II. State Actions to Restrict Percentage-Based Billing Contracts:
A. State Fee Splitting Prohibitions
Many states have enacted “Corporate Practice of Medicine” and/or “Fee-Splitting” statutes which prohibit the payment by a physician of a portion of his professional fees to a non-physician or to a physician who was not involved in the delivery of the professional service. While the language of these statutes varies by state, there are ongoing concerns that these statutes effectively prohibit the payment by a physician of a percentage of his or her fees with a third-party billing company. In fact, many states consider it unprofessional conduct for at least some of their practicing medical professionals to enter into such an agreement at all, and if they do, they could be subject to fines, Civil Monetary Penalties, suspension, exclusion, or even the revocation of his or her professional medical license. Some states, such as Virginia and Tennessee have made percentage-based fee-splitting arrangements subject to criminal penalties (misdemeanor). Every few years this issue arises in one state or another and must be addressed by a State’s Medical Practice or Licensing Board. Though this is a legitimate concern, most State Medical Practice or Licensing Boards have chosen to just ignore the third-party billing company fee-splitting issues. Then something happened…
B. New York Enforcement Efforts Focused on Percentage Billing Agreements.
In 2017, New York’s Medicaid Fraud Control Unit (MFCU) sent overpayment warning letters to health care providers in New York State alleged to have entered into "percentage of collection” arrangements with outside, third-party billing companies. New York’s MFCU demanded that such providers refund monies paid to them by Medicaid, arguing that such billing arrangements were illegal under the Medicaid law and may also constitute unprofessional conduct under New York’s Education Law, N.Y. Educ. § 6530, punishable by up to $10,000 in fines per violation. Yes, you read that correctly – the practice is prohibited under a provision of New York’s Education Law.
The letter was based on the MFCU’s interpretation of 42 C.F.R. 447.10(f), which stated generally that, when claims are reassigned by a health care provider, (an unusual practice for most, except for very small providers who are short on staff and find this arrangement more convenient), then the biller may be paid directly, as long as compensation for their service is “not related on a percentage or other basis to the amount that is billed or collected.” Like many states, New York had long prohibited fee-splitting under its state law, but the New York MFCU’s interpretation of this Federal statute was that it didn’t just outlaw certain reassignments, it also prohibited any percentage-based billing arrangement as an illegal fee-split (kickback). Suddenly, it was a brave new world for both physician practices and third-party billing companies working in New York.[5]
Virtually overnight, every percentage-based billing arrangement in New York became illegal in the eyes of the New York MFCU; practices and billers were now eligible for further prosecution under the Anti-Kickback Statute as well as New York state laws. The New York MFCU’s warning letters went out to hundreds of practices and billers. Many were pursued by New York regulators for repayment. While some could repay the overpayments and penalties assessment by the government, others were effectively put out of business. To make matters worse, other states started to notice what New York had done and wondered if they were missing an enforcement opportunity that could return more money to their own state Medicaid programs. It is also telling that to date, no other MFCU has adopted New York’s aggressive interpretation of this regulation, but it certainly got other state OIGs’ attention.
C. What is the Status of Percentage-Based Billing Arrangements in Your State?
As you can imagine, most health care providers and suppliers would be extremely unhappy to learn that they had been persuaded to enter into a percentage-based billing agreement only to later learn that such an agreement is prohibited in their State. Unfortunately, this has turned into a virtual minefield for third-party billing companies around the country. For billers, percentage-based billing agreement prohibitions, which could once be routinely ignored, are now an active and very dangerous minefield with real consequences. This is especially problematic when you consider the fact that just because a third-party biller’s percentage-based agreement was permissible last year, there is no guarantee that state laws, regulations and administrative requirements may have changed since the contract was last reviewed. Billing companies should review their contracts on an ongoing basis (at least annually) to ensure that their compensation arrangements are compliant with Federal and State law.
Although most of the country hasn’t gone to the extremes that New York has—at least, not yet. There is, however, a growing trend among the states to delineate between billing practices that the State will allow, and that which they will not tolerate. Every state is different. For example:
- California. Despite the contradictory guidance that has been repeatedly issued by State regulators, California, which currently allows most percentage-based agreements, provided that fair market value is exchanged for the services received and no part of the remuneration received either creates or induces (directly or indirectly), referrals.
- Texas. Some states are now addressing percentage-based billing issues in their Medicaid provider enrollment applications and guidance. For example, Texas Medicaid Provider Enrollment Application Requirements expressly state that:
“(e) Provider and Biller agree to establish a reimbursem*nt methodology to Biller that does not contain any type of incentive, directly or indirectly, for inappropriately inflating, in any way, claims billed to the Medicaid program.”
Texas has also adopted (and modified) one of the practices used in New Jersey—Texas requires that third-party billing companies hired by a provider to process Medicaid claims be registered with the State. As the Texas Medicaid Provider Enrollment Application Requirements notes:
“(f) Biller agrees to enroll and be approved by the Medicaid program as a Third-Party Billing Vendor prior to submitting claims to the Medicaid program on behalf of the Provider.”
Ultimately, State regulations and percentage-based prohibitions are a moving target. While percentage-based arrangements may appear to be permissible in a state, we have seen numerous instances where a specific disciple State Licensing Board (such as the Board governing podiatrists) may have issued its own regulations which effectively outlaw percentage-based agreements.
D. Additional Risks Facing Billing Companies Servicing Out-of-State Providers.
Third-party billing companies serving out-of-state health care providers are especially vulnerable to the shifting sands of state laws and regulations. Multi-state billing companies need to review the state laws, regulations and guidance of EACH STATE WHERE A PROVIDER WORKS OR IS BASED.
