Case Study: Unlocking Value in Healthcare Private Equity with Data-Driven Transactional Due Diligence

About the client

Aprio engaged with a private equity-backed portfolio company in the healthcare space. The company serves a partnership network of more than 150 board-certified otorhinolaryngology (ENT) and allergy providers across the United States.

The challenge

The company encountered several complexities that required specialized expertise as it navigated the path to growth, fueled by private equity investment. The company’s financial picture was highly complex, as it needed to scrutinize earnings from multifaceted, physician-specific revenue streams and sources. The company was questioned by the board of its private equity investor and lender about post-close revenue breakdowns on prior deals.

Unfortunately, the company didn’t have visibility or exposure to the inner workings of these breakdowns, due to constricted deal timelines, insufficient bandwidth, and limited expertise specific to physician revenue cycle management.

The solution

The company enlisted Aprio’s team for help with tackling these issues. Aprio implemented proprietary transactional business intelligence (BI) tools to help increase the company’s visibility into its financials and other critical areas of the business. Thanks to Aprio’s specialized, industry-specific knowledge and resources, the company could:

• Perform due diligence and benchmark the integrity, stability, and sustainability of physician revenue.
• Create actionable reports on over/under-stated revenues, compliance risk, and regulatory exposure.
• Identify coding and billing risks, remediation tips, and post-close revenue opportunities.
• Compute pro-forma provider production, based on coding audit findings relative to the company’s compensation model.

The results

In addition to deploying BI technology to help resolve the company’s issues, Aprio performed coding due diligence audits to assess revenue vulnerability.

The company’s highest-level office visits (called Level V visits) benchmarked roughly 70% higher than ENTs nationally. Moreover, injection revenue for certain allergy/immunotherapy drugs was nominal compared to ENTs nationally.

In its coding audit, Aprio included Level V office visits and uncovered that the company should have billed all of them by using lower-level codes. The team also included allergy/immunotherapy services in its audit and found documentation supporting injections rendered but not billed (in other words, only the drugs themselves were billed).

Based on the audit-recommended coding levels, the company’s office visit revenue (about 75% of overall revenue) was overstated by roughly 25%. Moreover, the missed revenue opportunity for injection billing calculated a post-close lift of roughly $200,000 per year.

Thanks to Aprio’s help, the company was able to make necessary adjustments to deal price, post-close revenue pro-forma, and compensation modeling calculations.

The bottom line

Most healthcare accounting and business advisory firms don’t include analytics or coding in physician due diligence, and those that do include it aren’t specific or thoughtful with their approach or sampling.

Aprio’s BI-driven due diligence process accounts for critical compliance and revenue considerations, enabling healthcare practices and companies to make critical deal adjustments and design necessary process changes prior to closing private equity transactions.

To learn more about how your healthcare organization could benefit from Aprio’s solutions, contact our team today.

Mark Armstrong, MHA, FACHE, FHFMA
National Healthcare Practice Leader | Partner | Advisory Services
mark.armstrong@aprio.com
770-353-5326

Rachel Harris
Director, Healthcare Advisory Services
rachel.harris@aprio.com
615-761-9468

View as PDF