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Every DME supplier must have a functioning compliance program. Such a program serves three functions. First, the compliance program establishes guardrails that, if followed, will result in the avoidance of serious legal problems. In a sense, the compliance officer is the “canary in the mine shaft.” He/she does not need to be an expert on compliance matters…but needs to know enough to recognize a potential problem. Second, if a problem does arise, a compliance program should be able to solve the problem before it turns into a recoupment, whistleblower action or government investigation. Third…and this is the focus of this program…a functioning compliance program will help the DME supplier maintain an accurate valuation.

If a supplier wants to sell, or if it wants to secure a bank loan, the most important question is: “What is the DME supplier worth?” For example, a standard formulation for calculating a purchase price for a supplier is “3 to 5 x EBITDA.” EBITDA stands for “earnings before interest, taxes, depreciation and amortization.” Essentially, EBITDA is the DME supplier’s net profit. While the 3 to 5 x EBITDA is standard, the multiple can be higher (e.g., 7 to 8 x EBITDA) if the supplier is unique enough…and successful enough…to justify the higher multiple. If the DME supplier’s EBITDA is built on a false pretense (e.g., a business model that is not legally compliant), in a sale the EBITDA will be discounted…meaning that the seller will receive less than what it anticipated. Or the purchaser may simply walk away.

This program will discuss (i) how a compliance program can be drafted and (ii) how a compliance program can be implemented in order to achieve three goals discussed above – and especially the goal of maintaining the supplier’s valuation.