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Definition

Credentialing is the formal process of verifying your qualifications and background. It also includes securing the necessary permissions from hospitals and insurance payors that allow you to practice and get paid.

Think of it this way. Your state medical license is like your personal driver’s license. It proves you are a qualified professional. Credentialing, however, is like being added to a new company’s auto insurance policy. You cannot drive their car and be covered until they formally add you. Similarly, after a sale, your providers must be credentialed under the new owner’s entity to treat patients and bill for services.

Why This Matters to Healthcare Providers

During a practice sale, your existing credentials do not automatically transfer to the buyer. The entire credentialing process must be managed for each provider under the new ownership structure. A failure to plan for this can halt your practice’s cash flow for 90-120 days post-sale, as payors will not pay for services until the process is complete.

Example in Healthcare M&A

Scenario: A private equity group acquires a successful five-physician cardiology practice. The M&A team focuses on the financial and legal terms but starts the payor credentialing process only one week before the deal closes.

Application: Post-closing, the practice operates under the buyer’s new tax ID number. While the physicians continue to see patients, the claims submitted to Aetna, Cigna, and UnitedHealthcare are immediately denied. The reason is that the providers are not yet enrolled with these payors under the new corporate entity.

Outcome: The practice’s revenue from its top three payors drops to zero for nearly three months while the credentialing applications are processed. This unexpected cash flow crisis creates significant operational stress and damages the relationship between the physicians and the new owners.

Related Terms


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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 credentialing in healthcare?

Credentialing is the formal process of verifying a healthcare provider’s qualifications and background. It also involves obtaining the necessary permissions from hospitals and insurance payors to allow the provider to practice and receive payment.

Why is credentialing important during a practice sale?

During a practice sale, existing credentials do not automatically transfer to the buyer. Each provider must be credentialed under the new ownership, and failure to manage this process can result in disrupted cash flow for 90-120 days post-sale because payors will not pay for services until credentialing is complete.

How is credentialing similar to a driver’s license and insurance?

The state medical license is like a personal driver’s license, proving qualifications. Credentialing is like being added to a new company’s auto insurance policy—you cannot use their coverage until formally added. Similarly, after a sale, providers must be credentialed under the new owner’s entity to treat patients and bill for services.

What can happen if the credentialing process is delayed after an acquisition?

If credentialing is delayed, claims submitted to payors may be denied, leading to a drop in revenue. For example, physicians may continue to see patients, but payment from insurance companies can halt for nearly three months, causing significant operational stress and damaging relationships with new owners.

What are some related terms to credentialing in healthcare?

Related terms include Due Diligence, Change of Ownership (CHOW), and Network Participation Status. These terms are important in understanding the broader context of practice sales and credentialing.