing indebtedness. Similarly. whether a merger. the current lender will be asked to prepare a payoff letter. Unique Regulatory Issues in Healthcare Financing Transactions. The payoff letter will state the amount of funds needed to pay off the existing loan and. 3. acquisition. upon the lender’s receipt of the stated amount. Any transaction. For any lender or investor. the current lender will release its existing liens.
particularly where the seller is in a position to refer business to the buyer. No. The Federal Trade Commission and the Department of Justice have issued joint policy statements addressed to the healthcare industry governing specific aspects of healthcare industry. Inc. N. may violate the AntiKickback Statute.fraud and abuse prohibitions.gov/reports/hlth3s.ftc. 3 Healthcare transactions also have special antitrust considerations. corporate practice of medicine restrictions and Medicare reimbursement issues often dictate the structure of transactions and financings involving healthcare providers. Ohio. 4 As evidenced by the recent FTC challenge to a consummated acquisition in Ohio.gov/reports/healthcare/040723 healthcarerpt. The federal government has blocked certain healthcare mergers on the theory that such mergers would result in diminished competition and thus lead to higher prices. Most healthcare investments and financings require specialized underwriting.ftc. and those providing items or services to Medicare or Medicaid patients. 5 See Federal Trade Commission v. demographic information. 10 . joint ventures between those in a position to refer business. in-depth knowledge of 3 4 See April 23. often involving market feasibility studies. 5 A lender financing an acquisition needs to understand any antitrust risk and market data relating to the underlying transaction. For example.. such as physicians. which is common in a non-healthcare M&A transaction. may violate the Stark law and Anti-Kickback Statute in a healthcare M&A transaction. In addition. 2003 OIG Special Advisory Bulletin on Contractual Joint Ventures. 3:11-CV-47. and www. See www.pdf.D. 1/10/11. the FTC is closely scrutinizing mergers and acquisitions that result in market power.pdf. an earn-out provision. ProMedica Health System.
Federal and State laws prohibit the provision of any incentives for the referral of any healthcare items or services. The safe harbors include the ownership of investment interests in public companies. The Office of the Inspector General of the Department of Health and Human Services (“OIG”) has promulgated certain “safe harbors” protecting certain activities and relationships from being deemed to violate the Anti-Kickback Statute 7 . 1001.952 11 . investment or lending risks cannot be properly assessed without an understanding of the reimbursement aspects of the industry and regulatory requirements. provided that any investor in a 6 For example. credit support. The Federal Anti-Kickback Statute prohibits the knowing and willful payment or solicitation of remuneration to induce a referral of a patient for items or services for which payment may be made by the Medicare or Medicaid programs. a lender (or even a regulatory authority) may require the deposit of a debt service reserve. and actuarial studies. sale or financing. Violation of the Anti-Kickback Statues is a felony. 6 In addition. as well as exclusion from the Medicare and Medicaid programs. In addition. numerous Federal and State laws impact the structure of any healthcare investment. Other examples of credit support are pledges of ownership interests and personal or corporate guarantees. and other investment interests. collateral or guarantees. Fraud and Abuse Laws. To account for increased regulatory risk and due diligence costs. certain space and equipment leases. including the effect of healthcare reform.reimbursement rates and trends.F. The following highlights some of the major legal issues impacting healthcare transactions and relating financings. 7 42 C.R. personal services contracts. subject to civil and criminal penalties. investors and lenders often require additional assurances in the form of escrows.
physician group mergers. A key concept within the fraud and abuse laws is that the consideration paid be fair market value. The health reform law attempted to address the harshness of Stark by mandating that the CMS develop a self-disclosure protocol within 6 months of the statute's enactment. no intent is required. i. and even ACOs. the OIG has targeted hospital incentives provided to physicians.even those that are technical in nature . A healthcare lender or investor will often review these issues in its due diligence process. Breaches of the Stark Law . the Stark Law is a strict liability statute. For example. The protocol would give the CMS the ability to negotiate 12 . both civil and criminal. The Stark Law prohibits a physician from making any referral for any “designated health services” payable under the Medicare or Medicaid programs to any entity in which the physician has a non-exempted ownership or compensation arrangement.e. including hospital acquisitions of medical practices. and the OIG has also targeted the pharmaceutical industry with respect to its marketing and sales practices. The Stark Law is relevant in a wide variety of healthcare transactions. It is rare that a healthcare transaction not involve a fair market value opinion from such a firm. The OIG has also issued various “Fraud Alerts” targeting various types of practices in the healthcare industry as particular areas of concern. control or receive any remuneration from the entity in excess of 40% of the interests in the aggregate.position to refer or generate referrals for the entity may not own.can result in draconian penalties. Stark Law. joint ventures between physicians hospitals. Unlike the Anti-Kickback Statute. Third party valuation firms play a critical role in fulfilling this requirement.
the CMS published the selfdisclosure protocols on its website 8 .down the penalties for violating Stark.F. 2010. Chapter 3. § 489. this licensure takes place at the state level. including hospitals. 100-07). 42 C. physicians and healthcare practitioners. 9 Often.R. 13 .cms. These licenses are generally not transferable and any change of ownership of a licensed healthcare provider is generally subject to prior approval. Accordingly. a buyer of assets or a lender attempting to foreclose on its collateral may be forced to reapply for licenses in its own name and based on its own qualifications in order to use or access these assets.asp. The process can be slow and uncertain. an acquirer can assume a seller’s Medicare provider number through the reassignment process. interim management agreement or other arrangement whereby the seller continues to “operate” the 8 9 http://www. Generally.C.5. Virtually every healthcare provider. as well as whether to realize on any such pledge upon a default. §§ 3210-3210. thus triggering a requirement for approval. It is also common for a change in stock ownership to be deemed a license transfer. must be licensed in order to operate.18 and State Operations Manual (Pub. This helps alleviate the delay in an acquirer’s application for a new provider number. However. While licenses are generally not transferable. the seller and buyer will enter into an operations transfer agreement. This issue can be particularly relevant for healthcare lenders as they consider whether to request a pledge of equity interests in a borrower. On September 23. the assumption of the provider number also means assumption of any liabilities associated with that number.gov/PhysicianSelfReferral/65_Self_Referral_Disclosure_Protocol. Licensing Requirements. if the buyer has not completed the process of getting its own license and provider number at the time of closing.
Acquisition lenders often are reluctant to close a loan to a healthcare provider that does not have its own license and Medicare provider number. many lenders will look to limit the possibility that the buyer . expansion or modification of a healthcare facility. The fee splitting laws generally prohibit physicians from dividing their professional fee with any person or entity. While an operations transfer arrangement may provide a solution to an interim licensing process. In addition. and its borrower is billing and collecting receivables under the seller’s name and provider number. the lender will look to the seller to provide the lender a grant of a security interest in the seller’s acquired and post-closing accounts receivable. The majority of states have some form of CON law or program in place. a state certificate of need (CON) may be required. permits and payment intangibles.provider during the interim period of time when the buyer is in the licensing process and getting its own provider number. In addition. To obtain a CON. For example. unless an 14 . many states also have prohibitions on the corporate practice of medicine. Instead of investors directly investing in physician practices. the corporate practice of medicine prohibition affected the structure and nature of physician practice management companies in the 1990s. In a transaction involving the construction. The corporate practice of medicine prohibition provides that a business cannot conduct medical activities or employ licensed medical personnel to provide licensed healthcare services. or the acquisition of a substantial item of medical equipment. investors established separate practice management companies that entered into long-term management agreements with physician practices. an applicant must demonstrate the need for and feasibility of the particular project or equipment. if a lender is providing a loan based on accounts receivable.its borrower – may not have received its own license and provider number. These management agreements also received scrutiny under state fee splitting laws.
F. or allowing any other party other than the provider to directly receive such money from the government. 10 Accordingly. §424. Because payments are first made to an account controlled by the provider.F. Anti-Assignment Provisions. 15 . and the anti-assignment provisions are not violated. These rulings have wide-ranging implications on the validity of arrangements which would otherwise be lawful in a non-health care setting. 42 C.S. §1395g. §424. 42 U. 42 C.80.R. Some courts. the government is technically not making payment to a third party other than the provider. §1395 u(b)(6). Transactional lawyers devise ways to legally overcome the anti-assignment laws. In many cases. it is not possible to enter into a normal security arrangement in which a borrower gives the lender the right to stand in a borrower’s shoes when it comes to receiving payments directly from the government. financing healthcare transactions may be more difficult to structure than industries where obtaining control over a major aspect of collateral is not so restricted.C.R.S. have ruled that percentage based arrangements constitute unlawful fee-splitting.R. One involves a “double-lock box” device in which payments from the government are made first to an account controlled by the provider/borrower. 42 U. 42 C.F. As a result. including Illinois courts.C.S. §1396 a(a)(32).exception applies. §447. Congress passed various laws preventing healthcare providers from selling or “assigning” their receivables to others.10.71. When Medicare and 10 42 U. Amounts are then routinely swept out of that account into another account controlled by the lender. the fee paid to the physician practice management company was based on a percentage of revenue attributable to physician services.C.
as opposed to National Century. Regulatory Impact on Financing Transactions. it stopped funding the health care providers. Both state and federal law restrict a healthcare provider’s use and disclosure of a patient’s protected health information. National Century then collected the cash from those receivables. National Century purchased the provider’s health care receivables. As a general matter. While National Century was later found guilty of fraud and other improprieties. Accordingly. HIPAA allows a healthcare provider to disclose protected health information for “healthcare operations. In any healthcare transaction. Many health care providers were able to divert payment of their receivables back to themselves.Medicaid receivables are involved in a transaction. special care needs to be given to issues involving collateralizing these receivables. A lender’s customary due diligence may expose it to protected health information. This caused many lenders to be more cautious in lending against health care receivables as well as impose greater checks and balances to avoid losing control over the collateral used to secure working capital advances. 11 Privacy Issues. parties need to be aware of confidentiality issues relating to protected health information. Similarly. It is imperative for parties to a healthcare financing and their counsel to understand the healthcare industry and healthcare regulatory matters in order to 11 In a high-profile case. many other lenders took notice of the ability of some health care providers to re-direct payment of health care receivables away from the lender and directly to the health care provider. the means in which a healthcare provider is structured is highly dependent upon the regulatory framework within which the healthcare provider operates. the proceeds of which went to the health care providers for working capital purposes. 16 . provided loans to a variety of health care providers. a finance company. National Century.” Healthcare providers may disclose protected health information to a “business associate” so long as a business associate agreement is in place. A healthcare provider’s general consent form may be sufficiently broad to permit disclosures related to the healthcare provider’s general business purposes. When National Century encountered its own financial crisis. healthcare providers may require its lender to sign a business associate agreement as a result of any disclosures related to protected health information.
and CMS approval with respect to Medicare and Medicaid provider numbers. complicated indemnities. carefully “follow the money”.understand the healthcare entity’s revenue and assets as collateral. the parties and their counsel must also understand how to structure the financing in light of various change of ownership requirements. These revenues are then often distributed to affiliated and nonaffiliated entities through management fees. A portion of the sales price may be set aside in an escrow account to ensure a smooth transition and the seller’s compliance with its representation and warranties. many sale transactions are accomplished with the seller or prior operator still involved with operations pursuant to an operations transfer agreement. due to the difficulty in obtaining all approvals and finalizing transitional matters. lease payments. or hold Accordingly. the FTC and DOJ may get involved in the event of any antitrust concerns and the parties could risk divestiture. and additional provisions with respect to any acquisition financing. consulting fees. escrows. the transaction may involve extensive due diligence. management fees and fees paid to affiliated parties should be carefully reviewed. As discussed above. potentially a new certificate of need or a certificate of exemption. In healthcare financings. Similarly. Also. Lenders will often require that any such management fees be subordinated to the rights of the lender. a change of ownership may require state licensing agency approval. Many life science companies have off-shore operations. potential investors. As discussed above. understand the underlying regulatory environment and the proper operating structure. Accordingly. acquirors or lenders must intellectual property off-shore. Many healthcare entities have bifurcated structures in which a separate licensed operating entity receives all or a majority of the revenues from operations. A buyer can set aside these escrowed funds if the seller has not complied with the purchase 17 . preferred returns and other distributions.
Further. Conclusion. As a result. such an event would ultimately be considered an event of default. 4. lenders carefully review how these structures impact the underwriting for the transaction and whether to take a collateral assignment of such arrangement. if ultimate licensing and/or certification is not obtained. The demand for capital in the health care market is high. providers and other stakeholders are employing a variety of methods for financing healthcare transactions. The regulatory and business issues unique to the healthcare industry play an important structuring role in any healthcare financing transaction. while at the same time accessing capital can remain a challenge.agreement. attempting to unwind the transaction or seizing its collateral. This could result in the lender accelerating the loan. 18 . As a result. This same structure may be used in sales of life science companies or other types of licensed healthcare entities.
§§ 1395 et seq. § 1320a-7b(6)). §§ 3729 et seq. §1395 dd). distribution or delivery of goods or services under Healthcare Laws applicable to the business of Borrower. each as may be amended from time to time. process. marketing. ownership. healthcare information.). (i) quality. (d) Medicare. accreditations. the Stark Law (42 U. (j) all laws. the quality and adequacy of medical care. (a) all federal and state fraud and abuse laws. labeling. procedures. supplier numbers.S.S. qualifications. process or proceeding (other than routine surveys or reviews conducted by any government health plan or other accreditation entity) that could result in any of the foregoing or that could reasonably be expected to adversely affect such person’s or entity’s business. the civil False Claims Act (31 U.L. HIPAA Compliant shall mean that the applicable person or entity is in compliance with each of the applicable requirements of HIPAA.L. without limitation.S. or any administrative or other regulatory review. § 1395nn). policies. personnel. marketing. (b) TRICARE. (f) the Patient Protection and Affordable Care Act (P. Permit means all governmental licenses. patient healthcare. operations. admission agreements and service agreements which include an occupancy agreement and all amendments. §§ 1396 et seq. operating policies. codified at 42 U. action or proceeding. HIPAA means the Health Insurance Portability and Accountability Act of 1996. regulations. Medicare means the program of health benefits for the aged and disabled administered pursuant to the terms of Title XVIII of the Social Security Act. Medicaid means the medical assistance programs administered by state agencies and approved pursuant to the terms of Title XIX of the Social Security Act. sale. and (k) any and all other applicable healthcare laws. manual provisions.C.S. consents and approvals required under all applicable laws and required in order to carry on its business as now conducted. equipment. authorizations. codified at 42 U. rate setting.C. and any successor statute thereto. survey. and is not and could not reasonably be expected to become the subject of any civil or criminal penalty. sale and distribution of pharmaceuticals. as the same may be amended. furnishing.C. provider numbers.S. warehousing. (e) Medicaid. including as issued or required under Healthcare Laws applicable to the business of Borrower or necessary in the possession. claim. the operation of medical. policies and administrative guidance.Sample Healthcare Representations and Warranties in Financing Transactions Defined Terms CON means any certificate of need or similar license which determines that there is a need for a healthcare facility at a particular location or within a certain geographic region. promoting. permits. safety and accreditation standards and requirements of all applicable state laws or regulatory bodies. the federal Anti-Kickback Statute (42 U. (g) The Health Care and Education Reconciliation Act of 2010 (P. certificates. Healthcare Laws means all applicable laws relating to the possession. registrations.S. (c) HIPAA. acute care or long term care facilities. including. (h) Emergency Medical Treatment and Active Labor Act (42 U. modifications or supplements thereto.C. requirements and regulations pursuant to which Permits are issued. franchises. assets. warehousing. modified or supplemented from time to time. properties or condition (financial or otherwise). in connection with any actual or potential violation by such Person of the provisions of HIPAA. control. 19 .C. without limitation. patient abuse. and any and all rules or regulations promulgated from time to time thereunder. Resident Agreements means the singular or collective reference to all patient and resident care agreements. fee splitting. 111-1468). including.C. 111-152).
and other state or federal healthcare program. suit or. TRICARE means the program administered pursuant to 10 U. to Borrower’s knowledge.. Borrower is not subject to any proceeding. board or authority or any other administrative or investigative body (including the Office of the Inspector General of the United States Department of Health and Human Services): (i) which may result in the imposition of a fine. private insurers. 4. regulation. ordinance or law pertaining to Borrower or its facilities in general. and private insurance cost reports and financial reports submitted by Borrower are and will be materially accurate and complete and have not been and will not be misleading in any material respects. 2. except in accordance with applicable settlement or appeals procedures that are timely and diligently pursued (provided that the aggregate amount at issue in any appeals does not exceed $25. Borrower is in material compliance with the terms and conditions of all Permits and all Permits are valid and in full force and effect. Borrower hereby represents and warrants to Lender as follows: 1. pending or outstanding Medicare. agency. sponsored by a Third Party Payor.S. suspending or revoking any such Permit. managed care plans and any other Person or entity which presently or in the future maintains Third Party Payor Programs. No cost reports for the Borrower remains “open” or unsettled and there are no current. in which Borrower participates. state or local government or quasi-governmental body. Borrower maintains Medicare and Medicaid provider status and is the holder of the provider identification numbers associated therewith. TRICARE. Section 1071 et. or which would have a material adverse effect on any Borrower or its operations. (ii) which could result in the 20 3. and the regulations promulgated pursuant to such statutes. Medicaid or other Third Party Payor Program reimbursement audits or appeals pending with respect to the Borrower. Medicaid. There are no outstanding deficiencies or work orders of any authority having jurisdiction over Borrower requiring conformity to any applicable statute. accreditations and approvals of governmental authorities and all other persons or entities necessary to own or lease and operate its business or to otherwise provide healthcare services.C. . All Medicare. all of which are currently valid. Borrower has no knowledge that any governmental authority is considering limiting. material licenses. Sections 1320a-7 and 1320a-7a of Title 42 of the United States Code. a lower reimbursement rate for services rendered to eligible patients. including but not limited to the Third Party Payor Programs. Medicaid. Third Party Payor Programs means all payment and reimbursement programs.000) and except as a result of any processing delays of the applicable Third Party Payor Program. seq. investigation by any federal. Blue Cross and/or Blue Shield. self-insured employee trusts or other payors are currently in full force and effect. sanction.Third Party Payor means Medicare. Borrower has obtained all Permits. No Borrower is currently subject to any plan of correction that has not been accepted by or is currently the subject of a review by the applicable state authority. All of the payor agreements or payor accounts between Borrower and insurance carriers.
Borrower has not made any decision not to renew any participation agreement or provider agreement or other Permit. (iii) made or agreed to make. nor any agent acting on behalf of or for the benefit of any of the foregoing. have been and will be in compliance with all applicable laws. or is aware that there has been made or that there is any agreement to make. patients. directors. healthcare facility. transfer. (ii) given or agreed to give. 21 6. if applicable. payment or gift or the purpose of such contribution. . medical provider members. in cash or in kind to any past or present suppliers. third party payor or any other person in violation of applicable law. contractor. is a party to any contract. any gift or gratuitous payment of any kind. payment of gift of funds or property to. home health agency or other person who is in a position to make or influence referrals to or otherwise generate business or operations for Borrower to provide services. surrender. Neither Borrower nor any of its affiliates or any of their officers.revocation. supplier or potential supplier. 7. or (iv) made. nature or description (whether in money. property or services) to any customer or potential customer. any payment to any person with the intention or understanding that any part of such payment would be used for any purpose other than that described in the documents supporting such payment. services or use of money provided. employee or agent where either the contribution. any governmental official. agents or employees. hospital. or is aware that there has been made or that there is any agreement to make. including the Third Party Payor Programs. lease space. nursing facility. or (iv) which pertains to any state or federal Medicare or Medicaid cost reports or claims filed by Borrower. including managed care organizations. Neither Borrower nor any of its affiliates or any of their officers. or is aware that there has been made or that there is any agreement to make. (iii) which pertains to or requests any voluntary disclosure pertaining to a potential overpayment matter involving the submission of claims to such payor by Borrower. has directly or indirectly in connection with Borrower or otherwise: (i) offered or paid any remuneration. contractors or Third Party Payors in violation of applicable law. directors. 5. property. or for the private use of. regulations and policies of such Third Party Payors and Third Party Payor Programs in all material respects. agents or employees. exchanged or acquired thereunder at the time entered into. any contribution. and private insurance companies. or agreed to make. payment or gift is or was illegal under applicable law. lease equipment or engage in any other venture or activity that is prohibited by law or that did not provide commercially reasonable terms and fair market value consideration for the goods. suspension or other impairment of any provider agreement or Permit. nor is there any action pending or threatened to impose material intermediate or alternative sanctions with respect to the Borrower. All billing practices of Borrower. including those with respect to all Third Party Payors. lease agreement or other arrangement (including any joint venture or consulting agreement) related to Borrower with any physician.
probationary. 10. Borrower has and shall maintain in full force and effect a valid CON for no less than the number of beds and units as currently in effect. or restricted in any way. Without the prior written consent of Lender. 22 . and shall not permit any CON to become provisional.S. (ii) accept any payment under any Resident Agreement in violation of the cash management or lockbox provisions required by lender. 9. All Resident Agreements comply with all applicable Healthcare Laws. Borrower shall not: (i) modify the form of Resident Agreement approved by Lender. Borrower is HIPAA Compliant. Borrower shall maintain any applicable CON free from restrictions or known conflicts which would materially impair the use or operation of its business for its current use. Borrower is in compliance with all applicable Healthcare Laws. or rebates) by properly disclosing and appropriately reflecting its pricing in any cost claimed or charge made.C. or (iii) enter into any Resident Agreement upon rates other than market rates or upon a form that fails to comply with applicable Laws. if any. If required. 11.8. Borrower is in compliance with the applicable provisions of 42 U. § 1320a-7b prohibiting illegal remuneration (including kickbacks. under the Third Party Payor Programs. bribes.
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