Koseikyoku Approval for Medical M&A: Transfer of Insurance Medical Institution Designation and Notification

In medical institution M&A, the transfer of insurance medical institution designation and notification to the Koseikyoku (Regional Bureau of Health and Welfare) are crucial procedures that form the foundation of business continuity. In particular, smooth billing of medical fees after succession requires confirmation of designation requirements and appropriate notification. This article focuses on the Koseikyoku approval process in medical M&A, comprehensively explaining the transfer of insurance medical institution designation, notification timing, comparison with new designation, and practical points for successful succession, in line with search intent.

Transfer of Insurance Medical Institution Designation Generally Not Possible; New Designation by Successor is Basic

Designation as an insurance medical institution is granted to the operator (corporation or individual) of a medical institution. Therefore, when M&A involves the succession of a medical corporation or clinic’s business, the insurance medical institution designation held by the predecessor (seller) is generally not directly transferred to the successor (buyer). To continue providing insured medical services after succession, the successor (buyer) must obtain new designation as an insurance medical institution.

This is because the designation as an insurance medical institution is reviewed not just based on the business name or facilities, but as an integrated entity encompassing the operator’s human and physical resources, management structure, and treatment policies. In M&A, the Koseikyoku must re-evaluate whether the successor meets these requirements.

Consequently, when considering an M&A structure, a schedule and preparation based on the premise of this “new designation by the successor” process are necessary. Particularly, since the review for new designation takes a certain amount of time, a plan with ample buffer is crucial.

Notification to the Koseikyoku: Timing for New Designation Application and Discontinuation Notification

Notifications to the Koseikyoku in medical institution M&A are primarily divided into the following two procedures. These must be carried out at extremely critical timings to ensure business continuity and prevent gaps in medical fee billing.

1. New Designation Application by Successor (Buyer):
   An application is submitted for the successor to obtain new designation as an insurance medical institution by the succession date (typically, the discontinuation date of the predecessor medical institution or the effective date of the business transfer agreement). The application documents include information about the operator, facility floor plans, equipment, staffing, medical specialties, etc.
2. Discontinuation Notification by Predecessor (Seller):
   The predecessor will discontinue its insurance medical institution designation as the operator due to business transfer, corporate dissolution, etc. This discontinuation notification must also be submitted to the relevant Koseikyoku by the succession date.

These procedures typically need to be completed concurrently with or very close to the M&A closing (transaction completion). Delays in notification risk delaying the commencement of insured medical services by the successor or causing issues with medical fee billing.

Comparison of New Designation and Succession of Designation: Advantages and Disadvantages

While the basic process for designation and notification in medical institution M&A involves the successor obtaining new designation, the concept of “utilizing existing designation” may sometimes be relevant (e.g., in cases of merger or division of medical corporations where rights and obligations are succeeded). However, the insurance medical institution designation itself is not “transferred” in form. Here, we compare the approach of the successor obtaining new designation with the concept of “utilizing existing designation” in practice.

Item	New Designation by Successor (Basic)	Utilization of Existing Designation (Limited)
Basic Procedure	The successor (buyer) obtains new insurance medical institution designation.	(Example: Cases of merger/division of medical corporations where the designation of the predecessor corporation/business continues or transfers. However, if the operator changes, it is often treated as new designation.)
Advantages	• The successor can obtain designation under the latest requirements. • Less impact from past designation-related issues (e.g., guidance history) of the predecessor. • Facility standards can be re-applied for and obtained based on the latest situation.	• Potential for simplified procedures (depending on the case). • Potential to partially inherit the credibility and track record of the existing designation.
Disadvantages	• Complicated new designation application process. • Review takes time. • Transferring specific facility standards held by the predecessor requires separate re-application and re-notification.	• Risk of inheriting guidance or audit history of the predecessor. • Potential to be constrained by the designation requirements held by the predecessor. • May not be applicable depending on the succession scheme.
Practical Considerations	• Start preparation and application early to ensure designation is granted by the succession date. • Confirm and plan for re-application of facility standards individually.	• Essential to consult with experts (lawyers, tax accountants, M&A consultants) on whether the merger/division scheme affects designation transfer. • Understand that new designation is the principle when the operator changes.

Transfer of Facility Standards: Re-application and Re-notification of Standards Held by Predecessor

Alongside insurance medical institution designation, “facility standards” are extremely important for calculating medical fees. These include a wide range of criteria such as specialist systems, management fees for specific diseases, and installation of advanced medical equipment. Even if the predecessor met these facility standards, the successor cannot automatically inherit them.

If the successor wishes to utilize the facility standards held by the predecessor, they must, in principle, undergo a review for compliance with each facility standard under their own name and submit a notification. This is because the compliance with facility standards is judged individually based on the specific medical institution’s equipment, personnel, system, and treatment results.

Example:
If a predecessor clinic met the facility standards for the “specialist system,” for the successor clinic to continue billing medical fees under this standard, it must re-submit notifications to the Koseikyoku, proving that the relevant specialist is employed and that the necessary equipment is available.

This process of transferring facility standards requires thorough understanding of the predecessor’s facility standards and their requirements during the M&A due diligence (DD) phase, and a concrete plan for how to transfer or newly acquire them after succession.

Overall Picture and Timeline of Koseikyoku-Related Procedures in M&A

Koseikyoku-related procedures in medical institution M&A involve not just submitting documents but also extensive preparation and confirmation. Below is an outline of the general procedure flow and an estimated timeline.

The specific procedures and required documents vary depending on the M&A scheme (business transfer, stock transfer, merger, division, etc.). Furthermore, the strictness of review and the timeline may also vary depending on the size and medical specialties of the institution being succeeded and the region where it is located.

Practical Points for Successful Koseikyoku Approval Procedures

To smoothly proceed with Koseikyoku-related procedures in medical institution M&A and ensure successful business succession, it is important to grasp the following practical points:

1. Consult with Experts Early:
   From the initial stages of M&A, it is essential to consult with experts such as lawyers, tax accountants, and M&A consultants specializing in medical M&A to receive advice on legal, tax, and practical matters. Regarding notifications to the Koseikyoku, experts can provide accurate advice based on their past experience.
2. Thorough Due Diligence (DD):
   Conduct a comprehensive investigation of the current status of the predecessor medical institution (designation status, facility standards, past guidance history, administrative sanctions history, inventory of pharmaceuticals and medical devices, outstanding medical fee receivables, etc.). This allows for advance identification of post-succession risks and implementation of countermeasures.
3. Confirm New Designation Requirements for Successor:
   Confirm in advance whether the successor meets the designation requirements for an insurance medical institution. In particular, if inheriting facility standards held by the predecessor, facility investments or staffing adjustments may be necessary for the successor to meet those requirements.
4. Thorough Schedule Management:
   Create a detailed schedule and manage progress to ensure all necessary notifications are completed by the succession date. Maintain close communication with all stakeholders (buyer, seller, experts, administrative scriveners, etc.) and constantly check for delays.
5. Prior Consultation with the Koseikyoku:
   If necessary, it is also effective to consult with the relevant Koseikyoku in advance to confirm procedures and required documents. However, detailed advice on specific M&A cases may not always be available.

By following these points and proceeding systematically and cautiously, it is possible to smoothly navigate Koseikyoku-related procedures in medical institution M&A and ensure business continuity.

Frequently Asked Questions (FAQ)

Q1. In medical institution M&A, can the insurance medical institution designation held by the predecessor be directly transferred?
A1. In principle, insurance medical institution designation is granted to the operator, so it is not directly transferred from the predecessor to the successor. The successor (buyer) must obtain new designation as an insurance medical institution.

Q2. What happens if new designation is not completed by the succession date?
A2. If designation as an insurance medical institution is not obtained by the succession date, insured medical services cannot be provided at the successor institution after the succession date, and medical fees cannot be billed. Therefore, it is extremely important to prioritize the new designation application and approval by the Koseikyoku in the M&A schedule and plan with ample buffer.

Q3. Are the “facility standards” held by the predecessor automatically applied to the successor?
A3. No, they are not automatically applied. For the successor to bill medical fees based on the facility standards held by the predecessor, they must undergo a review for compliance with each facility standard under their own name and submit a notification. This is because the compliance with facility standards is determined based on the individual medical institution’s equipment, personnel, system, etc.

Q4. Are the procedures with the Koseikyoku different for a business transfer of a medical corporation versus a stock transfer of a medical corporation?
A4. The procedures differ. In a business transfer, the discontinuation of the predecessor’s (seller’s) insurance medical institution designation and the successor’s (buyer’s) new designation are fundamental. On the other hand, in a stock transfer of a medical corporation (or transfer of ownership interests in a member-managed company), the medical corporation itself continues to exist, so its insurance medical institution designation also continues. However, if the final operator changes, separate notifications or new designations may be required. In any case, consultation with an expert is essential.

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