Revenue cycle management companies (RCM Companies) help healthcare organizations manage billing, coding, claim submissions, and collections. Partnering with an RCM Company can enhance efficiency, accuracy, and cost-effectiveness (and in some cases, improve reimbursement). While working with an RCM Company offers benefits, it is important for RCM Companies and their customers to be aware of the regulatory and contractual considerations involved in such arrangements in order to reduce compliance risks. This alert discusses these considerations for both RCM Companies and healthcare organizations.
Percentage-Based Compensation
In industries with little government oversight or regulation, it is common for service companies to enter into revenue-sharing agreements with their customers. In healthcare, however, the practice of revenue-sharing can raise red flags for regulators and investors, especially when shared revenue is structured as a percentage of how much a provider is reimbursed for delivering professional services. For example, arrangements with RCM Companies that include compensation calculated as a percentage of collections or revenue require careful scrutiny from a compliance standpoint. Several federal and state laws limit or even prohibit these types of percentage-based compensation in healthcare, particularly when billing and coding services are involved and when collections or revenue come from public or private insurers. In contrast, an arrangement that includes compensation based on a percentage of the money saved by a healthcare organization due to an RCM Company’s increased efficiency and coordination (cost savings unrelated to insurance reimbursement) may present fewer compliance considerations. Given these different risks, companies should review applicable state and federal laws carefully to ensure their arrangements are compliant.
The Federal Anti-Kickback Statute
The Federal Anti-Kickback Statute (the AKS) prohibits the knowing and willful payment or receipt of "remuneration" to induce or reward patient “referrals” or the generation of business involving any item or service payable by the federal healthcare programs (e.g., drugs, supplies, or healthcare services for Medicare or Medicaid patients). The United States Department of Health and Human Services Office of Inspector General (the OIG) has flagged percentage-based compensation arrangements involving items or services payable by federal healthcare programs as problematic under the AKS. Further, the OIG has cautioned that percentage-based compensation arrangements may include financial incentives that increase the risk of abusive billing practices, which would violate the AKS. Violations of the AKS can involve civil and criminal penalties, imprisonment, and exclusion from participation in federal healthcare programs.
As further defined in the AKS, arrangements between RCM Companies and healthcare organizations may implicate the AKS if they involve referrals or business generation for healthcare organizations in exchange for a fee and must be structured to comply with the AKS. The AKS has a safe harbor for personal services and management contracts (42 CFR § 1001.952(d)) that protects certain arrangements that implicate the AKS; however, arrangements between RCM Companies and healthcare organizations may not qualify for the safe harbor if the compensation between them takes into account the volume and value of business generated between the parties.
Arrangements that do not fit within an AKS safe harbor are not necessarily unlawful but are inherently risky. However, steps can be taken to reduce, but not eliminate, this risk. The AKS safe harbor for personal services and management contracts requires that compensation be consistent with fair market value in arms-length transactions. To ensure that the services provided by an RCM Company are fair market value, RCM Companies can obtain a fair market value opinion (FMV Opinion) from an independent third-party consultant that evaluates the proposed compensation under the arrangement. The RCM Company can also include language in its agreements that: i) the RCM Company will not upcode any services (in order to receive a higher fee) and will conduct regular audits to ensure services are coded and billed accurately, and ii) that the RCM Company will not, directly or indirectly, refer individuals to the healthcare provider. Excluding billing and coding services from the arrangement can also help to lower risk.
RCM Companies should also work to establish a culture that promotes the prevention and detection of inappropriate billing practices by adopting and maintaining a robust compliance program based on OIG’s guidance for RCM Company compliance programs. OIG has identified certain risk areas for RCM Companies, including billing for items or services not actually documented, upcoding, improper use of modifiers, and incentives that violate the AKS or other similar laws. A well-developed compliance program can help to address these risks and assure compliance with federal regulations, private payor policies, and internal guidelines, improve accuracy and efficiency, increase the likelihood of identification and prevention of criminal and unethical conduct, and reduce exposure to civil and criminal penalties.
Last, for high-value arrangements that are critical to either party’s business, the parties can consider requesting an OIG opinion on the arrangement. Positive OIG opinions are useful, as they can provide the parties with reassurance that OIG would not take enforcement actions against the parties in connection with the proposed arrangement. However, if OIG instead concludes that the proposed arrangement could result in healthcare fraud and abuse, the parties must re-structure the arrangement to address such concerns or run the risk of OIG enforcement action.
State Laws
Most states maintain their own versions of the AKS, and many extend their versions to include all healthcare items or services, regardless of whether they are paid by federal, state, or private sources. Further, many states have fee-splitting laws which dictate how, or even if, professionals or nonprofessionals can share in professional fees.
For example, in New York, healthcare providers who participate in the New York State Medicaid program are prohibited from soliciting, receiving, accepting, or agreeing to receive or accept anything in exchange for a referral of services for which payment is made under the Medicaid program. In addition, New York maintains a physician fee-splitting law, which prohibits medical professionals from sharing professional fees with unlicensed persons or entities and includes a prohibition on percentage-based compensation. Last, New York expressly prohibits percentage-based compensation for arrangements between healthcare providers and billing agents involving services paid for by the New York State Medicaid program. New York actively enforces these laws and has been known to take actions against noncompliant providers and their agents.
In contrast, while California maintains a version of the AKS, the state permits healthcare arrangements involving percentage-based compensation so long as the compensation is commensurate with the value of the services furnished and the arrangement does not involve patient referrals. Other states explicitly exclude billing services from fee-splitting prohibitions through a statutory exception.
Liability Considerations
Submitting claims for reimbursement carries some inherent risks because RCM Companies cannot guarantee reimbursement from payors and in the worst-case scenario, certain errors could be considered fraudulent. For example, the federal False Claims Act (31 U.S.C. §§ 3729 - 3733) (“FCA”) provides that any person who knowingly submits, or causes to submit, false claims to the government is liable for three times the government’s damages plus a penalty that is linked to inflation (up to $26,819 per claim). Several states also maintain their own versions of the FCA. Because of this, it is important to structure contract terms that will provide protection in case of any errors in coding that result in a claim denial. Ensuring that the appropriate party covers certain risks and losses, particularly in the case of negligence, is vital if any mistakes result in legal, financial, or reputational harm.
For example, an RCM Company or customer (as applicable) could consider including in its relevant contracts language limiting the RCM Company or customer’s liability for errors that relate to entry, formatting, preparation, or transmission of claims, reporting of quality or other data, or cost report information that may be alleged or determined to cause the submission of false claims or otherwise be in violation of applicable law.
RCM Companies using artificial intelligence (AI) for billing and coding services should pay particular attention to their disclaimers and set appropriate limitations on liability so that financial exposure is proportional. Beyond leveraging contractual provisions, RCM Companies should regularly monitor and assess the accuracy of all deployed AI technologies and ensure that adequate safeguards, such as AI-specific policies and procedures, are in place and up to date. If AI is used to automate claim submission or coding, there may be a risk that inaccurate algorithms could lead to upcoding or the submission of false claims, increasing AKS risks.
