Success in Healthcare M&A: The Critical Role of Background Screening

March 28th, 2024

By: Val Poltorak, Head of US Regulated Industries

Merger and acquisition (M&A) activity within the healthcare industry has experienced a slow decline over the past couple of years due to the economy’s downturn. However, as we approach 2024, the forecast predicts that M&A activity could rebound. Hospital and health systems are looking for ways to alleviate operational and budget control challenges due to staffing shortages and high wage inflation. In a report by KaufmanHall, hospitals and health systems who underwent M&A in 2023 indicated that financial distress was a key transaction driver.

In this ever-changing environment, healthcare organizations must navigate the challenges, complexities, and risks involved in the M&A process. Some of these risks include omissions of material information, conflicts of interest, verification of credentials, or past criminal activities. To safeguard heath systems’ interests, investments, and reputation, while protecting their patients, an in-depth review and investigation of an organization and its employees should be an integral part of all investment deals.

Mitigate Risk by Introducing Background Screening Providers into the M&A Process

Partnering with a reliable background screening provider early in the M&A process is critical for success. These organizations play a vital role in navigating the complex and often public nature of the process, and can assist healthcare organizations in hitting the reset button on deals and acting as liaisons with the integration teams.

A background screening provider can help hospitals and health systems involved in a M&A by:  

  • Protecting Against Liability: Negligent hiring during M&A can lead to legal liabilities and can also damage the reputation of the merged organizations. Conducting thorough background checks can identify any past criminal records or unethical behavior, reducing the risk of employing individuals who may pose a threat to your organization’s reputation.
  • Adhering to Compliance and Regulations: As a heavily-regulated industry, health systems need to meet specific regulation and compliance requirements at the federal, state, and county levels. A background screening provider with deep healthcare expertise can help organizations to verify incoming staff, especially those in sensitive positions, helping to ensure that they have the regulatory requirements and certifications.
  • Maintaining Quality of Patient Care: When healthcare organizations are consolidating, they are introducing new staff and bringing together different organizational cultures and practices. With the responsibility to ensure patient safety, conducting a thorough background check enables companies to confirm that their employees have the necessary qualifications, experience, and ethnical standards needed for maintaining high-quality care standards. 

The sooner a background screening provider is looped into the developing deal, the better they can position the merging organizations for success.

Digging Deeper: How Due Diligence Can Uncover More Information 

Due diligence is an integral part of all healthcare mergers and acquisitions that go beyond standard background checks. A standard background check is meant to help organizations make an informed selection on job candidates by determining their criminal history and verifying their credentials. Due diligence investigations, on the other hand, seek to take this one step further and uncover information not disclosed by a subject or a business entity. They paint a full picture for your hospital or health system, and can be your first line of defense in protecting your organization from serious financial issues, reputational damage, and even legal repercussions.    

Issues commonly uncovered include: civil litigation cases impacting the acquiring company, securities violations posing legal and financial risks, OSHA violations affecting workplace safety, and the significance of uncovering offshore funds and ties. These investigations can bring to light hidden secrets lying beneath the surface. 

Looking Forward 

As the healthcare industry prepares for a rise in mergers and acquisitions, the critical need for thorough background screening and comprehensive due diligence becomes evident. The financial and reputational risks inherent in M&A transactions emphasize the need for thorough evaluations, with a specific focus on organizational finances and patient safety.     

Early engagement with a reputable background screening provider proves essential in navigating the complexities of these transactions. Prioritizing the process should be a fundamental element in all organizations’ procedures to safeguard integrity and ensure sustained success.    

This originally appeared on Electronic Health Reporter:

Sterling is not a law firm. This publication is for informational purposes only and nothing contained in it should be construed as legal advice. We expressly disclaim any warranty or responsibility for damages arising out this information. We encourage you to consult with legal counsel regarding your specific needs. We do not undertake any duty to update previously posted materials.

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