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Position Paper #1: Percentage Billing Arrangements



Third party billing organizations are, from time-to-time, questioned about the propriety and legality of billing contracts with a fee basis that is based on a percentage of collected funds. This Position Paper was developed to explain the Association\'s position on this subject, and to offer more detailed guidance for member and non-member billing organizations.

Physicians and other medical service providers have, in various forms, and in increasing numbers, utilized the services of third party billing companies for over fifty years. While the overall services provided by billing companies and the business relationships between providers and billing organization are different, the billing and collection of the provider\'s charges are central to all such arrangements. As with all business arrangements, the biller\'s work must be compensated. The long-established and traditional fee basis for billing services has been based on a percentage of the funds collected by the biller.

Percentage of collection fee arrangements have been the norm for a variety of reasons:

Providers view the direct relationship between their payment and the biller\'s payment (\'no collection, no fee\') as operating in the provider\'s best interest. They consider the prospect of paying for a service related to the collection of their payments, even if it is not performed or successful, to be a bad bargain;
Providers are extremely suspicious of fee arrangements that guarantee compensation for the vendor, even if the service (measured by funds collected) is poor;
Billers view the direct relationship between their payment and the work and costs associated with a relationship is best matched if the billing fee is proportionate to the amounts collected (more effort and more cost = more results for the client and more compensation [to pay for the additional effort and cost]);
Providers deal with other industry service providers for services that are related to the collection of their funds, notably collection agencies, which exclusively charge on a percentage basis;
Providers have a lengthy list of specialty-related characteristics, with an extremely wide range of values, each of which affect the nature of the services they require and the economics of performing those services. For example, EKG interpretations (Cardiology) have an average charge of $14 to $22 and an average payment of $6 to $14, whereas Cardiothoracic surgeons have average charges greater than $3,500, with average payments greater than $1,500. There can never be a \'one size fits all\' fixed price or approach to pricing when there would clearly be a need for, and value to, investing significant effort in collecting the latter amounts, and virtually no value in greater effort for the former;
Since the inception of Medicare thirty-three years ago, HCFA has recognized that providers might outsource their billing and developed regulations related to percentage based contracts. HCFA addressed these billing arrangements in Section 3060 of the Carrier\'s Manual, wherein they regulated the types of permitted contractual relationships that are based on a percentage of collections. Although Section 3060 is occasionally misinterpreted, HCFA officials have consistently affirmed the acceptability of percentage billing arrangements that are compliant with Section 3060.
HBMA, through its educational programs and publications, as well as through the efforts of the Payer Relations and Ethics and Compliance Committees, has a long-established history of vigorously advocating compliance with officially promulgated regulations and payer contracts. We have included in our programs and publications information about percentage-based contracts and how to comply with HCFA regulations.

The Office of the Inspector General, in Footnote 40 of their Model Compliance Guidance for Third Party Billing Companies included the statement, \"The OIG has a longstanding concern that percentage billing arrangements may increase the risk of upcoding and similar abusive billing practices. See, e.g., OIG Ad. OP. 98-1 (1998) and OIG Ad. Op. 98-4 (1998).\" And, in at least one Advisory Opinion, 98-4, the OIG also referred to percentage based billing arrangements as potentially problematic.

In the Draft Guidance for the DME industry, the OIG represented as a risk area \"using a billing agent whose compensation is based on the dollar amounts billed or based on the actual collection of payment.\" In officially submitted comments, we objected to the OIG\'s inference that the latter arrangement represents a greater risk than alternative arrangements. Subsequent to HMBA\'s comments, the final, published Model Guidance for the DME industry omitted any reference to fee arrangements for contracted billing services. We consider this revision to be a relevant indication of the OIG\'s re-evaluation of its position regarding percentage arrangements.

Regarding fee arrangements based on the dollar amount billed, we know of no billing arrangement based on such terms and cannot imagine a biller offering it, or a client accepting billing services on those terms.

In each of the above instances, the OIG has published its opinion and recommendations on this issue, since the OIG has no regulatory authority. Those within HCFA with regulatory authority have consistently acknowledged that \'percentage of collection\' arrangements are acceptable, as long as billers comply with their regulations set forth in Section 3060 of the Carrier\'s Manual.

As with the Model Compliance Guidance for Third Party Billing, we assume that the OIG\'s draft Guidance for DME Providers was designed to invite and encourage providers to adopt and implement a compliance program. Once implemented, it would be reasonable to expect that the provider would not, thereafter, participate in any billing arrangement that employed improper methods, and would not permit a contractor hired to perform billing services to act improperly on its behalf. A physician practice, hospital, DME company or a billing company with an effective Compliance Program would regularly review and audit its own conduct, and the parties with whom they do business. They would each make reasonable efforts to prevent or detect improper billing internally, as well as by its contractors.

The marketplace has dictated the basis of compensation for billing services for over fifty years, and balances, in proportion, the level of service with the payments secured for the provider. The most frequently cited alternative, a flat rate fee, is equally - or more risky.

Illustration: Once a biller establishes a relationship based on a flat fee, the biller\'s profit motives are best served by spending as little of the flat fee as possible, and are, therefore, counter to their client\'s best interests (i.e. there is no incentive to produce a complete or favorable result). Most clients are astute enough to recognize this, and thus oppose flat fee arrangements. Since \'thrift\' (cutting corners to retain a larger portion of the flat fee, possibly including maintaining a compliance program) may diminish the client\'s results, a predictable countermeasure would be to engage in various practices that will provide cash flow for the client and incur little or no additional operating costs for the biller. These could include: programmatic upcoding, manual or automated unbundling, reporting a covered code for a non-covered service, duplicate billing, balance billing, and so forth. In this manner, the customer is supplied with the expected cash flow (the customer might be ignorant of, or complicit in, the violations) without \'spending\' portions of the flat fee.

Two states, New York and Florida, have state laws that have been reported to bar percentage of collection arrangements when Medicaid funds are involved. In each case, the issues raised by the state legislation do not apply to other jurisdictions, or to national policies. In addition, it is not clear that either of the state laws completely bar percentage billing arrangements, nor has there been any enforcement effort reported.

It is HBMA\'s position that any fee basis of a business arrangement is not corrupt, that improper behavior can occur under any fee arrangement, and that, other than deliberate misconduct, one arrangement is no more prone to improper incentives than another, as illustrated above. We recognize the possible existence of, and vigorously oppose, any form of upcoding, unbundling, duplicate billing, balance billing above the amounts allowed, and other practices that violate regulations or business ethics

The OIG\'s concerns related to percentage billing agreements center on the potential for inducing upcoding, false claims and duplicate billing. Healthcare providers who hire a billing agent most often do so expecting to pay the agent on a basis that will be commensurate with the efforts and tenacity required to secure (the provider\'s) rightful payment. They prefer that the agent only earn a commission based on dollars collected, so that if the provider does not get paid, the billing agent goes unpaid as well. In this way there is no opportunity to just \"push paper\" in order to generate a billing fee. In fact, a \'per claim\' fee arrangement creates the incentive to submit multiple claims and to \'split bill\' (divide legitimate, documented, multiple services performed on the same date, into individual \'one-code-per-claim\' submissions) in order to increase billing fees.

What routinely makes a difference between billing vendors is expertise and effort. One billing agent\'s clear understanding of a client\'s rightful and legal compensation for services rendered and the agent\'s thoroughness in securing that compensation, coupled with authentic coding expertise in the provider\'s specialty(s) are relevant differences between billing providers. It follows that such expertise can be costly to develop and maintain, and that the staff possessing such expertise will be more costly to employ than those without it.

These arrangements create a partnering effect that provides the billing agent with an incentive, and compensation, to work for the client\'s best interests (within legal limits), producing a healthier practice that, logically, is less prone to \'cheating\' in order to sustain a reasonable level of cash flow. As with any activity, including the government, there is \'opportunity for mischief\' in any endeavor, and this clearly includes coding and billing, but we strongly believe that although individuals may be corrupt, the business arrangement is not inherently improper.

HBMA members report, with increasing frequency, blatant misconduct by some payers whose adjudication and processing methods are clearly designed to thwart providers and billers efforts to secure payment. Overcoming these tactics requires considerably more cost and effort than the mechanical submission of a claim. The idea that payers promptly and reliably issue payments for every \'clean claim\' is a fantasy. In the real world of healthcare billing, claims are routinely rejected for fabricated reasons, or no reason at all. There are few, if any, enforced regulations imposed on payers to adhere to claim processing rules. There is every incentive for them to make it as difficult as possible to collect on a claim. Billers contemplating charging for their services on a flat rate basis would find it difficult, or impossible, to construct a fair price in advance of knowing how many \'non-payment gaming tactics\' they will encounter with a new, or even an existing, client.

Under percentage arrangements providers address the need for appeal and follow-up and can anticipate, plan for and afford the effort required to produce higher, legitimate collections. A professional biller is free to develop strategies and tactics to collect rightful dollars owed clients. The billing agent often has several clients in the same specialty, dealing with the same payers and can realize economies of scale in securing payments that the provider\'s office staff cannot afford to undertake. Billing agents must be involved in, and knowledgeable of laws, regulations and proposed rules so that the agent may prove its worth to the client.

The Health Care Billing and Management Association strongly endorses compliance. Indeed, we have experienced \'sell-out\' enrollment for our Compliance Training Program, even though the cost of attendance is triple the next-highest registration fee charged by HBMA. We believe compliance is not only good business but also good for business. We know that credible agents are compliant agents and that compliance programs promote legal working relationships for both providers and billing agents.

Our position is that commission arrangements provide the fairest and best way for providers to achieve just payment for their services in an increasingly complicated environment.


All third party billing companies are strongly encouraged to develop, implement and maintain a compliance program.
To comply with Section 3060.10 of the Medicare Carrier\'s Manual, all client funds should be deposited into an account under the exclusive control of the provider. Billing companies should not be a signatory on any accounts into which funds are initially deposited. A clear and complete set of records of all transactions should be maintained.
Any incentive fees assessed should be related to the collection of actual amounts due, based on the contractual amounts allowed, as defined by federal guidelines or payment contracts. No incentives should be related to average charge, gross charges, coding patterns or coding profiles.
Companies that provide coding services should not offer coding employees incentives based on average charge, gross charges, coding patterns or coding profiles, or for production output (charts per hour) above a level that could jeopardize accuracy. Companies that offer coding services are encouraged to offer incentives related to accuracy and compliance. Companies and/or their clients are also encouraged to contract for periodic, independent reviews of their coding by qualified review firms.
Companies providing follow-up services on unpaid claims should comply with the published requirements of Medicare Carriers and Intermediaries, including use of approved forms and inquiry protocols. Claims requiring resubmission should be clearly marked as a resubmission to prevent duplicate payments.
Companies are encouraged to report Carrier and other payer misconduct related to claim processing to the appropriate federal and/or state authorities. It is hoped that this will reduce the temptation to improperly compensate for inappropriate denials, payment delays and payment reductions.
Companies charging a percentage of collected funds should not assess a fee on overpayments. It is recommended that any fee related to overpayments, if charged, should be based on the cost of processing a refund or for following federal protocols on the processing of overpayments.

It is the position of the Healthcare Billing and Management Association that billing service fees that are based on a percentage of collected funds are appropriate and reasonable, if safeguards such as those outlined in this document are in place and followed. Further, it is our belief that a billing company with an effective compliance program will not engage or knowingly participate in any conduct that would result in improper payments for healthcare services and, therefore, the work performed will not be affected by the fee basis of the relationship.