> ## Documentation Index
> Fetch the complete documentation index at: https://dso.getlemma.com/llms.txt
> Use this file to discover all available pages before exploring further.
# Run diligence
> Bluebird runs confirmatory diligence on Dr. Ellis's practice: forcing the active-patient definition, hygiene reappointment, PPO write-offs by plan, leased networks, credit balances, and the finding that reprices the deal.
Dental practice diligence requires more than reading the seller's reports. Bluebird reruns them in the practice management system (PMS), checks the underlying definitions, and traces the important totals. This page follows the reports it pulls on Dr. Ellis's practice and shows how one finding changes its offer.
## The data request
Bluebird's LOI exhibit asks for the reports below, three years of profit-and-loss statements and tax returns, the lease, an equipment list, a staff roster with tenure and compensation, and every payer contract and fee schedule. [Acquire a dental practice](/guides/growth/acquire-a-dental-practice) contains the full request list. This page shows what Bluebird found.1
| Report | The question it answers |
| ------------------------------------------- | ----------------------------------------------------------- |
| Active patients, **with report parameters** | Is the patient base real? |
| Hygiene reappointment and recall | Are patients returning at the rate assumed in the model? |
| PPO write-off analysis by plan | Which contracts produce the largest write-offs? |
| Payer participation map, direct vs leased | Which fee schedules may be available after the transaction? |
| Production by provider and by code | How much of this practice is Dr. Ellis personally? |
| AR aging and credit balances | What liabilities ride along? |
| Unscheduled treatment | How much treatment is current and likely to schedule? |
The LOI gives Sam and Bluebird's biller two days of on-site PMS access.
## Test the active-patient definition
The prospectus says 2,150 active patients. Bluebird first asks how the seller defines “active.” The term has no standard meaning, and practices variously count patients seen in the last 12, 18, or 24 months.1
Dr. Ellis's report parameters, once produced, show the count was run at **24 months**. Bluebird re-runs the same report at 18 months, its own working definition:
| Definition | Count |
| ---------------------------------------------- | --------- |
| Seen in last 24 months (prospectus) | 2,150 |
| **Seen in last 18 months (Bluebird's re-run)** | **1,480** |
| Seen in last 12 months | 1,190 |
The gap appears to reflect attrition rather than fraud. Dr. Ellis stopped replacing departing patients as he wound down, and the 24-month window still includes hundreds of people who have quietly left. Bluebird's revenue model uses active patients, expected recall visits, and production per visit. Reducing the active count from 2,150 to 1,480 lowers both projected revenue and post-doc EBITDA.
Sam goes back to the broker with the two report printouts. After a counter, the price moves from **$920,000 to $860,000**. The change illustrates why the LOI was subject to confirmatory diligence and why the active-patient definition must be stated before the count enters the model.
## Hygiene: test the reappointment assumption
Hygiene accounts for **31% of production**, within the cited 25–35% range,2 with two hygienists working four days a week. The reappointment report shows that **71% of hygiene patients leave with their next appointment booked**, compared with 84% at Bluebird's first location. Sam treats the gap as a possible operational improvement rather than an automatic price adjustment. It goes into the [integration plan](/start/first-acquisition/integrate-the-practice).
## PPO write-offs, plan by plan
Gross production is $1.42M against $948k collected. The practice writes off roughly a third of gross production to PPO contractual adjustments, consistent with the cited 30–45% range.3 Bluebird then breaks the blended figure down **by plan**:
| Plan | Share of production | Write-off vs full fee |
| ---------------------------- | ------------------- | --------------------- |
| Delta Dental (Premier + PPO) | 34% | 29% |
| Two national PPOs | 28% | 36% |
| **One regional PPO** | **9%** | **48%** |
| Remaining PPOs | 13% | 38% |
| Fee-for-service / cash | 16% | Not applicable |
Bluebird flags the 48% plan for a post-closing renegotiation-or-exit analysis once its own contracts are in hand. The Delta line also requires two answers: which network applies, and under which fee schedule. Dr. Ellis participates in **Delta Premier**, the legacy network whose maximum-allowable fees run higher than the PPO network's. Bluebird must confirm the network and schedule available under its own contracting because Delta represents the practice's largest revenue line.4
## Direct vs leased participation
Of the practice's nine PPO participations, the contract file supports only **six direct contracts**. The other three came through **network leasing**. Dr. Ellis's discounted fee was made available to payers he never contracted with directly, including one plan the front desk knows only from its EOBs.5 Those relationships may not survive the transition, and Bluebird may not receive the same fee schedule. [Network leasing](/concepts/payments/network-leasing) explains the mechanics. In the deal model, Sam treats the three leased participations as revenue that Bluebird must earn again.
## Credit balances and the AR file
The AR aging is unremarkable, but the credit-balance report shows **\$\$18,400 in patient and insurance credits**, some more than three years old. These are refund obligations, and older patient credits may also carry unclaimed-property exposure.1 The purchase agreement will allocate pre-close credits to Dr. Ellis and require them to be resolved or escrowed. [Resolve credit balances](/guides/payments/resolve-credit-balances) covers the operating process.
## Production by provider
Dr. Ellis personally accounts for **68% of production**; hygiene supplies the rest. Bluebird's 12-month employment agreement gives him time to introduce patients to the incoming dentists. Bluebird also scans production by code for outliers against local norms. Nothing unusual appears here, although the same analysis can serve as an [enforcement screen](/concepts/model/dso-enforcement-and-risk) in a Medicaid-heavy practice.
## What diligence changed
| Finding | Deal consequence |
| --------------------------------------------- | ------------------------------------------------------- |
| Active patients 1,480 at 18 months, not 2,150 | Price: $920k → **$860k\*\* |
| Hygiene reappointment 71% vs Bluebird's 84% | Integration workstream, underwritten upside |
| One PPO at 48% write-off | Post-close renegotiate-or-drop analysis |
| Three leased participations | Modeled as revenue to re-earn; contracting plan updated |
| \$\$18,400 credit balances | Allocated to seller in the purchase agreement |
| 68% owner production | Confirms the 12-month employment term |
With the price reset and the purchase agreement in drafting, the deal now depends on the clock that has been running since the LOI: credentialing.
## Next
Credentialing status at close, the no-grace-period rule, and day one.
## Sources
1. Diligence-item consensus from transition advisories: [Dental Buyer Advocates](https://www.dentalbuyeradvocates.com/insurance/credentialing/); [ADS Transitions diligence checklist](https://www.adstransitions.com/resources/articles/dental-practice-transition-due-diligence-checklist/); [Tanner diligence guide](https://joannetanner.com/dental-practice-buyer-due-diligence/).
2. Dental Economics / Levin Group, [2024 annual practice survey](https://www.dentaleconomics.com/practice/article/55016675/higher-production-and-much-needed-stability-the-2024-de-levin-group-annual-practice-survey); Dental Economics, [research report on hygiene](https://www.dentaleconomics.com/practice/article/16388055/research-report-the-state-of-hygiene-in-todays-practices).
3. Veritas Dental Resources, [the true cost of dental insurance participation](https://veritasdentalresources.com/post/the-true-cost-of-dental-insurance-participation-a-write-off-reality-check); Dental Billing Assist, [dental billing KPI benchmarks](https://dentalbillingassist.com/blog/posts/dental-billing-kpis-benchmarks).
4. Delta Dental, [how our networks work](https://www1.deltadentalins.com/administrators/word-of-mouth/2022/how-our-networks-work.html); Delta Dental of Washington, [PPO vs Premier](https://www.deltadentalwa.com/dental-benefits-guide/Delta-Dental-PPO-vs-Premier-Whats-the-Difference).
5. ADA, [PPO leasing networks (PDF)](https://www.ada.org/-/media/project/ada-organization/ada/ada-org/files/resources/practice/dental-insurance/ppo_leasing_networks.pdf); ADA News, [Dear ADA: I'm being paid as a network provider, but I never signed an agreement with that plan](https://adanews.ada.org/ada-news/2025/september/dear-ada-im-being-paid-as-a-network-provider-but-i-never-signed-an-agreement-with-that-plan-what-happened/).