internal audit
The more you know, the better off your business will be
by Miriam Lieber

A company’s value and operational success are directly impacted by its compliance performance. The potential buyer of a home medical equipment (HME) company is more interested in audit success to ensure protection of their investment than ever before. In this article, we will explore proactive audits, risk management, compliance plans, culture and marketing in a compliance-focused company.

Internal Audits for Optimal Risk Management

In a recent analysis of HME compliance officers, I learned that most, if not all, HME companies conduct internal audits. Results determine training needs and corrective actions. In many cases, compliance is considered a risk management function. Measures based on denials establish risk factors and expectations. If, for example, you expect that all medical necessity documentation might take up to two weeks to receive, your software will track and report if the medical necessity documentation doesn’t arrive by the end of the second week. This will indicate that it is unlikely that it will be sent at all, based upon previous data analysis. Conduct this type of exercise for all compliance-related issues to help you determine where to focus your training efforts and priorities.

Use data analysis and predictive analytics to determine the specific areas of concern (products, payers, documents) and your expectations. By managing your risk, you should be able to spend time on your core compliance matters and resolve issues when they first arise. Some companies use compliance-specific software for general compliance training.

In addition, a regularly scheduled audit will dictate your specific training needs and will impose adherence to your compliance plan. Key risk areas to consider are accreditation, marketing practices, billing, medical necessity documentation and referral relationships.

Finally, many providers elect to have an outside consulting firm conduct an audit to see if their audit corroborates the findings from the internal audits conducted by the compliance team. That also bodes better for the company when trying to mitigate damages found by Medicare or other payers.

Compliance Plans & Programs

More than 20 years ago, the Centers for Medicare & Medicaid Services (CMS) published compliance guidance for HME suppliers. The guidance identifies and discusses numerous compliance risk areas and should be incorporated into your compliance program. An effective plan should also help mitigate negative action that might be taken against a supplier. Whether you are large or small HME provider, it behooves you to have an up-to-date compliance plan that you follow consistently. As company size and scope differ, your compliance program and team will vary based on size and business type. But regardless of size, the chief compliance officer or designated compliance personnel at your company should be responsible for the plan and its effectiveness.

Many companies will require a dedicated compliance team, especially once there are several hundred employees on staff. The compliance officer and team should communicate the consequences of failing compliance audits to all employees in writing. Employees should also document their understanding of compliance requirements.

The compliance officer is responsible for following through on disciplinary and corrective actions when a violation is discovered. This also highlights what training topics are needed. For some companies, the executive team, together with the compliance officer, decide on the key training areas to address any deficiencies found in the previous quarter. For others, compliance works with training and human resources departments to determine what training efforts are needed based upon the results of the most recent audit.

Compliance & Company Culture

Part of having a formal compliance program is to prevent, detect, respond to and report any violations of laws, government regulations or ethical rules. This translates into a culture of compliance, in which the entire staff understands the importance of having an upstanding position regarding compliance—and of taking swift action when missteps are found. Moreover, proactively ensuring compliance with regular internal audits sends a clear message to staff that you consistently and constantly pursue quality and improvement.

When each employee understands and respects the demands of the compliance team and the reasons for their directed compliance measures, the company’s culture should improve. If the compliance staff doesn’t gain and elicit respect from the staff, back-and-forth blaming and resentment often ensue. Instead, focus on a message throughout the organization that compliance protects the company and risk analysis is used as a basis for their activities. Although you don’t want compliance to be typecast as a scare tactic, you need employees to understand its importance to the bottom line and to the professional image and culture of the company. This can be a fine balance.

Compliance’s Role in Marketing

If you create a corporate culture that appreciates the role of compliance—along with honoring ethics—the reputation you earn inside the organization as well as in the community is something you can use in marketing to referral sources. Businesses want to work with companies that they trust and respect, and that work to provide best-in-class service while adhering to rules and regulations. Use your audit outcome statistics to demonstrate this to the community. After all, you only want to use a doctor who is considered ethical in their practice and who scores highly on reviews. The same is true for an HME provider who is seen as a partner in, if not a part of, the health care provided by the physician and/or health system.

Company Valuation

As you can see, the role of compliance runs deep inside an HME operation. It is also one of the key considerations during a company valuation. In fact, Brad Smith, managing director and partner at VERTESS, says that “In 99% of all valuations, it is assumed that the charts and/or regulatory compliance is at an industry acceptable standard level.” Compliance audits are conducted as part of due diligence.

“Typically, the due diligence phase of a transaction is when compliance is addressed and becomes an issue. This is after a purchase price has been agreed upon,” Smith added. If the result of the audit shows poor compliance results on the part of the seller, Smith said, this will “increase post-transaction risk for the buyer and result in a reduction of the valuation and/or purchase price.” This means that your company should proactively conduct audits as though you are selling your business. This type of simulation exercise demonstrates that you take internal audits seriously and mitigate potential damage before it is encountered.

Weighing in on the issue of valuation and compliance, Wayne van Halem, president of the van Halem Group, said, “The entities looking to acquire HME suppliers, in particular larger entities or private equity firms, are not interested in bringing on unnecessary risk.” This means that your records should be reviewed before engaging in a buy/sell encounter.

Van Halem added that when his team discovers significant issues while conducting due diligence audits, one of two scenarios typically occurs.

“The first is that the buyer loses interest and walks away from the deal and, depending on the severity of the issues identified, it is not completely uncommon for this to happen,” he said. “The second is that the prospective target company is devalued significantly due to the risk now associated with the transaction.”

So be certain that you take compliance seriously and assess and manage risk accordingly. Educate and train staff when errors occur to prevent future issues. Maintain a compliance program or plan that incorporates the key elements found in compliance requirements. Create a culture that encourages compliance excellence and use your audit outcomes for marketing and outstanding reputation assurance. You will not just rest better at night, you will make your success certain and not just for the short-term but the long-term profitability of your company.

Miriam Lieber is president of Lieber Consulting, LLC, and a member of HomeCare’s Editorial Advisory Board. Visit