The recently declared global pandemic, COVID-19, has had a particularly acute impact on the healthcare industry and healthcare private equity investors. There are many issues affecting private healthcare companies on several fronts. Below we discuss 10 things you should consider now as you manage these issues across your portfolio companies.

On March 24, from 11 a.m. – 12 p.m. CT, we will host a COVID-19 Town Hall webinar to share best practices and latest guidance that your portfolio companies can  thoughtfully and proactively address during this time of uncertainty and extreme market volatility. Please register here and send us any topics or questions that you would like to see addressed to

1. Double Down Your Business Risk Assessment. Having a thorough business risk assessment and risk mitigation plan is critical. You need to ensure this plan is in effect; that an appropriate “task force” with board oversight is in place; and that it is constantly reevaluated as the crisis, business environment and regulations evolve. The team needs to stay in tune with the latest guidance from the Centers for Medicare and Medicaid Services (CMS), Centers for Disease Control (CDC) and other regulatory bodies.

For example, if you have a physician practice with a hospital-based practice, your physicians may be prevented from showing up at the hospital after exposure to an infected patient for prolonged periods and otherwise quarantined. If you have a senior-focused business or practice, consider the impact of your providers infecting the most vulnerable population as well as how to keep your provider base safe and working. Other practices may see significant business declines due to patients’ fear of office visits and cancellation of elective procedures. To plan for the worst case, business interruption insurance should also be assessed.

2. Work Together With Your Clients. This is not a time to hunker down and focus inward, but it is a critical time to be proactive, addressing your identified risks and potential mitigation plans with your key constituencies and partners – such as payors and health systems. They are experiencing similar issues and should be receptive to a collaborative and forward-thinking approach to minimize business disruption. Use this time as an opportunity to strengthen your business and customer relationships and to stand-out with creative solutions. A good offensive strategy may be the best defense and position you for even stronger growth once this passes.

3. Review Information Systems and Data Privacy Measures. If not properly managed, the current crisis can impact critical business functions. Evaluating information systems, including long-term remote access capabilities, cybersecurity and data privacy measures will be important to continuing uninterrupted work patterns and meeting client needs. Offshored support services, like transcription and coding, may be impacted by local shut-downs or quarantines in those jurisdictions, and creative solutions with customer partners should be considered pre-emptively (including work-at-home alternatives). Telemedicine alternatives also should be considered where feasible to continue to provide quality patient care.

4. Be Prepared for Robust Diligence. We have found transactions are still moving forward notwithstanding recent events. That said, it is apparent there will be new diligence concerns for investors evaluating targets in the wake of the COVID-19 pandemic. The same diligence you conduct on your own portfolio companies to ensure appropriate risk assessment and mitigation should be done for targets. Apart from obvious valuation considerations, target companies that handle this crisis poorly may be “damaged goods” once this passes – in terms of reputation, employee and business relations. If your deal involves representations and warranties insurance, prepare for a potentially more robust underwriting and diligence process, as well as how to creatively manage and allocate risk for potential crisis-related policy exclusions. Expect the same enhanced diligence from your lenders, who are risk-averse by definition, and the potential need for “over equitizing” in the current environment pending correction and opportunity to refinance with debt on more favorable terms.

5. Impact on Pending Deal Terms. If you are currently negotiating acquisitions, consider the effect of the crisis on deal terms, such as including epidemic and pandemic categories as part of the Material Adverse Change (MAC) definitions in Purchase Agreements. See our recent alert here for insights into MAC provisions in M&A and financing transactions. That said, sellers will be pushing to have this as a carveout to ensure the certainty of deal closure. If you ultimately agree to such a carveout, you should consider including a financing contingency given the certain volatility of the credit markets, which may be more preferable to a target than delaying a deal for months. Also, for deals that have delayed closings due to financing contingencies, regulatory approvals and other conditions that must be met, consider including interim operating covenants that address compliance with certain COVID-19 guidelines.

6. Analyze Existing and Proposed Earnouts. In the recent deal environment with multiples at all-time highs, investors have often sought to bridge valuation expectations through earnouts and other contingent payments. Consider the potential implications of the current pandemic as it relates to financial performance metrics and the ability of targets to achieve earnouts and other contingent payments. Review existing earnouts that may be measured soon as well as proposed earnouts in unsigned deals as you struggle to address the business and financial uncertainty of a target yet still desire to offer full value if business resumes to historical experience. For earnouts with measurement periods impacted by the current COVID-19 crisis, consider whether, based on the circumstances, the period should be extended or metrics modified – in particular if the earnouts are payable to key employees.

7. Existing Credit Facilities and Other Financing Options. As part of your risk assessment, thoroughly evaluate the financial projections and cash needs of your portfolio companies, for at least the next six to nine months. Consider drawing down on credit facilities for portfolio companies that have availability, as well as potential additional equity infusion to shore up balance sheets to weather the storm. We have seen several companies draw down credit facilities over the past few weeks as concerns over the credit markets and the potential for future liquidity squeezes have heightened. Even so, we have heard anecdotally that lenders are not in all cases fully funding available amounts. Companies also should consider how the current environment affects covenant compliance with their existing facilities and related quarterly certifications, as well as the impact of drawing down more debt on such compliance. It may be that equity infusion is more prudent in some cases and could help ease covenant compliance. A proactive approach with your lenders may be prudent if there is a material risk of covenant default.

8. CMS Waivers May Apply. CMS made available blanket waivers last week under Section 1135 of the Social Security Act to relax certain regulatory requirements to allow for the expansion of care during the COVID-19 pandemic. These blanket waivers may apply to a number of your portfolio companies, and other specific waivers may be applied for as well. Categories covered by the blanket waivers include the following:

  • Skilled nursing facilities.
  • Critical access hospitals.
  • Housing by acute care hospitals of patients in excluded distinct part units.
  • Certain telehealth encounters.
  • Durable medical equipment (DME) providers.
  • Care for excluded psychiatric patients in the acute care unit of a hospital.
  • Care for excluded inpatient rehabilitation unit patients in the acute care unit of a hospital.
  • Supporting care for patients in long-term acute care hospitals (LTACHS).
  • Home health agencies.
  • Out of state providers not licensed in a particular state.
  • Expedited provider enrollment through the establishment of a toll-free hotline for non-certified Part B suppliers, physicians and non-physician practitioners to enroll and receive temporary Medicare billing privileges.
  • Extension of Medicare appeals for Fee for Service, Medicare Advantage and Part D.
  • Medicaid and CHIP – When the president declares an emergency through the Stafford Act or National Emergency Act, and the secretary declares a Public Health Emergency, the secretary is authorized to waive certain Medicare, Medicaid and Children’s Health Insurance Program (CHIP) authorities under Section 1135 of the Social Security Act.

9. Analyze Contract Clauses. You should undertake a review of your portfolio companies’ material contracts as it relates to force majeure. Do the contracts provide your portfolio companies with “outs” or relief from performance for COVID-19? Conversely, for the suppliers and vendors of your portfolio companies, do those contracts provide for strict performance or allow the vendor or supplier certain “outs” as it relates to the current pandemic? Ensuring that healthcare providers have uninterrupted service from vendors and suppliers for the next several months will be paramount to maintain uninterrupted patient care and reimbursement under existing payor contracts.

10. Manage Your Workforce. As reported in one of our previous alerts, the CDC, EEOC and OSHA all have issued guidelines pertinent to employers. A critical part of workforce management is setting the right tone at the top. Be empathetic to employee concerns. The best way to achieve confidence is to have a thoughtful and proactive risk assessment and mitigation strategy, as well as regular and thoughtful employee communications. Allowing and/or requiring remote and flexible work arrangements should be considered while ensuring proper supervision, including proper data security protocols. See our alert on the recent Families First Coronavirus Response Act. If possible, develop a contingency plan for the loss of key executive team members due to illness or quarantine for extended times. Remember that employees may be your best asset, and how they are treated during this crisis may have a significant impact on your goodwill and reputation – both internally and externally.


We know the COVID-19 pandemic presents unique challenges to private equity firms and their portfolio companies looking to manage through both the near-term and long-term. Bass, Berry & Sims has a dedicated COVID-19 Response page and Task Force ready to assist private equity clients and their portfolio companies in this critical time. Please reach out to us with any specific questions, and we will connect you with the appropriate task force member.

We are also available to curate a specific Town Hall for your portfolio CEOs to address more specific questions and ensure your entire portfolio is on the same page with consistent advice. Please let us know if you would like us to schedule that as well.