Fee Splitting and Profiteering

Expert from Rules of the Road for Young Emergency Physicians

Tom Scaletta, MD MAAEM FAAEM

Profit derived from the delivery of professional services by emergency physicians legally and ethically belongs to the physicians. Fee-splitting is a term used by the Inspector General to describe corporate profiteering as a result of hospital contracting.

To understand how profit can be derived from professional services of emergency physicians, a cursory understanding of the business of emergency medicine is essential.

After emergency physician services are performed, a bill is sent to the patient of his/her insurance company. Payment rates are fixed by the government (Medicare/Medicaid) or via contracts with insurance companies (i.e., fee schedule or a percentage of charges). As a result, the actual collection rate is a fraction of billed charges. These collections are the main source of emergency physician revenue. Secondary sources of revenue include medical director stipends and subsidies from the hospital for indigent patient care. Business expenses include base salaries (for clinical and administrative work), professional liability insurance, coding/billing/collecting, and business management expenses (i.e., attorney, accountant). Revenue remaining after all expenses are paid represents profit. Profits can be substantial, averaging $50,000 or more per fulltime physician per year. In a fair group, this money would be distributed as bonuses to the partners or used to increase staffing.

Exploitative contract holders keep the books of account closed and withhold information about coding/billing/collecting from the physicians. Physicians often do not realize that they can be held responsible for billing errors or "up-coding" even if they are not allowed access to the books. The Centers for Medicare and Medicaid Services has stated that emergency physicians have the right to review what is billed and paid on their behalf (http://www.aaem.org/openbooks/hcfaltrs.php).

EmCare (one of the two largest contract management groups) became a public company in 2005 when its venture capital firm owners sold part of their holdings on the New York Stock Exchange. EmCare’s 2005 filing with the Securities and Exchange Commission notes that EmCare’s non-physician CEO received a $12.7 million bonus, stock grants worth $11.2 million (based on $25 share price), and stock option grants worth $37 million (based on $25 share price). Forfeiting these large sums of money to a contract holder rather than to the physicians who are working in the ED amounts to paying above market rates for business management expenses and ultimately hurts patients. This practice encourages understaffing and reduces the group’s ability to attract the best emergency physicians.

In addition to overt profiteering, it is possible to "hide" profits through secret kickbacks and other conflicts of interest. An example would be where founding members of a group professing to be "democratic and fair" silently own the coding/billing/collecting company and charge exorbitant rates. Similarly, a contract holder may grossly exaggerate the value of his or her business know-how. According to the AMA, "ethical aspects of establishing a group's compensation plan hinge on ensuring that physician rewards reflect professional activity (patient care services) rather than such factors as ownership, longevity or name recognition, which smack of fee-splitting” (AMNews, 4/27/98).

Interestingly, most states prohibit corporations from making decisions that affect patients. Such decisions include deciding exactly who is hired, what the physician (and midlevel provider) staffing levels will be, and whether dangerous utilization rules are permitted. California, Illinois, Pennsylvania, and Texas have the strongest corporate practice of medicine (CPOM) prohibitions. Extinguishing CPOM is the key to abolishing unfair and illegal fee-splitting (www.aaem.org/em-resources/critical-em-and-practice-issues/corporate-practice/rules-22). To this end, in 2007, AAEM became involved in a monumental lawsuit sparked by TeamHealth’s takeover of 8 Houston emergency departments within the Memorial Hermann Health System, in violation of Texas prohibitions against CPOM.