Office Based Surgical Procedure Audits – How to Handle Them

Regrettably, many physicians are receiving a letter from an insurance carrier informing the physician that the physician must repay a substantial amount of money as a result of what has been billed to the insurance carrier and paid without objection. Perhaps the most frustrating part of all is that the physician has billed the insurance company in a particular manner for years with full disclosure and the approval from the insurance carrier.

Without warning, the insurance carrier informs you that it is changing its policy as to the physicians past billing and is changing the method of billing for future services. That is the current situation faced by an increasing number of physicians who for years with the explicit approval of insurance companies have been billing a separate facility fee in connection with the performing of office-based surgical procedures.

surgical procedure auditsThe typical scenario is one in which a physician sets up a private dedicated room for performing procedures. A separate entity, owned by the physician is established to receive payments for these services.   That entity has a separate tax id number and payments for the costs incurred in the use of separate dedicated room are made to that new entity. These facilities are approved by the American Association for the Accreditation of Ambulatory Surgical Facilities (“AAAASF”) or another accrediting organization such as the Joint Commission on Accreditation of Health Care Organizations (“JCAHO”) or the American Association for the Accreditation of Ambulatory Plastic Surgery Facilities (“AAAAPSF”). Full disclosure has been made to the insurance carrier concerning the formation of the separate entity and, in fact, in many cases, insurance carriers have explicitly, in writing, acquiesced to this arrangement and informed the provider that it will pay for a separate facility fee in connection with the performance of office-based surgical procedures. In most cases the payments are made for years in the regular course of business without any objection by the insurance carrier.

Recently, however, in concert with the increasing emphasis on retrospective audits (industry wide) as a mechanism for cost savings and to collect funds already paid out, the insurance carriers have sent out notices to hundreds of providers that not only will the insurance company not reimburse the physician for this facility fee in the future but it is also seeking repayment of past claims that were paid. Clearly the insurance companies had complete knowledge of the status of the facility (letters were issued) where the surgery was performed and with the implicit or explicit approval from the insurance carrier.

The insurance carrier is claiming that no provider, whether participating or non-participating, can bill for a facility fee if that facility has not been licensed under Article 28 of the New York State Public Health Law. This is a misinterpretation of existing law. There is no statutory requirement that a facility be an approved Article 28 facility to be able to bill for a facility fee. In fact there are no statutory or regulatory guidelines that either explicitly permit or prohibit a physician from billing for a facility fee for a procedure performed in a separate operating room located in a physician’s facility.

The Department of Health has issued an opinion in which it acknowledges that there is no statute or regulation that prohibits billing for a separate facility fee and that ‘the wide variety of fact patterns must be analyzed on a case-by-case basis before specific conclusions can be reached about the criminal, civil or disciplinary consequences of particular conduct by corporations or physicians.” This statement supports our position that the payment of a facility fee is a contractual issue between a physician and an insurance company and that there is no absolute prohibition against paying such a fee, if agreed to by the insurance carrier and the physician.

The contractual nature of this issue is demonstrated by the fact that with the merger of United and Oxford, Oxford, which paid a facility fee for the performing of office-based surgical procedures, has notified participating providers that it will no longer pay a facility fee in order to conform with United’s policy which does not allow for the payment of a facility fee.

Physicians should be aware however, that the Department of Health has also advised that under certain circumstances, where the entity being paid the facility fee is owned by a non-professional, such an arrangement may constitute professional misconduct and/or criminal violations. Both Kern Augustine and The Medical Society of the State of New York have advised the Department of Health that its opinion is based upon a misinterpretation of existing law.

Therefore, an insurance carrier who has explicitly acquiesced to the billing of a facility fee and has continually paid such facility fee without objection, where full disclosure of the accreditation status of the facility has been made, has no legal grounds to seek repayment of claims already paid to providers who relied upon this representation in submitting claims for facility fees.


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