Are You and Your Providers Breaking the Law

We have had a very hot topic on our forum lately regarding how medical billing services charge their providers. Most billers charge either a flat monthly fee, a per claim fee, or a percentage of the billing. But did you know that some states have laws on the books that prohibit physicians from entering into certain types of “fee splitting” arrangements?

It is very common for a medical billing service to charge a percentage of the money collected as a result of their efforts in billing the insurance claims but many billing services don’t realize that this practice is considered fee splitting and may be illegal. Several states have laws banning this practice and some have prosecuted doctors for paying this way.

The reason for fee splitting laws was not originally intended for medical billing services but does include billing services and providers including doctors, therapists and other health professionals. It was originally designed to prevent providers who had arrangements with other Medical providers to receive a kick back for referring patients for their services. But the way the law is written no one is allowed to share a percentage of the income of the provider except partners.

Many billers prefer charging a percentage as it provides a motivation for collecting all money due a provider and a selling point in marketing. It seems like an easy way to determine a reasonable fee and compare charges with other billing services.

Unfortunately it is the doctor or provider who gets in trouble for this practice. It is the provider who is splitting his or her fee.

The problem for the billing service is that the practice of fee splitting totally negates the contract with the provider. Although many billing services get away with charging a percentage in states where fee splitting is illegal, some states are starting to crack down on this practice.

If you are in a state which prohibits fee splitting or work with out of state providers who may reside in the fee splitting states it is a good idea to look at other options of charging for your work. Many billing services charge per claim, a flat fee, or at an hourly rate.

Many billing services who currently charge a percentage and learn about the fee splitting laws are reluctant to change. They have been using the percentage as a marketing technique and don’t know how to change to a different form of payment.

As Linda Walker points out on our forum, she uses not charging a percentage as a marketing technique. She asks the provider if they want to work with someone who would ask them to enter into an illegal contract.

If you are currently charging your providers a percentage in a fee splitting state there are several things you can do to change to a different method. Average out what the provider has been paying you for the last six months. Consider any unusual fluctuations in charges and come up with a flat monthly fee. You can also count the average number of claims each provider sends you in a month and come up with a per claim fee.

Yet another method would be to keep track of how much time you spend on each provider each week and multiply that times the dollar amount you would like to collect per hour. If you decide on the hourly rate make sure you allow for all your expenses not just your time.

The states which have fee splitting laws that we currently know of are N. Y., and Florida This does not mean other states do not have such laws. This list is just the ones we are aware of. Linda Walker has more information on the laws in various states on her website at If you run a medical billing service make sure you are not breaking the law by charging your providers in this fashion.

Medical Billing Information


8 Responses to “Are You and Your Providers Breaking the Law”

  1. JimmyBean Says:

    I don’t know If I said it already but …I’m so glad I found this site…Keep up the good work I read a lot of blogs on a daily basis and for the most part, people lack substance but, I just wanted to make a quick comment to say GREAT blog. Thanks, 🙂

    A definite great read..Jim Bean

  2. RobD Says:

    what a great site and informative posts, I will add a backlink and bookmark your site. Keep up the good work! 🙂

  3. Mitch Says:

    I didn’t know you couldn’t charge a percentage in New York; nice to know.

    I’m thinking that the worst way to do this is on a per hour basis. I’m not great with a per claim basis either. I know some billing companies that do a per claim, but none that do hourly. The companies that do per claim billing don’t do any follow up billing at all, which usually means someone else has to be paid to work on follow up claims.

    Getting a percentage of cash collected is the most logical way to go. That states have gotten in the way of this one shows just how little they know about the medical billing profession. Oh well,…

  4. Lorie Howard Says:

    Hi There, I am just getting used to your blogs and websites for information. I am in California. Can billing services charge by percentage? Can they charge per claim? How would I charge for collection of old claims? How do I find out this information? Do I call the California Insurance Exchange for these answers. I am new to the business and I want to know the correct answers. Thanks… good blogs.

    Lorie Howard
    Professional Medical Billing/Consulting
    1 916 985 7115

    • solutionsmedicalbilling Says:

      You can charge per claim in any state. I’m not sure if CA is one of the fee splitting states or not, but you should either find out, or charge by another method. When we do collections on old claims we either charge a flat fee, depending on the amount of outstanding claims, or a per claim. It is harder than current billing so the fee is higher.


  5. Robin Says:

    Illinois Appelate Court, Third division on May 28, 2008 ruled that percentage based fee arrangement between a physician and medical billing company is prohibited.

    That should be added to the list of states.


    What about charging percentage of allowable buy Insurance companies? Does this make it diffrent from cash collected Percentage?. I was planning on using this formula for my billing company. I am in the state of florida.

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