OIG slams practice management contracts
If your physician practice management contract is percentage-based, you might be running afoul of the federal anti-kickback statute and at risk of civil and criminal prosecution, according to an advisory opinion from the HHS Office of the Inspector General.
The opinion says that any performance-based contract where a provider agrees to pay a physician practice management company (PPMC) a percentage of the practice's net revenues in exchange for managing its office or conducting its billing and coding may violate federal laws.
Knowledgeable sources could not predict how many practices will be affected, but the contract in the opinion is typical of many physician practice management contracts.
It's important to note that the OIG limited the scope of the opinion by stating that "it is the referral within provider networks that is problematic, not the actual PPMC structure," according to the Englewood, CO-based Medical Group Management Association (MGMA).
Even so, because this kind of arrangement "would not qualify for the managed care exemption to the kickback law, this type of encouraged intra-network referral system in the fee-for-service arena presents a real problem for certain PPMC configurations," MGMA warns.
For that reason, physician practices should immediately review their contractual and financial relationship with any practice management company they do business with, MGMA recommends.
The advisory opinion, No. 98-4, was issued in response to the request of a physician who had contracted with a PPMC to help expand his practice.
In his analysis of the arrangement, which is typical of many physician practice management contracts, D. McCarty Thornton, chief counsel to the Inspector General, argues that "percentage compensation arrangements for marketing services may implicate the anti-kickback statute."
Violating the statute is a felony punishable by a maximum fine of $25,000, and/or imprisonment. Conviction means automatic exclusion from all Federal health care programs, including Medicare.
The OIG objects to the arrangement on the following three grounds:
1. The arrangement may include improper financial incentives to increase patient referrals.
The problem here is that the PPMC is receiving compensation in exchange for marketing services. And, Thornton writes, "where such compensation is based on a percentage, there is at least a potential technical violation of the anti-kickback statute."
2. The arrangement doesn't contain any safeguards against overutilization.
The OIG feels that the arrangement's provision requiring the physician practice to refer patients to provider networks established by the PPMC incurs the potential risk of overutilization.
3. The financial incentives included in the arrangement may increase the risk of "abusive billing practices."
Because the PPMC gets a cut of the practice's revenue and will arrange for the practice's billing, the PPMC has a clear incentive to maximize the practice's revenue. According to the opinion, "This office has a longstanding concern that percentage billing arrangements may increase the risk of upcoding and similar abusive billing practices."
Under the agreement in question, the physician:
- will provide all physician services at the clinic;
- may hire additional physicians and other medical personnel with the PPMC's agreement;
- willl pay all physician compensation and fringe benefits, including licensing fees, continuing education, and malpractice premiums;
- if required by the PPMC, the physician also agrees to refer its patients to the PPMC's other in-network providers.
The PPMC, meanwhile, is responsible for:
- finding a suitable location for the clinic;
- providing start-up money for the office, furniture and operating expenses;
- providing or arranging for all operating services for the clinic, including accounting, billing, purchasing, direct marketing, and hiring of non-medical personnel and outside vendors;
- providing the physician with management and marketing services for the clinic, including the negotiation and oversight of health care contracts with indemnity plans, MCOs and federal health care programs.
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