It is illegal in a number of states for physicians to pay a percentage of collected fees to billing and collections companies, a practice known as "fee splitting," but the prohibition has been widely ignored and percentage-payment arrangements have flourished, according to Chicago Attorney Kimberly J. Kannensohn, a partner at McGuireWoods.
Physician practices and billing companies, however, sat up and took notice in 2008, when Illinois courts voided one such arrangement for violating the state's fee-splitting law. Ms. Kannensohn says the decision prompted some billing companies to drop the percentage fee and move to a flat fee.
The Illinois legislature came to the rescue in 2009, creating a narrow exemption from the fee-splitting prohibition just for billing and collections companies. Ms. Kannensohn says the new law, effective in Aug. 2009, does not apply to other consultancy arrangements beyond billing and collections.
"This law does not contain a blanket exemption for fee-splitting arrangements and will not protect management contracts with Illinois physicians where a broad package of management services is reimbursed based on a percentage of collections," she says.
For an arrangement to qualify under the exemption, the physician or practice must maintain control over collections at all times, Ms. Kannensohn says. This means that the collections must be paid to the physician or practice directly, deposited into one of their accounts or deposited in a trust account.
It does not appear other states with similar fee-splitting prohibitions have created this kind of exemption. If physicians are found to violate such laws, they could be reprimanded or have more serious action taken against their licenses, and billing companies could find their contracts voided, as seen in the Illinois decision, Ms. Kannensohn says.
Medical practices and companies have been eager to preserve percentage payments. "These arrangements are a win-win," Ms. Kannensohn says. "The billing company has the incentive to work tirelessly on behalf of the practice and the practice pays the company only if payments are collected."