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Protecting your practice from billing co. errors

By Jeffrey B. Miller, Esq.

Billing companies provide services to virtually every part of the healthcare industry. Among the areas of greatest concentration are physicians’ practices. Among these companies, there is tremendous variation in the types of services provided and the manner of services provided. For example, while some billing companies code bills for their clients, others only process bills that their clients or others have already coded. In addition to coding and billing services, some billing companies offer a spectrum of management services, including accounts receivable management, bad debt collection, marketing and other consultative services. Others offer one or none of these additional services.

While billing company arrangements can have many excellent benefits, they must be carefully addressed to avoid unnecessary risks. Many physicians seek to simplify the administrative procedures and costs of their practice by contracting with billing companies to address part or even most of their claims development and submission process. Moreover, many physicians prefer to hire billing companies to handle these processes because they obtain peace of mind with the thought that they have hired coding and/or billing experts to address these complicated and administratively burdensome procedures. However, physicians who fail to take proper precautions and to correctly structure their practices’ relationships with their billing companies risk significant legal and financial liability. On April 6, 2000, Lewis Morris, Assistant Inspector General for Legal Affairs in the Office of Inspector General (OIG), United States Department of Health and Human Services testified before the United States House Committee on Commerce, Subcommittee on Oversight and Investigations. In his testimony, Mr. Morris emphasized the OIG’s efforts to regulate and investigate third party medical billing companies who cross the line of legality, and the potential liability of providers who utilize them.

According to Mr. Morris, government programs currently have several key system vulnerabilities that unethical billing companies exploit for their customers, and their own financial gain. He cited five specific billing companies as recent examples of how third party billers can establish schemes that generate millions of dollars in fraudulent claims. In each of those cases, the OIG pursued both the billing companies themselves and the providers who benefited from their fraudulent or inaccurate claims. As Mr. Morris noted, the providers named on the claims are primarily responsible for claims submission and may be assessed with any and all overpayments, interest and penalties that may be applicable.

The primary areas of vulnerability cited by Mr. Morris were:

Percentage Compensation Arrangements. The OIG strongly believes that billing company payment incentives, such as percentage compensation arrangements, encourage fraud and abuse through providing the billing companies with opportunities for financial gain at the expense of accuracy. As a result, Mr. Morris encouraged Congress to consider measures that expressly prohibit the use of payment incentives in third party billing contracts, no matter how the arrangements are structured. Specifically, Mr. Morris urged Congress to outlaw any arrangements that would allow third party billing companies to increase their payment based upon the amount they collect.

Reassignment. The OIG believes that billing company arrangements continue to violate the purpose and spirit of Medicare’s prohibition on certain reassignments. As a general matter, Medicare prohibits the reassignment of the right to payment to persons other than the provider or supplier who delivered the service. However, as an exception to this general rule, payment may be made to an agent who furnishes billing and collection services to the health care provider, if certain conditions are satisfied. Among the conditions to be eligible for reassignment are that the agent’s compensation may not be related to the dollar amounts billed or collected. Through the use of “lock box” arrangements, some billing companies have managed their clients’ bank accounts in ways that permit them to sweep the money out of those accounts into the billing companies’ accounts, where the billing companies take their fee based upon a percentage of collections. Because these arrangements can be used to disguise percentage compensation arrangements, the OIG considers these arrangements ripe for fraud. Mr. Morris urged Congress to specifically outlaw these types of arrangements.

Standards. The OIG emphasized that standards for billing agents who submit claims to federal health care programs are virtually non-existent. Mr. Morris recommended that billing and coding personnel be qualified by a federal agency before they are authorized to submit claims.

Training. The OIG believes that the training of billing and coding personnel is inadequate. As a result, Mr. Morris urged Congress to mandate a minimum level of training as part of its qualification standards.

Information Systems. Finally, the OIG believes that the government’s ability to identify and track third party billers is insufficient. Mr. Morris urged Congress to require all third party billers to be registered with the government, and to direct the implementation of a system that may identify and track these company’s billing patterns, and that could link specific claims to specific billers.

Providers who utilize third party billing companies must be aware that the federal government is increasing its scrutiny of the third party medical billing industry, as well as of the providers who utilize same. While this should not discourage providers from utilizing third party medical billing companies, providers should be sure to obtain and verify billing companies’ references to ensure that the companies with whom they contract are reputable, and should structure their billing company arrangements to ensure that they protect themselves from their billing companies’ errors.

There are many structural points that providers should negotiate into their agreements with their billing companies:

Exclusion Warranties: Title 42 of the United States Code Section 1320a-7a(a), relating to civil monetary penalties, prohibits providers from contracting with individuals and entities that the providers know or should know have been excluded from participation in federal health care programs. Through Title 42 Section 1320a-7(b)(15), this could include entities that are directly or indirectly owned or controlled by individuals who have been excluded. In their agreements, providers should address these laws by obtaining written warranties that their billing companies, as well as the owners and persons in positions to control their billing companies, are not listed by any state or federal agency as debarred, excluded or otherwise ineligible for state or federal program participation. Moreover, providers should require their billing companies to inform them immediately should these warranties become ineffective in any way.

Accuracy Warranties: Despite the fact that providers in relationships with billing companies do not perform all aspects of the claims development and submission process, providers remain primarily responsible for the accuracy of their claims. To protect their interests, providers should require their billing companies to provide written warranties that they will exercise diligence, care, and integrity when submitting claims for payment for services rendered, and will maintain honest, fair and accurate billing practices. Furthermore, providers’ billing companies should warrant that their personnel are knowledgeable and sufficiently trained to perform all claims development and submission functions in strict accordance with federal and state laws, regulations and protocols, and all other third party payor requirements.

Delineation of Responsibilities: On November 30, 1998 the OIG released its Compliance Program Guidance for Third Party Medical Billing Companies. In this Guidance, the OIG recommended that all third party medical billing companies develop, implement and manage compliance programs to ensure the accuracy of their claims. As part of its Guidance, the OIG recommended that billing companies specifically articulate claims development and processing responsibilities with their customers. Through their agreements providers should insist that their billing companies follow this guideline. Specifically, providers should detail the delineation of these responsibilities in their agreements. By delineating these responsibilities, providers attempt to ensure that the claims development and submission process runs smoothly, that it is properly supervised, and that there is minimum opportunity for error.

Internal Audits: In this Guidance, the OIG recommended that all third party medical billing companies perform internal auditing of their customer’s claims to ensure the claims’ accuracy. Consistent with the Guidance, providers should require their billing companies to perform prospective internal audits of their work on provider claims, and that they transmit that information to the providers in a timely manner. Prospective auditing is the best way to ensure that billing company personnel are performing correctly, while, to the extent possible, avoiding False Claims Act liability. Providers should be capable of obtaining and reviewing any information relating to their claims at any time so that they can confirm that their billing companies are performing adequately.

Compliance Program Review: In its Guidance, the OIG recommended that all third party medical billing companies make their compliance programs available for their customers’ review. As part of their negotiation processes, providers should obtain and review their billing companies’ compliance programs. Responsible billing companies should have sufficient compliance programs in place to assure responsible service. By reviewing their billing companies’ compliance programs, providers can also avoid problems by ensuring that their own claims development and submission procedures are fully compatible.

Record Retention: Providers should require their billing companies to retain the records necessary to validate the accuracy of the claims their billing companies submitted on their behalf. These records may include documentation supporting the claims themselves, as well as any information obtained through audits of those claims, and any relevant coding and billing protocols or procedures provided by the government, the carrier or the intermediary.

Resolution of Concerns: Because providers lack direct control over the claims development and submission process, but are legally responsible for inaccurate claims submitted, providers should insist on detailing a process to resolve their compliance concerns. Specifically, providers should insist that their billing companies agree that, should the providers become concerned that any activity undertaken pursuant to their agreements may be construed to constitute fraud or abuse, the billing companies will promptly participate in good faith discussions with their providers concerning same. After those discussions, should the providers remain concerned about activities in question, the billing companies should agree to work in good faith with the providers to promptly resolve those concerns to the providers’ satisfaction. Should the providers decide that the activities have not been resolved to their satisfaction, the providers should have the right to terminate their agreements immediately.

Right to Terminate: The above structural points may be meaningless without the ability to appropriately enforce their terms. Therefore, providers should have the right to terminate their agreements with their billing companies “for cause” where these points are not satisfied. In the cases of points one and two above, that right should be for immediate termination.

Compensation Arrangements: As described above, both the federal Department of Justice and the OIG have long voiced concerns over percentage billing arrangements. While there are no specific laws or rulings that assert that percentage compensation arrangements are per-se illegal, the government has stated on numerous occasions that percentage compensation arrangements contain financial incentives that increase the risk of abusive billing practices. Additionally, the OIG’s compliance program Guidance for billing companies highly discourages billing company compensation arrangements based upon percentages. On these bases, providers can expect that the OIG will carefully scrutinize any billing company arrangements with percentage based compensation. As a result, while providers may, and often do, utilize these arrangements, they should also consider billing arrangements based upon fixed fees.

Providers can obtain many benefits by contracting with the right billing companies for services. However, in the current regulatory environment, providers must act to protect themselves from their billing companies’ errors. By carefully structuring their billing company arrangements both legally and pragmatically, providers can obtain the assurance of the maximum protection available.

Jeffrey B. Miller, Esq., is a health care attorney with the Wayne, Pennsylvania law firm of Kalogredis, Sansweet, Dearden and Burke, Ltd.

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