How to Not Buy a Lemon Provider Practice

Here is the scenario: a provider sells a large, and very profitable practice to another provider looking to either establish themselves in an area or grow an existing practice to another location or expanded patient base.

The types of law firms we see that analyze the value of a provider for mergers and acquisition include lawyers who focus on 340B, HIPAA/HITECH, Stark/Anti-Kickback, CMS, and other Federal and State regulations.  When evaluating practices, private equity firms and lawyers typically evaluate practices based on standard reactive things such as the EHR, revenue cycle, tax, previously litigated matters. 

We recommend a more proactive approach to evaluation.  Where there is smoke there is fire.  We have seen some clients look at proactive items such as coding and billing risks.  There are very big red flags that occur in the following areas:

• Review sub agreement leases – if people or thing as are leased commensurate with safe harbor or fair market value
• Sales and marketing reps – how they are getting paid
• Communications/Solicitation trends
• 24 months of billing services- by quarter by year – looking at top 5 billed services.  When Coding and billing change greatly, a coding and billing audit should be performed to make sure there isn’t an issue of FWA.
• NPI – contracted vs noncontracted.  If there is a rendering and billing group.

Two scenarios:

1. 10 provider pediatric group with only 2 contracted providers with a payer.  All 10 providers were billing out under the two providers.  The other 8 providers had applications to work with this payer but did not get filed (they were sitting on the admin’s desk).  This case ended up going to trial under false claims
2. A young ophthalmologist was selling his practice for a large amount of money. They saw a great opportunity.  The practice was in a very upscale area in Manhattan.  Large patient base, diverse patient population, but with conditions and with an insurance payer mix. The purchaser did some due diligence, but to what extent I do not know.  After purchasing the practice, the young ophthalmologist soon learned that the practice was a sham.

So what can be done?  

Spend a little money on the audits and you can avoid buying a lemon.  

‘Take care of the pence; for the pounds will take care of themselves’. – William Lowndes, the British Secretary of the Treasury, 1696–1724.

By Jeanmarie Loria