Buying a diagnostic lab in New York can expose you to compliance risks that are easy to miss during financial due diligence. A problem with the lab’s permit, testing authority or compliance history could affect operations after the sale.
Before moving forward with a purchase, consider these four regulatory issues:
1. What happens to the lab permit after ownership changes?
New York generally requires clinical laboratories to hold a state permit. The Department of Health’s Clinical Laboratory Evaluation Program (CLEP) oversees this authorization. A change in ownership can cause the existing permit to become void immediately. In some cases, the department may let the lab keep operating under an updated authorization.
CLEP requires ownership changes to be submitted through eCLEP before the change occurs. Reviewing these requirements before closing can help you identify permit issues that could delay or complicate the transaction.
2. Are the lab’s directors properly qualified?
A New York laboratory director must hold a Laboratory Director Certificate of Qualification. Separate technical directors must hold a Technical Director Certificate of Qualification for the testing categories they oversee. One person may hold both credentials.
When reviewing the lab, compare its testing categories with the qualifications of the people responsible for technical oversight.
3. Are the lab’s tests within its approved scope?
A lab may perform only the types of testing allowed by its permit. Some individual tests may also require state or federal approval. Your review can include:
- Testing categories listed on the permit
- Approval status of specific tests
- Recent proficiency testing, which checks the lab’s testing accuracy
- Records showing how the lab corrected any testing problems
Gaps in these records may signal that some testing falls outside the lab’s approved scope.
4. Are audits or repayment liabilities unresolved?
Past Medicaid or Medicare audits can reveal costs that may affect the lab’s value. You can review audit findings, overpayment demands, repayment agreements and any open compliance issues.
Know what you are buying before closing
A careful legal and compliance review can help you understand what you are actually acquiring and whether unresolved issues could affect the deal. Identifying concerns early may give you time to address added costs, filing requirements or operational risks. Legal guidance can also help you evaluate these issues alongside the purchase terms and determine what may need attention before the transaction moves forward.
Attorney John Rivas is responsible for this communication.
