Tax Implications for Mergers and Acquisitions in Healthcare
Whether it’s Brookdale’s acquisition of Emeritus or Kindred acquiring Gentiva in the long-term care space, Catholic Health East and Trinity merging, Tenet and Vanguard coming together, or Community Health Systems’ acquisition of Health Management Associates, healthcare has seen tremendous merger and acquisition (M&A) activity. In fact, some 600 mergers and acquisitions have occurred in the past two years alone, sparked by an environment of ACA-related change not likely to subside in the near term.
These changes have forced healthcare providers to rethink their business models, reduce the cost of healthcare delivery, increase efficiency via leveraged technology, and grow their footprint both vertically into new services and horizontally into new geographic markets. Either way, the result is an increasing number of partnerships, alliances, mergers, or outright acquisitions leading to what some have called “the age of the mega-hospital”.
Often missed in this flurry of breakneck M&A activity, especially for nonprofits within the space, is a strategy focused on minimizing M&A related compliance risks while maximizing tax opportunities resulting from the new structure. More to the point, a focus on unemployment compliance risk and tax minimization by healthcare providers – whether they are for profit or nonprofit – is seldom given its proper attention and can result in significantly higher state unemployment insurance tax payments, compliance violations, and undue risk to the healthcare organizations involved in the transaction.
Healthcare providers must consider many of the following best practices during or shortly following mergers and acquisitions. These include:
- Comply with federal and state rules and regulations governing the transaction
- Including P.L. 108-295; The SUTA Dumping Act of 2004
- Avoid loss of taxable wage base carryover, which is often overlooked by the successor
- Avoid notices and complications years after the transaction date by notifying the federal and state agencies of any transfer of employees
- Utilizing cost management strategies
- Analyze SUI transfer of experience options to obtain the most favorable rate available
- Take advantage of joint accounts and voluntary contribution opportunities resulting from the transaction
- Proper processing of unemployment claims
- Ensure accurate payment of benefits to claimants of both the predecessor and the successor in order to minimize impact
- Ensure benefit charges are assigned to the correct employer by reviewing charge statements issued by state agencies
- Avoid penalties and interest
- Delinquent contributions are often a side effect of M&A when the transaction isn’t properly communicated to state agencies
- Penalty rates can then ensue thereby significantly inflating the healthcare providers payments for years to come
Follow these tips when managing your next M&A transaction and you’ll significantly reduce your organization’s expenses while increasing compliance in an industry hyper-sensitive to both. For more on the subject, download our new white paper, Mergers and Acquisitions: The Impact on Unemployment Tax Costs.
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