• Illinois Medical Practice Act of 1987 Amended to Allow Third Parties to Contract with Physicians and Bill and Collect on a Percentage Basis
  • September 30, 2009 | Author: Kurt L. Hudson
  • Law Firm: Hinshaw & Culbertson LLP - Chicago Office
  • On August 24, 2009, the Illinois Medical Practice Act of 1987 (“Act”) was amended to allow third parties to contract with physicians and bill and collect on a percentage basis (Public Act 096-0608). The recent amendment not only changes certain aspects of the prohibition on physician fee splitting, but also adds language to curtail third-party fraud and abuse. Illinois healthcare providers and suppliers enrolled in the Medicare and Medicaid programs must carefully consider the federal prohibition on reassignment when entering into a percentage-based billing arrangement.

    The Illinois Medical Practice Act

    Section 22(A)(14)
    The former fee splitting provision, Section 22(A)(14) of the Act, put a physician at risk for discipline for “dividing with anyone other than physicians with whom the licensee practices in a partnership, professional association, limited liability company, or medical or professional corporation, any fee, commission, rebate or other form of compensation for any professional services not actually and personally rendered.” Certain exceptions were carved out for medical corporations forming joint ventures or partnerships, concurrent physician services and physicians practicing together in a corporate entity.

    Though physician and medical billing and/or collection arrangements have long relied upon percentage-based payments, an Illinois Appellate Court has found that percentage-based fee splitting arrangements are void despite the common practice and purpose of medical billing agreements.

    Section 22.2
    Public Act 096-0608 retains language prohibiting physicians from dividing or sharing fees with any other physician unless they are in the same practice. However, Section 22.2 of the Act allows physicians to pay collection or billing services based upon the percentage of fees billed or collected as long as the arrangements follow certain requirements:

    • Payment by a physician or physician practice must be for the performance of billing, administrative preparation, or collection of claims for professional fees;
    • Payment of compensation must be consistent with fair market value;
    • The amount of fees charged or collected must be controlled by the physician or physician practice; and
    • The amount of fees collected must be (i) directly paid to the physician or physician practice, (ii) deposited directly into an account in the name and under the control of the physician or physician practice, or (iii) deposited into a trust account by a licensed collection agency.

    Section 22.2. also clearly prohibits dividing, sharing or splitting a professional service fee or paying a percentage of a professional service fees, profits or revenues for the following reasons:

    • Marketing or managing the physician’s practice;
    • Including the physician or the physician’s practice on any provider list;
    • Allowing the physician to participate in any network of health care providers;
    • Negotiating fees, charges or terms of service or payment on behalf of the physician for professional services rendered; or
    • Including the physician in a program whereby patients or beneficiaries are provided an incentive to use the services of the physician.

    Section 22.2 also establishes a few other exceptions to the fee splitting prohibition. First, the new statutory provision now provides for the right of licensed health care workers providing concurrent services to receive adequate compensation for their services as long as the patient has full knowledge of the division. Second, a broader range of physician practice entities can pool, share, divide or apportion professional fees. Lastly, physicians can now grant a security interest in their accounts receivable or fees for a bona fide advance if the physician retains control and responsibility for the collections and fees.

    Medicare Prohibition Against Reassignment

    The Medicare statute generally prohibits payment of benefits to any party other than a beneficiary or the physician, practitioner or supplier who actually furnished the item or service.   42 U.S.C.A. §1395u(b)(6). There are certain limited exceptions to this prohibition that allow for percentage-based billing arrangements, including the exceptions for “Payment to an Agent” and “Payment for Services Provided under a Contractual Arrangement.” 42 CFR §424.73-424.90; Medicare Claims Processing Manual, Ch. 1, §§30.2.1-30.2.7.

    Payment to an Agent

    Under this exception, Medicare may pay an agent who furnishes billing and collection services to the provider if the following conditions are met: 

    • The agent receives the payment under an agreement between the provider and the agent;
    • The agent’s compensation is not related in any way to the dollar amount billed or collected;
    • The agent’s compensation is not dependent upon the actual collection of payment;
    • The agent acts under payment disposition instructions that the provider may modify or revoke at any time; and
    • In receiving the payment, the agent acts only on behalf of the provider (except insofar as the agent uses part of that payment to compensate the agent for the agent’s billing and collection services).

    The primary purpose of this exception is to permit billing services to claim and receive Medicare payment on behalf of and in the name of the provider. The conditions for payment listed above ensure that the billing agent has no financial interest in how much is billed or collected and is not acting on behalf of someone who has such an interest, other than the provider itself.

    However, pursuant to §30.2.4 of the Medicare Claims Processing Manual, the conditions listed above do not apply if the agent merely prepares bills for the provider and does not receive and negotiate the checks payable to the provider. “Merely” preparing a bill for a provider does not include coding, posting and reconciling payments, responding to payer communications, appealing denied claims, and other types of collection services generally included in a Billing Services Agreement.

    Payment for Services Provided Under a Contractual Arrangement

    This exception allows a carrier to make payment to an entity (i.e., a person, group, or facility) enrolled in the Medicare program that submits a claim for services provided by a physician or other person under a contractual arrangement with that entity, regardless of where the service is furnished. Thus, the service may be furnished on or off the premises of the entity submitting the bill and receiving payment. The entity receiving payment and the physician or other person who furnished the service are both subject to the following program integrity safeguard requirements: 

    • The entity receiving payment and the person who furnished the service are jointly and severally responsible for any Medicare overpayment to that entity; and,
    • The person furnishing the service has unrestricted access to claims submitted by an entity for services provided by that person.

    CMS originally required that all contractual arrangements between an entity and physician or other person include the program integrity safeguards listed above. CMS relaxed this requirement by concluding that it is not necessary for the program integrity safeguards to be included in the written contract; but, the entity billing and receiving payment and the person reassigning his or her billing and payment rights are both responsible for compliance with the program integrity safeguards. CMS Transmittal 472.


    Pursuant to federal regulation, CMS may terminate a provider agreement if the provider executes or continues a power of attorney, or enters into or continues any other arrangement that authorizes or permits payment contrary to the provisions outlined above. 42 CFR §424.74(a)

    Thus, while percentage-based fee arrangements may be proper under Illinois law, healthcare providers and suppliers enrolled in the Medicare and Medicaid programs must also closely evaluate the Medicare regulations to determine the limits on a particular arrangement.