While it may seem like an efficient way to get more done with less effort, billing for services provided by someone else can lead to pass through billing traps and is not allowed. “Pass through billing” is the term for submitting a claim for anything not delivered by the submitting physician or someone in their direct employ. A common example is when practitioners have ordered lab tests and taken care of the billing, even though they are not part of the lab that did the testing.
It isn’t only government payers that forbid pass-through billing. Insurers have their own policies against the practice. There are variations in what is acceptable, so it is important to examine each insurer’s policies. Note also that the policy may vary by state when an insurer covers multiple states, so be sure to check the relevant policy for each patient.
Understanding Pass-Through Billing Arrangements
Pass-through billing means a provider bills a payer for a service or item provided by someone else. While this can be legitimate in some cases (in-office ancillary services) it can also be fraudulent and illegal. Understanding the ins and outs of pass-through billing is key to not getting caught and staying compliant. For example in-office ancillary services are an exception where the service is done in the same practice so it’s legit. But when services are outsourced and billed as if done in-house it’s illegal. By knowing the differences healthcare providers can navigate billing arrangements better and avoid legal problems.
Pass-through Billing Violations Are Illegal
Three of the primary federal fraud and abuse laws relevant to physicians are violated by pass-through billing. These are the Anti-Kickback Statute (AKS), False Claims Act (FCA), and Physician Self-Referral Law (Stark law). One common issue is the misuse of the ancillary services exception, which can lead to significant legal repercussions. There are others that may apply as well.
- The False Claims Act is intended to protect the government from being sold poor quality services or goods and from being overcharged. It is not only unethical to submit false or fraudulent claims to Medicare or Medicaid, it is For the FCA, each service or item billed to Medicaid or Medicare counts as a claim. Each false claim can be fined $11,000 plus three times the amount the government lost by paying it.
The Department of Justice enforces these laws, but they aren’t the only ones. The Department of Health & Human Services Office of Inspector General (OIG), and the Centers for Medicare & Medicaid Services (CMS) are also responsible for enforcing the laws. These organizations are very likely to discover illegal billing practices.
It is important to know that violation of the FCA does not require intent to defraud. It includes deliberate ignorance or reckless disregard of the truth. This is not a situation where you will get leniency by claiming that you didn’t know any better.
- The Anti-Kickback Statute is criminal law. It prohibits remuneration to obtain or provide compensation for patient referrals or generation of any kind of business that is paid for by federal health care programs. It includes services and products such as drugs and medical supplies. In federal health care programs, paying for referrals is a crime. That includes both paying a kickback and whoever receives it.
This is criminal law, so the intent is factored in. Criminal penalties including fines and jail terms may apply. Penalties for physicians that pay or receive kickbacks are up to three times the amount of the payment plus $50,000 for each one.
Even if criminal intent is not established, administrative sanctions include fines and exclusion from the federal health care programs.
- The Physician Self-Referral Law is commonly known as the Stark law. It prohibits physicians from referring patients to receive health care services from entities with which the physician (or an immediate family member) has a financial relationship.
Violation of the Stark law does not require intent, but it is easy to avoid since you know whether you have an ownership or investment interest in a facility or receive compensation from it. If that is the case, you may not refer patients there if payment is to be made by Medicare or Medicaid. Penalties include fines and exclusion from federal health care programs.
Beware of Inadvertently Falling for Pass-Through Schemes
Sometimes, unethical labs will attempt to set up pass-through billing as a way to make more money. It isn’t always intentional though. When ancillary services performed by independent contractors are billed as if provided by the hospital, it constitutes a violation.
If a hospital is doing tests in their in-house lab, they might start contracting those tests out to a local independent lab. It might seem like the most straightforward solution to continue to take care of the billing and then pay the lab themselves. But that would be pass-through billing and would be considered fraud.
One reason is simply that only the entity performing the service is allowed to bill for it. Another reason is that hospitals are allowed to bill a higher rate than labs are, so the payer is charged more for the service provided. If the hospital keeps the difference, they are pocketing a profit obtained by the pas-through billing.
Laws and Regulations Governing Pass-Through Billing
Pass-through billing arrangements are governed by several key laws including the False Claims Act (FCA), the Anti-Kickback Statute (AKS) and the Stark Law. The FCA prohibits submitting false or fraudulent claims to government healthcare programs so the government doesn’t get overcharged or bad services. The AKS makes it illegal to offer, pay, solicit or receive anything of value to induce referrals of services or items payable by federal healthcare programs. This statute is designed to prevent financial incentives from corrupting medical decision making. The Stark Law prohibits physicians from referring patients for designated health services (DHS) to entities with whom they have a financial relationship unless an exception applies. Violating these laws can result in big penalties including fines, exclusion from federal healthcare programs and even criminal charges. So it’s important for any healthcare provider involved in pass-through billing arrangements to understand and follow these rules.
Best Practices for Compliance and Risk Management
To comply and manage the risks of pass through billing you need to have clear policies and procedures. This means regular audits and monitoring of billing practices to catch any irregularities early. Education and training of staff on pass through billing and compliance is key. Staff need to be knowledgeable on the laws and regulations including FCA, AKS and Stark Law so they don’t accidentally violate. Providers need to stay current on changes to these laws and review their billing arrangements regularly to ensure they are in compliance. By following these best practices you can minimize the risks and keep your billing clean.
Red Flags and Warning Signs
Healthcare providers should be on the lookout for red flags and warning signs that pass-through billing arrangements are being misused or abused. Sudden changes in billing patterns, like a spike in certain services being billed is a sign of fraud. Unusual or excessive billing for specific services, especially services not performed in-house should raise a flag. Lack of transparency in billing where the services provided are unclear or inconsistent is another red flag. Providers should be especially wary of arrangements that involve kickbacks or other forms of remuneration for referrals, that’s a clear violation of the Anti-Kickback Statute. By being aware of these red flags providers can take proactive steps to investigate and address the issue before it gets out of hand.
Implementing a Robust Compliance Program
You need to have a robust compliance program to ensure you are in compliance with the laws and regulations around pass through billing. A compliance program should have detailed policies and procedures for pass through billing, regular audits and monitoring of billing practices to ensure ongoing compliance. Education and training for staff is key to make sure everyone involved understands the importance of compliance and the FCA, AKS and Stark Law. You also need a system for reporting and addressing compliance issues so staff can report without fear of retaliation. Having a culture of compliance where compliance is a core value is key to the long term success of the program. By doing these you can build a foundation for ethical and compliant billing.
Fraudulent Billing Can Be Very Expensive
In most cases, if a private insurer detects pass through payments, they will seek recoupment. You will be asked to pay back any money paid to you for services that were not performed by you or someone under your employment. If the money is not paid back, you will not be paid for future work until the balance is paid back. Because each claim incurs fines, the cost of violation can be very high.
Government payers are more likely to prosecute or at least fine you. Submitting false claims has actually sent physicians to prison. (But criminal prosecution does require intent to defraud, so don’t worry that an accident will send you to jail!)
In addition to the fines, criminal prosecution may be pursued under the Anti-Kickback Statute. If the Stark law applies to the situation, criminal charges may be applied to the same claims.
Employing the services of a professional medical billing company reduces the stress many physicians experience from all the rules and regulations associated with revenue cycle management. Medcare MSO has been helping our clients enjoy more revenue and less stress for over a decade. Contact us today to get a free demo and see how we can help your business avoid the pitfalls of medical billing complexity.
