Due Diligence Checklist for Buying an Occupational Therapy Clinic

Request 3 years of accrual-based P&Ls, tax returns, and an owner add-back schedule.

Confirms true EBITDA and surfaces commingled personal expenses common in owner-operated clinics.

Red flag: Tax returns show revenue materially below P&L figures or no clear add-back documentation exists.

Analyze payor mix by revenue percentage across Medicare, Medicaid, commercial, and private pay.

Medicaid concentration above 40% signals margin risk from ongoing reimbursement rate compression.

Red flag: More than 50% of revenue comes from Medicaid with no diversification strategy in place.

Review net collection rate, denial rate, and AR aging by payor for the trailing 12 months.

Reveals revenue cycle management quality and hidden cash flow leakage from uncollected claims.

Red flag: Net collection rate below 90% or AR aging shows more than 20% of balances over 90 days.

Confirm reimbursement rates per CPT code against current Medicare fee schedules and commercial contracts.

Identifies clinics billing at rates subject to near-term downward adjustments post-acquisition.

Red flag: Rates materially exceed regional benchmarks with no contracted justification from payer agreements.

Obtain complete credentialing files for all OTs and COTAs including active state licenses and payer enrollments.

Lapsed credentials can trigger payer contract termination and create billing compliance liability post-close.

Red flag: Any therapist is billing under a credential that has lapsed or is pending renewal with a major payer.

Map individual therapist revenue contribution to identify key-person concentration risk.

A single therapist generating over 50% of visits creates catastrophic revenue risk if they depart post-close.

Red flag: Owner-therapist alone generates more than 50% of clinical visits with no documented succession plan.

Review all employment agreements, non-compete clauses, and non-solicitation agreements for clinical staff.

Enforceable agreements protect patient and referral relationships if key therapists leave after closing.

Red flag: No signed non-competes or non-solicitation agreements exist for any therapist on staff.

Confirm therapist turnover rate and average tenure over the past 36 months.

High turnover signals culture or compensation issues that inflate post-close recruitment costs.

Red flag: More than 40% annual therapist turnover or multiple departures within 6 months of listing.

Request a referral source report showing volume by physician, hospital, and school district for 24 months.

Documents whether the patient pipeline is diversified or dangerously dependent on one or two sources.

Red flag: A single physician or school district accounts for more than 30% of all new patient referrals.

Determine whether referral relationships are personal to the owner-therapist or institutionalized in the practice.

Owner-dependent referrals disappear at closing; institutionalized relationships transfer with the business.

Red flag: Referring physicians describe their relationship as exclusively personal to the selling owner-therapist.

Review any formal referral agreements or MSAs with hospitals, school systems, or physician groups.

Documented agreements signal durable pipelines and provide leverage for renegotiation post-close.

Red flag: No written referral agreements exist despite verbal claims of long-term institutional relationships.

Assess the new patient volume trend and average weekly visit count for the trailing 12 months.

Declining visit volume before sale may indicate referral erosion or competitive market pressure.

Red flag: New patient referrals have declined more than 15% year-over-year without a credible explanation.

Review Medicare and Medicaid billing audit history including any RAC, MAC, or OIG audit activity.

Unresolved audits or overpayment demands become buyer liability in an asset purchase if not disclosed.

Red flag: Open Medicare overpayment demand or ongoing government audit with no resolution timeline.

Assess Stark Law and anti-kickback compliance relative to any physician co-ownership or referral arrangements.

Non-compliant arrangements expose the buyer to federal penalties and potential exclusion from Medicare.

Red flag: Physician referral sources also hold ownership interests with no documented Stark Law exception.

Confirm HIPAA compliance including current privacy notices, BAAs with vendors, and breach incident history.

HIPAA violations carry per-incident fines and reputational damage that survive an asset purchase.

Red flag: No current Business Associate Agreements with EHR vendors, billing services, or cloud storage providers.

Verify state clinic licensure, facility certifications, and any occupational therapy board disciplinary history.

Expired state licenses or board sanctions can halt operations immediately post-close.

Red flag: Any active state board complaint or disciplinary action against a licensed therapist in the clinic.

Review the facility lease including term remaining, renewal options, assignment clauses, and rent escalators.

A lease expiring within 12 months post-close or non-assignable without landlord consent creates closing risk.

Red flag: Lease expires within 18 months with no renewal option and landlord has not confirmed cooperation.

Evaluate the EHR and practice management system for transferability, data ownership, and subscription continuity.

EHR migration post-close is expensive and disrupts billing workflows and patient continuity.

Red flag: EHR contract is non-transferable or vendor requires full re-implementation upon ownership change.

Confirm all payer contracts are assignable or re-credentialing timelines are realistic within deal close window.

Re-credentialing gaps can create 60–120 day periods where the clinic cannot bill acquired payers.

Red flag: Major commercial payer contracts require full re-credentialing with no interim billing arrangement.

Validate that malpractice insurance coverage is current and assess tail coverage requirements at closing.

Claims-made policies require tail coverage for pre-close incidents that can add significant transaction cost.

Red flag: No tail coverage provision negotiated for a claims-made policy with active statute of limitations exposure.