A buyer signing a letter of intent for a wound care practice, or a practice owner preparing to sell, is negotiating more than price and terms. Medicare and Medicaid overpayment liability, unresolved UPIC or ZPIC audits, and False Claims Act exposure tied to skin substitute and debridement billing can travel with the practice through a closing. An acquirer that skips audit diligence can end up owning the seller's compliance history along with its patient panel. A target under active review, or with billing patterns an auditor has not yet flagged, can turn a completed acquisition into the buyer's own defense matter.
What Diligence Must Uncover Before Closing
Audit diligence for a wound care acquisition goes beyond financial statements and payer contracts. Counsel should request a complete record of open and closed audits, including any UPIC, ZPIC, or RAC document requests from recent years, with the practice's responses and outcomes. Billing review should focus on the codes that draw the most enforcement attention: debridement depth coding and skin substitute application and quantity. Diligence should also confirm whether the practice signed a corporate integrity agreement or extrapolated overpayment demand, and whether its signature log practices and local coverage determination compliance would survive a fresh review. Gaps here rarely show up in a quality-of-earnings report, and the ownership change does not make them disappear.
For coding-specific exposure, see Debridement Coding Audits: Depth, Documentation, and CPT 11042-11047, Wound Care LCD Compliance: Coverage Criteria by Documentation Element, and Wound Care Prepayment Review: Documentation That Releases Claims, each testing a piece of billing history against the target's actual claims.
How Deal Structure Allocates Audit Exposure
Whether audit exposure passes to the buyer turns largely on deal structure. In an asset purchase, the buyer acquires specific assets and the selling entity generally retains pre-closing billing liabilities. That separation is not absolute: successor liability doctrines can still reach an asset buyer that continues the seller's business without real interruption, particularly where the deal looks structured to avoid a known liability. A stock or equity purchase carries more exposure by design, since the buyer acquires the entity itself, claims history included. Neither structure removes the need for diligence; it changes which risks the documents must address.
The 60-Day Overpayment Clock After Closing
Deal structure does not stop a new clock from starting at closing. Under the overpayment provision added by the Affordable Care Act, codified at 42 U.S.C. Section 1320a-7k(d), a person who has identified a Medicare or Medicaid overpayment must report and return it within 60 days, or by the date a related cost report is due if that is later. Failing to do so is treated as an independent violation of the False Claims Act, separate from whatever conduct created the overpayment. Post-closing integration is exactly when this clock tends to start: the buyer's own billing staff, reviewing the target's claims for the first time, can be the ones who identify it. The obligation then runs against the entity that now owns the claims, not the entity that submitted them, regardless of what the purchase agreement says about responsibility.
The 60-day clock does not ask who caused the overpayment. It asks who has identified it, and by the time integration finds it, that is usually the buyer.
Protecting the Deal With Indemnification and Escrow
Reps and warranties, indemnification, and escrow or holdback arrangements allocate audit risk contractually, though none of them stop the government from pursuing the entity that now holds the claims. A seller's representations about compliance history and prior overpayments should be specific enough to trigger indemnification if false, not general boilerplate. An escrow or holdback sized to a plausible overpayment, not a token amount, gives the buyer a fund to draw against if a pre-closing issue surfaces. Caps and survival periods should reflect a realistic UPIC or ZPIC audit timeline, which often outlasts a standard one or two year clause.
Why Early Legal Counsel Is Critical
It is critical that both buyers and sellers in a wound care acquisition retain healthcare defense counsel before signing a letter of intent, not after diligence uncovers a problem. Early involvement lets counsel shape the diligence checklist around the audit history that matters, negotiate terms that reflect real audit risk, and advise on the 60-day obligation before integration triggers it. Waiting until a UPIC letter arrives after closing narrows the options and can turn a negotiable risk into an enforcement matter.
How Health Law Alliance Can Help
Health Law Alliance has represented 2,500+ clients and overseen 2,000+ audits as part of 5,000+ matters handled over 25+ years, including the compliance diligence behind a clean wound care acquisition. If your practice is being acquired or you are acquiring one, contact Health Law Alliance's wound care audit defense attorneys before closing to review open audits and deal terms that could leave you holding someone else's liability.
