Compliance Corner—Billing Patients Administrative Fees

• November 01, 2022

• Raj Shah , Institute at MagMutual
• Frank Lumpkin, IV , Institute at MagMutual

As the administrative costs of health care continue to rise, health care providers are increasingly relying on administrative fees to support certain administrative tasks. Administrative fees are not all created equal, which has stirred much debate as to whether fees are worth charging in light of regulatory and reputational risk. This article provides guidance on how to charge fees, the types of fees available to health care providers, and the compliance concerns to be aware of when charging administrative fees.

Recommended Actions

• Providers should give notification to and obtain consent from patients before issuing an administrative fee.
• Providers should avoid charging patients insured by Medicare or Medicaid an administrative fee, and if a provider does choose to charge Medicare or Medicaid patients, exercise caution.
• Providers should ensure the administrative fee is reasonable to avoid upsetting patients and raising red flags to payers and regulators.
• Providers should have a plan in place for patients who refuse to pay, such as allowing patients to opt-out of paying the fee or discharging non-compliant patients and referring the patients to another physician.

Types of Administrative Fees

Administrative Fees for Services

The typical administrative fee model uses a patient’s insurance for covered items but charges a fee for uncovered administrative or operational tasks. This fee covers services such as consulting patients over the phone, faxing documents to employers, calling in prescription refills, and completing forms.¹ This fee is usually small, ranging anywhere from $20 to $150 per patient annually.² Fees can be charged either on an annual or per-item basis.³

Direct Payment Fees

Direct payment fees cut out insurance altogether. The health care provider is paid directly by patients rather than insurance.⁴ Also, the patient does not pay for each visit but rather pays a monthly fee to be a member.⁵ Despite not taking any form of insurance, these fees are generally between $100 and $200 per month.⁶ This model relies on time savings to make up for the fees the health care provider would charge the health insurance company.⁷ Since patients pay a flat rate and no third parties are involved, health care staff is less time-constrained with tasks like billing and insurance paperwork.⁸ Also, health care providers can be more flexible in the way they see patients.⁹ Where many traditional health insurance providers require patients to come in for an office visit for billing purposes, health care providers that use direct payment fees can determine whether a phone or virtual consultation will suffice instead, allowing the health care provider to use its time more efficiently.¹⁰ Furthermore, health care providers can focus on patient care and give special attention to the patients who need care most.¹¹

Concierge Medicine Fees

Concierge Medicine differs from the first two types of fees in that it is generally a premium service; hence, health care providers charge significantly more for it.¹² The fee is usually charged in addition to insurance and ranges from a few hundred dollars a year to tens of thousands of dollars depending on the comprehensiveness of the coverage.¹³ Concierge medicine often includes the ability for patients to schedule same-day appointments and preventative, yearly check-ups.¹⁴

Benefits of Fee Charging

In recent years, health care providers have begun spending more time on non-billable services.¹⁵ Data indicates that nearly twice as much time is spent by physicians conducting administrative tasks as opposed to seeing patients.¹⁶ The advantage of an administrative fee is that a health care provider can be paid for their time performing these non-billable services and that the provider can deliver these non-billable services to patients in the most efficient way possible.¹⁷

Cautions of Fee Charging

Charging fees can present both legal and reputational risks. Health care providers must ensure that when fees are charged for a service, the service adds value. The fee cannot be for services already covered by insurance even when a health care provider does not believe the insurance provider’s permitted charge amount fully covers the fair value for their service.¹⁸

If no value is created from the fee, the insurance company, a patient, or a regulator may consider that the fee is charged for something “already covered.”¹⁹ Federal law²⁰ and most states²¹ strictly prohibit billing for services “already covered” and impose expensive fines to those in violation. Health insurance contracts usually also have clauses to enforce this rule further.²²

Regarding reputation, a health care provider must know its patient base and consider whether fees will put a strain on the doctor-patient relationship. Particularly for those not accustomed to paying an administrative fee, an administrative fee may come off as unreasonable.²³ A health care provider needs to determine from a reputational standpoint whether an administrative fee will cause their patient base to stop seeing the provider.

Charging Medicare/Medicaid Patients Fees

Charging Medicare and Medicaid patients an administrative fee can present significant compliance risks because the line between what is covered and what is uncovered is unclear.

Charging administrative fees for Medicare patients varies depending on the Medicare Administrative Contractor, the patient’s type of Medicare coverage, and the patient and the provider’s contract with Medicare.²⁴ Each Medicare Administrative Contractor sets different standards as to what is covered and not covered.²⁵ For instance, some Medicare Administrative Contractors deem that administrative services are covered services but will not pay for them since they are not “medically indicated.”²⁶ In all cases, when a health care provider wishes to separately charge a Medicare patient, the provider needs to have the patient sign a Medicare Fee-for-Service form²⁷ that denotes why the health care provider does not believe Medicare covers the service provided.²⁸

Charging administrative fees for Medicaid patients varies by state. The majority of states ban administrative fees outright for Medicaid patients.²⁹

Many health care providers exclude charging patients with insurance through Medicare or Medicaid because they feel the risk does not exceed the potential rewards.³⁰ If a health care provider wants to explore this option further, they should consider utilizing a consultant on a per-practice basis to set up guidelines based on each Medicare Administrative Contractor and each state’s Medicaid guidance.

Patients Refusing to Pay

A health care provider that decides to charge an administrative fee should have a plan in place for patients refusing to pay such as allowing the patient to opt-out of paying the fee or discharging them and referring them to another physician. Inevitably, some patients will refuse to pay the administrative fee out of principle or because they cannot afford to pay the administrative fee.

The first and simplest option is to allow patients refusing to pay the ability to opt-out of paying the fee. This option can help curb reputational risks from patients adamant about not paying a fee and ethical dilemmas surrounding patients who cannot afford to pay the administrative fee.³¹

The other option is to discharge the patient for refusing to pay. Before discharging the patient, a health care provider should provide notice that the patient has not paid and warn them that they will be discharged if they do not pay the administrative fee.³² If a warning does not induce the patient to pay, since the physician-patient relationship is voluntary, the health care provider can unilaterally end the relationship at any time.³³

However, health care providers should be cognizant of risks when terminating a physician-patient relationship such as reputational damage from the discharged patient, medical malpractice litigation stemming from a patient claiming mistreatment, or a state medical board complaint alleging patient abandonment.³⁴ To curb these risks, a health care provider should provide discharged patients with a written letter including a clear statement that the doctor-patient relationship is terminated, a 30-day window for emergency care, a method to locate another provider, and an authorization form to obtain a copy of their medical records.³⁵ Also, the health care provider needs to keep a record denoting why the patient was discharged and copies of any correspondences leading to the discharge.³⁶

Giving Patient’s Notification and Receiving Consent

Current patients should be sent a letter notifying them of the implementation of any sort of administrative fee or a change in the fee charged at least 60 days in advance. Along with the notification, all patients should sign a fee agreement. Some items must be included in the fee agreement for the agreement to be binding and effective against liability. In the agreement, the patient must:

• Understand that their health insurance plan will not pay for the fee because the services charged for are not covered under the insurance;
• Assume financial responsibility for the payments; and
• Agree not to submit a bill to their health insurance provider.

The health care provider may also wish to reserve the right to change the fee periodically. A template letter and fee agreement including these items can be found as Exhibit A and Exhibit B respectively.

Raj Shah is the Senior Regulatory Attorney with the Institute at MagMutual where he provides consultation to MagMutual policyholders regarding federal and state regulatory matters in the health care arena and prepares risk management education materials on best practices regarding health care compliance. He is a former Vice-Chair at AHLA and a graduate of the AHLA Leadership Development Program.

Frank Lumpkin, IV is the Risk Intern with the Institute at MagMutual where he advises policyholders on health care regulatory and compliance matters. He is a third-year law student at the University of Georgia where he serves as president of his class. After graduation, Frank will practice business and insurance law and government affairs at Hall Booth Smith PC.

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