Write a due diligence checklist

1. Financial Due Diligence

• Financial Statements:
  • Review of the past 3-5 years of audited financial statements, including balance sheets, income statements, and cash flow statements.
  • Detailed analysis of revenue streams, profitability, and cost structures.
  • Examination of any significant accounting policies, changes, or restatements.
• Revenue Analysis:
  • Breakdown of revenue by service line (e.g., inpatient, outpatient, diagnostic services).
  • Review of payer mix and analysis of key customers, including Medicare, Medicaid, and private insurers.
  • Identification of any revenue concentration risks (e.g., dependency on a few large clients or contracts).
• Debt and Liabilities:
  • Review of current and long-term debt, including any outstanding loans, credit facilities, and obligations.
  • Examination of potential off-balance-sheet liabilities, such as pension obligations or contingent liabilities.
• Working Capital:
  • Analysis of working capital requirements and management efficiency, including receivables, payables, and inventory levels.
  • Review of aging reports for accounts receivable, focusing on delayed or outstanding payments from payers.
• Tax Compliance and Liabilities:
  • Review of tax filings for the past 3-5 years, including federal, state, and local taxes.
  • Identification of any pending tax audits, disputes, or liabilities.

2. Legal Due Diligence

• Corporate Structure and Ownership:
  • Confirmation of the company’s legal structure, subsidiaries, and ownership details.
  • Review of shareholder agreements and any outstanding disputes.
• Regulatory Compliance:
  • Assessment of the company’s compliance with healthcare regulations, including HIPAA, FDA approvals, and state-specific healthcare laws.
  • Review of licensing and accreditation status (e.g., Joint Commission, Medicare certifications).
• Contracts and Agreements:
  • Review of material contracts, including service agreements with providers, insurance contracts, and supplier agreements.
  • Evaluation of any existing or potential litigation related to contractual disputes, intellectual property, or employment matters.
• Intellectual Property:
  • Review of patents, trademarks, copyrights, and any other intellectual property (IP) owned by the company.
  • Verification of IP ownership and the existence of any IP-related disputes or licensing agreements.

3. Operational Due Diligence

• Clinical Operations:
  • Review of clinical protocols, patient care practices, and quality of care metrics.
  • Evaluation of clinical staff qualifications and turnover rates.
• Facilities and Equipment:
  • Inspection of physical assets, including healthcare facilities, medical equipment, and technology infrastructure.
  • Assessment of the condition, age, and potential capital expenditure requirements for maintaining or upgrading assets.
• Human Resources:
  • Review of employee structure, including key management and healthcare professionals.
  • Analysis of employee compensation, benefits, and any ongoing labor disputes or issues.
• Technology and IT Systems:
  • Review of healthcare IT systems, including Electronic Health Records (EHR), patient management software, and cybersecurity measures.
  • Evaluation of data privacy and security protocols, particularly related to HIPAA compliance.

4. Strategic and Market Due Diligence

• Market Position and Competitive Landscape:
  • Analysis of the company’s market share, growth potential, and competitive positioning within the healthcare sector.
  • Identification of key competitors and assessment of competitive threats or advantages.
• Growth Strategy:
  • Review of the company’s growth strategy, including past and future expansion plans, mergers, or acquisitions.
  • Evaluation of the company’s pipeline of new products or services, particularly in areas such as medical devices, pharmaceuticals, or healthcare innovations.
• Customer Base and Retention:
  • Analysis of customer demographics and satisfaction levels.
  • Review of customer retention strategies and potential risks related to the loss of key customers.

5. Environmental, Social, and Governance (ESG) Due Diligence

• Environmental Impact:
  • Review of the company’s sustainability practices, including waste management, energy efficiency, and environmental regulations compliance.
• Social Responsibility:
  • Assessment of the company’s community involvement, employee welfare, and patient engagement strategies.
• Governance Structure:
  • Evaluation of the company’s governance practices, including board composition, executive compensation, and internal controls.
  • Review of any potential conflicts of interest or governance-related concerns.

6. Final Considerations

• Synergies and Integration:
  • Evaluation of potential synergies and integration risks, including cultural fit, operational efficiency, and strategic alignment.
• Risk Mitigation:
  • Identification of any key risks that need to be mitigated, including regulatory challenges, competition, and market volatility.
• Valuation:
  • Final assessment of the company’s valuation based on financial projections, market analysis, and comparable company valuations.