SHOULD A PHYSICIAN PAY A VENDOR FOR BILLING SERVICES BASED UPON A PERCENTAGE OF RECEIPTS?
By: Gregory Q. Hill, of counsel
Introduction
A recent amendment to the Illinois Medical Practice Act of 1987 (“the Act”) now allows physicians and medical groups to pay their billing company vendors a percentage of collected receipts. However, the amendment sunsets on December 31, 2010 if the General Assembly fails to act on or before that date. This is an important subject, with the potential significant ramifications, and warrants careful review by physicians, medical groups and their attorneys.
History
The Act governs, inter alia, the licensure of physicians practicing within the State of Illinois. Section 22 of the Act provides for discipline against a physician’s license when a physician has violated the Act. Section 22(A) states, in pertinent part:
The Department [of Professional Regulation] may revoke, suspend, place on probationary status, or take any other disciplinary action as the Department may deem proper with regard to the license or visiting professor permit of any person issued under this Act to practice medicine, or to treat human ailments without the use of drugs and without operative surgery upon any of the following grounds:
(14) Dividing with anyone other than a physician with whom the licensee practices in a partnership, Professional Association, limited liability company or Medical or Professional Corporation any fee, commission, rebate or other form of compensation for any professional services not actually and personally rendered.
(14) Dividing with anyone other than a physician with whom the licensee practices in a partnership, Professional Association, limited liability company or Medical or Professional Corporation any fee, commission, rebate or other form of compensation for any professional services not actually and personally rendered.
In the 2006 case of Vine Street Clinic v. Healthlink, Inc., the Illinois Supreme Court held that an agreement involving a percentage-based fee for administrative services between physicians/medical groups and Healthlink violated Section 14 of the Act. Subsequent rulings by the Illinois Appellate Court have expanded the impact of the ruling in Vine Street Clinic, finding that agreements that vendors be compensated based upon a percentage of revenues collected also violates Section 14. In its most decision concerning this subject, the Appellate Court held that a fee-sharing clause (5% of the gross receipts collected for medical services) contained in an agreement between a medical group and a vendor was void and unenforceable.
Consequences of the Vine Street Clinic Ruling and its Progeny
The holdings in these cases are significant for several reasons. First, the licenses of physicians, including all physicians practicing in a medical group, are at risk if they have entered into an agreement with a vendor that includes a fee-sharing provision. Second, any such agreement is unenforceable, creating uncertainty for both physicians/medical groups and vendors. Third, since these agreements are unenforceable, physicians/medical groups may well be violating HIPAA privacy provisions by sharing data regarding patients with these vendors. Because of these issues, the General Assembly recently amended the Act by adding the following language:
(d) Nothing contained in this Section prohibits a licensee under this Act from paying a fair market value fee to any person or entity whose purpose is to perform billing, administrative preparation, or collection services based upon a percentage of professional services fees billed or collected, a flat fee, or any other arrangement that directly or indirectly provides professional fees, for the administrative preparation of the licensee’s claims or the collection of the licensee’s charges for professional services, and contains additional provisions with which the medical group must comply. 225 ILCS 60/22.22(d).
Importantly, this may only be a temporary remedy. This provision will sunset on December 31, 2010 if the General Assembly fails to act on or before that date.
Impact of Amendment
From the perspective of the physician/medical group, the calculation utilized to determine the compensation paid to its vendors must be reviewed carefully by the practice management and/or counsel. The amendment became law on August 24, 2009. From that date until December 31, 2010, physicians/medical groups may consider reimbursing vendors for billing services based upon a percentage fee, if the physician/medical group meets certain provisions of the Act. Careful review of the requirements of the Act should be undertaken.
It is important to note that the Act does not govern the business of medical billing companies, in general. The Act governs the activities of physicians. In other words, the failure to carefully adhere to the requirements of the Act does not place the medical billing company at risk for having its business practices reviewed the Illinois Department of Financial & Professional Responsibility. The failure to comply with the Act places a physician at risk for violations of Section 22.
Conclusion
It remains to be seen whether the General Assembly will act to make the amendment permanent, will modify Section 22 or will take no action, allowing it to sunset on December 31, 2010. This situation must be monitored. It is strongly suggested that if a physician/medical group has a billing services agreement with a vendor and the agreement contains a fee-sharing provision, the agreement be reviewed by practice management and/or counsel to verify compliance with all regulatory requirements.