Inside the balance sheets of many healthcare providers is a financial time bomb in the form of lack of adequate controls on coding and billing.

A new white paper by Grant Thornton, an audit, tax, and consulting firm, reveals that some healthcare providers practice “upcoding,” and as a result, are at risk for fines, civil penalties, criminal sanctions, and bans from Medicare and similar programs.

The report, “The Hidden Risks in Healthcare M&A,” focuses on the risk such healthcare providers pose to those seeking to merge with or acquire them. Grant Thornton provided several real-world examples where, in the process of conducting due diligence for its clients, found the M&A target had been upcoding and overbilling.

In all the cases cited by Grant Thornton, the upcoding was the result of a lack of proper controls or a lack of understanding of regulations and proper coding procedure.

While the white paper is a marketing tool for Grant Thornton’s services, there is plenty of useful advice that healthcare providers can extrapolate and use to determine if their billing and coding houses are in order. Grant Thornton used some of the following methods to determine if upcoding was occuring:

Independent audits. Has anyone from the outside ever gone over the books? An auditor with no connection to the financial success of a provider and knowledgable in healthcare billing and coding can be an eye-opening experience for many.

Spot checks. Grant Thornton reported that by obtaining samples of unique records in one acquisition target and having them examined by certified coders and compliance experts it found widespread upcoding that “stemmed from a poor understanding of coding rules by all stakeholders.”

Disproportionate revenue centers. While conducting due diligence for another client, Grant Thornton found an acquisition target had some locations that generated large revenues and others that were unprofitable. A closer examination revealed that the the profitable portions of the business were overbilling and as a result subsidizing the less lucrative parts of the business.

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