AHLA's Speaking of Health Law

Sweeping Under the Rug: Issues in Billing and Coding Diligence in M&A Transactions

November 29, 2022 AHLA Podcasts
AHLA's Speaking of Health Law
Sweeping Under the Rug: Issues in Billing and Coding Diligence in M&A Transactions
Show Notes Transcript

Janice Jacobs, Managing Director, Berkeley Research Group, speaks with Ari Markenson, Partner, Venable LLP, about the latest trends and issues in billing and coding diligence in M&A transactions. They discuss the importance of billing and coding diligence, the scope and size of the diligence process, challenges that can arise, and how to report and analyze the results. Janice and Ari spoke about this topic at AHLA’s 2022 Fraud and Compliance Forum in Baltimore, MD. Sponsored by BRG.

To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.

Speaker 1:

The following message and support for ALA is provided by Berkeley Research Group, a global consulting firm that helps organizations advance in the areas of disputes and investigations, corporate finance and strategy and operations. BRG helps clients stay ahead of what's next. For more information, visit think brg.com.

Speaker 2:

Hello and welcome to today's podcast, sweeping Under the Rug, where we are going to discuss issues in billing and coding diligence in m and a transactions. My name is Janice Jacobs, and I'm a managing director in BRGs Healthcare transactions and strategy practice. My practice handles coding and compliance for m a transactions across all sectors of healthcare providers, and I have the pleasure of being joined today by re Markson a partner in Venable LP Law firm, and I will let him introduce himself. And then we'll get started.

Speaker 3:

Janice. Thank you. Uh, Ari Markson. I am a partner in the healthcare and corporate groups at Venable and it's New York office. My practice is pretty much focused on, uh, healthcare m and a and healthcare regulatory work. Um, I work with, uh, uh, BRG and, and folks like Janice, a, a a ton in terms of doing diligence on healthcare m and a transactions, both in the buy and sell side. And, uh, excited to, to talk about the issues that Janice and I had raised when we were, uh, at the foreign compliance form. So, with that said, uh, why don't we dig into it? Uh, Janice, we had started our, our, our talk, um, and our conversation and really getting into the importance of doing billion coding diligence, uh, in any kind of, um, uh, m and a transaction in the healthcare space. And, and we talked a little bit about the, um, issues that have been raised, particularly about, uh, uh, the, the quality of diligence being done by, um, buyers. And, and I wonder if you could give your take on that.

Speaker 2:

Um, yes. So for, uh, some of you that know this, and, and for those who do not, coding and compliance have become a very large part of diligence reviews, particularly over the past five years, because the US Department of Justice has recently begun holding private equity investors liable for improper claims under the Federal False Claims Act since is relatively new. In the past, uh, the investors were kinda shielded from that kinda activity and all of the on fell onto the healthcare providers themselves. But the DOJ has begun to feel that investors who during their diligence process, discover improper payments made by federally funded payers, um, who did not implement corrective action after the deal was done, are now being held liable. And a few examples of that is that there was a recent settlement of almost 2 million reached by the DOJ with a PE firm who was a minority owner in a medical testing company, um, among others. That's just one small example. Um, there were some larger ones very recently, but as private equity firms increase their investments in healthcare organizations, the DOJ scrutiny, DOJ scrutiny around issues identified during the diligence process will continue. So, for example, if you find a variety of potential overpayments, the, uh, everyone has a responsibility now to do the right thing, perform corrective action, refund the money, so on. So whatever the case may be, there is a lot more scrutiny than there was. So, billing and coding diligence is not just a test as it was kind of heat up in the past, but now it's a very integral part of the m and a process.

Speaker 3:

Yeah, and I, I agree. Uh, the, the, um, and we'll get into this as we, as we talk, um, together throughout this, uh, podcast and the, the billing and coding diligence is something that really gives a buyer, right, a decent sense of what they're getting into. Uh, when they think about the compliance risks that a particular provider they might be purchasing, um, you know, hazard doesn't have, right? The, the, the idea that, um, you wanna get a fuel for kind of, have they been on their toes in terms of their processes for, um, uh, submitting claims to both. Obviously it's important to, with respect to submitting claims to federal healthcare programs, but also commercial payers, um, and just getting an understanding of what you feel they, um, have been doing. Now, there's that, that sort of leads us to our next kind of, uh, uh, issue that, that we had, um, discussed and wanna talk about, which is the, now that we've kind of gotten past that, it's something you should be doing right as a fire. Uh, um, what's the, the, the, let's talk about the sort of scope of the size of what you're looking at, how you're looking at it, um, uh, um, and kind of, sort of the structure of, um, the sample size of the, the sample that you're going to look at in that diligence process and that review, um, and those related issues. So, so Janice, what do you think about that?

Speaker 2:

Yeah, so this is always the biggest challenge is you'll, you know, completing an effective billing and coding compliance review in usually a very limited timeframe. So these deals can go on for four to six months, but the timeframe that we usually have to get the coding and billing review done is usually around four to six weeks. And six weeks is very generous. We usually have less than that, usually around four weeks. So what do we do in that relatively small timeframe when we have a very large, uh, practice, for example, that is under consideration? So we, we really can't e uh, sacrifice effectiveness cause of the timing. So we definitely have to struggle to work within those parameters and get a sample that is meaningful. Because let's face it, the only reason that we're doing these reviews is to assess risk. So we have to perform, uh, plan and perform these audits and reviews to provide reasonable assurance. We have to cover all aspects of proper documentation, billing, coding, any type of specialty specific nuances. Um, the number of records that we are gonna samples contingent upon many factors. So there's not a one size fits all. Um, I think a lot of clients seem to be hung up on 50 or a hundred records, which is not necessarily wrong if it makes sense for a particular target that's under, uh, consideration for acquisition, but it's not gonna work for every single one of them. So, for example, if there is a, uh, couple thousand provider practice that is operating in multiple states with multiple specialties, you can't do a 50 record review on that and come up with meaningful results. So you really have to very carefully consider what exactly is going to provide reliable results. And there's a lot of things that we have to look at for that. So, uh, what is the timeframe? What is there pair mix? Is there a lot of government? Is there a combination of government commercial? Is it more commercial? Is it a lot of self pay? Uh, we have to look at the number of locations. We have to look at the number of providers. We wanna look at utilization of codes by the provider and the location. And sometimes that could mean we have to look at 500 records. So the goal there is to get a meaningful, uh, sample size and carefully consider how to sample, who to sample, uh, in order to get results that can provide the type of reliance that our clients need to either move forward with the deal or possibly turn away.

Speaker 3:

Yeah. So I, I agree. I mean, a couple of thoughts about that. And, and, and you and I have talked about this as well in the past, and that, you know, there are many clients, many new entrants, for example, into investing in healthcare who, um, you know, wanna keep their costs down, for lack of a better way of thinking about it in terms of their diligence cost, and, and, and might say, Hey, I just want a quick kind of, you know, snapshot. And the, that that quick snapshot of a very large provider is just something that, that it's, it's sort of ends up being, you know, first of all, you wouldn't do it. You tell your client, Hey, look, I'm not, you're not gonna, nothing's gonna be meaningful for me doing that, right? For me, looking at p d claims for a thousand provider entity, right? And, and, um, and even though, you know, it's important that I, I tell my clients the same thing that you, you can't ask your billing, coding compliance consultant to, to take a look at, you know, 10 claims for a provider that submits 4,000 a month. Like, it just doesn't, that, that doesn't achieve anything for you in terms of, uh, uh, uh, measurable results to understand their, um, you know, whether or not the seller's compliance, uh, on, on billing and coding issues is, is, is, you know, up to snop, so to speak. And I also think that, um, you know, there's, there's a lot of, and this is sort of anecdotal, it happens a lot of times, I've had this scenario where, um, you know, a client may come and say, well, you know, 80% of their bus, so it's a behavioral health company, let's say, and 80% of their business is, is Medicare part B therapy and, and drugs to d and, and so, um, with physicians, and so I only want you to look at that. Cause the other 20% of their business is just sort of, um, commercial and, and, and Medicaid, um, uh, uh, um, PhD type therapy stuff and, and counselor type therapy stuff. And, and I, and I, you know, I don't want you to look at that. And, and, and, and oh, and by the way, we had actually, they, they had disclosed to us, a seller disclosed to us that, that, that on their Medicare stuff, they did have an issue a couple years ago. So we, we kind of only want you to really focus on that. And the fact is, is that, well, wait a minute. If, if, if the seller told you that they had a billing and coding issue in one area of their business, why would you not look at another area of their business? Right? You know, there's, there's no reason to say just because that's 20% of their business that it wouldn't be be a significant compliance concern, right? Um, uh, just because you, you know, that they had a compliance concern in one area, doesn't mean you should only poke at that. Um, uh, you know, that's like, that's like looking at the one tire with a hole in it on a car and saying, okay, let's fix that one, but not worry about any of the other tires or whether or not they have the potential for, for, for, you know, having a nail in them, right? And, and so it, it, it just doesn't, it doesn't make a lot of sense. And, and, um, and so it, it is really important to get that right and to have a conversation with your client about kind of what type of review, what's the scope, uh, uh, of it and what you're looking at and, and why to make sure that the results are, um, uh, informative and, and appropriate and they're useful. Mm-hmm.<affirmative>, um, let's, uh, uh, go from that sort of, um, you know, talking about the type of review, the scope of the review now to keep, keep going into, to, to the issues around kind of some of the challenges you can find in, in, in conducting a review, um, and, and how to make sure that, again, that the review is useful to you. Um,

Speaker 2:

Yeah. So, um, a lot of these clients come to me and they'll say, uh, do a statistically valid random sample. And, um, I immediately cringe, you don't want to do a statistical, statistically valid random sample in a diligence review. The number one, once you do that, it can be extrapolated. And there you must repay any overpayments, not only found in the review, but extrapolated over the entire population that was, um, referred to during that review. So what we wanna do in these reviews is we want to do a non-statistically valid review that targets areas of known potential risk. This is different. The diligence reviews are very, very different from, say, a practice that is working through their compliance program, auditing and monitoring plan. In those particular plans, you wanna do a very random, you know, just spot checking, maybe 10 records per provider. But in a diligence review, we want to inform our clients where the problem areas lie, both on a go forward basis, but also on a retrospective basis. Because if they're buying a practice that has a lot of compliance related issues, the government could come very easily, come back after closing and go back six years and request repayments. So we, we wanna make sure that we pinpoint areas of known potential risk. For example, high utilization of level four evaluation and managements. That is always a hot topic. We wanna look at unbundling issues. We wanna look at modifiers 25 and 59, modifiers 25 and 59. We'll electronically push through a payment. So if they're applied incorrectly and they should not have been applied, it will result in the practice getting or, or the hospital or whatever. Uh, healthcare provider is appending these 20 fives and 50 nines, they'll be getting paid automatically when they may not. You should not be entitled to that payment. I see a tremendous amount of errors in modifier applications, as well as the increase in higher evaluation and management levels, particularly in the past few years since evaluation and management guidelines have changed. So, uh, you wanna look at those in particular. You want to customize any kind of risk areas to a particular specialty or a particular facility. Uh, we wanna analyze the population data and look for anything that's unusual or unlikely, like very high utilization of certain codes that we wouldn't expect to see either in a particular day or over a particular time, anything like that. Um, we also want to do some other homework and find out if, um, coding and billing is centralized, who is assigning these codes that could help us pinpoint and maybe select our sample? Um, if we know that there is a particular weakness in the organization, if there's multiple locations that are doing coding and billing independently. And then finally we wanna look at high dollar, high volume, but as a guide, um, that is an area that a lot of people get hung up on, and they go right to the high dollar, high volume, that's fine to use it as a guide, but supplement as necessary because high volume, high dollar can result in a very limited number of providers that are included in the sample. And we could be excluding some bad actors or problem providers with documentation, billing and coding that we would normally, uh, have picked up if we didn't do high volume high. So those are, those are some of the things that I look at when I am really, you know, fine tuning these sample selections.

Speaker 3:

Yeah, and I think that there are also, uh, when you get past that, right, we then in, in getting ready, so you've figured out right, what, what we're gonna look at and, and, and how we're gonna look at it. Then there are, there's additional challenges sometimes of how do I need, you know, and not need? How do I get the information I, I need, right? Um, and, and how do I work with constraints that may come up with respect to the seller, things like not everyone of the seller being under the tent and, and, and, um, uh, uh, remote access, really not being exactly what you want to be able to get to the information, um, uh, uh, that you're interested in, in reviewing. And I wonder if you, if you could talk a little bit about that as well, Janice?

Speaker 2:

Yes. So, um, you know, time, we're doing a diligence review. We have to keep in mind that we're one piece of it. So this practice may have, uh, as you mentioned, ra not everybody being under the tent, which simply means that there may be an office manager or one or two designated people that are pulled in and made aware that the, uh, practice or facility is under a, a consideration for acquisition. But the, the rest of the practice does not, are not, is not aware of this. So that means that we are not limited to one or two people that may have to pull medical record documentation and all the support for several hundred claims, in addition to providing all other kinds of diligence, documentation to other work streams, such as quality of earnings, um, the federal pieces, the legal pieces, and so on. So you have, uh, a few people that are still trying to run a practice and try to gather all the information for diligence at the exact same time. So that becomes challenging for the target too. And from the documentation, billing and coding perspective, we don't just need to see an office note, for example, we also need copies of build claim forms, copies of remittance advice, complete medical record documentation. So if we're looking at a case versus an individual date of service, we may have to pull a few hundred pages of documentation for us. We need copies of insurance, authorizations, anything that will help us support that claim. And the documentation is not always housed at the provider's office. So if it is, or if it's in electronic format and they can get it to as quickly, that's great. But a lot of times we have explanation benefits, for example, boxed up and stored offsite. So, uh, there's, there's just historically, and, and, um, even with electronic health records, there's very limited bandwidth to gather this information for us, scan it, and upload it. And we run into problems all the time with, um, documentation being missing key components. So won't give us some of the medical record documentation, but they're missing pages or they're missing orders, or they're missing something that we need to completely sign off. Um, so, or they're telling us that the records don't exist when they may exist. They just, you know, they're housed someplace else, somebody's looking quickly, they can't find it. So all of these, um, issues that don't sound like huge issues, but when you combine it with everything else that's going on, we'll stall an audit and potentially compromise a bid date.

Speaker 3:

Yeah. Yeah. I think that, um, you know, and, and I'll, I'll talk about it a little bit as we, as we go past the, the talking about sort of reporting on, on the results, but, um, we had had a very robust conversation in our presentation at, at the fraud and compliance forum about the fact that you can often have situations where you're given all this documentation, you've done your review, you've even issued a final report right, to your client. Uh, and then when your client goes to talk to the seller about some of the findings, the seller says, well, that doesn't make any sense how we have those documents. And we have these, you know, and, and, and, and, and things come full circle. And, and frankly, and, and in many circumstances, it's actually a positive development, right? And it's that it's a, but, but, but on some level too, you sort of say to yourself, scratching your head count of why, you know, why was that piece of documentation over there, you know, in that trailer or in that whatever it was in, right? Or, you know, why, why, why wasn't it front and center in terms of, of, of what we were looking at to substantiate these, these claims? Anyway, um, let's, uh, uh, talk a little bit about reporting results from what you've done and kind of how you analyze those results.

Speaker 2:

Yeah, sure. So that, that's probably the most important piece of it is, um, you know, okay, now the reviews conducted, what did we find? So we're, how I categorize the findings, I'll put them into high moderate and low risk findings categories. So our high risk findings are those that result in the potential overpayment, and I like to say potential in our reports, because that does give the practice and opportunity to come back and tell us that, you know, we'll issue that in draft. And if they do manage to find the, the page in the box that we were missing, um, that could be cleared, uh, and, and revised. But the overpayments would be where there, there was missing documentation. So they could not provide us with the documentation that we ask for to support a service on a date. It also can result from incorrect coding. So, uh, those are our two main categories there. Obviously, missing documentation is, is a more concerning finding because they're telling us that they have nothing to support what they build and they got paid for. Whereas a quoting error may still result in an overpayment, it requires corrective action. It may require education and training of the coder or the physician, whoever's selected those particular codes, but less concerning because there was documentation available. Um, obviously the patient was there, saw a provider had services performed, but it was coded incorrectly. The moderates are the potential underpayments. So that's where we obtained the medical record documentation, analyzed it, and we found that there was actually more services provided than were captured and billed. Either there was a piece of documentation there that supported an entirely different code that was appropriate to bill, or that another coding error. So the coding error in this particular case would be a, a, a lower level code that was coded or incorrect code that was coded, whereas if the correct code was applied would have increased the reimbursements there. And then the low, we do capture these, there are no impact to reimbursements. So, uh, examples of these are when there's an, uh, diagnosis code that may not be elevated to the highest level of specificity, it did not impact this particular claim, what we call it to the attention of the clients, because it could, you know, if there's a, a educational issue or confusion on the part of whoever coded that it could impact future claims. So it, for example, medical necessity is a great example. There maybe these particular claims that we identified issues in diagnosis coding weren't impacted, but it could affect medical necessity on a future claim if it's either coded incorrectly or not coded to the highest level of specificity. Mm-hmm. Where, you know, a situation where, um, now with ICD 10, you do have a laterality in the diagnosis code. So for example, you submit a x-ray for the left ankle and you code it for the right ankle, you know, those can, uh, result in some, uh, automatic denials legitimately, and there's no real question mark there, but we call those to the attention of the client as a potential, um, risk that could end up being either a high or a moderate. And then we also categorize additional items of no, most often what follow falls into this category is where documentation could use improvement. We were able to extract enough from the medical record documentation to support what we saw. It's not considered an actual finding, but we wanna let them know that there's definitely room for improvement there. So once we're done with all of that, we calculate our financial error rates. So, uh, we have two error rates in our report. Uh, the one error rate is the actual claim error rate. So if you have a hundred claims, how many, what was the percentage that were correct was the percentage that were incorrect, what percentage was high, medium, uh, moderate and low? The financial error rate is, is all of the payment errors, so what was paid and what could have been paid. So we take that delta over the original, you know, total claim amount, and that gives us our financial error rate. We take these from the actual EOBs, if they for some reason cannot provide us with EOBs, we'll look at the Medicare physician fee schedule, the hospital fee schedules, uh, we will, we will take a, a very educated estimate as to what the payment should have been if we don't have access to an actual E O B, and then we'll come up with our financial error rate. A good financial error rate would be anything 5% or less. Um, so that's what we hope to end up with on our reviews. Sometimes they are, those are the, the good ones. Um, if we get into the double digits, it's a little bit more concerning if the error rate is, is creeping up there.

Speaker 3:

I think that, um, you know, the other thing to, to talk about a little bit here is also the fact that, uh, um, I mean, I certainly ask my clients and the consultants, um, that my clients work with to make sure that that first report right, is in draft form because we, because we were sort of alluding to before you, you find things out, right? That change, um, the analysis. And I'm not saying that this is about, um, manipulating the analysis in any way or, or wanting things to be, to be written differently or findings change. It's the fact that, as an example, if a draft report tells you that the consultant found that, you know, 90% of claims were missing something, um, not that, that's not a possibility, right? But it just sort of says to you that, wait a minute, we gotta ask the seller about that before we sort of, you know, finalize a report that says that it was that bad. Like, it just just doesn't seem right. Right? It, something's gotta be asked about that. Um, and, and so often, um, you know, I, I gave an example in our, in our session at the forum about, um, literally having a scenario where consultant came back and said, client has no, you know, oh, no underlying documentation for these ambulance rides, you know, and, and it just made no sense. It made zero sense that, that, you know, all the client had was, its its scheduling software, right? That, that it got, you know, and, and it just made absolutely no sense. And, and of course when you ask the seller about it, right? Uh, um, you know, the, the seller says, what do you mean they're all in that trailer over there? Or they're all in this piece, other piece of software over here. Y you know, and, and all of a sudden, literally every single uh, uh, record that you needed to, to, to verify those claims was, was there, right? And, and, um, and so I think that that's something that's really important, uh, um, and obviously also the, the, the, when you go to the seller with those questions, right, you wanna see how the seller responds. If the seller responds with sort of these cagey kind of, you know, shifty responses, well, it tells you something about, about your process and, and, and what's going on. Um, and you also do wanna give the seller a little bit of time to respond because frankly, they're in a much, look, it's, they're the provider, right? They're, they're, they're in a much better position to understand what's been found and to respond to what's been found. And to the extent that there needs to be remedial action taken that you as the buyer want to be taken pre-closing, for example. Obviously this sellers the only person, uh, the only entity in a position to, to do that. And so you wanna give them the, the, the ability to, to, to, to do that. You also, I mean, most folks, most buyers, they don't wanna just blow up a transaction without giving the seller the opportunity to, to respond to what they found to see whether or not it can be dealt with.

Speaker 2:

So, Ari, with regard to the negative findings, let's assume that they are legitimate, you know, negative findings, um, not the, you know, that that's not the outcome that any of this hope for, but what is the impact then of the 60 day overpayment rule?

Speaker 3:

Sure. Um, that's a great question, Janice. Let's, I'm gonna get there with saying one quick thing first, which is you get the impact of the 60 day overpayment rule comes into play, essentially, depending on whether or not you close the deal, right? And the structure of the deal. And, and so, uh, uh, pretty much every buyer's got, or every potential buyer's gotta understand that that pre-deal, right? Pre-closing any kind of a deal, if they do this diligence and they find all these negative findings, they really have no legal obligation to do anything about them, right? An obligation to do anything about them really only comes into play once they've bought the business, okay? And whether or not the, the, the type of obligation, right, also comes into play with respect to whether or not the transaction was a stock deal or an asset deal. Um, however, so, well, let me take a step back. Stock deal, no question. All the liabilities of the company are yours, buyer. You've gotta do something about what was found in terms of those negative findings, right? An asset deal. It really depend because you're not by law taking the liabilities of the business. It really depends on whether or not you've otherwise contractually taken those liabilities. And one of the things that we talked about that's pretty important is that pretty much normally do, at least with respect federal healthcare program liabilities. And the reason for that is, is that most buyers, unless they're in some type of financial position where they don't have to do this, most buyers assume the provider numbers of the seller, even though they're doing an asset deal, they assume the Medicare and Medicaid provider numbers of the seller. And in doing that, they have 100% legally assumed those liabilities, okay? Excuse me. And so, in assuming those liabilities, uh, um, it's as if they did a stock deal, right? And so they're in the same position whereby they must do something about the negative findings. Now, in doing something about those negative findings, one of the things that is significant, one of the legal issues that's significant to recognize is that, um, you've got the 60 day overpayment rule, uh, that that comes into play. And the 60 day overpayment rule, I'm gonna be very 30,000 foot kind of on on describing it, right? Is is that a statute that essentially says, Hey, if you are aware of money that is, uh, to be returned to the government, um, you've got 60 days to pay it back. Uh, and again, I'm being very simplistic, right? If you become aware of money that you got from the government that you're not entitled to, you've got 60 days to pay it back. Now, there's all standards of when you're aware and all those kinds of things. And I'm not gonna get too deep into that because I'm, I'm, I'm, I want to be as simplistic as we can be. But the fact is, is that you, you can now assume that at least from the minute that you close and become the owner, right? You have taken on the obligation, or more importantly, you now have the responsibility under the 60 day overpayment rule to get that money back to the government, whether via a, a voluntary disclosure back to the carrier via voluntary disclosure, whatever it might be. Um, now you may structure the fact that you're gonna do that, uh, with the seller in saying, Hey, I, I want a special indemnity, or I want a, I want escrow, or I want something in the, in the transac transactional documents to deal with the fact that I've gotta pay that those monies back once I buy the company. Um, but you have to recognize that you can't just take those negative findings. It's really important to recognize this, can't just take those negative findings, um, and stick'em in a drawer and say, well, we'll, we'll, we'll clean that up going forward. No, because the 60 day overpayment rule, what happens when you don't comply with the 60 day overpayment rule? Will all of those claims essentially become false claims of the False Claims Act? And you're now subject to fine trouble damages and just very, very significant, um, essentially, uh, uh, monetary damages if you don't comply with the overpayment rules, you overpayment rule in what you learn from those negative findings and intelligence review. Um, and so it's just not, it's the folks go outta two ways,<laugh>, there are very many people that, that intentionally just say, ah, we'll, we'll fix it going forward. And then frankly, there's the other folks that just, they're, they're so into getting their deal closed that their diligence reviews just to, and, and the, and the way that they structured their, their, the way that they, they structured their transaction documents and so forth with such that they feel like they just dealt with the issue and they just throw, throw it in a drawer, and don't remember that they have that obligation, right? And, and, and also by the way, don't inform the company they just bought. Cause remember, the, the, the obligation is not on the investor, right? It's on the company to refund, to, to make the, the, the refund of those overpayments. Um, and you need to be sure that the company, that, that the information and the obligation is downstream to the company to be sure that something's done. Uh, um, you know, about that liability.

Speaker 2:

It's very true. And, you know, I'm, I have gotten calls probably a year, sometimes more after a deal has closed, where someone at the company came across the diligence report or caught wind that there was something not quite stellar. So, um, that is a very big risk that I think that, uh, you know, there to a point ra that everybody is trying to get this deal closed. As I said before, billing and coding is one piece of a lot of work streams, and it does tend to get overlooked after everything is taken care of. Are there any, is there any other impact on the transaction documents? I know you mentioned this before, but what happens when there are the negative findings and the deal is gonna move forward anyway? So I see things go in that direction frequently. Um, even with negative findings, we're gonna proceed. Um, how is that captured? Does that get offset? Um, is the deal renegotiated? I think that, um, you know, that's an area that I kind of don't, don't get to see, you know, what that financial impact is.

Speaker 3:

Sure. And so there's, there's a bunch of different ways, and obviously depends on the facts, right? Let's say for example, that we know that the seller already has an established audit that was conducted by Medicaid, and, and as a result, they're, they owe Medicaid$200,000 as a result of that audit, but it's not yet been paid, right? That's very easy to build into the transaction documents that were, you know, that the, the buyer's gonna take a purchase price reduction of$200,000 to pay off the, the Medicaid liability after closing, right? Um, but let's talk about a overpayment that we've identified that we have not yet reported, okay? And, um, we're gonna have to voluntary report, okay? Now, depending on how you voluntary report and how significant the issue is, sometimes, by the way, you can voluntary report to the carrier, write a check, there's no additional damages associated with it. It's an, oops, the carrier agrees it was an oops, and, and no harm, no foul. You, you've written your check back, penny for penny, and that's what happens. Okay? Now, if that didn't happen, uh, uh, pre-closing, but that's the plan for what will happen, uh, uh, post-closing, again, you can essentially escrow or take a purchase price reduction or something to, to basically hold that money back and, and do that. But you still may have some type of special indemnification built in, because if, in fact, and, and the buyer wouldn't take this risk, right? Let's say you do report to the carrier, but the carrier says, oh, you know what? We don't really agree that this was an oops, we're gonna send this over to the OIG to take a look at. Okay? Now, even though you voluntary reported the oig, when you volunteer report something to the oig, they often will reduce the amount of damages that they can assess, um, because you've voluntarily come forward, but they'll still assess some amount of damages beyond just what the claim value is, right? And so, despite the fact that you may have at closing said, you know, put aside that$800,000 relating to this issue that we're gonna penny for penny pay back relating to the claims, but we don't know what the risk is of, um, you know, whether or not the carrier may agree with us that this was an oops. And so if the carrier sends that over to OIG and it becomes more of a liability, you seller, you still have to pay for it. Um, and so there may be a special indemnity that covers that specific issue to say, look, you're gonna, you're gonna cover, uh, on behalf of the buyer. Um, you know, there may even be an escrow associated with that, you know, more than 800,000, uh, um, to, to cover that type of an issue. Now, beyond that, there's always going to be reps and warranties on the buyer's, uh, uh, billing and coding compliance. And, and it's, it's, um, hopefully that it's stayed away from non-compliant and fraud abuse laws and those kinds of issues. And there's gonna be indemnification associated with that. Um, that's gonna cover the, the things that, because you're not, no matter what, a buyer is not going to conduct diligence on a hundred percent of the seller's claims, right? Mm-hmm.<affirmative>, and they're not gonna conduct diligence on a hundred percent of the seller's overall regulatory compliance. Just, you just don't do that, right? You are spot checking to be comfortable that you feel the the, um, uh, uh, the seller is doing what they should be doing, right? Correct. And so you're always going to have an, uh, uh, say it in a funny way, kind of an open ended indemnification that goes out a certain number of years, basically saying that if you've violated any sort of these regulatory compliance representations, right? You're gonna be responsible to us on, on the indemnification front. Um, but there are ways to, to so called, and those, the things that I've been talking about to so called put a box around, um, known my abilities, right? The, you know, the, the, the, the, the BRK report told you that there clearly is X number of dollars that should be returned to the government, right? And, and, and you can then take that, that, that number of dollars and es as for escrow or, or, or get a purchase price reduction or something like that to deal specifically with those dollars.

Speaker 2:

Very interesting. Yeah. It, um, I'm always wondering how that is all incorporated because it is kind of a moving target and, you know, very fluid, it can change dramatically from month to month provider to provider as they're coming in and out. So thank you for that, Ari. Very interesting.

Speaker 3:

Yeah. Well, I think this has been a really nice conversation and coverage of the, the, the issues that we really wanted to, um, uh, highlight in terms of, of the, uh, session that we gave at, uh, um, the fraud compliance, uh, uh, forum. And I, and I hope this has been informative for the folks that get to listen into this

Speaker 2:

Joining us, and thank you for inviting, um, RI and myself to do this

Speaker 4:

Podcast.

Speaker 5:

Yeah. Thank you.

Speaker 4:

Thank you for listening. If you enjoy this episode, be sure to subscribe to ALA Speaking of Health Law, wherever you get your podcasts. To learn more about ALA and the educational resources available to the health law community, visit American health law.org.