The ins and outs of billing company contracts

By Alice G. Gosfield, Esq., November 1, 2020

Every month, DermWorld covers legal issues in “Legally Speaking.” This month’s author is Alice G. Gosfield, Esq., who is a health care attorney at Alice G. Gosfield and Associates, P.C.

With the advent of ICD-10 coding, new CPT^TM codes, enrollment maintenance challenges, and more billing burdens, many physician practices have increasingly turned to outside billing companies to perform this critical function. Billing companies were well recognized by the government in the Medicare reassignment rules that were published in 1980 and have been refined over time. The HHS Office of the Inspector General has provided compliance guidance to them (PDF download).

Considering the explosion of EMRs with billing software components, as well as management contracts — whether with health systems, management services organizations, or otherwise — there is now a range of external entities that are not just billing companies, but have come to take on the billing function in many practices. The billing industry touts its lower costs compared to when the practice employs dedicated billing and collection staff in-house. Even so, these relationships can create significant problems for physician practices.

Because the principal is always responsible for the acts of the agent in submitting claims, pitfalls abound here. Yet, these relationships have not received the scrutiny they deserve; nor do the customer/clients demand what they should of their billing company vendors. This is especially true when the billing functions are embedded in a broader document like a management services contract. This article can only scratch the surface of what is at stake here — from false claims liability, to HIPAA breaches, to simple failures of performance. When you finish reading this article you will understand that choosing your billing company and its contract deserve substantive attention.

Fees

Perhaps the most significant anomaly in these relationships is the fee basis on which they rest. Because the billing industry emerged initially out of the collection industry, percentage-based payment made sense to incentivize those seeking to collect accounts receivable based on their success — a percentage of the revenues generated. Even with the earliest Medicare reassignment rules, the government said they expected billing companies to be paid on a percentage basis, despite the prohibition on billing companies earning a portion of what the billing produces.

By contrast, though, in thinking about how claims are generated, the effort that goes into creating a claim for an office visit that produces $50 is precisely the same effort that is required to generate a claim for Mohs surgery. Why should the billing company be paid the same percentage and therefore a different amount for each of these services? There is still additional potential liability where the entity that is performing the billing services is an entity to which the physician practice refers — such as a health system. To be paid on a percentage would reflect the volume or value of business between the parties, which the anti-kickback statute prohibits.

That said, there are companies that charge on a fixed fee basis, either per claim or on a flat monthly basis. Industry representatives argue that these agencies have no incentive to engage in active collection efforts; and that the burden then falls on the practice to follow up on denied claims. There are, however, very different levels of collection efforts demanded by claims submission. When a claim is denied because demographic data was inaccurate, or the patient had no coverage, the resulting efforts at collection will be very different from claims denied for lack of medical necessity. These differences can be accommodated within a fixed fee model as well.

Performance standards

Traditionally, billing companies have rarely agreed in their contracts to meet performance standards. There are those who argue that such standards are difficult to ascertain. But even the industry itself touts performance metrics that should be applied.

“Days in receivables outstanding” measures outstanding receivables minus credit balances. It is an overall measure of the timeliness of the billing processes. Other metrics include percentage of accounts receivable (A/R) older than 60 days; days in A/R; and first pass resolution rate — how many claims get paid on the first submission. Gross collection rate; denial rate; and collections per visit by comparison with others in your specialty have all been listed by industry insiders as potential performance metrics. Whether you can get the company working for you to commit to such measures will tell you how confident they are in their practices. Even inquiring about their performance data is worthwhile. It is also fair for them to hold the practice to perform effectively including timeliness of encounter data received and accuracy and completeness of coding whether CPT or ICD. Bad data given to the billing company can taint the whole process.

These metrics are especially important, even if reduced to only aging of A/R, timeliness of claims submission, and collection rate, when the entity conducting the billing is a health system/hospital. Where practices lease themselves to one of the systems who will then bill, often the system will argue, “You get paid whether we do or not. Why do you care about our performance?” The answer is that if they have poor collections, they can then turn around and say the compensation they are paying the physicians is not fair market value and seek to lower the compensation going forward.

Allocation of responsibilities

Who is responsible for CPT coding and ICD coding? Where the billing company does that, they will charge more, and the group may be at risk for their errors. Who is managing collection of deductibles and co-pays? The communication around these issues is essential. How credit balances will be handled and on what timeframe can be a source of real liability if those dollars are not repaid timely to patients. How credentialing of new physicians or non-physician practitioners will be handled as well as terminating physicians who have left the group can also create situations where at worst, the practice can lose its billing privileges if not handled effectively and sometimes will not be able to bill at all for that physician’s services because this process was botched or delayed.

Because of the group’s liability under Medicare fee for service for voluntary repayments (see sidebar), the mechanism for managing these and exploring when additional investigation is necessary is a critical component of the relationship. If the billing company compensation is a percentage of collections and some of those collections have to be repaid, what is the company’s liability? If the company was paid on a percentage, they have received monies to which they were not entitled. What if there is an outside audit which assesses financial liability because of improperly submitted claims?

Conclusion

Most billing company contracts do not address the issues enumerated here. They should. Additionally, there are more issues to confront that aren’t even addressed here. Since these companies’ activities can create real exposure for the group, the entire spectrum of physician practices needs to stand up and demand more vendor accountability. Successful, well-run billing companies ought not to object to conducting themselves accordingly.

Additional DermWorld Resources