Due Diligence on a Budget: Smart Strategies for Healthcare Transactions

Due diligence is a critical step in any healthcare transaction, but it does not have to be prohibitively expensive. While thorough financial, legal, and regulatory review is necessary to mitigate risk, buyers can take a strategic and cost-conscious approach without compromising quality.

This post is part of our ongoing healthcare transactions series, where we provide practical insights to help buyers and investors navigate complex healthcare deals. Here, we explore how to streamline due diligence while managing costs effectively.

Prioritizing High-Risk Areas

Not all due diligence issues carry the same level of risk. Rather than conducting an exhaustive review of every document, buyers should focus their resources on high-impact areas that could significantly affect the transaction.

• Regulatory Compliance Red Flags – Medicare/Medicaid billing practices, HIPAA compliance, and licensing should be reviewed first, as noncompliance penalties can be severe and may impact transaction viability.
• Financial Stability – Assess the payer mix, revenue sources, liabilities, and reimbursement risks. Overreliance on a single payer or hidden financial weaknesses can signal potential problems.
• Key Contracts and Agreements – Payor agreements, leases, and employment contracts often include transfer restrictions or financial obligations that could affect post-closing operations.
• Pending Litigation and Government Investigations – Buyers should target legal and compliance risks early, as unresolved lawsuits or regulatory actions can derail a transaction.

Cost-Saving Strategy: Focusing on these high-risk areas first allows buyers to identify deal-breakers before committing to unnecessary costs.

Leverage Seller-Provided Documentation

Before commissioning costly third-party audits, buyers should request and review existing documentation from the seller, such as:

• Recent financial statements and tax returns
• Internal or third-party compliance audits
• Licensing and accreditation reports
• Contracts with employees and vendors

Cost-Saving Strategy: Using existing reports as a foundation can significantly reduce the need for duplicative work by outside advisors.

Use Cost-Effective Third-Party Solutions

Full-scale audits can be expensive, but buyers can reduce costs by using targeted, lower-cost alternatives:

• Billing and Coding Audits – Instead of a full audit, a limited sample review of high-risk claims can identify potential compliance issues.
• Online Background Checks – Cost-effective tools can verify provider exclusions, license statuses, and litigation history without extensive legal reviews.
• Data Room Technology – Secure virtual data rooms allow for efficient document sharing, reducing attorney review time and administrative costs.

Cost-Saving Strategy: Selectively using specialized third-party services helps buyers get expert insights without overcommitting financially.

Take a Phased Approach to Due Diligence

Rather than conducting a full review upfront, buyers can break due diligence into phases to control costs and focus on critical risks first.

Phase 1: Initial Screening (Low-Cost, High-Impact)

• Confirm business licensure and accreditation
• Identify potential compliance concerns such as Stark Law, Anti-Kickback Statute, and HIPAA violations
• Conduct a high-level financial review, including payer mix and outstanding liabilities

Phase 2: Targeted Due Diligence (Only If No Red Flags in Phase 1)

• Review payor agreements and reimbursement trends
• Conduct legal analysis of employment contracts, leases, and vendor agreements
• Perform deeper financial audits as needed

Phase 3: Full Due Diligence (Only If the Deal Moves Forward)

• Final contract negotiations and indemnification structuring
• In-depth compliance audits, including billing, data privacy, and Stark Law risks
• Regulatory filings and licensing transfers

Cost-Saving Strategy: If significant risks emerge early in Phase 1, buyers can walk away before investing additional time and resources.

Final Thoughts: Due Diligence Can Be Smart and Cost-Effective

Healthcare transactions require thorough due diligence, but high costs should not deter buyers from protecting their investment. By focusing on critical risks, leveraging existing documentation, utilizing cost-effective resources, and taking a phased approach, buyers can streamline due diligence while maintaining compliance and financial oversight.

This blog is part of our ongoing healthcare transactions series. In our next post, we will explore key strategies for structuring transactions to minimize post-close risks and ensure long-term success.

Contact Us

Need guidance on a healthcare transaction? Mooradian Law provides sophisticated, cost-effective legal solutions to help buyers navigate due diligence with confidence.

Email: info@mooradian.law

Phone: (734) 219-4890