On May 28, 2008, the First District Appellate Court of Illinois held that an agreement compensating a medical billing company based on a percentage of revenues collected for a physician practice constituted prohibited fee sharing under the Medical Practice Act of 1987. The case, Center for Athletic Medicine, Ltd. v. Independent Medical Billers of Illinois, Inc., 2008 WL 2228823 (Ill. App. 1st Dist.), could require multiple contractual amendments for Illinois medical practices and their vendors.

Case Background
The case involved a professional corporation of physicians focused on sports medicine (plaintiff), and a medical billing company which provided billing, accounts receivable, and collection services for the sports medicine practice (defendant). The physician group entered into an agreement with the billing company to pay fees of 4.5% on all reimbursements and 6.25% on all claims not originally processed by defendant. Plaintiff’s complaint alleged that the billing company breached its contract by failing to maximize reimbursements, and that as a direct and proximate result of the breach, 24% of plaintiff’s total charges during the term of the agreement were identified as lost and/or unrecoverable. Plaintiff further argued that the billing company was unjustly enriched by failing to provide agreed upon services notwithstanding receiving payments from plaintiff for them.

Defendant moved for summary judgment on the ground that plaintiff’s claims were invalid because the agreement was void for being violative of the fee-splitting prohibition of Section 22(A)(14) of the Illinois Medical Practice Act of 1987, 225 ILCS 60/22(A)(14). That statutory provision provides that the Department of Professional Regulation may revoke or take other action regarding the license of any person to practice medicine on a number of grounds, including: “dividing with anyone other than physicians with whom the licensee practices . . . any fee, commission, rebate or other form of compensation for any professional services not actually and personally rendered.” Exceptions to this fee splitting prohibition include: (1) where physicians divide fees in an approved partnership, corporation or association; (2) where approved medical corporations form a partnership or joint venture; or (3) where physicians concurrently render professional services to a patient and divide a fee “provided, the patient has full knowledge of the division, and, provided, that the division is made in proportion to the services performed and responsibility assumed by each.” See 225 ILCS 60/22(A)(14).

Plaintiff argued that the agreement did not violate the fee-splitting prohibition of the Medical Practice Act. It further contended that the public policy considerations of the fee-splitting prohibition were to prevent referral and patient care decisions based on motivations unrelated to professional judgment and proper treatment. The circuit court granted summary judgment to defendants and dismissed both counts of the complaint.

Appellate Review
On de novo review, the appellate court analyzed the construction of Section 22(A)(14). The court discussed several prior decisions of the Illinois Appellate Court and concluded that the agreement at issue constituted prohibited fee sharing under the Medical Practice Act. The court found that the agreement structured defendants’ fees in terms of plaintiff’s revenues for providing medical services to patients, and the percentage of plaintiffs’ revenues collected from payors. Thus, defendants’ fees increased as plaintiffs’ revenues increased.

Plaintiff maintained that the circuit court erred in granting the summary judgment motion in that, pursuant to the agreement, defendants did not receive a percentage of plaintiffs’ revenue or fees charged by plaintiff for services rendered, but instead received a percentage of reimbursements recovered by defendants as a result of dealing with insurers and other payers. The appellate court rejected the argument, citing Illinois case law holding that the reach of the fee-splitting prohibition is not limited to merely “fee splitting,” but also prohibits all fee-sharing arrangements not specifically authorized.

Because the agreement was void under Illinois law, the appellate court affirmed the circuit court’s order granting defendants’ motion for summary judgment. In its final commentary, the court stated that “the law will not aide either party to an illegal act, but will leave them without remedy as against each other, with the caveat that they are of equal knowledge, willfulness and wrongful intent . . . [T]he proper course is for the parties to be left ‘where they have placed themselves.’”

Implications
In a case decided in 2006, the Illinois Supreme Court found that an agreement to allow a flat fee for administrative services, such as those provided by the billing company, would not be invalid where the flat fee was paid monthly on a basis independent of physicians’ fees. See Vine Street Clinic v. Healthlink, Inc., 222 Ill. 2d 276 (2006). If “not based or linked to revenue, gross receipts or billings collected”, the operators’ fee would not automatically increase as the revenue of the participating physician increased. Thus, it is apparent that under Illinois Law, a flat fee arrangement for billing services would not violate the fee-sharing prohibition under the Medical Practice Act, whereas a percentage of revenue agreement, even if fixed, would.

Although not discussed in Center for Athletic Medicine, Medicare and Medicaid rules are implicated by the acceptance of payment by individuals or entities other than the provider of the medical service. The Medicaid Act, at 42 U.S.C. § 1396a(a)(32)(B), requires that state plans for medical assistance which receive federal funds must provide that no payment be made to anyone under the plan for any care provided other than the person providing care, except that a billing agent of the medical provider may be paid so long as the payment is unrelated (directly and indirectly) to the amount billed and not dependent upon collections. Likewise, the Medicare program permits payment to an agent who performs billing and collection services, provided the agent’s compensation is not related in any way to the dollar amount billed or collected, or dependent upon the actual collection of payment. See "Medicare Claims Processing Manual," Pub. 100-04, Ch.1, § 30.2.4.

Illinois health care providers and professional billing companies which contract with Illinois providers should consider Center for Athletic Medicine as a reason to review, and in some cases amend, existing agreements that may implicate the fee-sharing prohibition of the Medical Practice Act. All parties are encouraged to discuss with a knowledgeable healthcare attorney any arrangement that may implicate the prohibition.

For further information, please contact Stephen T. Moore or your regular Hinshaw attorney.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.