Coming off of a record-breaking year for healthcare M&A, it is critical for acquirers to maintain focus on a basic element of due diligence – coding and compliance – to ensure they get what they pay for.

The impact of problems in this area that are not fully understood, particularly those that might draw the attention of regulators (Centers for Medicare and Medicaid Services, Office of Investigative General, etc.), can be so unpredictable that it becomes quite difficult to adjust the sale price to offset the risk as a deal moves towards closing.

As a result, the acquirer may consider conducting due diligence as it pertains to provider coding patterns and compliance program adherence before investing in a quality of earnings assessment.

Naturally, there are a number of elements in a coding and compliance review, but here are five key areas that our team at LBMC spotlights when working on deals involving healthcare providers:

Key area #1

Process an analytics review to identify providers with higher-risk coding patterns.

Key area #2

Identify “incident to” billing patterns where a mid-level provider such as a nurse practitioner or physician assistant carries out a care plan devised by a physician who works under the same roof in addition to other associated regulations. In certain scenarios, care by the mid-level provider can be billed at 100% of the physician rate, but it is critical to not only meet the requirements, but to properly document them.

Key area #3

Determine whether there is a compliance program in place and if so, how strong are the auditing and monitoring components? Is there a culture of compliance in place rather than just pro-forma, check-the-box approach?

Key area #4

Conduct a 10-chart review for each physician and mid-level provider and create an overall compliance score that includes activity by nurse practitioners and physician assistants who work with that doctor. Selection of charts to review can be risk-based or at random.

Key area #5

Using the chart review, determine the potential financial impact of any over-coding or under-coding that is identified, for potential adjustments at closing.

It is also important to note that a thorough coding and compliance review can be the gift that keeps on giving. Besides helping to ensure that the acquirer is getting value when signing the deal, the information gathered can be very useful in creating a game plan for enhancing the overall culture of compliance. Additional educational programs for physicians and mid-level practitioners put in place as a result of the review can spare the new owner from a lot of headaches down the road.

Andrew McDonald, FACHE is a Shareholder and Practice Leader for Healthcare Consulting and LBMC Physician Business Solutions, LLC. He can be contacted at or 615-309-2474.