What you buy when you buy a building

The intuition most buyers arrive with is that an asset purchase takes the building and leaves the history. In most industries that is broadly right. In licensed care it is weaker than it looks, and the ways it fails are expensive and predictable.

Three reasons the history travels

Where a facility is certified, the provider agreement generally follows the building on a change of ownership, and it follows it complete: open plans of correction, sanctions in effect, and the compliance record. A buyer can elect otherwise, but that election has consequences of its own.

States apply successor liability doctrines to health care operations more readily than to ordinary businesses, for reasons that are not difficult to understand once you consider who the plaintiffs are.

And regardless of doctrine, a plaintiff will name the current operator. Whether that naming survives a motion is a question answered eighteen months and a great deal of defense spend later, all of which is real money whether or not the liability was ever yours.

So the practical position is to insure and to escrow as though successor liability may attach, rather than to rely on the structure to prevent it.

The decision that has to be made before closing

Care delivered before closing will produce claims after closing. On a claims-made program those claims are covered only by a policy whose retroactive date precedes the care. There are exactly two ways to arrange that.

The seller buys an extended reporting period, which keeps the exposure entirely separate and costs the seller real money, commonly in the range of one to three times the expiring annual premium as a single payment. Sellers resist it for that reason.

Or your program grants prior acts back to a date before the seller owned the building. That is usually cheaper in cash terms, and it puts the seller history inside your limit and inside your loss record, where it will affect your renewals for years.

Neither is wrong. What is wrong is discovering the choice exists in the week before closing, when there is no leverage left and one party has to simply absorb it. Put it in the purchase agreement with the cost allocated.

What diligence has to surface, and what it usually misses

The standard list is well known and worth doing properly: five years of loss runs by claim rather than summarized, open claim detail with current reserves, the full survey history including any immediate jeopardy finding and the plans of correction, every open regulatory matter, and the current policy specimens rather than certificates, so you can read the abuse sublimit, the defense treatment and the retroactive date yourself.

The item that gets missed is the incident log.

Open incidents that have not yet become claims are exposure you are buying with no reserve attached and no line on any loss run. A stage three pressure injury under treatment on the day of closing is an unfiled claim. A recent unwitnessed fall with a resident who has since declined is another. Neither will appear in the diligence materials unless you ask for the log specifically, and both will arrive as demand letters inside two years.

Ask for the incident log. Then, in the first thirty days after closing, report every known incident to your carrier as a notice of circumstance. A circumstance properly noticed under the policy in force is covered when the claim eventually arrives; one that was known and not noticed is a coverage argument you will have at the worst possible moment.

The first thirty days

Add the building to the schedule effective at closing, with the correct entity as named insured. Confirm the property value and business income figures rather than inheriting the seller numbers, which were set for the seller purposes.

Confirm the license transfer date and whether the change of ownership triggers a new licensure insurance filing, since several states require evidence in the new entity name within a defined window.

Draw the entity map: property owner, operating entity, management company, any joint venture partner. Confirm every one of them that a plaintiff could name is a named insured. On a portfolio this is the single most common finding in a coverage review, because entities get added at acquisition and never get added to the policy.

The uncomfortable summary

You are not buying a building with a clean start. You are buying an operating history, a compliance record, a set of open incidents and a staffing culture, and the insurance work is the work of making sure all four of those are covered by something.

The good news is that all of it is knowable before you sign. The bad news is that almost none of it is in the standard diligence checklist.