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Can outsourced billing be considered illegal fee splitting?


Dr. Bill's practice sees more than 1,000 patients a week, most covered by some version of medical insurance. The practice outsourced its billing to a billing company, which takes a small percentage of each paid patient bill as its method of payment. Recently, a disgruntled patient sued Dr. Bill, alleging illegal fee splitting.

Key Points

Dr. Bill is the director of a nine-person dermatology group based in Illinois. He and his associates run a four-office practice that offers a diversity of dermatologic services, including pediatric dermatology, dermatopathology and all aspects of medical dermatology.

Recently, a disgruntled patient filed suit against Dr. Bill and the group alleging fee splitting, an illegal practice in Illinois. Dr. Bill does not understand how what he thought was a perfectly appropriate billing practice might now be considered breaking the law.

In Center for Athletic Medicine, Ltd. (CAM) v. Independent Medical Billers of Illinois (IBMI), Inc. and Medorizon, Inc., the First District Appellate Court of Illinois decided that a billing arrangement between physicians and a billing service based upon compensation to the billing service in the form of a percentage of the professional fees violated the fee-splitting provision contained in Illinois' Medical Practice Act of 1987.

CAM alleged breach of contract by a billing service, resulting in the medical practice not receiving complete, accurate reimbursement for professional services from insurance companies and other payers. The billing company was paid a percentage of the professional service fees recovered. The trial court dismissed the suit because the contract required payment of a percentage of physician professional service fees recovered, in violation of the Medical Practice Act's prohibition on physician fee splitting.

CAM appealed the ruling, arguing that the prohibition on fee splitting does not apply to billing services that seek reimbursement after services are rendered. The billing services are then in no position to steer referrals, which is the public policy reason for the prohibition on fee splitting. The appellate court determined the plain language of the prohibition in the Medical Practice Act is broader than these public policy concerns.

In 2008, the Illinois Supreme Court refused to hear the case. Shortly thereafter, legislation was introduced to revise the statute to allow percentage-based contracts with billing services and other services. In the subsequent session of the Illinois General Assembly, Senate Bill 69 - which specifically authorized billing-service agreements on a percentage basis - passed both Illinois houses.

Stark laws

It should be noted that the Illinois Medical Practice Act is not unusual. It is similar to laws in many other states, and, in certain aspects, can be viewed as a state equivalent of the federal Stark laws.

The federal Stark laws were implemented when Congress included a provision in the Omnibus Budget Reconciliation Act of 1989 that barred self-referrals for clinical laboratory services under the Medicare program, effective Jan. 1, 1992. This provision is known as "Stark I." The law included a series of exceptions to the ban in order to accommodate legitimate business arrangements.

A number of observers recommended extending the ban to other services and programs. The Omnibus Budget Reconciliation Act of 1993 expanded the restriction to a range of additional health services and applied it to both Medicare and Medicaid; this legislation is known as "Stark II."

Provider concerns

Passage of Stark II raised a series of concerns on the part of many provider groups.

While Stark I and II were intended to remove potential conflicts of interest from physician decision-making, a number of people have argued that the legislation, particularly parts of Stark II, represented an unwarranted intrusion into the practice of medicine. They stated that the legislation, particularly the provisions relating to compensation arrangements, is too complex and may, in fact, impede physicians' ability to participate in managed care networks. In the Stark laws there is no mention of arrangements between physicians and billing agencies. Because Stark is federal legislation, many states such as Illinois have passed similar state laws.

Dr. Bill was correct in assuming that his practices' interactions with a billing agency were not in violation of either the Stark Act or the Illinois Medical Practice Act. However, this issue itself should raise another red flag among physicians who see increasing intrusions into their everyday practice of dermatology.

David Goldberg, M.D., J.D., is director of Skin Laser & Surgery Specialists of New York and New Jersey, director of laser research, Mount Sinai School of Medicine, and adjunct professor of law, Fordham Law School.

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