When evaluating a physician-practice acquisition, a deep dive into the financials of the target does not always tell the whole story. Without an examination of whether the coding and clinical documentation support the services behind the revenue, a crucial consideration is being overlooked.
Performing coding due diligence audits help buyers identify questions to resolve before closing and coding or documentation improvements to prioritize afterward.
Financial reviews examine business performance and transaction economics. Coding reviews add a closer look at whether reported services align with the underlying clinical records.
For private equity firms, health systems, physician-practice platforms, and their advisers, these reviews provide another source of information for evaluating a target practice.
The Coding Network (TCN) provides independent, specialty-specific coding and documentation reviews tailored to the practice and transaction.
The Financials Show the Revenue. Coding Diligence Examines Its Support.
A practice’s financial performance does not, by itself, establish whether its coding accurately reflects the services documented in its clinical records.
Reviewing a sample of cases can help deal teams answer questions such as:
- Does the documentation support the reported services and code levels?
- Were procedure and diagnosis codes assigned appropriately?
- Were modifiers used correctly?
- Are there potential bundling issues?
- Does the sample reveal patterns of overcoding, undercoding, or incomplete documentation?
- Has money been left on the table as a result of undercoding or deficient documentation?
- Is there the possibility of liability exposure due to poor documentation or coding practices?
- Which findings warrant closer examination before closing?
The purpose is to give the acquisition team a clearer understanding of the coding practices behind the target’s revenue and identify where additional diligence may be valuable.
Three Areas That Deserve Attention Before Closing
1. Potential Overpayment Exposure
Unsupported code levels, incorrect modifiers, and other coding errors can raise questions about the payments associated with the reviewed services.
An acquisition coding review can identify discrepancies and help the deal team decide which findings require expanded review or discussion with its advisers.
Not every coding error indicates fraud. Whether a finding creates a repayment obligation or liability for a buyer requires separate, transaction-specific analysis.
2. Undercoding and Missed Supported Services
A review may also identify encounters where the documentation supports services that were coded incorrectly or incompletely.
These findings help buyers understand where coding practices may need improvement and establish priorities for post-acquisition education or process changes.
Undercoding does not automatically mean additional revenue can be recovered. The value is in identifying supported services that were missed or misreported and determining the appropriate next steps.
3. Documentation Weaknesses
Even when a service has been performed, gaps in the clinical record can make the reported coding difficult to substantiate.
A focused review can highlight those gaps and distinguish issues that need clarification during diligence from those that should become priorities for documentation improvement.
This gives the acquisition team a more informed starting point for discussions with the target practice and for planning operational support after closing.
What an Acquisition Coding Audit Can Review
The audit’s scope should reflect the target practice’s specialty/specialties, service mix, transaction timeline, and the buyer’s objectives.
Review areas may include evaluation and management coding, procedure and diagnosis coding, modifier use, bundling, and the documentation supporting reported services. The engagement should identify which providers, service lines, and encounters will be reviewed, along with any relevant payer-specific requirements.
Defining these boundaries early helps the buyer understand what the audit will address and whether additional review may be needed.
Why Specialty-Specific Coding Expertise Matters
Coding conventions and documentation expectations vary by specialty. Reviewers need experience with the services the target practice provides to recognize relevant coding and documentation issues. If a generalist auditor is performing the review, they may not know the nuances of the particular documentation involved for the specialty they are looking at or the required in-depth understanding of the coding as it applies to specific payor rules and guidelines.
For example, an orthopedic practice review may examine surgical procedures, office-based services, and associated modifiers. However, there are many types of orthopedic providers (e.g. foot/ankle, hand, spine, etc.) and ensuring that the auditor reviewing the cases has the depth of knowledge to tackle that particular sub-specialty is critical to having actionable results. The scope should reflect the practice’s actual services and the buyer’s diligence questions.
Matching the reviewer’s expertise to the target practice helps make findings relevant and actionable. TCN exclusively connects the specialty-specific reviewers with the provider types they are auditing and establishes the appropriate scope during engagement planning.
Findings the Deal Team Can Act On
A coding audit should help the acquisition team decide what to investigate, clarify, or improve.
Depending on the engagement, deliverables may include:
- A summary of findings from the reviewed sample.
- Identified coding and documentation discrepancies.
- Potential overcoding and undercoding patterns.
- Prioritized questions for additional diligence.
- Recommended coding and documentation improvements.
The sampling approach, deliverables, and timing should be established before the review begins.
Findings must also be interpreted within the limits of the engagement. A sample review should not automatically be treated as a statistically valid estimate of exposure across the entire practice. Coding diligence informs the buyer’s broader assessment; it does not independently establish a purchase-price adjustment or provide a legal opinion.
How TCN Fits Into the Acquisition Process
TCN provides the coding and documentation review component of broader acquisition due diligence, complementing the work of the buyer’s financial, legal, and transaction advisers.
Its approach includes:
- Independent third-party coding and documentation audits.
- Auditors who live and work in the United States.
- Reviewers matched to the target practice’s specialty.
- Auditors with at least five years of specialty-specific coding experience within the past five years.
- Coding credentials and specialty-specific coding and auditing proficiency validation.
This specialty-specific approach helps deal teams examine the coding and documentation behind the target’s reported services and identify priorities for follow-up.
Start With the Transaction. Define the Right Audit.
An effective engagement begins with the acquisition team’s questions and the characteristics of the target practice.
TCN’s scoping process starts with three steps:
- Discuss the target. Identify the practice, specialty, transaction timeline, and key diligence questions.
- Agree on scope. Define the review areas, sampling approach, required records, and deliverables.
- Review the findings. Identify priorities for additional diligence or coding and documentation improvement.
Timing depends on the scope and the availability of the records needed for review.
Acquiring a Practice? Discuss Your Coding Diligence Needs.
Before closing, understand what the clinical records reveal about the coding behind the target’s revenue.
The Coding Network can discuss an independent, specialty-specific review to help your team clarify outstanding questions and plan appropriate next steps.
Learn More About Your Acquisition Coding Audit →
