BUSINESS

  CODING STRATEGY

INSPECT THE CODES

LOOK AT CODING AND BILLING HABITS DURING A PRACTICE TRANSITION

JOHN RUMPAKIS, O.D., M.B.A.

YOU MAY be wondering, “What the heck is he talking about? How in the world can coding and billing be related to purchasing a practice?” There are many facets to a practice transition related to the coding and billing behavior of the seller. As of one of the busiest optometric practice appraisal firms in the country, let me share things to be aware of when going through a practice transition.

PRACTICE VALUE

Remember coding should be an accurate translation of the physician services required and provided into a five-character CPT or HCPCS code. Each one of those codes carries a dollar value, represented in charges and collections. A practice appraisal is an accurate assessment or valuation of the practice’s cash flow. Of course, we look at assets, liabilities, etc., but the cash flow is really the essential element evaluated during a practice appraisal. In general, the higher the net cash flow, the higher the appraised value of the practice.

If an individual wasn’t coding encounters or procedures accurately, the resulting misrepresentation the value of the services actually performed creates a misrepresentation of the value of the practice as well. For example, if a visit was really a 99213, but the practice habitually coded and billed for a 99214, that would represent an inflated difference of 24% for those professional services. If a practice habitually coded and billed for a comprehensive exam as 92014 (non-managed vision care), instead of a 99214, then that would represent a nearly 15% overage. If a practice were performing fundus photography on both eyes, when only one eye had properly established medical necessity, that would represent, on average, a $40 difference per procedure. It is easy to see that these small, mostly unintentional, coding errors could significantly inflate the value of the practice. Of course, the converse could be true as well, and the value of the cash flow may be understated.

ASSETS, STOCK AND LIABILITY

For simplification of discussion, when purchasing a practice, you are either purchasing assets or stock. If you are purchasing stock (tax issues aside), any form of purchase, other than assets alone, carries liability. Any corporate or Limited Liability Company (LLC) exists in perpetuity. If the ownership of the entity is simply transferred, through the sale and purchase of those shares, the liability is also transferred. That means, should the practice be audited, both the individual who committed the act (the previous shareholder) and the business entity itself would share the liability.

Remember, in a corporation or LLC, the owner is paid as an employee. The company has its own national provider identifier, and it is to the entity that third party reimbursements are paid. The message here: include a statement of indemnification in your purchase agreement. It can help to mitigate any liability of coding errors committed prior to your ownership.

PART OF THE PACKAGE

We think of coding and billing as being an isolated event. Yet, it is the only way to legally describe the services and products that the practice sells to generate revenue. Practice values are based on assessment of cash flow; the seller and purchaser need to be aware that simple coding errors can over or undervalue the practice. OM

DR. RUMPAKIS is founder, president and CEO of Practice Resource Management, Inc., a consulting, appraisal and management firm for healthcare professionals. Email him at John@PRMI.com, or visit tinyurl.com/OMcomment to comment on this article.