WASHINGTON ACADEMY OF EYE PHYSICIANS AND SURGEONS

Transcription

1 WASHINGTON ACADEMY OF EYE PHYSICIANS AND SURGEONS Presents: Impact of Coding and Billing on Practice Valuation Presented By: Kevin J. Corcoran, COE, CPC, CPMA, FNAO President Corcoran Consulting Group April 1, 2016 Seattle, Washington

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3 Impact of Coding and Billing on Practice Valuation by Corcoran Consulting Group A Division of Ardare Corporation 560 E. Hospitality Lane ~ Suite 360 San Bernardino, California (800) Copyright 2016 All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the author. From time to time, changes may occur in the content of this report and it is the user s responsibility to assure that current issues of this report are utilized. This additional information is also copyrighted as expressed above. Other copyright: CPT and all CPT codes are copyrighted by the American Medical Association with all the rights and privileges pertaining. Objective: This handout is provided as part of a general discussion of reimbursement for eye care services by Medicare and other payers and related issues. The user is strongly encouraged to review official instructions promulgated by the Centers for Medicare and Medicaid Services (CMS) and their Medicare carriers; this document is not an official source nor is it a complete guide on all matters pertaining to reimbursement. In addition, users should check with their local Medicare Administrative Contractor (MAC) for approved diagnosis codes and usage. Disclaimer: This document is not an official source nor is it a complete guide on all matters pertaining to coding (CPT, HCPCS, ICD-9, or ICD-10) and reimbursement. The Corcoran Consulting Group does not guarantee that the use of this information will result in payment for services. The reader is reminded that this information can and does change over time, and may be incorrect at any time following publication. The continued availability of cited references as hyperlinks, whether embedded or not, cannot be ensured. This document does not constitute legal or medical advice. Physicians and other providers should use independent judgment when selecting codes that most appropriately describe the services provided to a patient. Physicians and hospitals are solely responsible for compliance with applicable laws, Medicare regulations, and other payers requirements and should confirm the applicability of any coding or billing practice with applicable payers prior to submitting claims.

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5 Impact of Coding and Billing on Practice Valuation Kevin J. Corcoran, COE, CPC, CPMA, FNAO President Corcoran Consulting Group Indicator of threat Potential for loss Unexpected volatility of returns Standard deviation of historical returns Potential negative impact to an asset What is risk? What is risk? Risk is considered as an indicator of threat. It can be assessed qualitatively or quantitatively. What is risk? Qualitatively, risk is considered proportional to the expected losses which can be caused by an event and to the probability of this event. The harsher the loss and the more likely the event, the greater the overall risk. What is risk? Financial risk is often defined as the unexpected variability or volatility of returns, and thus includes both potential worse than expected as well as better than expected returns. What is risk? In finance, risk is the probability that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. It is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. 1

6 What is risk? (Wikipedia) Risk is a concept that denotes a potential negative impact to an asset. In everyday usage, "risk" is often used synonymously with the probability of a known loss. Paradoxically, a probable loss can be uncertain and relative in an individual event while having a certainty in the aggregate of multiple events. Risk Factors in a Medical Practice Growth Patient retention Tenure Staff physician retention Referral sources Competition Managed care Accessibility Risk Factors in a Medical Practice Range of services Ambience Management systems Staff morale Equipment Operating expenses Malpractice Legal risk Cash management Risk Factors in a Medical Practice Compliance Overpayment Fraud and abuse HIPAA breach Utilization Dubious medical necessity Overuse Risk and Return The greater the amount of risk that an investor is willing to take on, the greater the potential return Investors need to be compensated for taking on additional risk Risk and Return A US Treasury bond is a very safe investment relative to other bonds A corporate bond has a higher rate of return than a US Treasury bond 2

7 Return on Investment Risk Free ROI ROI (%) = Money gained or loss Money invested A US Treasury bill is a risk free investment Lowest possible ROI Risk Premiums Profit Large, strong established business Large business in competitive industry Large business in highly competitive field Small business in competitive field Very small, one man business 6-10% 11-15% 16-20% 21-25% 26-30% Remaining money after expenses Profit distribution is a dividend Undistributed profit is retained earnings Source: Schilt s Risk Premiums Imputed Profit Practice Valuation Techniques Revenue $1,000, % Operating expenses $ 570,000 57% Physician labor $ 370,000 37% Imputed profit $ 60,000 6% Comparison with sale price of similar practices Based on profitability and ROI Tangible and intangible assets Physician labor: Cost of a locum tenens or substitute 3

8 Example: Sale Small, one man practice Poor condition, imminent retirement after 40 yrs Imputed profit = $25,000 ($0.5M revenue) ROI (%) = 0.5% (RF) + 30% (risk premium) = 30.5% Value = $25,000 / 30.5% = $81,967 Includes tangible and intangible assets Excludes cash, cash equivalents (A/R) Cash & Cash Equivalents Cash is an asset Valuation question is moot; dollar-for-dollar Accounts receivable is a cash equivalent The risk of default is born by the holder Valuation based on historical collection ratio Example: Buy-In Large group practice, excellent condition, ongoing Imputed profit = $250,000 ($5M revenue) ROI (%) = 0.5% (RF) + 21% (risk premium) = 21.5% Value = $250,000 / 21.5% = $1,162,791 Includes tangible and intangible assets Cash, cash equivalents (A/R) = $833,333 (60 days) Basis for buy-in: $1,996,124 Assets Tangible assets Equipment and furnishings Tenant improvements Inventory Cash, cash equivalents Intangible assets Goodwill of the practice The Goodwill Registry Published by The Health Care Group Goodwill is intangible; % of annual collections Goodwill varies widely 0 100% Typical values 15 30% Example Annual collections $1,000,000 Goodwill 20% Intangible asset $ 200,000 Tangible assets $ 175,000 Valuation $ 375,000 Source: The Goodwill Registry 4

9 Real Estate Considered separately Not part of practice valuation Hidden Liabilities Overpayments by third party payers due to erroneous claims for reimbursement Misstatements of earnings due to poor accounting practices Payables or indebtedness that is not recognized by the practice, such as unpaid payroll taxes Equipment that is alleged to be owned but title is actually owned by a leasing company Unpaid income taxes due to erroneous tax returns Hidden Value Underutilization of services Inefficient patient recall Postponed or cached surgery Analyze Your Pattern You MCR Gonioscopy (92020) 3% 3% OK Visual fields (9208x) 7% 11% Low Fundus photos (92250) 13% 8% High IVFA (92235) 0% 6% None Ext O scopy (9222x) 3% 16% Low Analyze Your Pattern A utilization analysis for an ophthalmic practice revealed the following: Practice MCR % 1% OK / % 54% Low / % 42% Low % 3% High % >1% High Detection Examine tax returns and financial statements Employ an equipment appraiser Chart review Utilization analysis Employ a private investigator 5

10 Case Study #1 No on-site equipment appraisal performed Suspicious tax returns Poor bookkeeping High turnover rate of staff Chart review revealed non-compliance and numerous unhappy patients after LASIK Utilization analysis detected widespread underutilization of tests and overutilization of minor sx Several jilted vendors Case Study #1 Asking price: $1.8 M Bid price: $0.75 M Outcome: No agreement reached Case Study #2 Case Study #2 Discussion with young employee physician to buy in No practice valuation by outside expert No disclosure of financial statements Evidence of mismanagement Outcome: After 6 months of interrupted discussions punctuated by frequent requests for disclosure of the practice s financial information, employee physician was abruptly terminated without explanation Case Study #3 Founder plans to retire Young employee physician interested in buying practice Numerous discussions without a conclusion Founder died suddenly Case Study #3 Outcome: Sales was never completed Value of the practice declined on demise of founder Widow unwilling to renegotiate Practice shrank after young physician left 6

11 Summary Practice valuation is proportional to risk Some risks are declared, others undeclared Search for, identify, and quantify all risks Everything is not on the financial statements More help For additional assistance or confidential consultation, please contact us at: (800) or 7

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