Businesses sell everyday. Owners retire, burnout, are managing illnesses and much more. Group homes – an assisted living model – which serves everyone from the mentally ill to the catastrophically injured to the medically fragile elderly also change hands. Often real estate professionals represent the sellers and help package up the combined business and property assets in order to educate prospective buyers. There can be a deficiency since there are regulatory, clinical and programmatic concerns that must not be ignored in these processes.
Direct Purchase of of Service Agreements: Many homes are under contract with agencies that use public funds to coordinate and manage the care of the elderly and disabled. The provider is paid for what is ordered, hence the term Direct Purchase of Service, (DPOS). Often these funds are derived from waivers to the Medicaid program. There can be language in these agreements that can impact the transfer of an existing corporate provider. This must be known and considered before an offer to purchase is made.
Licensing: This extends to the licensing factor. Even in a change of ownership, until the new owners are recognized by the applicable regulatory agency and the license is held in their name, the DPOS Agency will normally continue to remit payment to the previous owner. Therefore, as a sale is contemplated for a home that has a contract/agreement such as the one we have described, this must not be ignored in a rush to move toward a closing.
Regulatory – Even the Unforeseen: More and more jurisdictions are revising fire safety guidelines, In Michigan, the Bureau of Health Systems – Division of Adult Foster Care Licensing is asking for six, (6) bed homes to prove they can evacuate residents in three, (3) minutes or less. This must be noted on Fire Drill Logs and the Resident Assessments are subject to special review for this purpose. This allows for a deeper look into the physical limitations of each resident which impacts their ability to evacuate swiftly.
When these standards are not met, licensing is requiring the small group home to schedule two, (2) staff per shift which doubles the payroll cost. In some alternative environments a sprinkler (fire suppression) system is ordered – not typical in a small group home – and this affects the capital expenditures tied to the physical structure. In a pending sale, these are important considerations since they can affect either the personnel cost in the not too distant future or the physical plant/modification cost or both.
We shall never stop conducting business. That said, let’s make sure we enter every transaction prepared for success.
Another Blog Post by Direct Care Training & Resource Center, Inc. Photos used are to complement the written material. They do not imply an endorsement by or affiliation with any organization or individual.