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Role of Compliance Officer In Mergers and Acquisitions

The Role of the Compliance Office in Mergers and Acquisitions

compliance due diligence mergers acquisitionsHealth care reform initiatives have accelerated consolidation within the health care industry in a way we have not seen since the 1990s.  Consolidations take a number of forms.  Regardless of the structure, consolidation activities can involve the assumption of compliance risk by the acquiring party.

Current consolidation is taking place in a more complex regulatory environment that existed during the 1990s.  The government has new fraud enforcement tools and has indicated that it is not afraid to use them.  Providers are subject to a much higher degree of regulatory risk than has ever existed.  Additionally, compliance as a separate and distinct professional has developed since the 1990s.

The rise of the compliance profession as a separate and distinct profession from the legal profession has caused a degree of tension between the roles of the compliance and legal professions.  The relative roles of legal counsel and the compliance office continue to be defined.  The merger and acquisition process is one area where those roles collide.

The merger and acquisition process, including the due diligence process, has historically been in the domain of the attorneys.  However, the need to be proactive in regulatory compliance speaks loudly for a strong compliance officer presence on every merger and acquisition team.

Compliance role in an acquisition includes both assessment and integration.  Compliance assesses the effectiveness of the target’s past compliance efforts as a necessary step toward mitigation of the inheritance of past compliance liabilities.  Based on this assessment, the compliance officer will make judgments regarding the potential impact on the structure of the transaction and additional risk areas that may require further assessment.  The scope of compliance due diligence is a judgment call that is most appropriately made in consultation between compliance and legal.  The difficult issue is not whether due diligence should be conducted but rather “what diligence is due” under all of the facts and circumstances.  These decisions require the perspective of both compliance and legal.

If a judgment is made that past compliance efforts have been robust, the compliance officer may be more comfortable with a lower level of risk area audits.  If the target had an “on the self only” compliance program, the compliance officer will likely find it necessary to drill down further into specific risk areas.  The key here is that this decision requires the judgment of an experienced compliance professional.

The second role of compliance in mergers and acquisitions is integrative.  The pre-closing stage is a key time for the compliance officer to integrate the target into the compliance culture of the acquiring entity.  Compliance due diligence will likely include interviews of the target’s compliance department, upper management, and other key employees.  These interviews can serve an important integrative role of introducing the target to the compliance culture of the acquiring entity.  The information that is collected will form the beginning of a compliance “work plan” for the new division and will help the compliance office identify specific risk areas that may require further examination either before or after closing.  The same information will help compliance integrate the new division into its overall compliance work plan.

I do not want to suggest by any means that compliance take over the merger and acquisition process.  A multi-disciplinary team approach, with legal assuming lead transactional role, is most appropriate.  Legal counsel must recognize the value of the compliance office and the separate and distinct skill that compliance brings to the closing table.  In reality, this is the key to the larger issue of division of roles between compliance and legal.  Each is a separate and distinct professional area with a unique skill set.  In the context of a health care organization, each profession depends on the other to fully perform their role.

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John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
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P.O. Box 8050
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