Audit of Private Medical Facility for Acquisition by Foreign Investor: Key Legal Aspects

Oleksandr Fefelov, Attorney at Law, Partner, Head of Antitrust and Competition Practice

Alla Tsymanovska, Attorney at Law

Source: Apteka.ua Weekly

The private healthcare market in Ukraine is steadily strengthening its position as a distinct business segment. Private medical institutions are increasingly viewed not just as entities providing medical services, but as potentially attractive targets for investment.  Ilyashev & Partners’ lawyers shared insights into the key aspects of legal preparation for medical facilities seeking investment.

Why Do Investors Choose Ukrainian Healthcare?

The investment attractiveness of private healthcare is driven by several key factors:

• Steady Growth in Demand: Linked to both demographic changes and rising patient expectations regarding standards of medical care.
• Technological Advancement: The sector is characterized by the active implementation of modern technologies, new management models, and the expansion of specialized services.
• Market Consolidation: A competitive environment is forming in Ukraine, creating prerequisites for Mergers and Acquisitions (M&A) and the integration of medical companies into networks.

At the same time, the acquisition of a private medical facility cannot be treated as a standard commercial transaction. The medical business in Ukraine operates under special legal regulations, and its activities are directly linked to the realization of the human right to healthcare, adherence to professional standards of medical practice, and a high level of legal liability.

What Does a Medical Facility Audit in Ukraine Provide for an Investor?

The medical business in Ukraine operates under special legal regulations. Its activities are directly related to the exercise of the human right to health protection, compliance with professional standards of medical practice, and an increased level of legal responsibility. Legal regulation is carried out, in particular, based on the Laws of Ukraine “Fundamentals of Ukrainian Legislation on Healthcare,” “On Licensing of Types of Economic Activities,” as well as bylaws of the Ministry of Health of Ukraine and the Cabinet of Ministers of Ukraine.

Preparing a medical facility for potential entry by an investor requires a comprehensive legal assessment. For the investor, this is a matter of investment security and understanding the real state of the business; for the clinic owner, it ensures transparency, risk management, and proper preparation for the negotiation process. In this context, legal due diligence is a practical tool that allows for assessing the medical facility’s readiness for an investment deal, identifying weaknesses in its legal model, and timely eliminating factors that could affect the business valuation or acquisition terms.

What is Examined During the Audit?

Ilyashev & Partners’ experience shows that the results of the review directly influence the structure of the future transaction and the terms of risk allocation. The main areas of investigation include:

• the company’s corporate structure;
• the legal status of assets/property;
• the validity of the medical practice license;
• compliance of the clinic’s activities with Licensing Conditions;
• formalization of employment relationships with medical personnel;
• maintenance of medical records/documentation;
• existence of litigation or patient claims;
• contractual relationships with counterparties.

Specifics of the Medical Business in Ukraine

At the same time, the medical business has a number of features that significantly distinguish it from other areas of entrepreneurial activity.

• Mandatory Licensing. Medical practice is a type of economic activity subject to mandatory licensing in accordance with the Law of Ukraine “On Licensing of Types of Economic Activities.” Furthermore, the activities of medical institutions are regulated by the Law of Ukraine “Fundamentals of Ukrainian Legislation on Healthcare,” bylaws of the Cabinet of Ministers of Ukraine and the Ministry of Health of Ukraine, as well as specific professional standards in the field of medical practice. In this regard, the acquisition of a medical facility cannot be viewed solely as the purchase of a commercial asset. In effect, the investor acquires a legal entity whose activities are directly related to providing medical care, adhering to medical standards, meeting professional liability requirements for medical workers, and fulfilling patient requirements.
• Legal Liability for Medical Malpractice. A separate risk factor for the investor is the potential legal liability of the medical institution in case of improper medical care. Litigation related to medical errors, violation of patient rights, or non-compliance with treatment standards can have significant financial and reputational consequences for medical business owners. Therefore, assessing such risks is an integral part of the preparation for an investment deal.

Key Aspects of Medical Asset Verification

Corporate Structure and Legal Status of the Clinic

In most cases, private medical institutions in Ukraine operate as limited liability companies (LLCs). Therefore, during the audit, special attention is paid to verifying the company’s corporate documents, the procedure for forming its share capital, and the legal status of its participants. During the audit, the following aspects of the entity’s activities are examined:

• constituent documents of the company, including the charter (Articles of Association) and participants’ decisions regarding the establishment and operation of the medical facility;
• ownership structure and information on ultimate beneficial owners (UBOs);
• history of changes in the composition of participants or shareholders;
• procedure for the formation and amendment of share capital;
• powers of the head of the medical facility and other governing bodies;
• existence of shareholder agreements or other internal arrangements between participants;
• possible restrictions on the disposal of shares in the share capital;
• existence of litigation or corporate conflicts between participants.

Special attention is paid to:

• establishing the actual control structure over the medical business;
• existence of possible encumbrances on corporate rights, including arrests, pledges, or other restrictions that may prevent the transfer of shares to a new owner;
• authority of the company’s management bodies (ensuring decisions on significant transactions or disposal of assets were made in compliance with corporate law and internal company documents);
• existence of corporate conflicts or unresolved relationships between company participants leading to litigation, blocking of management decisions, or challenges to agreements on the disposal of corporate rights.

Medical License: Risks and Compliance

A license to conduct economic activity in medical practice grants the entity the right to legally perform medical activities and provide medical care to patients. The legal regulation of medical practice licensing in Ukraine is carried out, specifically, by the Law of Ukraine “On Licensing of Types of Economic Activities,” as well as the Licensing Conditions for conducting economic activity in medical practice, approved by the Resolution of the Cabinet of Ministers of Ukraine. During the audit, the following are analyzed:

• validity of the medical practice license and its date of issuance;
• list of medical specialties specified in the license;
• consistency between actual types of medical activities and those specified in the licensing documents;
• compliance of the premises and material-technical base with established licensing requirements;
• availability of necessary medical equipment for the performance of relevant medical interventions;
• compliance of medical staff qualifications with the declared medical specialties.

Important: if a clinic has expanded its list of services but has not updated its licensing documents, this represents a critical risk — up to the revocation of the license by regulatory authorities. In practice, situations often occur where a medical facility expands its range of services or changes its work organization without properly amending its licensing documents. Loss of a license effectively strips a medical facility of the right to carry out its core business. In such a case, the acquisition of the clinic may lose its economic rationale, as the investor acquires a business that lacks legal grounds for providing medical services.

Personnel and Labor Relations

The audit analyzes the compliance of the medical institution’s human resources policy with labor law requirements, as well as regulations governing the professional activities of medical workers. Special attention is paid to verifying whether doctors and other medical staff have the necessary professional qualifications and whether their activities match the declared medical specialties. Specifically, the legal audit verifies:

• labor agreements or contracts with doctors and medical workers;
• existence and validity of specialist physician certificates;
• consistency between physician qualifications and the medical specialties under which the clinic practices;
• the medical facility’s staffing table;
• job descriptions of medical workers;
• existence of civil law contracts with doctors or other medical specialists.

Important: it is necessary to verify the model of engaging medical personnel. In practice, it is common for doctors to be engaged under civil law contracts or to operate as individual entrepreneurs (FOPs). While such a cooperation model can be used in medical practice, its application requires careful legal analysis. In cases where actual employment relationships are masked by civil law contracts, regulatory authorities may qualify such relations as a violation of labor laws. This, in turn, can lead to the application of financial sanctions or other enforcement measures.

Medical Documentation and Patient Rights Compliance

The audit analyzes how the medical facility’s activities comply with healthcare legislation, particularly regarding ensuring patient rights, obtaining informed consent for medical intervention, and proper maintenance of medical records. Thus, lawyers verify:

• the content and form of informed voluntary consent of patients for medical interventions (improper documentation of consent can be grounds for legal claims by patients);
• the procedure for maintaining medical documentation and its compliance with established forms;
• compliance of medical interventions with clinical protocols and standards of medical care;
• the procedure for storing medical documentation and patient medical data;
• internal policies of the medical facility regarding personal data protection.

Practical Case

The practice of Ilyashev & Partners shows that deficiencies in maintaining medical records often become the main barrier for an investor. Incomplete or improperly executed medical records make it difficult to prove the legality of medical staff actions, creating significant legal risks after the deal closes. The firm’s team conducted a legal audit of a Ukrainian medical facility as part of a foreign investor’s acquisition of a systemic medical business operating in Ukraine and a neighboring EU country. During the review, we identified significant errors in the documentation of medical records.

Thanks to our team’s quick action, we resolved the identified deficiencies before the audit was completed. This allowed the investor to acquire a “clean” asset without regulatory issues post-acquisition. Concurrently, corporate documentation issues were resolved, and staff employment terms were optimized. The result of this work was a successful deal, where foreign capital successfully entered the Ukrainian market, acquiring a reliable and legally protected asset.

Litigation and Potential Liability of the Clinic

Checking for existing litigation, patient claims, and other legal risks associated with the clinic’s activities allows for an assessment of possible financial, reputational, and legal consequences that may arise after the acquisition of the medical business. The history of litigation involving the medical facility is analyzed, as well as any claims that may indicate potential liability risks. Special attention is paid to cases related to the provision of medical care, as such disputes can significantly impact the clinic’s operations, including:

• civil cases for compensation of damages caused to the life or health of patients;
• criminal proceedings initiated against medical workers in connection with the provision of medical care;
• patient complaints to the Ministry of Health of Ukraine or other regulatory bodies;
• results of inspections by state authorities and the response measures taken based on their results.

An analysis is also conducted regarding pre-trial claims or patient complaints that may indicate potential conflict situations. In some cases, even the absence of concluded court proceedings does not exclude the existence of risks if the clinic’s history includes recorded conflicts or claims regarding the quality of medical care provided. Cases related to suspicions of medical errors or improper performance of professional duties by medical workers require special attention. Such situations can not only cause high financial costs in the case of damages but also negatively impact the business reputation of the medical facility. The audit assesses not only the fact of litigation but also its nature, stage of consideration, possible financial consequences, and the likelihood of new claims arising in the future.

The Role of a Healthcare Lawyer in the Clinic Acquisition Process

A significant portion of risks can be eliminated even before negotiations begin through an internal audit. This allows owners to organize the contractual framework, licensing files, and personnel documentation, which significantly increases the investment attractiveness of the target. Deals related to the acquisition of medical facilities or the attraction of investments into private healthcare require the involvement of specialized professionals, as medical activity involves not only corporate and commercial aspects but also compliance with specific industry regulations, professional standards of medical practice, and patient rights. A specialist in medical law is typically involved in several key stages of deal preparation:

• conducting legal due diligence of the medical facility;
• analyzing medical documentation and internal clinic procedures;
• verifying the compliance of the medical facility’s activities with the Licensing Conditions for medical practice;
• assessing possible professional liability risks of medical workers;
• preparing legal opinions for the investor on the legal status of the medical business;
• participating in negotiations regarding the structure and terms of the investment deal.

Analyzing the aforementioned case, we must emphasize that not all clinic owners or managers realize at the start how critical the speed and quality of data preparation for the Data Room are. Delays often occur due to the untimely provision of documents or communication difficulties with clinic staff. In our case, the audit was necessary not only to guarantee investment security but also as a mandatory condition for securing bank financing for the deal. As a result, instead of the planned 2–3 weeks, the process stretched over several months due to objective organizational difficulties.

However, the professional approach proved itself: all risks identified by the Ilyashev & Partners’ team were promptly eliminated, which allowed not only for the successful completion of the audit but also for the provision of comprehensive legal services in preparing the entire package of transaction documents, ensuring the investor a legally clean asset and confidence in the future operational activity of the clinic.

Conclusions

The private healthcare market in Ukraine remains promising for foreign capital. At the same time, medical activity belongs to spheres with an increased level of legal regulation and liability. The success of an investment depends on the depth of the asset review. Comprehensive legal due diligence allows the investor to obtain an objective picture, and the owner to prepare the business for a profitable and safe sale.