Case Study: Primary Care Physician Documentation Impacts Fair Market Value of a Practice

A healthcare system in the Southeast was comprised of a 250-bed acute care hospital, a rehabilitation hospital, and a few outpatient testing centers to make testing convenient for community members. In addition, the system had recently made a large investment in primary care by purchasing six different primary care practices that included 21 physicians. With one other hospital as its major competitor in the region, the purchase was seen as a smart strategy for driving more inpatients into their hospital. The health system paid fair market value for the practices based on their last three years of billing and receipts.

The health system had also made the decision to implement a clinical documentation program. A review of inpatient records had identified that documentation was not as complete and clear as it should be. Furthermore, there was a concern that the current documentation was not reflecting the true acuity and severity of the inpatient mix. Prior to the program being rolled out, the executive team met with all of the physicians in the primary care practices through some informal lunches. During the meetings, the CEO and CMO explained the efforts that would be occurring and asked for the participation of the physicians. The physicians, all of whom were now salaried employees, agreed to support the program.

A few of the first training programs held by the clinical documentation trainers involved discussions with physicians—both physicians employed by the hospital and those not employed—about their documentation practices. During these sessions, the trainers spent some time describing documentation requirements in the physician office setting. All of the physicians appreciated this instruction, and it was clear that many of them were hearing the message about the relationship between the documentation in their records and their billing levels for the first time. As a result, the organization decided that additional documentation opportunities might exist within the primary care practices they had purchased.

A close review of the hospital employed primary care physicians’ office-based documentation revealed a good news/bad news scenario. For some of the offices, physician documentation supported a much higher level of billing than what they had actually been paid. In other cases, physicians had billed for higher levels of care, which they probably had provided, but their documentation did not support it.

There were two issues that the organization had to grapple with immediately. First was reassessing the actual fair market value of the practices. (And for any practices that were purchased in the future, the organization decided an audit of the documentation and billing practices would be performed during the due diligence phase.) Second, and more important, for the practices that had under-billed, new bills would be submitted if time allowed. But for practices that had overbilled, repayments had to be made. In one case, the organization ended up performing an extensive internal audit and self-reporting for a settlement with the government on six years worth of bills. The good news was that, with good documentation practices implemented, the physician groups showed an overall positive revenue impact that exceeded the original projections at the time of purchase.

Back to Case Studies