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Chapter 34 Reimbursement – Medical Liens & Billing Companies


Hiring a Billing Company 34:2

The Billing Contract 34:3

Other Contract Provisions………….. 34:3

Legal Issues Concerning Billing Services 34:5

Special Rules Concerning Medicare 34:6


Entering a Medical Lien Agreement………… 34:10

How Medical Liens Operate 34:10

Contents of the Lien Agreement………… 34:11

Medicare Patients………… 34:12





This chapter continues the topic of reimbursement. It focuses primarily on the issue of reimbursement as it relates to billing services and medical liens.



Nevada law has few explicit requirements that relate to a physician hiring a billing service or agent. If a hospital acts as a billing agent for a medical practitioner performing services in the hospital, the hospital may not add any charges to the practitioners bill other than a charge related to the cost of processing the billing. NRS. 439B.420. Hospitals are required to disclose all agreements relating to acting as a billing agent for a practitioner to the state Department of Human Resources upon request. NAC. 439B.480.


Hiring a Billing Company

Many physicians enter into oral and written agreements with billing services whereby the service agrees to perform all billing and collection services on behalf of the physician. These agreements should be entered into only after careful consideration of the billing agent and the services it provides. A written contract between the physician and the billing service is advisable to insure that the billing company performs all necessary billing and collection services. Following are some tips to be considered when entering into an arrangement for billing services.

Billing services can be divided into four main types. The first, ECU services, provide electronic claim submission only, and typically charge a dollar amount per claim. The second, billing-only services, may also conduct telephone follow-up plans, re-submission of claims when needed, and patient collection calls. These services may also appeal reduced or denied claims and provide more comprehensive monthly reports. While some billing-only services charge a flat fee per claim, most charge a percentage of receipts. Accounts-receivable management firms, the third type of billing service, offer all of the services above, plus tracking of copayments, deductibles, and withholds. These firms can also consult with you to improve billing efficiency. They typically charge a percentage of receipts. Finally, management services organizations (MSOs) provide contract management and review, administrative services, and may also include help with staffing, facilities, and equipment.

Physicians should only contract with reputable and qualified billing companies. If the billing service makes a Medicare billing mistake, the physician can be liable for a stiff fine or other penalties. In one instance, a physician became suspicious that his billing firm was improperly billing the physicians Medicare carrier. He contacted his carrier with his suspicions and eventually cooperated in an investigation by the Office of the Inspector General (OIG). Despite the physicians actions, he was penalized for double damages by the OIG. Physicians should therefore request background information about the entity offering services, including audited financial statements, current number of clients, and years of experience. The billing company should have a satisfied clientele and substantial experience in the physicians specialty, including familiarity with add-on procedure codes as applicable. The service should not have any past or pending litigation involving improper billing procedures.

Again, because physicians are liable for the actions of their Medicare billing companies, they should fully investigate their billing companies in advance. Check references and determine if the service is a member of a billing association. The training and experience of the billing service staff should be examined. Finally, physicians should ask to see examples of reports provided by the service to ensure that they are complete and understandable and that they meet the physicians needs.


The Billing Contract

The billing contract should set forth all the duties that the physician desires the billing company to perform. For instance, the physician may wish the billing service to:

  1. a) obtain patient data and confirm insurance eligibility and coverage information;
  2. b) code the procedures, although most physicians should be doing their own coding, as the physician will be the person penalized if the codes are wrong;
  3. c) prepare and submit claims to the appropriate payors and patients within a certain number of days after receiving necessary billing information from the physician;
  4. d) enter into an appropriate computer system all applicable data pertaining to each claim and use electronic claim submission where possible as this speeds up collection;
  5. e) respond to telephone and written inquires from third-party payors and patients concerning their bills;
  6. f) assist in audits, if necessary;
  7. g) provide postage and necessary computer billing forms;
  8. h) diligently pursue collection of unpaid amounts for a specified number of months; appeal unpaid or unfairly paid claims;
  9. i) deposit all payments received into the physicians account at a specified bank, or into a specified segregated account from which the service may subtract its payment and make payment to the physician within a certain number of days;
  10. j) provide the physician with monthly, year-to-date, and annual reports broken down by individual patients, and showing all billings, collections, accounts receivable and their aging, write-offs, and collection percentages. The monthly reports should be compared against the Explanations of Benefits (EOBs) to determine whether claims are being properly submitted and to check denials and underpayments. The billing service should post denials and underpayments by the proper code.





Other Contract Provisions

The OIG recommends that fraud and abuse compliance responsibilities between the billing company and the provider should be formalized in the written contract. The contract should set forth the amount the physician agrees to pay for the billing service. This amount will usually be a percentage of the amount collected by the service during the term of the agreement, and for a short period thereafter on accounts which the billing service has already billed for the physician. If the contract is a percentage agreement, the contract should be for a percentage of the amount collected, rather than billed.

The billing service should be required to immediately deposit all checks, cash, and other funds it receives in connection with patient billings into the physicians specified bank account or into a segregated account. The contract should specify that the billing service does not have the authority to withdraw or disburse funds from the physicians bank account or the segregated account, except where the contract authorizes the service to subtract its fee percentage.

The contract should specify the period of time for which the agreement will be valid, including starting and ending dates. A physician may wish to include a clause allowing the contract to automatically continue from one year to the next, unless it is terminated, thus avoiding having to enter into a new contract each year. Either party should have the right to terminate the contract at any time with or without cause upon giving specified notice (thirty days, for example). Despite this provision, the service should be contractually required to diligently continue to process those patient accounts which it has received prior to the termination of the contract.

The contract should state precisely what information or documents the physician must provide, so that the billing company cannot attempt to blame the physician if the service breaches the contract. The physician should be responsible for timely submission of complete charts, claims, and legible bills. Physicians may also wish to assume the responsibility of having the initial data entry done by their own office staff, as the patients records are easily accessible and the physician knows which debts he may wish to forgive.

On a similar note, the contract should provide the physician with the final say on which accounts are turned over to a collection agency. Collection actions sometimes result in medical malpractice suits, thus the physician may wish to authorize such action only when necessary or in egregious circumstances. The physician is also much more aware of the complexities of a continuing physician-patient relationship than is a billing service.

The contract should state that the physicians confidential business records must be returned upon the termination or expiration of the contract. Also the physician should receive originals or copies of all information concerning the physicians billings and collections which have not already been provided to the physician upon termination or expiration of the contract.

Finally, the physician should ensure that the billing company is using a medical-claims software package that can handle multiple fee schedules and will allow data to be transferred to another system, in case the service is terminated or billing is brought back in-house. If the physicians office is keying in the data, the office software and modem will have to be compatible with the billing services equipment. Upon termination or expiration of the agreement, the billing service should provide the physician with the appropriate compatible computer data so that the physicians records will be updated.


Legal Issues Concerning Billing Services

The contract should provide that the parties are at all times acting as independent contractors and that neither are employees or agents of the other. The contract should state that the billing service and its employees and agents have no claim against the physician for workers compensation, unemployment insurance, or any other employee benefits, all of which should be the sole responsibility of the billing service. The service should further agree to indemnify and hold harmless the physician against any claims, penalties, damages, or lawsuits that the physician might suffer as a result of the services failure to make withholdings and contributions required by state and federal law. Although the parties are independent contractors, the billing agent is nonetheless likely to be considered a fiduciary who may be sued for breach of fiduciary duty.

The contract should state that neither party may assign or delegate any rights or obligations under the agreement without first obtaining the written agreement of the other party. This will prevent the billing service from assigning its obligations to a completely different billing service and thereby obligating the physician to be in contract with an unknown entity.

The billing service should be required to maintain the confidentiality of all data and information concerning the physician, the physicians patients, the physicians billings and collections, and to use or disclose such information only to the extent authorized by the physician and necessary to carry out the purposes of the agreement. The contract should require the service to agree to comply with and observe all laws relating to the confidentiality of patient records and information.

The billing service should agree to acquire and maintain sufficient insurance coverage against theft, dishonesty or infidelity of the service and it officers and employees in such an amount that the physicians insurance carrier deems adequate to insure the protection of collected funds. The service should also agree to maintain full, true, and accurate records and books of account showing all billings and collections. The contract should also provide the physician with the right to an accounting of the billing services books and records during normal business hours.

The contract should contain a provision governing dispute resolution. The parties should attempt to resolve any controversies or claims in an amicable manner. If this fails, physicians should consider submitting any remaining disputes to mediation or arbitration, as litigation is extremely expensive and time-consuming.

Finally, the contract should state that it constitutes the entire agreement between the parties and supersedes all prior agreements, understandings, negotiations, and discussions, whether oral or written, except as specifically set forth within the contract. This should prevent assertions that prior oral or written agreements, whether formal or informal, are part of the contractual agreement. The contract should also provide that no amendment or modification of its terms shall be valid unless made in writing and signed by both parties.


Special Rules Concerning Medicare

The rules governing Medicare payments to billing agents are somewhat specialized and are fairly strict. Although in general an arrangement providing for an entity to receive a standard percentage of revenues or collections will run afoul of Medicare law, a physician could compensate a billing agent under these circumstances if the Medicare payment is sent directly to the physician and not to the agent. In other words, a billing service may claim Medicare payments in the name of the physician as long as the service does not receive and negotiate the checks payable to the physician. Physicians who have billing agencies are required to submit a copy of the contract or agreement with their Medicare provider application to ensure that the agent has no financial interest in how much is collected from Medicare.

As long as the following circumstances are met, Medicare can make payment in the name of the physician eligible to receive payment to an agent who furnishes billing or collection services:

1)         the agent receives the payment under an agency agreement with the physician;

2)         the agents compensation is not related in any way to a dollar amount billed or collected;

3)         the agents compensation is not dependent on the actual collection of payment;

4)         the agent acts under payment disposition instructions that the provider may modify or revoke at any time;

5)         the agent, in receiving the payment, acts only on behalf of the physician; and

6)         payment to the agent is always made in the name of the physician.

42 CFR 424.80; 424.73.

The primary purpose of this exception to the prohibition against reassignments under Medicare law is to permit physicians to employ billing services. The conditions of payment are designed to ensure that the billing agent has no financial interest in how much is billed or collected and is not acting on behalf of someone who does, other than the physician himself. Thus the conditions specified above do not apply if the agent merely prepares the bills for the physician and will not receive or negotiate the checks payable to the physician.

Physicians who enroll with Medicare must submit a copy of their billing agreements with a billing company to Medicare. Under certain conditions, such as when the checks are made out in the name and billing number of the physician (see above), Medicare may make payment to a billing agent. Physicians receive a copy of the remittance notice, and the billing agreement must ensure that physicians have unrestricted access to this information. Since the physician is accountable for everything that was billed and paid on his behalf, he has the right to request a copy of any remittance notice.

Although Medicare may, under certain specified conditions, allow payment to a billing agent, it would not approve of an arrangement where the billing agent pays a staffing or other practice management company which Medicare believes has an influence on the amounts being billed and collected.

The Department of Health and Human Services Office of the Inspector General issued a Medicare fraud alert which relates to billing consultants. OIG 97-01. The OIG was concerned because some billing companies were being compensated with a bounty system based on additional collections, and because these consultants had little incentive to correct coding errors which did not increase their consulting fees. Situations like these, according to the OIG, are ripe for upcoding, unbundling, and other manipulation which increases costs to the Medicare program.

The OIG has released guidelines to help third-party medical billing companies detect and fight Medicare fraud and abuse. If a billing company discovers credible evidence of misconduct in its activities, the OIG recommends that the billing company report such conduct immediately to the appropriate government authorities. If a billing company discovers credible evidence of its clients misconduct, then the billing company should refrain from submission of questionable claims and notify the provider in writing within 30 days of such determination. When the misconduct is continued or fraudulent, the billing company is advised to (1) refrain from submitting any false or inappropriate claims; (2) terminate the contract; and/or (3) report the misconduct to the appropriate federal and state authorities within a reasonable time, but no more than 60 days after determining there is credible evidence of a violation. Misconduct does not include inadvertent errors or mistakes. Continued misconduct includes patterns of misconduct, particularly with respect to conduct that previously had been identified by the billing company or carrier as suspect.

The OIG guidelines direct billing companies to focus on the following seventeen risk areas in their and their clients operations:

1)         billing for items or services not actually documented;

2)         unbundling;

3)         upcoding;

4)         inappropriate balance billing;

5)         inadequate resolution of overpayments;

6)         lack of integrity in computer systems;

7)         computer software programs that encourage billing personnel to enter data in fields indicating services were rendered that were not actually performed or documented;

8)         failure to maintain the confidentiality of information or records;

9)         knowing misuse of provider identification numbers, which result in improper billing;

10)       outpatient services rendered in connection with inpatient stays;

11)       duplicate billing in an attempt to gain duplicate payment;

12)       billing for discharge in lieu of transfer;

13)       failure to properly use modifiers;

14)       billing company incentives that violate the anti-kickback statute or other similar federal or state statutes or regulations;

15)       joint ventures;

16)       routine waiver of copayments and billing third party insurance only; and

17)       discounts and professional courtesy.


These billing company compliance guidelines are posted on the OIGs website at   

These tips are not intended to be all inclusive, and an attorney experienced in these matters should be consulted if the issue arises in the course of a physicians practice.



During the course of his practice, a physician may be asked by a patient who is involved in litigation to enter into an agreement deferring receipt of all or some payment until termination of the litigation. This agreement is known as a medical lien. A lien is a legal claim or right on funds to be acquired in the future to pay off an obligation. In general, the need for a medical lien arises only when a patient has no health insurance or insufficient health insurance, and cannot afford to pay for the medical expenses directly, and there is no automobile, liability, workers compensation, or other insurance directly covering his or her medical bills. In such an event, this agreement may provide the only realistic chance that a physician will ultimately be paid. Nonetheless, physicians do not have to enter into such agreements, nor are they obligated to. A physician may choose not to enter into lien agreements due to the uncertainty of the enforceability of the lien, and due to the potential litigation he may have to undertake to secure payment if either the patient or his attorney fails to comply with the lien.




Entering a Medical Lien Agreement

The preliminary question that must be answered when a physician is deciding whether to enter into a medical lien agreement is whether the injury was caused by a third party. Although patients will usually volunteer this information, physicians should actively solicit the information on a routine basis. For instance, Medicare will not pay for any items or services to the extent that payment has been made or can reasonably be expected to be made, where the patients injury is covered by workers compensation or a no-fault insurance plan, among other things. 42 USC 1395y(b)(2). When a patient fails to disclose that an injury was caused by a third party, a request by an attorney for the patients medical records may be a sign that an accident was involved (or, unfortunately, a sign of an impending malpractice suit).

A physician should enter into a medical lien agreement with both the patient and the patients attorney in the personal injury action. A physician should also obtain the identity of the opposing partys attorney from either the patient or the patients attorney, and should send him a copy of the lien via certified mail (see Sample letter, below).

How Lien Agreements Operate

Assuming that a patient is successful in obtaining a recovery from his lawsuit, either through settlement or trial, a lien agreement authorizes the patients attorney to pay the physician for the medical services directly from the proceeds of the action. During the pendency of the action, which could take from several months to several years, the physician gives up the right to pursue collection procedures against the patient. However, if the patient or his attorney fails to reimburse the physician from the proceeds of the litigation, the physician may pursue collection. Also, if the proceeds from the litigation are insufficient to cover the related medical bills, the patient remains legally responsible for the payment of the balance. The lien agreement should contain safeguards to protect the physicians right to reimbursement if either of these situations arise.

A lien agreement need not and usually does not require that a physician compromise their fees in any situation. As a practical matter, however, if a lawsuit is about to be settled, the attorney handling the case may request that the physician reduce the lien in order to enhance the possibility of settlement. This tactic is fairly commonly used as the figures used to determine a legal settlement drift closer together. The physician has the discretion to determine whether or not to reduce the lien amount, and should take into consideration all the surrounding circumstances when making his decision.

If, after the resolution of the underlying lawsuit, either the patient or the attorney refuses to honor the physicians lien, the physician should first contact the attorney to determine the reason for denial of payment. If it cannot be resolved, physicians should contact their personal attorneys for further assistance, including taking legal action if necessary.


Contents of the Lien Agreement

All lien agreements should be in writing. There is no precise formula for a medical lien; however several considerations should be kept in mind as a lien is drafted.

First, it should be clear from the face of the agreement that the lien is a form of security for payment owed by the patient to the physician for services rendered. A short statement briefly describing the injury giving rise to the need for treatment, the treatment rendered, and the physicians obligations during the course of the litigation will suffice.

Second, the agreement should acknowledge the intended sources of payment. This includes a description or name of the pending lawsuit and a statement that the patient is personally liable for the medical bills regardless of the outcome of the litigation.

Third, a provision that states that the attorney is bound by the agreement and that he is receiving valid consideration for his participation (for example, the attorney could receive, with the patients consent, reports on the patient to assist the attorney in pursuing the litigation). This will establish the intent to bind the attorney to the lien agreement. Physicians should not, however, condition the release of a patients records on the patient or his attorney signing a medical lien.

Fourth, a provision requiring notification to the physician if a new attorney takes over the case, and an agreement from the patient to ensure that a revised lien agreement will be executed with the new attorney should be included. Should there be a change of attorneys, the incoming attorney should sign a new medical lien agreement containing the same terms as the previous agreement, unless it is modified by mutual agreement. As a precaution, the physician should remain in periodic contact with the patients attorney who signed the lien agreement to ensure that the attorney is still counsel of record and to keep the attorney apprised of the current balance of the medical bill.

Any other provisions which expressly state all the parties rights and obligations will clarify the agreement and enhance its enforceability. (See Sample lien, below)


Medicare Patients

Medicare regulations specifically prohibit physicians from billing the liability insurer or placing a lien against the beneficiarys liability insurance settlement for Medicare-covered services. 42 CFR 411.54. Medicares rationale is that by allowing physicians to bill their full charges to liability insurers, the size of a beneficiarys recovery would be reduced, a result which would be analogous to billing the beneficiary for Medicare-covered services. Physicians are prohibited by Medicare law from charging a beneficiary or other persons for covered services except to collect applicable deductibles and coinsurance.





  1. IDENTIFICATION OF PARTIES. This agreement, executed in triplicate with each party receiving an executed original, is made between [physicians name], hereafter referred to as Physician, [patients name], hereafter referred to as Patient, and [attorneys name], hereafter referred to as Attorney.


  1. CREATION OF LIEN. Physician will have a lien on all claims and causes of action of Patient arising out of the [e.g., automobile accident] of [date of incident], and on all proceeds of any recovery, whether by settlement, arbitration award, or court judgment. The lien will secure payments of all amounts now or hereafter owed by Patient to Physician for health care services rendered to Patient arising out of such incident. Patient hereby authorizes Physician to take any reasonable action to implement this agreement. The parties hereby agree that the maximum amount of the lien shall not exceed $_________.


  1. DEFERRAL OF PAYMENT. Payment of amounts owed to Physician may be deferred until resolution of Patients claim, except to the extent that any amounts are paid to Patient, or on Patients behalf, by any insurer, benefit program, or other third party for amounts owed to Physician.


  1. PATIENTS RESPONSIBILITY FOR PAYMENT. Notwithstanding any other provisions of this agreement, Patient will remain responsible for payment of all amounts owed to Physician. To the extent that amounts owed are not paid out of any recovery, or if there is no recovery, they must be paid by Patient. Patient agrees that the statute of limitations is tolled during the pendency of this proceeding.


  1. DIRECTION TO ATTORNEY. Patient hereby direct Attorney to honor the lien and pay the funds secured directly to Physician as soon as possible after the proceeds of any recovery are received by Attorney.


  1. ATTORNEYS RESPONSIBILITY. Attorney acknowledges notice of the lien granted herein by Patient to Physician and will honor the lien by paying the funds secured directly to Physician as soon as possible after the proceeds of any recovery are received by Attorney. Attorney will have no financial responsibility to Physician beyond honoring this lien, however, and does not by virtue of this agreement become a guarantor with respect to any amounts owed by Patient to Physician. In the event of a dispute between Patient and Physician, the parties direct Attorney to hold the disputed amount of funds in trust until the dispute is resolved.


  1. CHANGE OF ATTORNEY. Patient is represented by Attorney with respect to any claims and causes of action arising out of the aforementioned [e.g., automobile accident]. If patient replaces Attorney with another attorney, Patient and Attorney will notify Physician within a reasonable time of the name, address, and telephone number of the new attorney, and Patient will provide [his/her] new attorney with a new copy of this agreement immediately.


  1. ARBITRATION OF DISPUTE. If a dispute arises between any of the parties regarding any aspect of this agreement or its implementation, they will submit the matter for arbitration under the auspices of [enter name of local interprofessional legal-medical committee or other agreed-upon organization]. The arbitration will be nonbinding unless the parties agree in writing that it will be binding.


  1. ATTORNEYS FEES AND COSTS IN ACTION ON AGREEMENT. The prevailing party in any action or proceeding to enforce any provision of this agreement will be awarded reasonable attorneys fees and costs incurred in that action or in efforts to negotiate the matter.


  1. REPORTS (Optional). Physician shall provide Attorney, at intervals upon Attorneys request, with complete reports of Patients medical condition and care and cost of treatment. Physician agrees to furnish these reports within a reasonable time after each request at a reasonable cost.


  1. CONSULTATIONS, DEPOSITIONS, COURT APPEARANCES (Optional). Physician hereby agrees to make himself available to Attorney, upon reasonable notice and for reasonable compensation (agreed upon in advance and payable by Attorney) for consultations, depositions, and court appearances.


  1. EFFECTIVE DATE OF AGREEMENT. The effective date of this agreement will be the date of its execution by the last of the parties to do so.


The foregoing is agreed to by:


Dated: ____________________                    ___________________________


Dated: ____________________                    ___________________________


Dated: ____________________                    ___________________________




California Medical Association 1999. Reprinted with permission.



Re: Medical Lien with [Patients Name]                                      Certified Mail

Return Receipt Requested


I understand from my patient, [patients name], that you are representing a defendant in a personal injury matter which caused injuries to my patient. This letter is to inform you that my patient and I have entered into a medical lien agreement, whereby the lien will secure payment of all amounts owed to me for health care services rendered to the patient arising out of the incident in question. A copy of this lien agreement is attached.


Additionally, this letter is to advise you that the law imposes an obligation upon you to honor the lien in the event that there is any settlement or other disposition of the matter.


Your attention to this matter is greatly appreciated. If you have any questions or comments, please do not hesitate to let me know.


Very truly yours,


___________________, M.D.



California Medical Association 1999. Reprinted with permission.