Identifying Fraud in Dental Practice Acquisitions

October 24, 2023

Completing a dental practice acquisition is a significant milestone for dentists. Closing these transactions can be time-consuming, expensive, and complex. Additionally, the buyer takes on significant business risk associated with transitioning another person’s business. And part of this risk relates to insurance fraud. While dentists are supposed to adhere to the highest ethical and legal standards, not all comply with the strict letter of the law as it relates to insurance billing. In this article, we will explore the common types of fraud that occur during dental practices and how to spot them during an acquisition.

Common Types of Fraud in Dental Practice Acquisitions

Identifying insurance fraud when buying a dental practice can be challenging because the selling doctor often intentionally tries to hide the fraud. This makes it more challenging to discover during diligence. Insurance fraud will spell trouble for buyers if they refuse to continue the fraud after the acquisition. Consider a patient base that is accustomed to not paying co-payments – do you think these individuals will welcome a new buyer that requires co-payments at every visit? Not likely.

Common types of fraud in dental practice acquisitions include:

Misrepresentation of Financials: In an acquisition, it is crucial for the buyer to scrutinize the financial health of the practice. Sellers might inflate the practice’s income or underreport expenses to make the practice seem more profitable than it is.
Overstatement of Patient Base: Some sellers might exaggerate the number of active patients or the demand for services, which can mislead the buyer regarding the practice’s potential revenue.
Billing for Services Not Rendered: A seller may bill for a procedure covered by insurance, but render service that is not. Consider a dentist billing for a crown, but delivering veneers.
Unbundling Service Charges: Breaking comprehensive services into components and billing each separately can artificially inflate the cost and the perceived value of the practice.

Consequences of Fraud in Dental Practice Acquisitions

Acquiring a dental practice from a seller that was committing insurance fraud creates serious problems for the buyer. As mentioned before, if the patient base is accustomed to benefitting from the seller’s fraudulent activity, they may leave the practice when normal billing practices are instituted. Additionally, a buyer may have to retrain the employees to ensure compliance with the law. If the fraud is continued, the buyer may face the following repercussions:

Civil and Criminal: Fraudulent activities can lead to penalties, fines, and even prison time for the offenders.
Financial Losses: As insurance fraud inflates the value of the practice, once normal procedures are instituted, revenues fall.
Reputational Damage: Fraudulent activities can tarnish the reputation of both the acquired practice and the new owner, deterring patients.
Loss or Suspension of Professional License: Fraudulent transactions can result in the suspension or revocation of the practicing license.