Definition
Protected Health Information or PHI is any patient information that can be used to identify an individual. This includes obvious details like names and Social Security numbers, but also medical record numbers, dates of service, and any other data related to a patient’s health, treatment, or payment for care. The HIPAA Privacy Rule sets strict federal standards for how your practice must protect this data.
Many physicians believe HIPAA prevents them from sharing patient information with a potential buyer. This is a common misunderstanding. The rules actually permit you to disclose PHI for the purpose of due diligence, as long as you have the proper legal protections, like a Business Associate Agreement, in place with the prospective buyer.
Why This Matters to Healthcare Providers
How you manage PHI is a direct reflection of your practice’s operational and legal health. Acquirers will heavily scrutinize your data security and HIPAA compliance to assess potential risks. A single misstep can lead to significant financial penalties, lawsuits, and a loss of trust that could damage your practice’s value or even terminate a deal. The 2023 MCNA Dental data breach, which affected nearly 9 million people and led to class-action lawsuits, shows just how high the stakes are.
Example in Healthcare M&A
Scenario: Your thriving orthopedic practice has received a Letter of Intent from a larger health system. To verify your surgical volume and revenue claims, their diligence team needs to review patient data.
Application: Instead of emailing spreadsheets, your advisors guide you through the correct process. First, both parties sign a Business Associate Agreement (BAA), a contract that legally requires the health system to protect your data. Then, you provide their team with secure, read-only access to a virtual data room. This allows them to view only the minimum information necessary to confirm your claims without being able to download or alter the sensitive PHI.
Outcome: The health system completes its due diligence efficiently and with confidence in your practice’s compliance. The process demonstrates professionalism, reduces risk for both sides, and keeps the transaction moving forward smoothly toward a successful closing.
Related Terms
- HIPAA Compliance – The set of federal rules that govern how you must protect PHI.
- Business Associate Agreements – The required legal contract that allows you to share PHI with a third party like a potential buyer.
- Due Diligence – The buyer’s investigation process where your handling of PHI will be closely examined.
Preparing properly for buyer due diligence can prevent unexpected issues. Request a Due Diligence Preparation Session →
About the SovDoc M&A Glossary
Hand-curated by our deal-makers and analysts, the SovDoc glossary turns complex mergers-and-acquisitions jargon into clear, plain-English definitions.
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Frequently Asked Questions
What is Protected Health Information (PHI)?
Protected Health Information (PHI) is any patient information that can be used to identify an individual, including names, Social Security numbers, medical record numbers, dates of service, and other data related to a patient’s health, treatment, or payment for care.
Does HIPAA prevent sharing PHI with a potential buyer during healthcare mergers and acquisitions?
No, HIPAA does not prevent sharing PHI with a potential buyer for the purpose of due diligence as long as you have proper legal protections in place, such as a Business Associate Agreement (BAA) with the prospective buyer.
Why is managing PHI important for healthcare providers during acquisitions?
Managing PHI properly reflects your practice’s operational and legal health. Acquirers will scrutinize your data security and HIPAA compliance to assess risks. A mishandling of PHI can lead to financial penalties, lawsuits, loss of trust, and can negatively impact the value or success of the deal.
What is a Business Associate Agreement (BAA) and why is it important?
A Business Associate Agreement (BAA) is a legal contract required when sharing PHI with third parties, such as a potential buyer. It ensures that the third party is legally obligated to protect the PHI and follow HIPAA standards.
How can PHI be securely shared during a buyer’s due diligence process?
PHI can be securely shared by first signing a Business Associate Agreement (BAA) with the buyer, then providing secure, read-only access to a virtual data room. This limits the information viewed to the minimum necessary and prevents downloading or altering the sensitive PHI.