OFFICE BASED SURGERY AUDITS
aka “THE FACILITY FEE FIGHT”
By: Mathew J. Levy, Esq.
Ralph A. Erbaio, Esq.
Michael J. Schoppmann, Esq.
Kern Augustine Conroy & Schoppmann, P.C.

Regrettably, many physicians are receiving notices from insurance carriers demanding that the physician repay a substantial sum for claims previously billed to the insurance carrier and paid without objection. Perhaps most frustrating is that the carrier’s demand comprises claims that the insurance company specifically instructed and dictated the mechanism for processing and payment. One such demand involves physicians who, for many years and with the explicit approval of the very same insurance carriers, have been billing a separate facility fee in connection with the performance of office-based surgical procedures.

The typical scenario is one in which a physician establishes a private dedicated operating room for performing procedures. A separate entity, owned by the physician is also established to receive payments for these services. That entity has a separate tax identification number and payments for the costs incurred in the use of this separate, dedicated room are provided to that new entity. These facilities are approved by formal accrediting organizations such as the American Association for the Accreditation of Ambulatory Surgical Facilities (“AAAASF”), the Joint Commission on Accreditation of Health Care Organizations (“JCAHO”) or the American Association for the Accreditation of Ambulatory Plastic Surgery Facilities (“AAAAPSF”). Inherent to the creation of such entities is full disclosure to the insurance carrier as to the formation of the separate entity. 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 a number 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 increasing profits through the recouping of funds paid to physicians, the insurance carriers have sent out notices to hundreds of providers that not only will they no longer reimburse the physician for the facility fee in the future, they are also seeking repayment of claims paid previously – in direct conflict with their prior knowledge of the status of the facility, where the surgery was performed and their implicit, and/or explicit, approval of that facility.

As the claimed basis for these repayments demands, the insurance carriers are asserting 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. However, there is no statutory requirement that a facility be an approved Article 28 facility in order to bill a facility fee. In fact, there are no statutory or regulatory guidelines that either explicitly permit, or prohibit, a physician from billing a facility fee for a procedure performed in a separate operating room located in a physician’s facility.

Moreover, 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.” Therefore, the State of New York supports the position that the payment of a facility fee is a contractual issue between a physician and an insurance carrier and that there is no absolute prohibition against paying such a fee, if agreed to by the insurance carrier and the physician.

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. While 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, each and every physician must have a clear understanding of their structural standing to ensure their compliance with the law before asserting same in defense of these repayment demands.

Bolstering the designation of this issue as inherently contractual is the notice resulting from the recent merger of United and Oxford. Oxford, having previously paid a facility fee for the performance of office-based surgical procedures, has notified participating providers that it will no longer pay a facility fee in order to conform to United’s contract policy which does not allow for the payment of a facility fee. Logically, if a statutory authority existed to bar such claims, Oxford would have no need to defer to, and rely upon, the contract terms of United.

In conclusion, it would appear to be axiomatic that an insurance carrier who has (i) explicitly acquiesced, and/or agreed, to the billing of a facility fee, (ii) continually paid such facility fee without objection, (iii) been provided with full disclosure of the accreditation status of the facility, (iv) can assert no legal authority upon which to seek repayment of claims already paid to physicians is left without any basis upon which to support of justify their demands for repayment. However, it remains for each and every physician who faces such a repayment demand to decide if they will challenge the demand or simply seek to negotiate some form of reduced amount. Yet, considering the amounts being demanded, that decision may be a foregone conclusion.