O&P Acquisition Due Diligence: Billing, Audits, Referrals
O&P acquisition due diligence is the investigation a buyer completes before closing on an orthotics and prosthetics clinic. In this specialty, the most important risks often sit in places that do not appear on a profit and loss statement: how devices are documented and billed, whether past audits left unresolved issues and how dependent the clinic is on a few referral sources.
This article explains what buyers typically review and why those findings can shape price, structure and financing. Billing, documentation and enrollment reviews should be performed by qualified billing or compliance professionals and healthcare counsel. Rules vary by state and payer, and nothing here is legal, tax, billing, coding or compliance advice.
Why O&P Due Diligence Is Different
Many O&P devices, especially lower-limb prostheses and custom orthoses, require detailed documentation from both the physician and the practitioner. Payers may review claims before or after payment, and some reviews can look back over prior periods.
If documentation does not support claims, the clinic may face repayment demands, even after a sale. Depending on how the deal is structured, some of that exposure may follow the business or affect the new owner’s cash flow. That is why careful review of billing and documentation is central to any O&P purchase.
Financial Review
Start with the numbers:
- Several years of financial statements and tax returns
- Monthly revenue trends by payer and by device category
- Accounts receivable aging and work in progress
- Payroll records and owner compensation
- Existing debt, equipment financing and leases
- Proposed add-backs, with supporting documentation
Buyers should reconcile reported revenue with bank deposits and confirm how revenue is recognized, since O&P income is generally recorded at delivery.
Billing and Documentation Review
A qualified billing or compliance professional can sample patient files and claims to evaluate:
- Whether physician documentation and orders are complete
- Whether practitioner notes support the devices billed
- How prior authorization requests were handled
- Denial, appeal and resubmission patterns
- Whether billing practices are consistent across practitioners and locations
Our article on prosthetic prior authorization explains how authorization timing affects cash flow, which is also worth understanding during diligence.
Audit History in O&P Acquisition Due Diligence
Buyers should ask for a complete history of payer audits, record requests and repayment demands, along with how each was resolved. Questions to explore with counsel include:
- Are any audits or appeals still open?
- Have any overpayments been identified and repaid?
- Has the clinic been subject to prepayment review?
- Have there been any payer terminations or contract disputes?
Open issues may lead to price adjustments, escrows, holdbacks or indemnification provisions in the purchase agreement.
Referral Concentration
Referral relationships often drive O&P volume. Buyers should understand:
- Which physicians, surgeons and facilities send the most patients
- How much revenue comes from the top referral sources
- Whether those relationships depend on the selling owner personally
- Whether any referral source is affiliated with a competitor or health system that could change its patterns
Healthcare counsel should review any financial relationships with referral sources. A clinic with heavy concentration may still be a good acquisition, but the buyer should plan how to protect those relationships during the transition.
Payer Mix and Contracts
Review revenue by payer and the terms of major contracts. Our article on O&P payer mix explains how lenders look at Medicare, Medicaid, commercial insurers and veterans’ care programs. Payer contracts should not be assumed to transfer, and some may require notice or consent.
Enrollment, Accreditation and Licensing
Supplier enrollments, accreditation, state licenses and Medicaid enrollments should not be assumed to transfer to a buyer. Timing rules may also apply; our article on the thirty-six-month rule and O&P practice sales explains how a recent ownership change can affect a deal. Counsel should confirm what approvals the buyer will need.
Operations, Staff and Facilities
- Practitioner and technician credentials, tenure and compensation
- Employment agreements and restrictive covenants, reviewed by counsel
- How workers are classified, reviewed by qualified professionals
- Lab equipment condition, ownership and maintenance
- Lease terms, assignment rights and landlord consent
- Patient record systems and how records will transfer
Building a Due Diligence Team
Few buyers can complete O&P acquisition due diligence alone. A typical team may include:
- Healthcare counsel to review the purchase agreement, enrollment issues and referral relationships
- An accountant to review financial statements, quality of earnings and tax structure
- A qualified billing or compliance professional to sample claims and documentation
- A lender or financing advisor to align the deal structure with available financing
Engaging this team before the letter of intent expires gives the buyer time to complete a thorough review.
How Findings Affect Financing
Lenders financing an O&P purchase often review the same issues. Unresolved audits, weak documentation or heavy referral concentration may lead a lender to request additional equity, a seller note, a holdback or other protections. Lenders and programs may limit earnouts, and seller notes are typically subordinate.
Buyers considering SBA 7(a) loans should know that eligibility and terms depend on the business, the buyer, use of proceeds, program rules and lender review. Every loan is subject to approval, and nothing here is a commitment to lend. For a broader view of the buying process, see our guide on how to buy an orthotics and prosthetics practice.
Final Thoughts
Thorough O&P acquisition due diligence looks beyond the financial statements to billing, documentation, audit history, referral concentration and enrollment. Findings in these areas often shape price, structure and financing, so buyers who start early and use qualified professionals may avoid costly surprises after closing.
US Medical Funding helps O&P buyers finance acquisitions and plan for the transition. Learn more about our prosthetics business acquisition financing and our full range of prosthetics practice financing options.
