Legal Considerations in Charging Administrative Fees at Your Medical Practice

By Jared L. Shwartz

As the costs of running a medical practice continue to rise, providers are exploring ways to reduce overhead and add revenue.  While some practices are simply tightening their belts, others are turning to passing the costs of running a practice through to patients by charging an  “administrative fee.”

The administrative fee is typically structured as an annual or per-service charge to patients, and is explained to patients as a way of compensating the practice for providing (i) certain services that are not reimbursable by insurers (such as filling out paperwork for an adolescent patient’s school or completing FMLA documentation), and  (ii) enhanced access to the provider.  While charging an administrative fee may make fiscal sense for many providers, practice owners should be aware of the legal pitfalls associated with charging these fees.

Depending on the provider’s justification for assessing an administrative fee and the patient’s medicare status, charging the administrative fee may implicate federal fraud and abuse laws.  Under the Federal False Claims Act (FFCA), an individual may not knowingly make a false or fraudulent claim for payment from the United States government.  Provider claims for reimbursement from the Medicare program are under the purview of the FFCA.  Imposing administrative fees on Medicare patients may violate the FFCA if the charge to the patient is for services otherwise reimbursable by the Medicare program.  Providers should be particularly concerned about violations under the FFCA, as  providers need not have the intent to defraud the government in order to be held liable under the law.  Penalties for violating the statute are robust, including fines in excess of $10,000 per false claim.  A recent enforcement action by the Department of Health & Human Services Office of the Inspector General (OIG) against the South Carolina-based Heritage Medical Partners highlights that the scope of the fines and penalties often dwarf the amount of the fee giving rise to the violation.   Heritage charged Medicare beneficiaries an annual fee of $50.00 to offset the cost of having Heritage staff complete Medicare-required paperwork.  OIG found that the paperwork fee was in-fact already covered by the Medicare reimbursement paid to the providers.  As a result of this violation, OIG ordered Heritage to pay back the $115,470 .00 collected from Medicare beneficiaries over the course of five months and an additional penalty of $170,260.00.  Clearly, the assessed penalties (and legal fees associated with resolving the OIG’s claim) far outweighed the actual financial benefit realized by the medical group.

Imposing administrative fees can also jeopardize a provider’s contract with private insurers.  Insurer reimbursement rates typically include not only the cost of the underlying service provided by a billing practitioner, but the administrative costs associated with providing the service as well.  Therefore, a number of third-party payors specifically prohibit providers from charging administrative fees to patients and make clear that assessing administrative fees can result in the termination of the insurer’s contract with the practice.

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