A Brave New World With Mergers and Acquisitions of Behavioral Health Care Providers: Not Always Happily Ever After!

Unintentionally, I misrepresented the Benchmark panel discussion on which I appeared last Thursday. See blog.  I thought that I would be sitting on the panel along with MCO representatives. I honestly cannot tell you from where I got this idea. Maybe it was a subconscious desire. Regardless, the panel discussion was about merges and acquisitions among behavioral health care providers. While the subject of managed care organizations (MCOs) did come up, managed care was not the primary subject.  And the only MCO representative that I saw was Smokey Mountain’s attorney.


Nevertheless, the panel discussion went fantastic and was informative for those who attended.  I will summarize the panel discussion here for those who could not attend.  First, if you are a behavioral health care provider in NC, joining an association, such as Benchmarks, is an asset.  Not only do you get the benefit of attending educational programs, but you also have the opportunity to meet other behavioral health care providers across the state at the events.  You never know the potential relationships that could be created by attending a Benchmark event.

Going back to the panel…

There were 5 people sitting on the panel.  Besides myself, the panel consisted of Robert Shaw, Senior Counsel with me at Gordon & Rees, Frank Williams, a broker who facilitates mergers and acquisitions for health care providers, and two CEOs of health care providers who have undergone successful mergers and/or acquisitions.

The general consensus of the panel was that the future of behavioral health care will be larger companies which offer multiple services, instead of mom and pop shops that provide few types of services.  The panel was intended to bring potential mergers/acquisitions together in one venue and to educate the providers on “Do’s and Don’ts of Merging/Acquiring,” which is summarized below.

This consensus is generally derived from the MCO atmosphere here in NC.  Right or wrong, the MCOs are operating in closed networks and have the financial incentives to save money by contracting with fewer providers and decreasing authorizations for Medicaid services requested by Medicaid recipients.  See blog. And blog. And blog.

The MCOs seem to be terminating or refusing to contract with smaller health care providers, which, in turn, incentivize small health care providers to join other providers in order to grow its footprint.

Merging or acquiring a company is similar to partnering with another person in marriage.  Both parties have to familiarize themselves with the other’s habits, expectations, learn the other’s faults/liabilities, and, ultimately, have to work together on projects, issues and other matters.  And as we can discern from today’s high divorce rate, not everyone lives happily ever after.

Some marriages, as well as mergers, simply do not work.  Others live happily ever after.

The two provider panelists shared successful merger/acquisition stories.  Both shared experiences in creating new and larger entities effectively.  Both panelists were happy with the mergers/acquisitions and hopeful as to what the future will bring both new entities.

But all mergers and acquisitions do not have happy endings.  The two entities do not always live happily ever after.

Robert and I shared a story of an acquisition from Hades. There is no other way to describe the outcome of the acquisition.

The story of these two companies begins with the fact that the companies leased space in the same building.  One company was on floor 2 and the other was on floor 1.  The staff knew each other in passing.

The problem with the merger of these companies stemmed from a difference in culture.

Theoretically, the two companies did everything right.  The owner of the company getting acquired agreed to stay and work for the company buying it in order to ensure consistency. The buying company agreed to hire all the seller’s employees at their current salaries.  The acquisition was to be seamless.

The problems arose when news of the acquisition passed to the employees.  There was genuine discontentment with the arrangement.  The employees from the seller reacted with hostility and resentment.  Prior to the acquisition, the seller was fairly lax in regulatory compliance.  For example, if a service note was not drafted and filed the date of services….eh?…not that big of a deal.  Well, the buyer had strict document compliance rules for daily service notes.  Anytime more stringent policies are enacted on employees, there is sure to be a negative reaction.  The buyer also expected the seller’s employees to provide more services for the same salary received before the acquisition.

There was no legal or logical step omitted in the acquisition of the one company to the other.  On paper, the acquisition should have been successful.  But, then, personalities got in the way of happily ever after.

The other panelists offered great advice as to mergers and acquisitions, both from the providers’ view and a broker’s view.  I have compiled the advice that I recall below.  I have taken the liberty to provide analogous dating advice, as well, since marriages and mergers/acquisitions are so similar.  Hope it helps!!

Do’s and Don’ts of Mergers/Acquisitions

  • Do not let the secret out.

One provider panelist explained that if your employees learn of a possible merger/acquisition, they will kill the deal. Confide only in the CEO of the firm of which you are looking to merge, acquire, or sell.  Those dating: Never tell other that you want to marry (until the appropriate time).

  • Look outside your catchment area.

The reason companies merge/acquire is to grow.  Think of potential companies outside your own catchment area to grow even more.  For example, if you are in Alliance’s catchment area, think of merging with a company in ECBH/Eastpointe’s area.  Those dating: Have you exhausted your resources? Think of others, such as church, Match.com, etc.

  • Do your due diligence

This is a task as important as the oxygen you breath.  The last thing that you want is to acquire or merge with a company that owes $500,000 in employment taxes or an alleged overpayment.  Part of due diligence will be to check the credentials of every single staff member.  If someone is acting in the role of a LCAS, ensure the person is appropriately licensed.  Those dating: Is he/she employed? Have significant debt?

  • Review the other company’s documentation policies

This could be lumped into the due diligence section, but I think its importance is worth emphasizing.  Whatever service(s) the other company provides, what are its policies as to documentation? Does the provider have a computer program to maintain electronic health records (EHR)? Does it employ paper copies? Does the other company require the providers to submit daily service notes? Look at your own documentation policies.  Contemplate whether your own documentation policies would mesh well with the other company’s policies.  Those dating: How does your potential partner document spending, taxes, and calendared events?

  • Analyze both company’s corporate culture

Merging or acquiring a company is difficult in many ways, but it’s also hard on staff.  Imagine walking into work one day and you notice that the staff had doubled…or tripled.  And you and your colleagues are being told what to do by someone you never met.  This is not an uncommon occurrence with mergers and acquisitions.  Sometimes accepting change of supervision or team members can be a bitter pill to swallow.  How will you work through employee issues?  Personality clashes?  Ego fights?  Those dating: Analyze both person’s personalities, dispute resolutions, religion and beliefs.  Do you like his/her friends?

In addition to the potential conflicts with employees that stay with the merged entity, you also need to contemplate which employees, if any, may, potentially leave the new entity.  Disgruntled employees are a liability.  Those dating: How does he/she treat ex-partners?

  • Research the company’s relationship with its MCO

In our current MCO atmosphere, it is imperative to know, before merging or acquiring, whether the company has a good relationship with its MCO.  What if you acquire the company and its MCO refuses to continue to contract with the new entity.  Knowing the company’s relationship with the MCO is not an absolute.  As in, the company may believe it to have a good relationship with the MCO, while, in truth, it does not.  Ask to review some correspondence between the company and the MCO to discern the tone of the communications.  Those dating: How does he/she treat his/her mother/father?

  • Surround yourself with knowledge

Have a broker and an attorney with expertise in Medicaid.  Those dating: What do your friends think?

To watch the video of me speaking as a panelist for Benchmark, click here.  Scroll down until you see the video with Robert and me.

Otherwise, I hope you live happily ever after!

About kemanuel

Medicare and Medicaid Regulatory Compliance Litigator

Posted on May 18, 2015, in Access to Care, Accountability, Alliance, Behavioral health, CenterPoint, Decrease in Medicaid Spending, Denials of Medicaid Services, Division of Medical Assistance, EastPointe, ECBH, Extrapolations, Health Care Providers and Services, Legal Analysis, Legal Remedies for Medicaid Providers, Managed Care, MCO, MeckLINK, Medicaid, Medicaid Advocate, Medicaid Attorney, Medicaid Billing, Medicaid Contracts, Medicaid Costs, Medicaid Providers, Medicaid Recipients, Medicaid Services, Medicaid Spending, Mental Health, Mental Health Problems, Mental Illness, NC, NC DHHS, North Carolina, Partners, Provider Medicaid Contracts, Sandhills, Smokey Mountain Center, Termination of Medicaid Contract, Transparency and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. 10 Comments.

  1. Patti Ulirsch

    Quite frankly, from the “consumer” (I hate that word!) point of view, this stinks. This top down approach, where service is about the corporation and not starting with those being served, inevitably shortchanges “consumers.” As a parent of a 24 year old with multiple disabilites, both physical and neurological, I have watched this evolution across the health care and mental health system, and it becomes more about following rules and doing what is listed in a job description and less about serving the needs of a patient or “consumer.” Our experiences have been that we have far more personalized, “person-centered” experiences from small agencies. All these mergers do is create top-heavy and administrative oriented masses. They may appear to save money on paper, but I don’t buy it, given the fact that administrative positions in healthcare have risen more than 3000% in the 40 year period starting in 1970, healthcare costs grew by 2500%, and the number of physicians in that same 40 year period only rose by a little more than 200%.
    These top-heavy organizations cause more headaches and more senseless hoops to jump through for the consumers resulting in lack of services and much longer wait times. They will not save the state taxpayers money….it will just be shifted somewhere else, or the consumer will not get the service or the service will be incredibly delayed.
    I will give a small example. My son has a lift system installed into the ceiling in our home. This system was paid for as a home modification through the waiver, and under our local LME just as this LME was about to be absorbed through the larger MCO. Move forward a couple of years and we and our PT decided that my son needed padded covers for the side supports of this lift system. These covers are made specifically for this system and nothing else. If we had included the covers during the initial installation they would have been treated as an accessory for the system which is defined as Home Modifications. The MCO sees the word “pads” and determines that they should be straight Medicaid, and not waiver, in spite of the fact that this is very specifically a part of the Home Modifications and would not be covered under straight Medicaid, but they just wanted to remove this cost from their ledger and shift it to straight Medicaid. We did not get a denial, it just came from somewhere in the middle of the chain of command, so we could not appeal, nor were we given anyone within the MCO system to make our case to other than the care manager, but she agreed with us from the get-go, she had made the case, but as a lower employee she was not going to be heard any more……plus this actually used up much more of her time for this silliness. This is because by their very nature and structure MCO’s do not put consumers first on their lists, and by insisting on larger and larger providers, consumers will become less and less of the picture.

  2. Patti Ulirsch

    Sent from my iPad


  3. Thanks for the post. Like many, mildly terrifying yet highly insightful. I wanted to follow up on something Patti mentioned because it’s something I’m hearing about more and more, and these are denials from within the waiver that cannot be fully appealed.

    Like with the modifications Patti mentioned, and say relative as direct service employee. These are being viewed not as a denial of service, which would come with full appellate rights. They are being treated more like privileges, to be granted or denied at the sole discretion of the MCO. And from my understanding the courts have upheld this practice when challenged, unfortunately.

    What galls me most is that it all comes from an attitude of, and this isn’t across the board but from some, “You are lucky to be getting anything. Take what we give you and be thankful.”

    Also, there is always discussion about how each HCBS slot costs $40,000 a year when it should be framed each HCBS slot SAVES $75,000 a year (and that’s a conservative estimate).

    Okay, soap box over. I now have to get back to sifting through my reams of paper that Patti described quite accurately.

    • In response to Anonymous and Patti,

      In many cases the MCOs are mischaracterizing grievances and calling an adverse action a “grievance.” Calling it a grievance does not make it a grievance. But the families would have to instigate legal proceedings, which most cannot afford.

      The Code of Federal Regulations defines the terms as the following:

      Action means—
      In the case of an MCO or PIHP—
      (1) The denial or limited authorization of a requested service, including the type or level of service;
      (2) The reduction, suspension, or termination of a previously authorized service;
      (3) The denial, in whole or in part, of payment for a service;
      (4) The failure to provide services in a timely manner, as defined by the State;
      (5) The failure of an MCO or PIHP to act within the timeframes provided in § 438.408(b); or
      (6) For a resident of a rural area with only one MCO, the denial of a Medicaid enrollee’s request to exercise his or her right, under § 438.52(b)(2)(ii), to obtain services outside the network.

      Appeal means a request for review of an action, as “action” is defined in this section.

      Grievance means an expression of dissatisfaction about any matter other than an action, as “action” is defined in this section. The term is also used to refer to the overall system that includes grievances and appeals handled at the MCO or PIHP level and access to the State fair hearing process. (Possible subjects for grievances include, but are not limited to, the quality of care or services provided, and aspects of interpersonal relationships such as rudeness of a provider or employee, or failure to respect the enrollee’s rights.)

      • Patti Ulirsch

        In response to kemanuel,
        Thanks for the clarifications and definitions. It’s just too bad that families will need to understand these more and more if the insanity of larger and larger MCO’s continues. It’s as though legislators and decision makers only get information from one side, and then this information is spread as “this is the way it’s going to be, so make the best of it”, as relayed in your posting of the summary of the panel discussion. We as families, need to make the case otherwise. But then we are so busy trying to support our children…..having little time or resources tends to inhibit our voices at the table.

      • I know. That is why you need to rely on Disability Rights and Legal Aid. Either that, or band together with families to hire private counsel.

  4. Latrina Winford

    Hi Knicole, I am a provider and am frankly exhausted with the struggle that the MCOs place on consumers and families. Who would I contact to obtain more information on the merger process?

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