How do you audit an acquired practice's billing before closing?

What should the billing audit cover?

The medical group acquisition guide covers integration after closing. This post covers what to examine before it.

How do you value the A/R?

Age it by payer and date of service, then discount each bucket by how likely it is to be collected. A claim older than the payer's filing limit may be uncollectible even if it sits on the books at face value. Medicare, for example, requires a claim to be filed no later than one calendar year after the date of service (42 CFR 424.44(a)(1)), with exceptions in (b). Commercial limits come from each contract, as the timely filing limits by payer page explains.

Also ask for the history behind the numbers: payments by payer for the last 12 months, the denial rate, and how much of the A/R belongs to the pre-closing owner under the purchase terms. See accounts receivable in medical billing for the metrics.

How do you sample the coding?

Pull a random sample of paid claims and match each one to the chart. The OIG's physician practice compliance guidance, published in 2000, says there is no set formula for how many records to review but that a basic guide is five or more medical records per federal payor, or five to ten per physician. The same guidance recommends a baseline review followed by periodic audits at least once each year.

• Sample by payer and by provider so one high-volume code does not hide a weak one.
• Compare evaluation and management levels with the documentation, and look for modifier and bundling errors.
• Record the error rate and the dollar direction: overpaid claims create refund exposure, and underpaid claims show lost revenue.
• Pull the denial report by reason code to see which errors the practice repeats.

If the buyer expects to bill under its own tax ID, check that the sample also shows correct billing provider, rendering provider and place of service fields. The billing and coding audits service is a paid engagement for this kind of review.

What overpayment exposure should you look for?

Look for money the practice received that it was not entitled to. Under 42 CFR 401.305, a person who has received an overpayment must report and return it by the later of 60 days after the date it was identified or the date any corresponding cost report is due. An overpayment is identified when the person knowingly receives or retains it. The lookback period is six years, and the rule allows a suspension of up to 180 days for a good-faith investigation.

That means a diligence finding can start a clock for whoever knows about it. Agree with the seller, before the sample begins, who will handle any overpayment the audit finds, and ask counsel how the deal structure affects pre-closing liability. The sixty-day overpayment rule page explains the mechanics.

Can the buyer bill on the first day?

Not automatically. Medicare billing privileges cannot be sold, and when a change of ownership falls under 42 CFR part 489, the current owner and the prospective new owner must both submit enrollment applications before the change is completed (42 CFR 424.550). A new owner that fails to submit within 30 days of the change risks deactivation of the billing number, and a deactivated provider cannot receive payment for services during that period (42 CFR 424.540).

• Map each Medicare, Medicaid and commercial enrollment to the entity and tax ID that will bill after closing.
• Ask whether each payer contract can be assigned, and get the answer in writing, since terms vary by contract.
• List credentialing and CAQH timelines for every provider who moves to a new group or tax ID, using credentialing lead times from the payer.
• Remember that EDI access numbers and passwords belong to the provider and may not be given to a new owner, per the Medicare Claims Processing Manual, so plan new clearinghouse and portal setups.
• Check each provider's NPI record and Medicare enrollment status, as described in how to enroll a provider in Medicare with PECOS.

Medicare and each payer have their own change-of-ownership rules, so confirm the path with the MAC and with each payer before the closing date is set.

What is the request list to send the seller?

1. Twelve months of aging by payer and date of service, with total charges, payments and adjustments.
2. Denial reports by reason code and payer, plus the appeal log.
3. Credit balance and refund reports, and any payer audit or recoupment letters.
4. Payer contracts, fee schedules and amendments, with termination and assignment terms.
5. Enrollment records: Medicare, Medicaid, commercial, NPI, tax ID and CAQH status for each provider.
6. Charge capture policy, coding policy and the last compliance audit, if one exists.
7. The list of billing systems, clearinghouses and portals, with the administrators.

How does Nucleus Align help with acquisition diligence?

Billing and coding audits are a paid service, and our hospital and facility work includes UB-04 accuracy checks across bill type, revenue codes, patient status and authorization requirements. See billing and coding audits and family medicine billing, read more on the blog, or book a call.