Advising Buyers of Substance Abuse Businesses: Beware!

By: Heather Miller

Whether you work in healthcare or are a patient in the community at large, almost everyone who has received medical care has heard of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), one of the first comprehensive pieces of federal legislation to address the use and disclose of protected health information held by medical providers, health plans, and other “covered entities.” Far fewer are familiar with the more restrictive federal and Florida laws that provide privacy protection to alcohol and drug abuse patients. The technical details of these regulations are not only important for providers and patients, but for private equity and other investors looking to purchase such businesses and reap the benefits of a lucrative business model.

Over the past few months there have been scores of articles written about the Substance Abuse and Mental Health Services Administration (“SAMHSA”) proposed rules to modernize the Confidentiality of Alcohol and Drug Abuse Patient Records regulations, 42 C.F.R. Part 2 (commonly refered to as “Part 2”), which govern the disclosure of confidential patient information for federally assisted drug and alcohol treatment programs. For-profit programs and private practitioners who use a controlled substance for detoxification or maintenance treatment of a substance use disorder are also subject to these regulations because such use requires a federal Drug Enforcement Administration (“DEA”) registration and subjects the program and private practitioner to DEA regulations as a condition of DEA licensure. Part 2 was enacted, in part, as some patients avoid treatment for fear that public disclosure of their treatment will foster stigma and discrimination toward them. Part 2 provides substance abuse treatment patients with privacy protection by only allowing the disclosure of their treatment records, under limited circumstances, without their written consent. The Florida equivalent of Part 2 is Section 397.501, Florida Statutes, which in certain instances, is even more restrictive than Part 2. While the privacy and disclosure regulations are paramount to patients feeling secure in seeking treatment, they are an enormous obstacle for mergers and acquisitions involving substance abuse treatment businesses.

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