Credentialing After Practice Acquisition in Behavioral Health
Credentialing after practice acquisition is one of the most underestimated parts of buying a behavioral health business. A new owner may take over a busy therapy group, psychiatry practice or treatment program, only to find that some payers will not pay, or will pay late, until enrollments and contracts are updated. Payroll and loan payments, however, start right away.
This article explains why the credentialing gap happens, how it can affect cash flow and how buyers can plan and finance the transition. Credentialing, enrollment and change-of-ownership rules vary by payer, state and deal structure, and nothing here is legal, billing or compliance advice.
Why Credentialing Changes When a Practice Is Sold
Payers contract with specific legal entities and enroll specific clinicians. When ownership changes, some of those relationships may need to be updated or replaced. Depending on the structure of the deal, a buyer may need to:
- Report a change of ownership to Medicare, Medicaid and commercial insurers
- Enroll a new entity and obtain new billing identifiers
- Sign new contracts or assignments with commercial payers and managed care plans
- Re-credential individual clinicians under the new entity
- Update facility licenses or certifications that are tied to ownership
Payer contracts, Medicare and Medicaid enrollments, licenses and credentialing should not be assumed to transfer automatically. Whether a transaction is structured as an asset purchase or an equity purchase can make a significant difference, and healthcare counsel should advise on the right approach.
How the Credentialing Gap Affects Cash Flow
During the transition, a practice may experience:
- Claims that cannot be submitted until new enrollments are approved
- Claims that are submitted but held, denied or paid slowly
- Clinicians who can see some patients but not those covered by certain plans
- Extra administrative work for billing staff, which can slow collections overall
Behavioral health businesses can be especially sensitive because they often rely on many clinicians, multiple managed care plans and Medicaid programs with their own enrollment processes. A therapy group with a large roster of licensed counselors may have many individual credentialing files to update.
Planning for Credentialing After Practice Acquisition
Good planning starts well before closing.
Map every payer relationship: During due diligence, list each payer, the entity and clinicians enrolled, contract terms and whether assignment or change-of-ownership notice is required. Our behavioral health due diligence checklist includes these items.
Start early where permitted: Some applications can begin before closing. Billing professionals can help determine what may be filed in advance and in what order.
Consider a transition arrangement: Some buyers and sellers agree on a period during which the seller’s existing arrangements remain in place while new enrollments are processed. Any such arrangement should be reviewed by counsel, because billing under another party’s enrollment raises significant compliance issues.
Keep clinicians in place: Retaining credentialed clinicians helps maintain patient access during the transition. Employment terms should be finalized early.
Communicate with patients: Patients may need to know whether their coverage will be affected, particularly in programs with ongoing treatment plans.
Financing the Transition Gap
The credentialing gap is a cash-flow problem, and buyers often address it as part of the acquisition financing. Options may include:
- Working capital in the acquisition loan: SBA 7(a) loans can include working capital alongside the purchase price, subject to program rules and lender review
- A line of credit: a revolving line may help cover payroll and expenses while claims are delayed
- Cash reserves: buyers who keep some liquidity after closing may be able to absorb delays more comfortably
- Seller transition terms: some deals adjust the timing of payments to reflect the transition period, subject to lender and program limits
Learn more about SBA 7(a) loans and working capital solutions. Eligibility and terms depend on the business, the buyer, use of proceeds, program rules and lender review. Every loan is subject to approval, and nothing here is a commitment to lend.
How Lenders View Credentialing Risk
Lenders reviewing a behavioral health acquisition may ask how the buyer plans to handle payer transitions and how much working capital is set aside. A clear plan prepared with billing professionals, along with a realistic cash-flow projection for the early months of ownership, can make the request easier to evaluate. Our article on behavioral health clinic acquisition financing explains other parts of lender review.
Estimating How Much Working Capital You May Need
There is no standard amount. The need depends on the practice’s payer mix, the number of clinicians, how long enrollments may take for each payer and the practice’s monthly expenses. Buyers often build a month-by-month projection showing expenses, expected collections and the gap between them. Our guide on how much working capital a behavioral health practice needs can help frame the estimate.
Mistakes to Avoid
- Assuming payer contracts and enrollments will transfer with the practice
- Waiting until after closing to start applications
- Using all available cash for the down payment
- Losing credentialed clinicians during the transition
- Billing under the seller’s enrollments without counsel’s guidance
Final Thoughts
Credentialing after practice acquisition can create a temporary but real cash squeeze. Buyers who map payer relationships during due diligence, start applications early, keep clinicians in place and finance enough working capital may be better positioned to protect the practice through the transition.
US Medical Funding helps behavioral health buyers plan acquisition financing that accounts for transition cash needs. Learn more about our behavioral health working capital financing and behavioral health practice acquisition financing.
