Before you acquire an HME or DME provider, verify Medicare compliance, payor contracts, equipment inventory, and accreditation status with this field-tested framework.
Acquiring a home medical equipment business requires a level of regulatory and financial scrutiny that goes well beyond a standard small business acquisition. Medicare and Medicaid reimbursement rules, accreditation requirements from bodies like ACHC or The Joint Commission, and the transferability of supplier numbers all create deal-specific risks that can materially affect post-close revenue. This checklist organizes your due diligence into five critical areas: billing compliance, payor contracts, equipment and inventory, financial quality, and licensing. Use it alongside a healthcare M&A advisor and a healthcare-experienced attorney to identify deal-killers early and structure appropriate protections before you sign.
Government reimbursement makes up the majority of most HME businesses' revenue. Billing errors, upcoding, or documentation failures can trigger audits, recoupments, or exclusion from Medicare — exposing a buyer to inherited liability.
Request all Medicare and Medicaid audit history, including RAC, ZPIC, and ADR correspondence, for the past five years.
Unresolved audits or open recoupment demands become the buyer's liability at close.
Red flag: Active audit, unresolved overpayment demand, or history of repeated billing reviews in the same product category.
Review the OIG exclusion status of all owners, employees, and billing staff.
A single excluded individual can result in Medicare supplier number revocation.
Red flag: Any owner, manager, or billing coder appearing on the OIG exclusion list.
Audit a sample of CMN and prior authorization documentation for top-revenue product lines.
Missing or deficient Certificates of Medical Necessity are the leading cause of Medicare recoupment.
Red flag: Systematic gaps in documentation for oxygen, CPAP, or power wheelchair claims.
Confirm the business has a written compliance program and HIPAA policies reviewed within 24 months.
A documented compliance program reduces regulatory risk and demonstrates operational maturity.
Red flag: No compliance program exists or policies have never been formally reviewed or updated.
The revenue quality of an HME business depends on which payors it bills and at what rates. Contract transferability, reimbursement trends, and payor concentration all directly affect post-acquisition cash flow.
Obtain all active payor contracts and confirm each contract is assignable or transferable upon change of ownership.
Non-transferable contracts can eliminate significant revenue sources immediately after close.
Red flag: Key commercial or Medicare Advantage contracts that require payor re-credentialing with no guarantee of approval.
Analyze reimbursement rates by payor relative to current Medicare fee schedule and competitive bidding rates.
Rates below sustainable thresholds signal future margin compression that pro formas may not reflect.
Red flag: Reimbursement rates for core product lines already at or below the Medicare competitive bidding rate.
Calculate payor concentration — identify what percentage of revenue comes from Medicare Part B vs. Medicaid vs. commercial.
Heavy Medicare dependence concentrates reimbursement-cut risk in a single government program.
Red flag: More than 70% of revenue derived from Medicare Part B with no commercial payor diversification.
Review accounts receivable aging by payor to identify collection performance and denial rate trends.
High denial rates or slow collections inflate stated revenue and distort true cash generation.
Red flag: More than 20% of A/R aged beyond 120 days or denial rates exceeding 15% in primary product lines.
Rental equipment is often the largest balance sheet asset in an HME business. Condition, age, and utilization directly affect near-term capital needs and the true enterprise value of the business.
Obtain a complete rental fleet inventory with serial numbers, age, condition ratings, and current patient assignments.
Unverified or overstated inventory values distort the acquisition price and post-close capital requirements.
Red flag: Inventory records are incomplete, unreconciled, or significantly older than the industry replacement threshold.
Assess the age and remaining useful life of oxygen concentrators, power wheelchairs, and CPAP devices in the rental fleet.
Aging fleet equipment requires imminent capital reinvestment that should be reflected in deal price.
Red flag: More than 30% of revenue-generating equipment is past manufacturer recommended service life.
Verify maintenance and service records for all biomedical and respiratory equipment in the fleet.
Poorly maintained equipment creates patient safety liability and potential ACHC accreditation violations.
Red flag: No documented preventive maintenance program or service logs for clinical equipment.
Identify which equipment is leased vs. owned and review all lease terms, buyout options, and transfer provisions.
Unfavorable equipment leases can become fixed-cost obligations that survive the acquisition.
Red flag: Major fleet assets are under non-assignable leases with above-market rates or restrictive transfer clauses.
HME financial statements require normalization for equipment depreciation, owner compensation, and the distinction between recurring rental revenue and one-time equipment sales before EBITDA can be relied upon.
Review three years of accrual-basis financial statements and compare reported revenue to Medicare remittance data.
Cash-basis books common in small HMEs can significantly overstate or obscure true profitability.
Red flag: Financial statements are cash-basis only with no reconciliation to Medicare Explanation of Benefits data.
Segment revenue between recurring rental income and one-time equipment sales by product line.
Rental revenue is significantly more predictable and valuable than transactional equipment sales.
Red flag: More than 50% of revenue is from one-time sales with minimal recurring rental base.
Normalize EBITDA for owner compensation, personal expenses, related-party transactions, and one-time items.
Owner-operated HMEs routinely run personal expenses through the business that inflate stated costs.
Red flag: EBITDA margin appears unusually high or low relative to industry benchmarks without clear explanation.
Analyze referral source concentration — identify top five referral sources by revenue contribution.
Referral relationships tied to the owner personally represent high revenue-at-risk post-close.
Red flag: A single hospital system, discharge planner, or physician group accounts for more than 25% of referrals.
Operating an HME business requires active Medicare supplier numbers, state HME licenses, and accreditation in good standing. Any lapse or deficiency can interrupt billing and patient service operations immediately after close.
Confirm active PTAN (Medicare supplier number) with no enrollment holds, revocations, or pending CMS actions.
A suspended or revoked PTAN stops Medicare billing entirely — the business cannot operate without it.
Red flag: Active CMS enrollment hold, prior revocation history, or pending supplier number revalidation issues.
Verify current accreditation status with ACHC or The Joint Commission, including most recent survey findings.
Medicare requires accreditation for most HME suppliers — a lapse triggers immediate billing suspension.
Red flag: Accreditation expired, under conditional status, or most recent survey identified serious Standards violations.
Confirm all required state HME dealer licenses and retail pharmacy licenses are current and transferable.
State licensure requirements vary and delays in transfer can interrupt operations in key service territories.
Red flag: State license tied to individual owner rather than entity, making post-close transfer slow or uncertain.
Review any state Medicaid provider agreements, managed care organization contracts, and enrollment status.
Medicaid enrollment is state-specific and re-enrollment timelines can create a post-close revenue gap.
Red flag: Medicaid provider agreements have lapsed, are under audit, or require re-enrollment with no transition period.
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No. Medicare supplier numbers are not transferred or assumed in an acquisition. As a new owner, you must enroll as a new Medicare supplier using Form CMS-855S, obtain your own PTAN, and maintain active accreditation. This process typically takes 60–120 days, so billing continuity planning — including interim billing arrangements and escrow holdbacks — is essential in deal structuring. Your healthcare attorney should address the gap period explicitly in the purchase agreement.
Inherited Medicare billing liability is the most significant hidden risk. If the prior owner submitted claims with insufficient documentation, upcoded product categories, or billed for ineligible patients, CMS can pursue recoupment from the acquiring entity in an asset purchase if successor liability is not properly addressed. A healthcare attorney should conduct a pre-close billing compliance review and negotiate indemnification provisions and escrow holdbacks tied to any audit exposure identified during due diligence.
Start by reviewing patient census data — the active list of patients currently renting equipment — and cross-referencing it with payor contracts to confirm ongoing reimbursement eligibility. Then analyze referral source concentration to determine whether key referral relationships belong to the owner or to clinical staff who will remain. Request a seller transition period of at least 6–12 months with structured earnout provisions tied to patient retention and referral continuity. Recurring rental revenue tied to existing patients is generally stable; new referral flow is the variable at risk.
Medicare requires most HME suppliers to hold accreditation from a CMS-approved organization — the two most common are the Accreditation Commission for Health Care (ACHC) and The Joint Commission. Accreditation must be maintained continuously; a lapse triggers Medicare billing suspension within 30 days. During due diligence, request the most recent accreditation certificate, survey report, and any open corrective action plans. If accreditation is due for renewal within 12 months of your projected close date, build a renewal timeline and budget into your integration plan and confirm the accrediting body's change-of-ownership notification requirements.
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