third-party billing agreements

Third-Party Billing AgreementsEncore Presentation

Sponsored by:

AMBA Annual Conference Las VegasFriday, October 15, 2021

1:00 PM-2:00 PM PT

Presented by

Richard B. Pecore, J.D., C.M.C.O. Liles Parker PLLC

(202) 298-8750

www.lilesparker.com

Washington, DC, Houston TX, Dallas TX, Baton Rouge LA

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http://www.lilesparker.com/

Presentation Outline

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I. Third-Party Billing Contract Basics

A. Elements of a Contract

B. Register with State / Medicaid

II. Typical Provisions – Primary Terms

III. Additional Provisions – Secondary Terms

IV. Further Considerations – Optional Terms

V. Limits on Percentage-Based Billing Agreements

A. Federal Law Limits

B. State Law Limits

C. Examples

VI. Conclusion

I. Third Party Billing Contract Basics


• Written or Oral Contract? Oral contracts are convenient to be sure, but they

have inherent weaknesses that could cripple your business and income.

They frequently result in disputes over the terms and services to be provided,

whether those services were provided, how to resolve disputes, and what

alternative remedies are available to the parties. We also hear a lot of

“reasons” (i.e. excuses), as to why no written contract was ever put in place:

❑ “The attorney I hired didn’t understand my business, so I quit using it.”

❑ “This physician has been with me for years. We’ve always worked on a

“handshake” basis and never had a problem.”

❑ “We started immediately and were going to follow up with a written

contract, but we never got around to it.”

❑ “The biller used to work in our office then started her own company.

We never thought we needed a contract, so why fix it if it isn’t broke?

❑ “My last biller was horrible and I was stuck in that contract for three years!

I won’t go through that again.”3

• Get it in Writing – a written contract solves all the previous problems and adds

certainty, ergo a level of comfort, for each of the parties to concentrate on their

business rather than the mechanics of how and what services are being

provided on a daily basis. There are also a couple of more practical reasons….

❑ It’s the Law. Every state has a Statute of Frauds that requires any

contract of 1 year or more to be in writing. Many billing contracts provide not

just “services,” but also goods or equipment (computer software, monitors,

etc.) and many last a year or longer (1-3 years is typical).

❑ Evidence of the Deal: An oral contract could turn out to be unenforceable

in a court of law because there is not enough evidence to prove it ever

existed, so you’d actually have no contract at all. Moreover, even if an oral

contract could be proven to exist, you might not be able to prove the terms

in dispute. It would come down to “He said, she said…” and that is a risky

proposition at best. Most courts employ the “Four Corners Rule” and look

to the contract itself as the best evidence of the actual agreement, which

limits the possibility of parol (oral) evidence clouding the issues.



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Offer: An “Offer” is essentially the terms outlined in a proposed billing agreement. In

addition to laying out the responsibilities of each party, the Offer also sets out the duration

of the agreement and defines how and when the contract can be terminated.

Acceptance: After the third-party billing company transmits a copy of the proposed billing

agreement to a health care provider, the provider must review the proposed agreement and

decide whether to “Accept” the offer or proposed changed terms as a “Counter-Offer.”

If the original Offer is not accepted, a third-party billing company may withdraw its proposal.

If the offer is accepted, it will likely be argued there was a “Meeting of the Minds.”

Consideration: For billing agreements, “Consideration” is the exchange of coding and/or

billing services to the provider in exchange for payment to the biller.

Legal Purpose: In order to be enforceable, a third-party billing agreement must be for a

“Legal Purpose.” For example, suppose the parties to an agreement run into problems

because their jurisdiction bans percentage-based compensation agreements (and that is

precisely how the contract is structured). Will one of the parties try to void the agreement if

they believe it is to their advantage?

Competent Parties: All parties to a contract must be “Competent” at the time the contract

is executed. Factors that would make a party not competent include if a party is a minor at

the time of the contract or if a party is found to be not mentally sound



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• COMPLIANCE: requirements are most often found in multiple locations: statutes,

regulations, Medicaid provider enrollment manuals, and even the trading partner

agreement. It is important that you do your research before billing on behalf of

your client to make sure you have complied with the requirements for your state(s).

• LOCATION: Some states (New Jersey) require you to register with the state if

you are located in that state. More frequently, this must now be done ONLINE.

• NOTICE: Some states (California) require that your provider update its contract

and notify Medicaid that you are a billing agent, so it is important that your

provider know of this before you try to submit claims to state Medicaid.

• REGISTRATION: Some states (Texas) require you to register with the state if

you are going to be a billing agent submitting claims to Medicaid for a provider.

• TIMING: Timing can be important. In some states, a Provider must LIST you as a

Billing Agent in the Provider’s Medicaid Application (notice) before you can

REGISTER (online). Then you must REGISTER before you are allowed to SUBMIT

CLAIMS for payment on behalf of the Provider.6


B. Register with State / Medicaid

While billing contracts can vary greatly, most include the following primary provisions:

• Discussion of Parties: This section normally discusses the parties to the agreement,

where they are incorporated or otherwise formed, and when the effective date of the

contract begins.

• Introduction / Description of Services: For example, the provision may state:

“Biller will work to obtain reimbursement for Provider’s charges for clinical procedures,

medical services and / or medical supplies provided to patients or on or after the

Effective Date, through the billing of patients and third party payors and the management

of Provider’s accounts receivable (Services). During the term of this Agreement, Biller

will be the sole provider of medical billing services to the Provider.”

• Term of Agreement & Termination Provisions:

❑ Term: Most billing agreements we’ve seen provide for a term of 1 year up to 3 years.

❑ Automatic Renewal: frequently billing contracts are automatically renewed if neither

party provides notice of intent to terminate the agreement during a short window.

❑ Uncured Breach: Agreements can typically only be terminated if there is a breach by

the other party which remains uncured within a period of time. Notice provisions can

come into play.

II. Third Party Billing Contracts

Typical Provisions

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• Fees: It is quite common for the fees section to either include an attachment which provides

for hourly fee, flat-fee, or volume-based or a percentage of collections, OR a short paragraph

which includes the same type of information. Other reimbursement schemes are rare.

• Expenses: Most agreements contain provisions which allow for a “set-up charge” and

provide for copying, mail and other extraordinary expenses incurred when performing the

billing functions for a provider.

• Provider / Supplier Obligations: These sections vary from contract to contract. Most do a

good job in defining how the billers expect to receive the Encounter Forms and the specific

duties to be performed by the provider’s office to better ensure that the biller has all of the

information needed to bill for the services provided.

• Biller Obligations: Sometimes, these provisions are quite abbreviated. However, we have

seen billing agreements which listed the billing company’s obligations in great detail, often

listing deadlines for when certain actions must be completed.

• HIPAA Provisions: While most billing agreements include a section discussing the need to

protect PHI, it isn’t uncommon to find that there is no Business Associate Agreement (BAA)

between the parties which lays out the obligations of the covered entity and the business

associate. The Dec. 2018 FL case of Advanced Care Hospitalists showed that failure to

execute a proper BAA can be VERY costly! ($500,000 fine and a 2-year CAP to correct).

II. Third Party Billing Contracts

Typical Provisions

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• Provisions to be Added to the “Termination” Section of a Billing Agreement:

❑ Prepayment Review Actions:

Physician Concerns: Physicians are increasingly facing the risk of being placed on

prepayment review by UPICs. Now is the time to carefully examine your

documentation. Does it qualify for coverage and payment? Need help? Check our

website and review the article on “The Eight Elements of a Payable Claim.”

https://www.lilesparker.com/eight-elements-of-a-payable-medical-claim/

If your practice is placed on prepayment review, it is imperative that you immediately

work with qualified legal counsel to be removed from this status. Don’t avoid the

issue (e.g. holding claims until the payment hold is listed). Contractors won’t remove

you from this status until they are convinced that you fully understand and employ

the proper rules governing medical necessity, coverage and payment.

Biller Concerns: Absent the ability to terminate a billing agreement, a third-party

biller will technically be required to continue to process claims for a provider despite

the fact that the provider’s cash flow has been greatly reduced. The likelihood of this

risk has significantly increased now that RACs are also conducting prepayment

reviews. Frankly, this isn’t in anyone’s interests and will only result in discord

between the parties. This risk again highlights the need for physician compliance.

III. Third Party Billing Contracts

Additional Provisions

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https://www.lilesparker.com/eight-elements-of-a-payable-medical-claim/

• “The Eight Elements of a Payable Claim.”



Element #1 — The Medical Service or Supplies Provided were Medically Necessary.

Element #2 — The Medical Services of Supplies Were Actually Provided.

Element #3 — No Other Statutory Violations Were Committed in Connection with

the Medical Services or Supplies Provided.

Element #4 — All Applicable Coverage Requirements are Met.

Element #5 — The Medical Services and Supplies Provided Were Properly and Fully

Documented.

Element #6 — The Medical Services or Supplies Were Properly Coded.

Element #7 — The Medical Services or Supplier Were Properly Billed.

Element #8 — The Medical Services or Supplies Were Properly Paid.

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❑ Suspension Actions:

Physician Concerns: If a physician or other provider is placed on suspension, they

can continue to treat Medicare patients and any monies will be placed in suspense

until a UPIC can complete a post-payment audit of the claims to determine how

much the provider allegedly owes. The heart of the problem lies in the fact that a

suspension action almost always lasts at least 6 months and more recently, up to a

year. During the suspension, note that no Medicare monies are paid to the provider.

Biller Concerns: Absent a provision in the contract to compensate for this situation,

a third-party biller could be contractually obligated to continue billing for a suspended

provider, even though any monies to be paid to the provider are placed in suspense

and not turned over to the provider. Without this income, a provider can legitimately

avoid paying for the billing services since many contracts provide for a biller to

receive a percentage of collections. As earlier discussed, a provider’s cash flow is

likely to be held in suspense for at least 180 days, but could be up to a year. Finally,

once a suspension is lifted, any monies withheld will be applied to the overpayment

projection prepared by a UPIC. Appealing the denial of claims submitted while on

suspension could take up to 2 years. Could you afford to keep such a client?



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❑ Revocation Actions:

Physician Concerns: From an administrative standpoint, the revocation of a

provider’s Medicare number is the second worst administrative sanction that can

be taken, only exceeded by being “excluded” from participation in the Medicare

program. If a provider’s Medicare number is revoked, the action is likely to be

retroactive for a period of a few weeks to several months. Unfortunately, many

providers currently have very little diversity when it comes to payor mix. A

revocation action may knock out between 60% and 95% of a provider’s current

patients from receiving reimbursable care in the future.

Biller Concerns: There are at least two lessons to be learned here. First, third-

party billers really need keep any receivables at a minimum. Providers placed on

suspension will likely have a difficult time financially until they can rebuild their

practice. Second, if a suspension action is retroactively made, a physician may

want to be repaid for monies he has to pay back. Depending on the contract

between the parties, the monies previously paid to the biller may no longer qualify

as “collected.”



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❑ “No-Fault Divorce” Provision: Most of the time, the relationship between a

biller and a provider is collegial. Unfortunately, sometimes it just doesn’t work out.

Either a provider will not like working with a biller or the biller will find themselves

unable to work with a provider.

Physician Concerns: We recommend that you seriously consider including a

provision which allows any party to terminate an agreement for any reason with

60 – 90 days’ notice. Additionally, it is important for both parties to include a “wind

down” period in the contract so that when the relationship is over, any existing

receivables have already been addressed by the existing third-party billing

company. Physicians facing this issue will tell you that they often have a difficult

time collecting on uncollected claims. A new billing company will have to be paid

to work the receivables and is likely to have a much more difficult time collecting

them.

Biller Concerns: Although it is often difficult to land a client, third-party billers

should think twice before tying in a physician to a long-term contract without a

clause permitting termination without cause. Additionally, the wind-down provision

is important so that you can be paid for work that you have already processed.



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• Provisions to be Added to the “Fees” Section of Your Billing Agreement:

❑ Fee Payment Options Can be Problematic for Both Providers and Billers:

Physician Concerns: Customarily, many biller contracts are set up to pay the biller

a percentage of collections. Do NOT jump in blindly! HHS-OIG has noted its

concerns, and these days, at least some form of percentage-based billing has been

deemed illegal in many States. State Medical Boards almost uniformly ban “fee

splitting.” which can result in $5,000 to $10,000 fines per instance to your Client or

result in a suspension of the practitioner’s license!. If you’re not sure about your

state’s laws, consult an attorney before you sign, or choose a different billing method.

Biller Concerns: Despite the fact that percentage-based billing is the industry

standard, it places billers in a vulnerable position if an overpayment action is

pursued (potential biller liability), and can cause additional headaches resulting from

prepayment reviews, suspensions and/or revocation actions. Switching to an hourly

rate or flat-fee reimbursement option is safer and involves far less risk.

State Law Concerns: State laws vary. Percentage based medical billing agreements

are frequently prohibited or limited in their legal application. The law of your state,

and also the law of your client’s state, determines what is legal and what isn’t.



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• Provisions to be Added to the “Biller or Provider / Supplier Obligations”

Sections of Your Billing Agreement:

❑ Provision requiring that the provider / supplier adhere to all legal and

regulatory requirements covering the claims they intend to submit to

Medicare, Medicaid and private payors.

• With the passage of the Affordable Care Act, all participating providers in the

Medicare and Medicaid programs are required to have an effective

Compliance Plan in place. While the Secretary, HHS has not yet stated

when physicians must meet this obligation, the prudent response would be

to include a list of basic compliance requirements in an exhibit to your

contract and require that the provider agree to comply with these rules.

• This is in everyone’s interest. Billers should take the time to explain why a

physician will benefit from this provision (and the billers review of claims),

regardless of whether the physician has a Compliance Plan already in place.



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• Provisions to be Added to the “Provider / Supplier Obligations” Section of Your

Billing Agreement:

❑ Provision permitting a biller to make a random sample audit of the

provider’s claims each quarter.

• The government views third-party billers and the providers they serve as jointly

responsible for the submission of any improper claims.

• Remember, under the False Claims Act, if you submit “or cause to be submitted,” a

false claim to the government, a person or entity can be liable under the Act. Billers

arguably “cause an improper claim to be submitted” because of the role they place on

the claims submission process.

• Billers should take the initiative and perform a reasonable level of due diligence on a

provider before submitting a claim on their behalf.

• While the number is slowly increasing, most physician practices do not have an

effective Compliance Plan in place.

• One way to partially accomplish this would be include language in the contract which

allows the billers to periodically review a handful of claims every quarter. Frankly, this

should be an excellent marketing point for a biller to use when discussing their services

with a provider. These periodic reviews can help a doctor stay out of trouble and they

can further assure a biller that the claims they are processing are, in fact, valid.



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• Provisions to be Added to the “Expenses” Section of Your Billing Agreement:

❑ Extraordinary Expenses Incurred:

Physician Concerns: Regular and customary expenses incurred in the

processing of your claims generally may be covered in the percentage payment

to the biller. Have a full understanding of what you will be paying before you sign

a contract.

Biller Concerns: As the number of reviews, audits, and investigations continues

to increase, it is important for billers to include provisions in their contract that will

serve to cover the costs of complying with onerous documentation requests

resulting from a third-party lawsuit, subpoena, government investigation or post-

payment audit. In addition to copying fees, you should also consider including a

provision which pays you an hourly fee for additional research, assembly, and

mailing expenses incurred.



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❑ Indemnification Language: Should a party be sued for an action caused by the

other party to a billing contract, you will want to include an indemnification provision

which will make you whole. In most cases, the parties will insist that reciprocal

language be included in the contract.

❑ Attorney’s Fees: Should a biller need to file suit in order to collect on an overdue

account, it is essential that it include a provision to cover your attorney’s fees incurred

in the collection of the debt. Otherwise, there is possibility that the attorney’s fees will

exceed the amount owed by a provider. Reciprocity is important. A physician will

likely want this provision to allow for the provider to collect attorney’s fees if the biller

improperly breaches a contract and the provider is damaged by the breach.

IV. Third Party Billing Contracts

Further Considerations

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❑ Anti-Kickback/Stark: Physicians Be Careful!...DO NOT PAY for Business that’s

Referred to You! We are aware of billing contracts which include provisions rewarding a

provider for referral another provider to use your billing services. Regardless of whether a

biller pays a provider a referral fee or gives them a discount on the interest rate

charged, if the provider referred to you sees Medicare, Medicaid or other Federal

Health Plan participants, this would likely violate the Federal Anti-Kickback Statute

❑ State “Mirror” Statutes - Even if this were not the case, most States have their own Anti-

Kickback provisions and most frequently, these are not limited to Medicaid. If you really

want to offer a Client incentive, then uniform early payment discounts might work for you

because they (1) apply to all clients, (2) are not tied to total revenues or volume of work

and (2) don’t depend on referrals.

❑ HIPAA / HITECH Final Rule Requirements: The recently-issued Final Rule contains a

number of new requirements for both Covered Entities and Business Associates. Both

parties should review their current practices to ensure full compliance with these

requirements.

❑ Overseas Billers - Avoid Using International Companies for Billing / Processing: We

advise against contracting with companies based outside the United States for a number of

reasons. If your records leave the U.S., control is lost and remedies for breach are limited.

IV. Third Party Billing Contracts

Further Considerations

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FEDERAL LIMITS ON MEDICAID PAYMENTS:

42 C.F.R. § 447.10 - Prohibition against reassignment of provider claims.

PBAs are prohibited if Medicaid claims have been reassigned to the Billing Agent.

Example: Company provides provider management as well as billing services.

• Basis and Purpose: Section (a) implements Section 1902(a)(32) of the Social

Security Act which prohibits State payments for Medicaid services to anyone

other than a provider or beneficiary, except in narrow circumstances.

• Reassignment: Section (e) states payment may be made in accordance with a

reassignment from the provider to a government agency or reassignment by a

court order.

• Business agents: Section (f) states that payment may be made to a business

agent, billing service or accounting firm that furnishes statements and receives

payments in the provider’s name, if the agent's compensation for this service is:

(1) Related to the cost of processing the billing;

(2) Not related on a percentage or other (e.g. volume) basis to the amount that is

billed or collected; and

(3) Not dependent upon the collection of the payment.

V. Third Party Billing Contracts

Federal Law Limits: Percentage Based Fees

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• It is common industry practice for third-party billers to enter into

agreements with providers where services are compensated either by an

hourly rate, by flat-fee, or with percentage-based fees (where it’s legal).

• However, in recent years, many states have quietly placed restrictions on

the use of percentage-based fees due to fee-sharing/splitting legislation.

• The restrictions on percentage-based fee arrangements vary:

• Some states prohibit them entirely (e.g., New York)

• Some states prohibit them only for Medicaid billings (e.g., Alaska)

• Some states prohibit them for specific professions (e.g., Penn.)

• Most states (33 out of 50) use a combination of restrictions.

• California has affirmatively held that percentage-based fee agreements

are broadly allowed.

• New York, however, prohibits them all and has prosecuted many Doctors.

• Each state’s laws are different. It is important to research not only what

your state law permits, but also the state law of the provider with whom

you are entering a contract. 21

V. Third Party Billing Contracts

State Law Limits: Percentage Based Fees

CALIFORNIA: PBAs ALLOWED based on fees “collected,” provided that fair market value

compensation is paid for all billing or management services. Al-Shaikh v. State Dep't of Health

Care Services, 21 Cal. App. 5th 918 (2018), citing California Business & Professional Code Section

650 (a/k/a California AKS/Stark statute). Section 650(b) was used to justify payment of mgt. fees

based on a percentage of gross revenues at fair market value. California licensing statutes generally

prohibit fee-splits, but § 650 makes an exception for PBAs based on total fees collected (not billed).

You cannot offer or receive a kickback or fee-split a licensed healthcare professional’s fee

(MD, DO, etc.); but services other than patient referrals, which are billed under an FSA

(or similar, i.e. PBA) for gross revenues collected are allowed if provided at fair market value.

California’s State Attorney General Opinions:

• Exception: Physician Groups / Psych Groups - B&P 650 is “interpreted very broadly”, and no

physician, surgeon or psychologist professional corporation (P.C.) may violate any law, rule

or reg as to fee-splitting, kickbacks or similar practices. Violations are grounds for suspension

or revocation for the P.C.’s corporate certificate. – Calif. Corp. Code, § 13408.5.

• Exception: Dentists are prohibited from entering PBA; B&P 650.2.

• Exception: Chiropractors prohibited from entering PBA for web mktg. plan.

• Exception: Podiatrists prohibited from entering PBA referral plan.

• Exception: Radiologists prohibited from entering PBA referral plan. “With each referral, the

referring physician will receive an economic benefit that is not based solely upon the imaging

services rendered the patient. An increment of the consideration will be tied exclusively to the

referral itself in that the physician will receive a proportionately greater share of the payments by

increasing the number of referrals.

V. Third Party Billing Contracts Examples: State Law Limits on PBAs

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CALIFORNIA:

MEDI-CAL - (California Medicaid)

• Provider Notice: Notice to [Medi-Cal] identifying billing agent and d/b/a must be

provided by the Provider at least 30 days prior to submission of any claims - Cal.

Welf. & Inst. Code § 14040.5(c).

• Billing Agent Registration: Biller must register with [Medi-Cal] online and obtain a

unique identifier prior to submitting any claims for reimbursement. Cal. Welf. & Inst.

Code 14040.5(d). Additionally, Billers must undergo a state background check and

provide a $50,000 surety bond. Cal. Welf. & Inst. Code § 14040.1

• Written Agreement: In order to submit electronic claims to Medi-Cal, the Provider

and Biller must have a written agreement that can be provided to DHCS or their agent

on request. Said agreement must in no case contain an agreement for compensation

of the biller based on a formula which has as a factor the percentage of the amount

billed or collected from the Medi-Cal, Medicaid or Medicare programs in violation of

state or federal law. - 22 CCR § 51502.1(e).

V. Third Party Billing Contracts Examples: State Law Limits on PBAs

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ILLINOIS: PBAs generally PROHIBITED, but NARROWLY ALLOWED for licensed physicians, if

(1) the physician (or physicians’ group) controls the collection of payments;

(2) the billing company has no ownership interest in practice; and

(3) the biller is paid a fair market value for its work.

Fees may be calculated on amounts “billed” (not just collected). This is broader than California law.

Medical Practice Act, 225 Ill. Comp. Stat. Ann. Section 60.22.2(d) (2019); Illinois Medical Practice Act of

1987, 225 ILCS 60/1 et seq. (prohibits fee-splitting between physicians and non-physicians).

• Exception: Management Services – PBAs for broad management services remain prohibited.

Center for Athletic Medicine, Ltd. v. Independent Medical Billers of Illinois, Inc., 889 N.E.2d 750 (Ill.

App. 2008). The court held that a PBA violated the Illinois MPA, so in response, Illinois’ legislature

created an exception for physician fee-splitting with billing and collection companies.

• Exception: Psychologists / Mental Health Practitioners (Marriage or Family Therapists and

Counselors, LSW, LCSW) – PBAs not allowed. Many states still limit mental health professionals

from participating in PBAs as a matter of public policy. Mental health percentage-based billing

prohibition: 222 Ill. Comp. Stat. Ann. 15.1; 225 Ill. Comp. Stat. Ann. 15.1 et seq.

• Exception: Optometrists / Ophthalmologists – PBAs not allowed. Practice Management, LTD v.

Schwartz, 256 Ill App 3d 949 (1993), appeal denied, 155 Ill 2d 575(1994).

• Provider Notice / Biller Registration: Yes, Since 2015, all apps, notice and registration must be

completed online through state IMPACT portal. Provider must notify Medicaid as to Billing Agent and

Billing Agent must register with state Medicaid prior to submission of any claims.

See Ill. Dep't of Healthcare and Family Services (DHCF), IMPACT Provider Enrollment, FAQs.

https://www.illinois.gov/hfs/impact/Pages/ProviderEnrollment.aspx

https://www.illinois.gov/hfs/impact/Pages/faqs.aspx

V. Third Party Billing Contracts –Examples: State Law Limits on PBAs

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https://www.illinois.gov/hfs/impact/Pages/ProviderEnrollment.aspx

https://www.illinois.gov/hfs/impact/Pages/faqs.aspx

ILLINOIS:

• Scope of the Illinois Medical Practice Act: The use of a fee-splitting or percentage-

based billing agreements is prohibited in Illinois for mental health professionals, clinical

psychologists, licensed clinical social workers, social workers, licensed professional

clinical counselors, and licensed professional counselors, as well as home health

agencies, hospices, DMEs, laboratories, dental providers and all others healthcare

professionals, is prohibited.

• Reach of the Illinois Medical Practice Act: As the Illinois appellate court stated in

Practice Management Ltd. vs. Schwartz, 256 Ill. App. 3d 949, 951 (1st Dist. 1993):

• Are PBAs Barred for State Medicaid? Unknown, but likely. Must be a participating

provider with portal access to Illinois Medicaid to view information including Manuals.


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“…although the [Medical Practice] Act clearly prohibits

agreements which can be characterized as fee-splitting

arrangements, …the reach of the statute is not limited to fee-

splitting, but rather prohibits all other fee sharing arrangements

not specifically allowed by the Act. …[t]he language of our

statute is very broad. Nothing in the statute indicates an intent

to limit the prohibition on fee sharing to the referral context.”

ILLINOIS:

• 2008 Illinois Supreme Court Ruling - the Illinois Supreme Court established fairly clear rules as to

what constitutes illegal fee splitting and substantially broadened that concept in Vine Street Clinic v

Healthlink, Inc. (2008).

• The Court ruled it is illegal for physicians to share a percentage of their medical

professional fees with anyone other than physicians with whom they practice (either in

the same practice group or on a division of responsibility basis).

• Payments to other physicians for referrals were prohibited.

• Also prohibited were percentage payments to anyone else for any purpose. including

payments for management and other services such as billing and coding.

"Non-physicians can receive a fee for -services rendered apart from a referral, but cannot

receive a percentage of the physician's profit, or its equivalent." This broad ruling affected not

only strict percentage arrangements, but any arrangement based directly or indirectly upon the

amount of fees earned.

• Unprofessional Conduct - Disciplinary Action 225 ILCS 60/22, (Scheduled for repeal 01/01/2022).

The Dept. may revoke, suspend, place on probation, reprimand, refuse to issue or renew, or

take any other disciplinary or non-disciplinary action as deemed proper as to the license or permit of

any person issued under this Act, including imposing fines not to exceed $10,000 for each violation.

MORAL? Given the legislative and case histories, when you put it all together, Illinois’ biller

exception to the state’s general prohibition against percentage (or volume-based) billing

agreements is VERY NARROW. It appears to only allow PBAs for physician-to-physician

services and any billings outside the physician’s own group could expose the Billing Agent to

significant joint and severable liability.


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NEW YORK: Fee Sharing and PBAs Are FLATLY PROHIBITED by FEDERAL LAW.

NY bans PBAs MEDICAID (Federal Law) and PRIVATE PAYORS (NY State Law).

• NY has said PBA's Violate Federal Medicaid Regs as Improper Fee-Splitting under

42 CFR 447.10(f). The Medicaid Fraud Control Unit (MCFU) of the New York State Office of the

Attorney General issued restitution demand letters to providers for allegedly entering into

percentage-based contracts with their billing agents. The MCFU letters cited Medicaid Update

March 2007, titled A Message for Providers Using Service Agents as follows: Billing

agents are prohibited from charging Medicaid providers a percentage of the amount

claimed or collected. In addition, such payment arraignments, when entered into by a

physician, may violate the Education Law and State Education Department's regulations on

unlawful fee-splitting and State Education Department's regulations on unlawful fee-splitting.

See Educ. Law §6530(79). The N.Y. Education Law addresses matters of professional

misconduct.

• New York state law specifically prohibits percentage (or volume based) billing for billing

services under 18 N.Y. Comp. Codes R. R Regs. Tit. 18, § 360-7.5(c):

…a medical provider can employ a billing service or accounting firm only if

the compensation for the billing services is related to the cost of processing

the claim, is not related on a percentage or other basis to the amount billed or

collected, and is not dependent upon collection of the payment.

• Biller Registration – Yes, Biller must register with NY Medicaid - 18 NYCRR § 504.9.


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NEW JERSEY: PBAs ALLOWED, between Physicians and Non-physicians, provided no control

over practice, BUT NJ MEDICAID (NJMMIS) PROHIBITS PBAs WITH NON-PHYSICIANS.

• Exception: Direction or Control – provided that the billing company does not control or attempt to

exert control over the physician's professional judgments/autonomy. N.J.A.C. 13:35-6.17(h) and (i)

permit administrative contracts between a management company and a professional practice

whether as employee or independent contractor.

o Example 1: In Bellavia v. Hackensack Medical Ctr., the court mentioned the Ad Hoc's board

finding that a percentage-based fee arrangement between a primary care practice and

independent practitioners where the former received a percentage of practitioner's net earnings

in exchange for patient referrals, overhead costs related to billing services, and office space,

constituted illegal fee-splitting. Civ. No. 87-3698, 1991 U.S. Dist. LEXIS 20750 (D.N.J. 1991).

o Example 2: In Allstate Ins. Co. v. Northfield Med. Ctr., P.C., 159 A.3d 412 (N.J. Sup. Ct. 2017):

the Supreme Court found an agreement between physician and the chiropractor-owner of a

management company to be void because the company owned and controlled the medical

practice, and governed the physician's medical decisions. BUT LOOK OUT BELOW!

• Exception: NJ Medicaid Still Prohibits PBAs - Payment may be made to a business agent,

such as a billing service or an accounting firm that furnishes statements and receives

payment in the name of the provider, if the agent's compensation for this service is not

related on a percentage or other basis to the amount that is billed or collected. - N.J. Admin.

Code (N.J.A.C.) 10:49-7.5.

• Unprofessional Conduct: N.J. Stat. Ann. (N.J.S.A.) 45:9-42.43 - State may assess a Civil Monetary

Penalty of $100-$1000 per violation for unprofessional conduct (e.g. illegal fee splitting).


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NEW JERSEY:

• Exception: Clinical Lab Services – Fee splitting prohibited; N.J.S.A. 45:9-42.42(d).

• Exception: Dentists - Fee splitting prohibited; N.J. Admin. Code 13:30-8.13.

• Exception: Psychologists – Fee splitting prohibited; N.J. Admin. Code 13.42-10.14; 13.42A-7.7

Licensee cannot divide fees for professional services other than among other licensed health care

professionals; but a licensee can charge a flat fee to an independent contractor on a per hour or

per service basis."

• NJMMIS Online Electronic Access: NJMMIS’ online portal. Must register to login, access info.

1. Providers must provide notice to NJMMIS as to all its TP Billers.

2. Providers must keep a copy of their written contract with the Biller available for the state..

3. Biller must be “certified” with NJ Department of Banking and Insurance (NJDBI).

4. Biller must execute Trading Partner Agreement / EDI Agreement with NJ State Medicaid

(NJMMIS) to register and provide a list of client providers using its services; obtain approval

(posted on TP Biller List online); obtain NJMMIS Login and PW IDs for Portal Access prior to

filing any Medicaid claims.

• Biller Certification: N.J.S.A. 17B:27B-1 N.J.A.C. 11:23-1.1 All TP Billers must be certified by the

state to do business in NJ; (File app with NJ Dept of Banking and Insurance). Also per N.J. Admin.

Code 11:23-5.1 et seq. - Holding one’s self out as third party biller requires certification.


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FLORIDA: PBAs ALLOWED for Private Payors, if Biller does not provide patient referrals and

does not offer marketing services; BUT PBAs ARE PROHIBITED FOR MEDICAID CLAIMS.

• In re Lundy (1987): Florida Board of Medicine held that an arrangement where business provided

office space, equipment, and billing services to a physician's practice in exchange for 40% of the

practice's collected fees was not fee-splitting because business did not refer patients or engage in

business development.

• Gold, Vann & White, P.A. v. Friedenstab, 831 So. 2d 692 (Fla. Dist. Ct. App. 2002): the court ruled

a percentage based billing agreement between a doctor and a medical management company that

provided PR and marketing services constituted illegal fee-splitting, even though it found no

evidence of increased business, “…the agreement itself, impermissibly provided for payment of a

percentage of the revenue the management services and practice enhancement would generate and

thus, constituted an indirect method of fees for patient referral [in violation of state statutes].”

• PhyMatrix Mgmt. Co. v. Bakarnia (2019) a percentage based billing agreement between medical

practice and a management company constituted illegal fee-splitting because the management

company engaged in marketing efforts and evaluated, negotiated and administered managed

care contracts on practice's behalf. These practice enhancement services would generate business

for practice, making the arrangement an indirect payment of fees for patient referrals.

• Exception: PBAs ARE PROHIBITED by State Medicaid. Florida Medicaid Provider General

Handbook, 2-65 (p. 119 of handbook), codified at Fl. Admin. Code 59G-5.020(1).

• Provider Notification and Biller Registration: Yes to both; Florida Medicaid Provider General

Handbook, 2-66 (p. 120 of handbook), codified at Fl. Admin. Code 59G-5.010(1) and 59G-5.020(1).


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TEXAS: PBAs Allowed for Private Payor claims where a non-physician does not control or

manage the physician's practice, BUT PBAs ARE PROHIBITED FOR MEDICAID CLAIMS.

o Gupta v. Easter Idaho Tumor Inst., Inc., 140 S.W.3d 747, 755 (Tex. App. 2004) Court upheld

agreement between physician and management company where company provided billing

services and leased office space to doctor in exchange for 50% of gross practice revenues.

o McCoy v. FemPartners, Inc, 484 S.W.3d 201 (Tex. App. 2015) Court upheld agreement

between medical practice and management company where company received 20% of profits,

because the payment was for non-medical work that was independent of the medical practice,

and physicians were completely independent of the management company.

• IN TEXAS, CORPORATE PRACTICE OF MEDICINE IS PROHIBITED.

Texas Medical Practice Act (TMPA): Tex. Occ. Code Ann. 151.001, et seq, TMPA and the TCPM

doctrine prohibit physicians from entering into partnerships, employee relationships, fee splitting, or

other situations with non-physicians, where the physician's practice is in any way controlled or

directed by, or fees shared with a non-physician.

• Non-Physician Employer / Physician Employee violates Texas Corporate Practice of Medicine:

1. Does the doctor independently diagnose and treat patients?

2. Does doctor set his own fees, keep his own books, etc?

3. Does the doctor exclusively manage his own practice?

4. Does the billing practice enter into contracts on behalf of the doctor or conduct marketing?


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TEXAS:

• Texas Medicaid Provider Agreement Flatly Prohibits PBAs, Page 3-4, Part V, Section 5.2(e) -

Provider and Biller agree to establish a reimbursement 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. [Form Page 55 of 81]. Provider and Biller must each keep a copy of the

agreement in their files. Note: In 2016/2017 Form was changed to a plain language warning.

"Billing agents are prohibited from charging Medicaid providers a percentage of the amount

claimed or collected”. It doesn’t get much plainer than that, so Providers should remember NY.

http://www.tmhp.com/Provider_Forms/Provider%20Enrollment/F00171_Enrollment_App_Performing_01012019.pdf

• Provider Notification: Yes; Per 1 TAC § 352.5(b)(9), Applicant or Re-enrolling Provider must

ensure that any third-party billing vendor is registered with HHSC. Per 1 TAC § 352.21(a)(13) Duty

to Report Changes; a provider must notify HHSC or its designee in writing of any change in its

status or condition as to enrollment or supplemental information in its enrollment application,

including third-party billing vendors.

• Biller Registration: Yes; per 1 TAC § 354.1187 Responsibilities of Third Party Billing Vendors; A

third-party billing vendor must enter into a written contract with HHSC (Medicaid), or its designee,

authorizing that activity.

• Texas AKS/Stark Statute: Tex. Occ. Code §.102.001 - a person commits an offense if he or she

“knowingly offers to pay or agrees to accept, directly or indirectly, overtly or covertly any

remuneration in cash or in kind to or from another for securing or soliciting a patient or patronage

for or from a person licensed, certified, or registered by a state health care regulatory agency.”

Texas law is broader than the federal law because it is not limited by acceptance of federal funds.


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http://www.tmhp.com/Provider_Forms/Provider%20Enrollment/F00171_Enrollment_App_Performing_01012019.pdf

VI. Conclusion• The billing contract is very important to both billers and the providers they

serve. It’s a map for daily operations and options in event of the unexpected.

• The billing contract must lay out the obligations of each party with sufficient

specificity that each party fully understands their duties under the contract. A

third party reading the contract should be able to understand it.

• Billers cannot view themselves as the only source of data being input into the

system. Medically necessary services, billing and coding all go hand in hand.

• Providers cannot view themselves as only responsible for care provided, with

little or no responsibility for ensuring claims have been properly coded and

billed. The business side of the practice needs input and response.

• The government will often seek joint and several liability from both parties if

it appears that something could have been done to prevent improper claims

from being submitted. (Or if the provider goes out of business).

• Compliance is not optional. The practices of both providers and billers are

under considerable scrutiny by the government these days. Improper claims

are being increasingly investigated. You are compelled to comply with federal,

state and local law or you could face serious penalties for a failure to do so. 33

QUESTIONS?

This outline is provided as general information only. It does not

constitute legal advice and should not be used as a substitute for

seeking legal counsel.

Richard B. Pecore is an attorney with Liles Parker PLLC

in our Houston office.

He may be contacted at (202) 298-8750.

Firm Website: www.lilesparker.com

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http://www.lilesparker.com/

third-party billing agreements

Documents