Merger and acquisition (M&A) activity is reshaping the health care subrogation industry. Organizations are being acquired by private equity firms, bundled with complementary payment integrity products, merged into larger enterprises, and carved out into standalone entities.
While leadership teams often focus on growth strategy, the legal details of an M&A transaction can determine whether operations remain stable or become overexposed to risk.
Here are six legal areas that demand close consideration during an acquisition.
1. Corporate structure: Understand the transaction on paper
It’s not enough to know that one company bought another. Whether in-house or outside counsel, legal teams need to understand how the transaction occurred on paper.
Was it:
- An asset purchase, where the buyer acquired assets without liabilities and the prior company continues to exist,
- A merger, where two companies combined to form a new, single legal entity, or
- An acquisition, where the buyer acquired the legal entity as a whole?
The answer affects who the real party in interest is in litigation, whether the prior entity still exists as a subsidiary or is dissolved, and whether successor liability issues will arise. If the prior entity continues to exist, intercompany agreements must be aligned. If it’s dissolved, counsel must manage wind-down obligations carefully.
Legal teams should evaluate:
- Potential conflicts of interest
- Contract updates or amendments
- Whether vendor agreements need to be redrafted
Finance leaders should assess:
- Tax ID and banking changes
- Client fund remittance and fee collection impacts
Operational leaders should consider:
- Branding and communication updates
- Client or regulatory approval requirements
- How best practices will be aligned across teams
2. Regulatory and privacy compliance: Prevent gaps before they form
Certain transactions may present antitrust considerations that must be reviewed in advance by the Federal Trade Commission (FTC), which has the authority to deny proposed mergers.
Health care subrogation companies often operate under strict regulations such as HIPAA, HITECH, and state privacy laws. Even if both entities were compliant prior to the transaction, gaps can form after integration, particularly for processes like incident response.
Aligning processes in order to meet contractual obligations can bring added costs, including data storage changes or equipment upgrades. Depending on the transaction, organizations may also need to reapply for certifications, which can be both time consuming and expensive.
3. Contracts: Find hidden provisions that can create risk
Client contracts often contain provisions that become critical during an acquisition. Counsel should evaluate:
- Change of control – Contracts may require advance notice of ownership changes, potentially giving clients the right to terminate the relationship
- Service level agreements (SLAs) – Merged processes will need to account for varying client SLAs
- Most favored nations – Lower fee arrangements within an acquired company can affect pricing across other client agreements
4. Litigation and jurisdiction: Protecting the business and its clients
Ownership changes can affect active litigation in ways that aren’t immediately obvious. For example, federal diversity jurisdiction depends on the parties’ states. If a defendant Delaware corporation is purchased by a Kentucky corporation, diversity with a Kentucky plaintiff is destroyed and the court may lose jurisdiction. Counsel will be ethically bound to notify the court of this change.
In federal court, companies must also file disclosure statements identifying the real party in interest and whether they have any ties to publicly traded corporations. The judge must be informed in order to determine whether they must recuse themselves due to stock ownership in one of the parties or any other interest in the litigation.
M&A activities may also require refiling liens and reassessing cases for potential conflicts of interest.
5. Employment and benefit compliance: Reduce legal and cultural risk
Acquisitions often expand employee footprint across state jurisdictions, requiring counsel to review state-specific employment laws, including PTO accrual and payout requirements.
Differences in compensation and incentive plans must also be addressed. To avoid discrimination concerns, employees performing the same role should be in the same compensation and incentive structure.
Retirement plans require similar scrutiny. For example, if the acquired company has a safe harbor plan, while the larger company has a traditional 401(k), combining employee populations may create inequities that need to be resolved.
Clear, early communication is essential. Changes to compensation and benefits should be explained transparently to reduce uncertainty and allow employees to plan appropriately.
6. Technology and security: Maintain client trust
For companies working with health plans, maintaining security designations such as HITRUST and SOC 2 certifications is critical. Even if each company held certifications independently, integration can create gaps and inconsistencies in audit procedures, jeopardizing the certifications.
Technology consolidation, platform migrations, and system alignment need to be reviewed carefully to preserve client trust.
Protecting performance begins with legal precision
Mergers and acquisitions create complexity across ownership, structure, compliance, and culture. Leadership teams that stay disciplined across these six legal areas will be better positioned to protect recoveries, preserve client confidence, and maintain operational stability through times of change.