Considering a Hospice Sale At Some Point? Get Your Documentation in Order Now

By Cory Mertz, M&AMI, Managing Partner, Mertz Taggart

At a Glance

• Hospice deal volume has grown significantly, and buyer demand remains strong — particularly from private equity and strategic acquirers.

• Clinical records and Medicare compliance documentation are the most scrutinized elements of due diligence in any hospice transaction.

• Many deals that are announced do not close. Incomplete or unkempt documentation is a common reason.

• Sellers can protect deal value by conducting third-party compliance reviews, using documentation software, and designating staff to track regulatory changes.

• Due diligence is an audit, not a survey. Sellers who treat them as equivalent often encounter unexpected problems at the table.

The hospice M&A market has attracted strong buyer interest for years, and that interest has not slowed. Deal volume has risen consistently, EBITDA multiples have expanded, and hospice’s position within the broader continuum of care continues to make it a favored target for both private equity and strategic buyers.

But a strong market does not guarantee a clean close. The most preventable reason deals fall apart, even well-priced deals with motivated buyers, is documentation.

Why Documentation Determines Whether Your Deal Closes

Clean documentation demonstrating a history of Medicare compliance is not a formality, it is a primary driver of deal certainty. Unkempt records expose both buyer and seller to liability, and federal scrutiny of the hospice sector has only increased. The U.S. Department of Health and Human Services Office of Inspector General has made hospice a consistent focus area, and buyers price that risk directly into their offers.

“We’ve seen a record number of transactions announced, but we are also seeing a number of transactions not closing. Most operators assume that because they recently passed a state or accreditation survey, that they’re in good shape. But due diligence is very different from a survey. It’s an audit.” — Cory Mertz, M&AMI, Managing Partner, Mertz Taggart

Medicare regulations change regularly, and buyers want evidence that a seller has kept pace. A third-party compliance review conducted before going to market accomplishes two things: it signals to buyers that compliance is taken seriously, and it can expand the pool of qualified buyers by differentiating an agency from others on the market.

Common Documentation Problems That Surface in Due Diligence

Across hospice transactions, the same issues tend to surface. Sellers who address these before going to market are in a materially better position than those who discover them during buyer due diligence.

The most frequently cited issues include:

• Outdated forms, including old language on notice-of-election documents

• Missing proof that interdisciplinary meetings included all core team members

• Incomplete face-to-face documentation

• Inappropriate diagnosis coding

• Certifications of terminal illness (CTIs) with missing information

• Gaps in billing compliance, including technical errors in claim submissions

Billing compliance deserves particular attention. There is often a knowledge gap between clinical compliance with Hospice Conditions of Participation and the technical requirements for Medicare billing. Both matter in due diligence, and weaknesses in either category will be identified.

How to Prepare Your Agency for a Successful Transaction

Preparation for a hospice sale is not something that happens in the final quarter before going to market. The agencies that command the strongest valuations and close with the fewest complications are the ones that have built systematic compliance practices long before they start a sale process.

Practical steps that help sellers arrive at the table in good shape:

• Educate staff at all levels on current Hospice Conditions of Participation and Medicare billing requirements

• Designate a dedicated person to monitor the regulatory agenda from both state and federal perspectives

• Establish quality assurance programs that track clinical outcomes, billing compliance, and regulatory adherence — and hold the agency accountable to them

• Use documentation software to maintain records and build confidence in audit readiness

• Commission a third-party clinical and compliance review before initiating a sale process

“Buyers will be looking at acquisitions from an audit risk standpoint, anticipating more industry audit activity going forward, and the potential for significant clawback due to items that may have been overlooked in a survey. These things are easily correctable, but it’s important for agencies to be proactive and consistent with respect to documentation should they ever want to pursue a sale.” — Cory Mertz, M&AMI, Managing Partner, Mertz Taggart

Key Takeaways

• Due diligence is an audit, not a survey. The sellers who treat them as equivalent will encounter problems.

• Clean Medicare compliance documentation is a direct driver of deal certainty and buyer confidence.

• The most common documentation issues are correctable, but only if identified before the deal process begins.

• Billing compliance gaps are as consequential as clinical compliance gaps and both will be scrutinized.

• A third-party compliance review before going to market can both protect valuation and expand the buyer pool.

• Agencies that build systematic compliance practices early are consistently better positioned at the table.

Thinking About a Sale?

Mertz Taggart has advised hospice owners through hundreds of transactions over more than two decades. We work exclusively with sellers, and we can help you understand where you stand, and what to address before going to market. Reach out for a confidential conversation.