Healthcare Due Diligence in Florida Before You Sign the LOI

By Dagmar Llaudy, Esq. · Llaudy Law · Miami, Florida

A commercial diligence checklist is built to find the liabilities a business can be sued for. It is not built to find the liabilities a health care business can be billed for, and those are the ones that arrive first and without a lawsuit. Healthcare due diligence Florida buyers actually need starts from a different question: not “what claims exist against this company” but “what has this operation billed, and was it entitled to.” If you are acquiring a practice, a clinic, an agency or a facility, the four files that decide the price are files a corporate checklist never asks for.

The distinction matters because of when the answers arrive. A commercial liability shows up when someone sues. A regulatory liability shows up when an agency identifies it — and under Florida law, an identified overpayment becomes the buyer’s problem on the effective date, whether or not anyone knew it was there.

What Healthcare Due Diligence Florida Buyers Actually Have to Open

The counterparty is an agency, not a plaintiff

Agencies do not negotiate around the purchase agreement, and they are not bound by the indemnity the parties wrote. Under § 409.907(6)(a), Florida Statutes, the transferee is liable to the agency for outstanding overpayments identified on or before the effective date. The contract allocates loss between the parties. The statute allocates it between you and the agency.

The exposure attaches to claims, not to conduct

An unlicensed clinic that delivered excellent care still generated unenforceable charges under § 400.9935, Florida Statutes. Quality of care and entitlement to payment are separate questions, and only the second one is a diligence question.

The timeline runs against you

Regulatory findings mature. An audit that is open during diligence may be an identified overpayment by the effective date, and a Medicare plan of correction travels with an assigned provider agreement under 42 C.F.R. § 489.18. By the time the finding is final, the transaction has usually closed.

What You Need Before Diligence Starts

A diligence request list written for this vertical

Not the standard corporate list with a health care section appended at the end. The regulatory requests belong first, because they are the ones with the longest lead time and the biggest effect on price.

Access to the seller’s actual correspondence with agencies

Not a summary, not a data room memo. The letters, the notices, the reports and the responses, in date order. A seller who will not produce them has answered the question.

Ask for the file rather than for a category, and ask early. Correspondence with an agency usually lives with whoever handled the matter rather than in a central archive, and if that person has left the practice the retrieval takes weeks rather than days. The document that decides the price is rarely the document that is easiest to find.

The name of a person who can explain the billing

Someone who knows why claims were coded the way they were, who supervised whom, and what changed when. That person usually leaves at closing, which is why the conversation happens during diligence rather than after.

A realistic window

Regulatory diligence takes longer than commercial diligence because it depends on documents the seller has to retrieve rather than documents already in the data room. A schedule that gives it two weeks is a schedule that will produce a superficial answer, and a superficial answer here is worse than none, because it creates the impression that the question was asked.

The Four Files a Corporate Checklist Does Not Open

The overpayment and audit file

Every records request, audit report, demand letter, overpayment determination, repayment agreement and appeal, for a defined period and produced as documents. This is the file that moves the price, and it is the one most often summarized rather than delivered.

The licensure and exclusion file

Which licenses the operation holds, what conditions attach to them, whether a clinic licensure exclusion was ever analyzed in writing, and whether anyone in the organization appears on an exclusion list.

The payor contract file

Each agreement, its term, its termination rights and its change-of-control clause. A contract that terminates on a change of control is a revenue cliff hidden in a document, and it is hidden in the one place a financial model never looks.

The billing data itself

Not the revenue report. The claims: what was billed, by whom, under whose credentials, with which modifiers, at what volume, and against which documentation. That is the file an auditor opens, which makes it the file a buyer should open first.

Step 1: Open the Overpayment and Audit File

Ask for documents, not for a conclusion

“Are there any outstanding overpayments” produces a no, because the seller believes it. Ask for every document in the category, for a defined period, and then ask the seller to represent that the production is complete.

Build the schedule that becomes an exhibit

Date identified, amount, program, status, payments made, balance, appeal posture. One row per matter. That schedule is what the price is built on and what the representation attaches to.

Treat open audits as a separate category

An audit in progress is not yet an identified overpayment. Whether it becomes one before or after the effective date is a timing question with a direct consequence, and it is the category that belongs in escrow rather than in the price.

Read the repayment agreements

A repayment plan is a continuing obligation with terms. Find out who is expected to keep paying, from which account, and what the agreement says happens on a change of ownership. The outstanding balance is still an outstanding overpayment for statutory purposes, so a plan that is being serviced faithfully is not a matter that has gone away. It is a matter that is being paid, by someone, on a schedule that the transaction may interrupt.

Step 2: Test the Licensure Position

Confirm every license and every condition

Number, category, address, capacity, expiration, and any restriction. Under § 408.807, Florida Statutes, a restriction survives the sale and stays in effect until the grounds for it are corrected, so a conditional license is a term of the deal rather than a footnote.

Ask whether the clinic analysis was ever done

If the operation relies on an exclusion from clinic licensure, ask which paragraph and ask for the memorandum. The absence of a memorandum is itself a finding, because the exclusions turn on ownership and nothing external confirms that the conclusion was right. The clinic licensure analysis explains why that document matters more than it looks.

Verify licenses at the source

Practitioner licenses get verified from the licensing board, not from the personnel file. A lapsed license behind submitted claims is a claims problem, and it is discoverable in an afternoon.

Map the licensure timeline against the closing

If the transaction requires new licensure or new enrollment, the 60-day notices under § 408.807 and § 409.907(6)(b) are already constraining your closing date. The AHCA filing and the Medicaid filing each run on their own track.

Step 3: Screen Every Person and Entity

Screen the full list, not the clinical staff

Owners, officers, directors, managing employees, the medical or clinic director, and every rendering practitioner. Entities as well as individuals.

Run it yourself and date it

A screening result inherited from the seller’s onboarding file is a statement about the seller’s process. Run it, print it, date it, and keep it with the closing documents.

Understand what a hit actually means

An excluded individual inside an operation is not a personnel issue to be resolved after closing. It reaches the claims that individual touched, which means it reaches a period that predates your ownership and does not stop at the effective date. Removing the person forward is necessary and is not sufficient, because the exposure attaches to what was already billed rather than to what happens next.

Re-run it immediately before closing

Diligence findings age. A screening run at the letter of intent is not a screening run at closing, and the gap between them is exactly where a change would have occurred.

The same is true of licence verification and of the overpayment schedule. Anything that was checked at the start of a three-month process should be checked again at the end of it, and the second check costs a fraction of the first because the list already exists.

Step 4: Read the Payor Contracts for Change of Control

Find the clause in every agreement, not in the summary

Commercial payor agreements, managed care contracts and network participation agreements each handle change of control differently, and the summary schedule prepared by the seller is not the clause.

Distinguish consent, notice and termination

Some contracts require consent, some require notice within a period, and some simply terminate. Those are three different problems with three different solutions, and confusing them is how a buyer discovers at closing that a third of the revenue needs a counterparty’s signature.

Start the consents early, because they are not yours to control

A consent you have to ask for is a timeline you do not own. Identify them at the letter of intent stage and begin the conversations while there is still leverage.

There is a sequencing question inside that. Approaching a payor before the transaction is public creates confidentiality issues; approaching it after signing removes the ability to walk away. Most transactions resolve it by identifying the consents during diligence, drafting the requests in advance, and sending them on a defined day, which at least makes the timing a decision rather than an accident.

Check what happens to the government programs separately

Medicare, Florida Medicaid and the managed care plans do not follow the commercial contract logic. The Medicare agreement is assigned automatically where there is a change of ownership; the Florida Medicaid agreement is revocable at the agency’s option. The Medicare change of ownership rules set out the difference.

Step 5: Test the Real Estate Position

Space arrangements are diligence items in a health care transaction for reasons that have nothing to do with the property, and they are almost never on the standard list.

Find every lease, sublease and shared-space arrangement

Including the informal ones. A room used two afternoons a week by a visiting physician is an arrangement even if nobody drafted anything, and an undocumented arrangement is the hardest kind to defend.

Ask who the landlord is, and who refers to whom

Where the landlord and the tenant exchange referrals, the rent is a regulated term rather than a commercial one, and the lease has to satisfy standards a market rent can fail. The medical office lease analysis sets out what those are.

Ask for the valuation file, not the rent roll

A rent roll tells you what is being paid. The valuation file tells you whether the number can be supported, and whether it was prepared before the rent was agreed or afterwards. A missing valuation file is a finding.

Check whether any arrangement is itself a change of ownership

Under 42 C.F.R. § 489.18, the lease of all or part of a provider facility is a change of ownership of the leased portion. A transaction structured around a lease can produce a regulatory consequence the parties treated as a real estate detail.

Step 6: Reconstruct the Billing History

Ask for the claims data, not the financial statements

Revenue tells you what was collected. Claims data tells you what was submitted, and an audit looks at the second one. The two diverge for ordinary reasons — denials, adjustments, timing — and the divergence itself is informative. A practice whose collections track its billings almost exactly is behaving differently from one where a fifth of what goes out never comes back, and the second pattern raises questions the financial statements will never surface.

Look at concentration and pattern

A service line that represents a disproportionate share of billing, a code used far more often than peers use it, a modifier applied consistently, a practitioner whose volume does not fit a working week. None of those is proof of anything. All of them are questions worth asking before you own the answer.

The useful posture here is curiosity rather than suspicion. Most patterns have ordinary explanations: a subspecialty focus, a referral relationship, a payor mix, a practitioner who works six days. The point of asking is not to find wrongdoing. It is to know the explanation before an auditor asks for it, because an explanation given by the seller during diligence is available to you afterwards and an explanation nobody ever gave is not.

Alongside the pattern, check what the documentation actually supports. Claims data shows what was submitted; the chart shows what was documented. Where a sample of the two is compared and they diverge, that divergence is the finding an audit would make, and making it yourself first is considerably cheaper.

Match the credentials to the claims

Who was enrolled, who was supervising, who signed, and whether the person under whose credentials the claim went out was actually the person who did the work. Attribution problems are the most common finding and the least visible in a financial statement.

Write down what you found, including what you did not check

A diligence memorandum that records scope is more useful than one that records conclusions, because two years later the question will be what was examined rather than what was believed. Record the period covered, the sample taken, the systems accessed and the requests the seller did not answer. The unanswered requests are often the most valuable line in the document: they mark exactly where the buyer accepted a risk knowingly, which is a very different position from having missed it.

Common Mistakes That Produce a Confident Wrong Answer

Running the health care diligence last

It has the longest lead time and the biggest effect on price, so it belongs first. Running it last means discovering the number after the number has been agreed.

Accepting a summary instead of the file

Every material finding in this exercise lives in a document the seller has to go and retrieve. A data room that contains only what was convenient to upload is not a production.

Treating quality of care as the compliance answer

Good care and billable care are different tests. Section 400.9935 is explicit that a charge can be unenforceable “regardless of whether a service is rendered.”

Assuming the structure will fix what diligence finds

It usually will not. Statutory liability attaches to the change of ownership rather than to the paperwork, and successor liability in a medical practice purchase is where that gets worked through.

Five questions worth asking before the letter of intent is signed. What is on the schedule of identified overpayments, and who signs the representation. What audits are open and what is the realistic range on each. Which licensure exclusion is being relied on, and where is the memorandum. Which payor contracts terminate or require consent on a change of control. And who, by name, can explain the billing decisions if an auditor asks.

Expected Outcome: A Diligence File That Prices the Deal

The markers of a file that was built properly

A dated schedule of identified overpayments, represented as complete. A list of open audits with a range and an escrow sized to it. Verified licensure status with every condition noted. Exclusion screening run by the buyer, dated, and re-run before closing. A payor contract matrix showing consent, notice and termination rights. And a claims-level review with a written record of what was examined.

What that file is worth

It is worth the difference between a price built on the seller’s description and a price built on the documents. Those are rarely the same number, and the gap is not usually in the buyer’s favour.

It also changes the negotiation itself. A buyer who can point to a dated schedule and a specific document is negotiating about facts; a buyer working from an impression is negotiating about tone. Sellers respond differently to the two, and the difference tends to show up in the price rather than in the conversation.

The practical rule is simple: in a health care acquisition, diligence is not a search for lawsuits. It is a test of whether the operation was entitled to the money it collected. Run that test first, and the rest of the acquisition arranges itself around what it finds.

Frequently Asked Questions

How is healthcare due diligence different from commercial due diligence?

It tests entitlement to payment rather than exposure to litigation. The findings arrive through agency processes rather than through claims, and under § 409.907(6)(a) an identified overpayment becomes the buyer’s liability on the effective date.

What is the single most important document to request?

The complete overpayment and audit correspondence for the last several years, produced as documents rather than summarized. Everything else in the price depends on what that file contains.

Does an open audit count as a liability?

Not yet as an identified overpayment, which is why it is usually handled by escrow rather than by a price adjustment. Whether it becomes one before or after the effective date decides which side of § 409.907(6)(a) it falls on.

Who should be exclusion screened?

Owners, officers, directors, managing employees, the medical or clinic director and every rendering practitioner, plus entities as well as individuals, run by the buyer and dated rather than inherited from the seller.

Do payor contracts survive a change of control?

It depends on the clause. Some require consent, some require notice, and some terminate, and the government programs follow entirely separate rules that do not track the commercial contracts at all.

When should this work start?

Before the letter of intent fixes the price. Regulatory diligence has the longest lead time in the transaction and the largest effect on value, so running it last means agreeing a number before knowing what it should be.

About the author. Dagmar Llaudy is a trial lawyer at Llaudy Law in Miami, Florida, practicing in health law, corporate transactions and general litigation. She has been a member of The Florida Bar since 2000 and is admitted in the Southern and Middle Districts of Florida. She practices in English and Spanish. More on the firm’s health care law work is on the practice page.

This article is general information about diligence in Florida health care transactions. It is not legal, tax, accounting or reimbursement advice, and it does not describe any particular provider, transaction or finding. Reading it, or contacting us through this site, does not create an attorney-client relationship. Federal and Florida rules change, and what diligence has to reach depends on the provider type, the payor mix and the structure of the transaction. If you are acquiring a health care operation in Florida, speak with a licensed attorney before you agree a price.

Talk to Llaudy Law

Llaudy Law is a boutique law firm in Miami, Florida, handling health care law, real estate closings and title work, corporate and business transactions, estate planning, civil litigation and Chapter 7 bankruptcy. If you are running diligence on a health care acquisition, we will tell you which files decide the price before you agree one.

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