By: David A. Zarett, Esq. & Seth A. Nadel, Esq.
Weiss Zarett Brofman Sonnenklar & Levy, P.C.

Recently, physicians in the Central New York and Adirondack areas were contacted by the Medicaid Fraud Control Unit of the New York State Attorney General’s Office (“MFCU”) demanding repayment of Medicaid funds allegedly paid under a fee-splitting arrangement. In short, MFCU claims that the physicians paid a percentage of Medicaid collections to their billing collection agents in exchange for billing services, and that such percentage-based compensation was impermissible under New York law.

The Medical Society of the State of New York provided a redacted version of a letter sent to a provider on this issue, stating the results of an audit and investigation which had been conducted. It states that for a period of approximately six years, from the beginning of 2010 to the end of 2015, the provider had gross Medicaid revenues of $2,064,854.08. Of this figure, 3.5 percent of the collections, or $72,269.89, had been paid to a billing company for services. The provider was ordered to repay one half of that figure, plus nine percent interest, for a total of $48,151.66 to the MFCU Reimbursement Fund.

A Medicaid Update in 2001 (the “Update”) had previously offered guidance on this issue, and was directly referenced in the redacted letter. According to the update, New York physicians are permitted to employ a business agent, such as a billing or accounting firm, which can mail out bills and receive payment in the name of the provider. The compensation to be given to the billing firms, however, must meet several specific criteria in order to be considered permissible. Compensation is required to be; (1) reasonably related to the cost of services; (2) unrelated, directly or indirectly, to the dollar amounts billed and collected; and (3) not dependent on actual collection or payment.

The Update explicitly stated that billing agents are prohibited from charging a percentage based on the amount of claims or collections and that such payment arrangements could run afoul of the Education Law and State Education Department’s regulations related to unlawful fee-splitting. Though the Update acknowledged that such arrangements were common when dealing with both Medicaid and third party health insurers, it stated in no uncertain terms that they were not permissible.

For practical purposes, any percentage-based compensation agreement involving medical services should raise immediate red flags with any provider.

Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors' rights, and commercial real estate transactions.

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