Faced with rising overhead costs and shrinking reimbursement rates doctors are increasingly turning to “overhead” or “maintenance” fees as a source of practice revenue. Typically between 20 and 50 dollars, these fees are charged to patients on a yearly basis over and above whatever copay, deductible, or private-pay fees the patient may have incurred during the year. Though often characterized as fees for “noncovered” services, these fees are not necessarily triggered by or even nominally linked to any particular service; rather, they are usually related to increases in general overhead, including office expenses, insurance premiums, and administrative and staff costs. General overhead fees like these, where patients are being asked to pay for services that are arguably part of any physician office visit, may violate federal laws and regulations, physicians’ contracts with private payors, and even state consumer protection laws.

It is important to note the difference between overhead fees and concierge medicine practices. Where a concierge practice ostensibly provides a patient with specific, itemized noncovered services (such as noncovered physicals, or a 24-hour physician access) overhead fees generally do not follow a change in the physician’s practice. Rather, a typical patient letter describing these charges simply notes that the physician’s costs have continued to rise while reimbursement rates have fallen and the practice can no longer survive based on the payments it receives from Medicare and private payors.

While each practice may characterize the charges slightly differently or cite a different source of unbearable costs (overhead, copying, employee salaries, malpractice or health insurance, for instance) the point remains the same—the practice will not provide any new services, but services that were considered part of an office visit (and reimbursed accordingly) will now be considered a patient’s individual responsibility. Further, the practice will not itemize these costs or prepare individual bills (an administrative nightmare that would probably ameliorate any gain represented by the fee); rather, it will simply bill each patient a flat yearly fee. These fees may be characterized as “voluntary” but the message is clear: If you want your doctor to stay in business, please send him X dollars.

Many physicians justifiably feel that these charges are simply unavoidable. As patients’ demand on physicians’ time grows, and as the government and other payors increasingly “squeeze” private practitioners, small physician practices may feel that they are facing unsustainable overhead/revenue ratios, or are being forced to see so many patients in a given day that the quality of the care they provide is diminishing. These small charges, they reason, pose a minimal burden on patients and are essential to the practice’s financial future. By means of a small fee, patients retain their trusted physician, and that trusted physician is made financially able to practice in the style and community to which she and her patients have become accustomed.

Charging fees to cover general overhead, however, may expose physicians to substantial risk from both governmental regulators and contracting payors. While itemized charges for true noncovered services are generally permitted by both governmental and private payors, generalized “overhead” or “administrative” fees pose a far more knotty problem.

Are the Services Covered?
Your “noncovered” services may be considered covered services by your payors. Physicians who receive assignment from Medicare patients are prohibited from charging patients any amount in excess of the Medicare amount for services related to the claim. Should the government determine that your “noncovered” charges are actually related to services like incidental photocopying or records maintenance that they believe are related to the claim, you may face civil money penalties and program exclusion. In March 2004, for example, the OIG issued an alert reminding physicians that they may not charge additional fees for covered services after taking action against a physician who was charging his patients a yearly $600 fee for services that included “coordination of care with other providers” and “a comprehensive assessment and plan for optimum health.” Similarly, in the recently released OIG Work Plan for 2007, the OIG noted its intention to “examine the extent to which providers are billing beneficiaries in excess of amounts allowed by Medicare requirements…[and]…assess beneficiary awareness of their rights and responsibilities regarding potential billing violations and Medicare coverage guidelines.”

Patients of private payors are similarly shielded from overhead charges. An Opinion of the Maryland Attorney General released early last year made it clear that physicians may not charge HMO participants an additional service charge related to the rising cost of malpractice insurance. These costs, according to the Attorney General, are part of the physician’s overhead and not the responsibility of the patient. A physician who seeks to recoup portions of her overhead expenses from her HMO patients violates the hold harmless provision of the physician’s contract with the HMO and may face contractual penalties from the HMO or legal action from the AG’s office.

Similarly, PPO contracts often contain language that blurs the line between covered and noncovered services. The Maryland CareFirst Blue Choice manual, for instance, notes that “The practice of charging for office administration and expenses is not in accordance with the Participation Agreement and Participating Provider Manual.” Similarly, spokespersons from Aetna, Anthem, UnitedHealthcare and Pacificare have publicly stated that providers are compensated for their overhead through copays and their contract fees and are not permitted to charge patients additional yearly overhead fees. In fact, Anthem Blue Cross has required at least one practice group in Virginia return fees it charged patients for telephone consultations and prescription refills.

Are You Engaging in Deceptive Trade Practices?
In April 2007, the Maryland Attorney General’s office posted a “News Release” noting that it had reached a settlement with an Annapolis physician group that had been collecting a “voluntary” $25 fee from patients. Surprisingly, although the Attorney General’s office noted that “[t]he federal Medicare law, state HMO laws and the terms of [the group’s] contracts with health insurance providers do not allow the collection of these types of fees…,” the office had pressed its prosecution based on a reading of Maryland’s Consumer Protection Act and Consumer Debt Collection Act. Essentially, the Attorney General’s theory was the physician group had engaged in “unfair and deceptive practices.”

The Attorney General’s argument may seem counterintuitive, but it is not hard to see how patients being charged an all-inclusive overhead fee (as opposed to itemized charges for specific noncovered services) may feel as though they are paying for something they never received. If, for instance, one of your regular patients does not visit you in the course of the year, but receives your bill for an annual $20 service fee that is ostensibly related to photocopying or other services you have characterized as noncovered, that patient has a fairly obvious gripe—you did not copy anything. While many patients may accept a nominal fee as the cost of remaining your patient and preserving a valuable relationship, others may justifiably bridle at the thought of paying you for services, covered or not, that they do not believe you provided.

Similarly, both patients and payors may balk at the discrepancies inherent in a yearly fee system. If every patient pays the same yearly fee, different patients may be charged different fees for the same service based on utilization—under an all-in-one fee system a patient who requests a hundred copies a year gets a much better “deal” than the patient who only requests one. Assuming a $20 yearly fee, one patient is being charged 20¢ a copy, the other, $20. This kind of discrepancy can trigger complaints of discrimination, or charges that you are levying an excessive or unreasonable fee—a professional discipline matter in Maryland and many other states.

So, Can You Charge?
While yearly patient overhead fees may offer some tempting relief from the financial pressures of a small practice, the unfortunate reality is that they carry significant risks. The enforcement system is just now starting to respond to these types of charges and the interpretation of the relevant laws and rules that will be enforced by state and federal enforcers is not settled. As this article is written, reports of enforcement efforts against physicians are fairly isolated, but that is not necessarily the way things will remain. Even in a large practice, it only takes one complaining patient to draw the attention of insurance companies and government enforcement authorities.

Physicians who feel that their practice is facing an unrealistic financial picture should work with their accountants, attorneys, and private practice consultants to first determine whether a lawful change in structure, billing habits, or practice management can create more revenue or lessen the overhead burden. A quality practice or billing consultant can review your practice’s coding and billing practices and perhaps identify the revenue you need in services you routinely leave un- or under-billed. A qualified consultant may also improve the efficiency of your office, lowering costs. Restructuring your practice, perhaps adopting a concierge medicine model (where fees are charged for specific noncovered services) or a similar form, may provide significantly improved revenue levels while preserving the intimate relationships that are important to small practices.

If these options are not workable, or even if they are, physicians should implement negotiation strategies designed to improve managed care reimbursement. While it may be difficult to identify a charging structure that avoids all of the inherent problems, the up-front investment of time and energy is likely worthwhile. The financial pressures on a small practice can be stressful, but improper charges can quickly create civil and criminal liabilities that are simply too heavy to bear.