Transaction Advisors
PE advisors managing ophthalmology rollups inherit CAM overcharges from pre-acquisition periods. This guide covers how to screen acquired leases, identify systematic billing errors across a portfolio, and structure CAM audit as a post-acquisition value creation step.
Private equity firms running ophthalmology rollups spend hard on diligence. They check revenue cycle, payer mix, doctor contracts, and EHR setup. The leases for 15 to 30 acquired sites pass through as fixed costs. Almost no one audits them. So money sits unclaimed in reconciliation statements nobody read. A reconciliation statement is the yearly bill from the landlord.
CAM overcharges in medical building leases are not rare. CAM means Common Area Maintenance, the shared building costs. These billing errors pile up year after year when no one checks them. A PE-backed group can run CAM diligence after it buys. That recovers the backlog and stops new overcharges. It turns rent cost into a place to find money.
I built CAMAudit for teams without real estate forensic experts on staff. The tool checks each landlord's yearly statement against the lease. It flags every charge that goes past what the contract allows.
CAM Reconciliation Statement: The annual document a commercial landlord sends to each tenant showing the tenant's proportional share of actual building operating expenses for the prior year. The reconciliation compares estimated payments made during the year against actual expenses and either charges additional amounts or issues credits. Under NNN and modified gross leases, the tenant has contractual audit rights to verify that the reconciliation was calculated according to the lease terms. Ophthalmology practices in medical office buildings receive one reconciliation per location per year; an unaudited reconciliation may contain billing errors that go unchallenged unless the tenant exercises those audit rights.
Medical buildings cost more per square foot than plain office space. BOMA International's Experience Exchange Report shows this gap. The costs come from clinical HVAC built to ASHRAE Standard 62.1, elevator upkeep for patient equipment, and special waste handling.
Higher costs make a bigger base for errors to grow on. Picture a management fee charged on a base it should not touch. The dollar error is bigger when the pool is $200,000 than when it is $1,500. A management fee is the landlord's charge to run the building. Now picture a pro rata share that is too high by 3 percentage points. Pro rata share is the tenant's slice of building costs. That error costs more when costs run $18 per square foot than $9.
Ophthalmology practices also rent smaller suites. These run 2,500 to 4,500 square feet in buildings with many tenants. The landlord may manage 10 to 20 tenants at once. IREM data shows these landlords face less pushback. Big health systems have lease accounting staff who check the math. Small tenants do not. So errors stick around because no one pushed back.
A PE rollup may buy 20 sites from solo ophthalmologists who ran their own leases. Assume most of those leases were never audited.
Most diligence treats the lease as a real estate item. It checks the term, time left, renewal options, rent steps, and transfer rules. These matter for the deal model and the value after close.
What diligence rarely checks is the math. Did the landlord figure the yearly CAM bill right under the lease? That check needs three papers in one place. You need the lease, the latest CAM reconciliation statement, and the landlord's worksheets. They rarely sit in the data room together.
MGMA benchmarking data says rent runs 6% to 8% of gross collections for a typical practice. A practice that collects $2 million a year pays $120,000 to $160,000 in rent cost. CAM is about 30% to 40% of that. A 10% error on a $50,000 CAM bill is $5,000 a year. Across 20 sites over a 3-year lookback, that adds up to six figures. The lookback is how far back you can claim.
The real block is capacity. Diligence teams are not staffed to check 20 sites at once. The work is manual and special. So it loses to the revenue and clinical work.
"After testing reconciliation samples from published audit cases through CAMAudit, the pattern is consistent: practices that have never audited their CAM reconciliations carry the most recoverable value. In a rollup context, that means the due diligence gap is also the recovery opportunity." - Angel Campa, Founder of CAMAudit
Lease clauses do not carry equal risk. When you screen a new portfolio, check four parts of each lease first.
Most leases cap the management fee as a percent of revenue or costs. The overcharge happens when the landlord figures the fee on the wrong base. The base may include items the lease leaves out. Those left-out items often include capital costs, insurance payouts, and tenant build-out money. When they go in the base, the fee tops the cap.
The management fee matters because it repeats. The overcharge hits every year the lease runs. Over a 10-year lease, a $2,000 yearly overcharge totals $20,000 at one site. Across 20 sites, that is $400,000 from one error pattern.
The pro rata share sets what slice of building costs the tenant owes. The lease sets the top number, which is the tenant's space. It also sets the bottom number, which is the building's leasable space. The bottom number can shift in ways the lease allows. An overcharge happens when the landlord's bottom number breaks the lease.
Two shifts cause most errors in medical buildings. One is vacancy exclusions. The landlord drops empty suites from the bottom number, so each tenant's share goes up. The other is anchor exclusions. Big tenants with their own CAM deals come out of the bottom number, which loads more cost on small tenants. If the lease does not allow these moves, the share is an error.
ANSI and BOMA International publish building measurement standards, like BOMA 2017 for Office Buildings. They set how to figure rentable area. A gap between that standard and the landlord's bottom number is a second thing to check.
Leases set which costs can and cannot go in the CAM pool. Common left-out costs are work on other tenants' space, default or eviction costs, costs paid by insurance, top executive pay above a set level, and capital costs. When a landlord puts a left-out cost in the pool, every dollar is an overcharge.
This list ties back to the management fee cap. If left-out items sit in the fee base, the fee overcharge grows from both the bad base and the fee percent.
Telling apart operating costs and capital costs trips up many medical buildings. HVAC swaps, elevator upgrades, parking lot work, and new roofs are capital costs. Most leases keep these out of CAM or make the landlord amortize them. To amortize means to spread the cost over the years the asset lasts. IRS Publication 535 and FASB ASC 842 set the accounting rules. But the lease wording controls what the landlord can charge.
Ophthalmology practices often sit in buildings with old HVAC. Clinical-grade systems need swaps every 15 to 20 years. Say a landlord charges a full HVAC swap in one year instead of amortizing it. For a typical suite, the overcharge that year can reach $8,000 to $15,000.
You can fit CAM audit into your plan after you buy. It takes three steps.
Step 1 is portfolio qualification. In the first 30 days, find which sites have NNN or modified gross leases with CAM pass-throughs. Gross lease sites have no CAM risk. For each NNN or modified gross site, check the audit rights clause and the lookback window. The audit rights clause is your right to check the books. The window is usually 12 to 24 months from when the statement arrives. Put sites near the end of that window first.
Step 2 is document collection. For each site, get the signed lease and any changes. Then get the CAM reconciliation statements for the full lookback. Most landlords send these as PDFs. A practice administrator can pull them from files or ask the property manager. You do not need the landlord's help yet.
Step 3 is review and recovery. Run the lease and statements through CAMAudit. The tool runs the CAM detection rules. These cover management fee overcharges, pro rata share errors, gross-up violations, CAM cap violations, excluded service charges, and more. It returns a findings report for each site. Each finding names the lease clause, shows the overcharge, and adds a correction package. The MSO finance team reviews and ranks packages by dollars before the advisor or counsel signs.
Most landlords settle these disputes with credits or cash. IREM guidance on lease administration shows most CAM disputes settle without court. That holds when the tenant brings clear proof for the claimed error. CAMAudit's output is built to give that proof.
Ophthalmology rollups often buy practices from one region. So many sites may share the same property manager or landlord. When that happens, errors tend to repeat instead of being one-offs.
Say a management fee uses a bad base at one site run by a manager. The same error likely shows up at every site that manager runs from the same template. A bad cost in the CAM pool at one building often reflects a habit across that landlord's whole portfolio.
A PE firm may hold 20 to 30 ophthalmology sites. Find one error across 8 sites run by the same manager, and you get an 8x recovery from one finding type. Sort CAMAudit findings by landlord and manager. That is the fastest way to spot the repeats.
A study in the Journal of Property Management looked at these disputes. Tenants win most cases when they bring proof tied to clear lease wording. The block is not the dispute. It is having the time to do the work.
Disclaimer: This article provides general educational information about CAM audit due diligence in the context of ophthalmology practice acquisitions. This is not legal, accounting, tax, investment, or financial advice. Recovery amounts vary based on individual lease terms, reconciliation period, and landlord response. Consult qualified legal counsel before pursuing any commercial lease dispute or CAM audit process.
What CAM due diligence should a PE firm perform when acquiring an ophthalmology practice?
PE advisors should collect all NNN and modified gross lease agreements for acquired locations, request 3 years of CAM reconciliation statements from each landlord, and screen each lease for the three highest-risk clauses: the management fee cap formula, the pro-rata share denominator definition, and the operating expense exclusion list. Any location where the reconciliation has not been independently audited during the acquisition target's tenure is a candidate for post-close recovery.
How far back can a PE-backed ophthalmology group recover CAM overcharges after an acquisition?
Most commercial leases include an audit rights clause with a lookback window of 1 to 3 years from the date the reconciliation statement is received. Leases that were never audited by the prior owner may carry unrecovered overcharges dating to the start of the current lease term, subject to the contractual lookback period. PE advisors should confirm the audit rights clause language in each acquired lease before the lookback window closes.
Why do ophthalmology practice leases carry higher CAM overcharge exposure than general commercial leases?
Ophthalmology practices occupy medical office buildings with higher-cost shared infrastructure, including HVAC systems built to clinical specifications, specialized lighting, and medical waste handling. Higher per-square-foot operating costs amplify the dollar impact of billing errors. Additionally, ophthalmology practices often execute leases with landlords who manage multiple tenants with less scrutiny than large corporate tenants, increasing the likelihood of systematic errors.
What is the most common CAM billing error found across ophthalmology practice portfolios?
Pro-rata share denominator manipulation is the most common systematic error in ophthalmology rollup portfolios. Landlords who manage multi-tenant medical office buildings frequently exclude vacant suites or anchor tenants from the denominator, inflating each occupied tenant's proportional share of building expenses. Across a portfolio of 15 to 30 acquired locations, a consistent denominator error can represent a six-figure annual overcharge.
How does CAM audit fit into a 100-day post-acquisition plan for an ophthalmology rollup?
CAM audit fits naturally into the overhead reduction workstream that typically runs in parallel with clinical integration and billing optimization in a 100-day plan. The process requires no disruption to clinical operations. A practice administrator collects the reconciliation statements and lease documents; the audit platform processes them and returns a findings report. The resulting correction packages can be reviewed by the responsible advisor or counsel without involving clinical staff.
Can a PE-backed ophthalmology group run CAM audits across all locations simultaneously?
Yes. CAMAudit processes multiple locations concurrently. An MSO finance team or operations lead can upload lease documents and reconciliation statements for all acquired locations in a single session. The platform applies the CAM detection rules to each location and returns a findings report per location, ranked by recovery opportunity. Portfolio-level review then prioritizes which correction drafts to send first.
What happens if a landlord disputes the CAM audit findings?
Most commercial leases grant the tenant the right to audit the landlord's books for the reconciliation period. If the landlord disputes findings, the tenant can invoke the formal audit rights clause and request supporting documentation: vendor invoices, management fee calculation worksheets, and building area measurement records. CAMAudit's findings report includes the specific lease clause reference and the calculated variance for each flagged item, providing the evidentiary basis for a formal dispute.
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