LOI Template & Guide for Acquiring a Hospice or Palliative Care Agency

1. Parties and Transaction Overview

Identifies the buyer entity, seller entity, and the specific assets or equity being acquired. For hospice acquisitions, this section must clearly specify whether the transaction is structured as an asset purchase or stock purchase, as this determines how the Medicare provider agreement and NPI are handled during the Change of Ownership process.

💡 Sellers who have operated under a single Medicare certification for many years often prefer a stock purchase to avoid triggering CHOW and preserve the existing provider agreement. Buyers, particularly those acquiring their first hospice, often prefer asset purchases to avoid inheriting undisclosed pre-closing Medicare liabilities. Negotiate this structure before signing the LOI — unwinding a structure mid-due-diligence is costly and damages trust. If structuring as a stock purchase, include explicit representations and warranties regarding Medicare billing history going back at least three years.

2. Purchase Price and Valuation Basis

States the proposed total enterprise value, the methodology used to arrive at that valuation, and the basis period of EBITDA or cash flow used. In hospice acquisitions, purchase price is typically expressed as a multiple of trailing twelve-month (TTM) or last-twelve-month (LTM) EBITDA, adjusted for owner compensation normalization and one-time expenses. ADC and Medicare reimbursement trends are secondary pricing anchors.

💡 Hospice valuations in the lower middle market typically range from 4x to 7x EBITDA, with the high end reserved for agencies with ADC above 80 patients, clean survey histories, diversified referral networks, and ACHC or CHAP accreditation. Anchor your offer to verified ADC trends, not seller-represented census figures. Include a price adjustment mechanism tied to ADC at closing — a drop of 10 or more patients between LOI signing and close can materially affect forward revenue. Sellers nearing Medicare cap should be offered lower multiples or a larger earnout component to account for revenue ceiling risk.

3. Transaction Structure and Consideration

Details how the purchase price will be funded and paid, including the split between cash at closing, seller financing, earnout provisions, and any equity rollover. Hospice acquisitions frequently include seller notes or earnouts tied to post-closing census retention to align seller incentives during the transition period and protect against patient attrition.

💡 Sellers are often emotionally attached to their census numbers and may resist earnouts tied to ADC, viewing them as a sign of buyer distrust. Frame earnouts as a mechanism that rewards the seller for a smooth transition and gives them upside if the business performs as represented. For SBA-financed deals, note that SBA 7(a) loans require seller notes to be on full standby during the SBA loan term unless the lender grants an exception. Equity rollovers of 10–30% are increasingly common when a PE-backed platform is the buyer, as they allow the seller to participate in the upside of the combined platform.

4. Medicare CHOW and Regulatory Transition Provisions

Addresses the process and timeline for completing the CMS Change of Ownership, including who bears responsibility for filing Form CMS-855A, managing state agency notifications, and maintaining continuous Medicare billing authority during the transition. This section is unique to healthcare acquisitions and is frequently overlooked in non-industry-specific LOI templates.

💡 MAC processing times for hospice CHOW applications can range from 30 to 120 days depending on the contractor and completeness of the submission. Build this timeline into your closing schedule and include a CHOW-contingent closing condition in the definitive agreement. If the seller's state requires a separate state licensure transfer, confirm whether this can proceed concurrently or must follow Medicare CHOW. In CON states, confirm whether a Certificate of Need must be transferred or reissued and the associated timeline — this can add months to a transaction.

5. Due Diligence Scope and Timeline

Outlines the scope of buyer's due diligence investigation, the information to be provided by seller, and the time period during which due diligence will be conducted. In hospice acquisitions, due diligence must extend well beyond financial statements to include Medicare cost reports, cap calculations, QAPI records, survey history, and referral source compliance documentation.

💡 Do not agree to a 30-day due diligence period for a hospice acquisition. The Medicare cost report review alone — which must assess cap exposure, reimbursement variances, and potential overpayment liability — typically requires a healthcare-specialized accountant or consultant and takes two to three weeks. Request that the seller organize documents into a virtual data room prior to LOI execution so the clock does not start before materials are actually available. Flag immediately if the seller cannot or will not provide CMS survey reports or cost reports — this is a major red flag that warrants reconsideration of the transaction.

6. Compliance Escrow and Billing Liability Provisions

Establishes a post-closing escrow fund to cover potential Medicare overpayment demands, RAC audit findings, or other billing compliance liabilities that surface after closing but relate to pre-closing periods. This is a critical risk allocation mechanism unique to healthcare acquisitions.

💡 Sellers frequently resist compliance escrows, particularly those with clean survey histories, viewing them as a signal of buyer distrust or an attempt to reduce effective proceeds. Reframe the escrow as standard practice in Medicare-reimbursed healthcare acquisitions — not a reflection of specific concerns about this seller. The escrow amount and duration should scale with the seller's Medicare cap utilization rate, RAC audit history, and the volume of documentation exceptions identified during due diligence. A seller with five years of clean surveys and no pending audits can reasonably negotiate this down to 10% held for 18 months.

7. Exclusivity and No-Shop Provision

Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit, encourage, or accept competing offers. This protects the buyer's investment of time and due diligence resources during the investigation period.

💡 Sellers with multiple interested parties may push back on exclusivity longer than 45 days, particularly if they are working with a broker who has created competitive tension. Be prepared to offer a shorter due diligence period or a higher initial earnest money deposit in exchange for a longer exclusivity window. For sellers who are anxious about being 'locked up' with a buyer who may walk, consider offering a break-up fee of $25,000–$75,000 payable to the seller if you terminate without cause after the due diligence period ends.

8. Key Personnel and Transition Provisions

Addresses the retention of critical clinical leadership and staff whose departure post-closing could destabilize patient care, trigger referral source attrition, or jeopardize Medicare certification. In hospice agencies, the Director of Nursing (DON), Administrator, and key social workers are often central to the agency's clinical reputation and referral relationships.

💡 If the selling owner is also the Administrator or DON, they may be willing to commit to a 12–24 month transition role, but they will want their post-closing compensation structured carefully to avoid SBA restrictions on seller compensation during the loan period. Engage your SBA lender early on permissible seller transition arrangements. Identify whether any key clinical staff are independent contractors versus employees — CMS scrutinizes contractor-heavy hospice staffing models, and a buyer inheriting this structure may face compliance exposure.

9. Representations and Conditions to Closing

Lists the seller's key representations that must remain true through closing and the material conditions that must be satisfied before the buyer is obligated to close the transaction. Hospice-specific conditions go beyond standard business reps to address Medicare certification status, compliance record, and census levels.

💡 The ADC at closing representation is one of the most important and most frequently contested provisions in a hospice LOI. Sellers may argue that census fluctuates naturally and that a closing ADC floor is unreasonable. Counter by framing it as a purchase price adjustment mechanism rather than a binary close/no-close condition — if ADC drops by more than 10 patients, the purchase price adjusts downward by a defined formula rather than terminating the deal. This gives both parties a path forward while protecting the buyer from a deteriorating asset.

10. Confidentiality and Non-Disclosure

Confirms that both parties are bound by confidentiality obligations with respect to the transaction and the information exchanged during due diligence. In hospice M&A, confidentiality is particularly sensitive given the involvement of patient census data, employee records, and referral source relationships.

💡 If a separate NDA was executed prior to this LOI, confirm whether it supersedes or is incorporated by reference into the LOI's confidentiality provisions to avoid ambiguity. Given that hospice referral relationships are built on community trust and personal relationships, the seller will be especially concerned about word of a potential sale reaching hospital discharge planners, SNF administrators, or physician practices before closing — a premature leak can cause real census damage. Limit disclosure to essential parties and avoid sharing deal information with anyone in the seller's service territory who might pass it along to referral sources.