Issue 11 - September 2003

Ask the attorney
Are percentage-based fees legal?
By Deborah Green, Esq.

Q - I’ve recently gone out on my own and have retained a billing company. The company charges me a percentage of amounts collected. I’ve heard that this is fee-splitting and illegal.

A - Percentage-based compensation is the prevalent industry practice. It is not illegal at the federal level and the Office of the Inspector General (OIG) gave it qualified approval in its model compliance plan for physicians. It is prohibited in some states and may trigger investigations.

Although percentage-based billing is not illegal per se, the OIG is fearful that such arrangements will increase the risk of intentional upcoding and similar abusive billing practices. Many states prohibit it altogether.

For instance, in a 1997 advisory opinion, the New York State Department of Health wrote: “[W]e maintain that any compensation arrangement which is based upon a percentage of physicians’ [revenues or profits] constitutes illegal fee-splitting. ... the only percentage compensation arrangement this office recognizes ... is to collect past-due bills which would otherwise be uncollectible.”

Florida’s Medicaid Provider Reimbursement Handbook (June 1999 revision) specifies: “A provider may retain a billing agent to submit claims on the provider’s behalf if the agent’s compensation is:

1. Related to the cost of processing the billing;

2. Not related on a percentage or other basis to the amount billed or collected; and

3. Not dependent on the collection of the payment.”

It is even more problematic if your billing company chooses codes. If it does, make sure you can document the company’s coding decisions. If the billing company is selecting codes, receiving cash and maintaining collections, ask for an attestation [SAS-70 letter], which states that the billing company will engage an outside auditor to make sure all transactions are proper.

Consider using a billing company that bills you on a flat-fee or a per-claim basis in order to save money. By using percentage based reimbursement you are over-compensating the billing company. The billing company’s cost is identical regardless of the size of the claim, therefore, percentage compensation results in a higher than market value payment to the billing company.

Deborah Green has been a practicing attorney since 1977. She is a member of the American Health Lawyers Association, the New York State Bar Association Health Care System Design Committee, the New York State Bar Association Health Care Providers Committee, the American Bar Association Health Law Section and the Florida Bar Health Law Section.

If you require clarification on these questions or have any questions of general interest on other legal healthcare issues, please contact the law office of Deborah Green. Her number is 954-236-8282; fax, 954-236-6939; or e-mail, healthattorney@aol.com.

LEGAL DISCLAIMER: This column is provided subject to and governed expressly by the terms of this disclaimer. This column is provided for educational purposes only. The accuracy or timeliness of the information presented herein is not warranted. The information presented herein is not intended to be advice as to a specific fact pattern with which you may be presented. Accordingly, please note that the information contained herein is not being presented as legal advice with respect to any matter and that no attorney-client relationship is hereby established.