An acquirer that buys a healthcare provider's assets does not automatically inherit the seller's False Claims Act exposure, but that protection collapses under four well-established exceptions. A target that billed Medicare or Medicaid improperly, operated under a corporate integrity agreement, or employed a clinician on the OIG exclusion list can hand its buyer a liability the deal team never priced. The diligence performed, the deal structure chosen, and the indemnity and escrow terms negotiated before closing decide whether that exposure stays with the seller.
The General Rule and Its Four Exceptions
Corporate law starts from a buyer-protective baseline: an asset purchaser does not assume the liabilities of the business it buys, False Claims Act liability included, unless the transaction falls into a recognized exception. A stock purchase or statutory merger works differently. The surviving entity generally takes on the target's liabilities by operation of law. For asset deals, courts recognize four exceptions: an express or implied assumption of the liability in the purchase agreement, a transaction structured as a de facto merger, an acquirer that is a mere continuation of the seller, and a transaction entered into to fraudulently evade liability. The Fourth Circuit applied the fraudulent-transaction exception in United States ex rel. Bunk v. Government Logistics N.V., holding a successor liable after finding the sale was timed to a pending qui tam suit and left the seller under-compensated.
Due Diligence Priorities When the Target Has FCA Exposure
Standard financial diligence misses False Claims Act exposure unless it is scoped for it. Counsel should request the target's OIG exclusion screening logs for employees, contractors, and referring providers, not just a representation that screening occurred, because claims tied to an excluded individual can be false claims regardless of medical accuracy. Any corporate integrity agreement the target signed, active or recently expired, should be reviewed for unmet obligations that survive the sale. Diligence should also cover civil investigative demands, unresolved self-disclosures, and billing outliers in the claim types the deal is buying; wound care, compounding, and specialty pharmacy claims carry the audit histories most likely to surface later. A sealed qui tam lawsuit naming the target will not appear in any diligence search, so the deal team should assume one is possible and price accordingly.
Structuring the Deal to Manage Successor Liability
Once diligence identifies exposure, the deal documents carry the risk allocation. An asset purchase agreement should expressly exclude known and unknown False Claims Act liabilities from assumed liabilities, name the specific audits or investigations excluded, and require the seller to fund its own defense. Indemnification should be sized to the government's actual penalty exposure, not the disputed claim amount alone, because per-claim penalties stack independently of damages. An escrow holdback tied to resolution of a known audit or subpoena, released only after the statute of limitations runs or the matter resolves, gives the buyer a funded remedy instead of a post-closing lawsuit against a seller that may no longer exist as a going concern.
A seller's representation that no material compliance issues exist is not a substitute for confirming who was screened, what was disclosed, and what the government already knows.
DOJ's Safe Harbor Policy and Post-Closing Overpayment Obligations
The Department of Justice's Mergers and Acquisitions Safe Harbor Policy gives an acquirer a defined path when diligence or post-closing integration surfaces criminal misconduct at the target: voluntary self-disclosure within six months of closing, cooperation, and remediation within a year can earn a presumption of declination. The policy is limited to criminal exposure. It does not extend to civil False Claims Act liability, and civil enforcement can proceed on the same facts. Separately, Medicare's 60-day overpayment rule does not pause for a change of ownership. Once the acquirer identifies an overpayment tied to the target's pre-closing conduct, including one surfaced by the buyer's own post-closing audit, the clock to report and return it starts running. Retaining a known overpayment past that deadline can create reverse false claims liability with its own per-claim penalty exposure.
Why Early Legal Counsel Is Critical
It is critical that acquiring companies and compliance officers promptly retain experienced healthcare defense counsel before closing on a target with known or suspected False Claims Act exposure. Early legal intervention can shape the diligence scope, structure the purchase agreement's liability allocation, evaluate whether the DOJ Safe Harbor Policy applies, and preserve the buyer's position if a claim surfaces after closing. Delaying legal representation can significantly affect the outcome of the transaction.
How Health Law Alliance Can Help
Health Law Alliance has represented 2,500+ clients across healthcare regulatory and fraud defense matters, including acquirers and targets navigating deal-stage False Claims Act exposure. If your organization is evaluating a healthcare acquisition with known or suspected exposure, contact us through our False Claims Act defense page for a free, confidential consultation before you close.
