BILLING BLUNDER? United Healthcare is playing hardball with a group of surgeons it says failed to follow state regulations.

A group of Texas surgeons is suing to stop a giant insurer from recouping several years' worth of facility fees and withholding millions of dollars in reimbursements — all, the doctors say, because of a small billing technicality. Instead of billing United Healthcare as licensed surgical centers, as state law required, the surgeons billed as physician associations. And because of that, the giant insurer says the doctors weren't entitled to the facility fees they received. In addition to sending the surgeons overpayment demand letters for the facility fees, United has also withheld millions of dollars in payments and underpaid scores of other claims, according to court documents.

Here's how the billing blunder came about. The doctors belonged to a physician association called DAC Surgical Partners. DAC entered into an exclusive-use agreement with an ambulatory surgical center whereby the surgeons paid the ASC a leasing fee for the exclusive use of an OR. For most of the physician associations in this case, that ASC was The Palladium for Surgery-Houston, according to the lawsuit the surgeons filed against United in 2011. United's stance is that the physician associations were not entitled to recover reimbursements for the facility fees because the physician associations were not ASCs licensed by the state of Texas, and therefore were not permitted by state law to provide the services for which they sought reimbursements.

Not entitled to payment?
Splitting hairs? Maybe. But that didn't stop United from sending each physician association an "overpayment demand" letter in late 2009, seeking repayment of the facility fees it had paid the associations. United also stopped paying the professional fees, including more than $10 million in pending claims, according to the suit.

The doctors took great care to make sure United would pay both the professional and facility fees. Billing agents for the physician associations would call the insurance company to verify that the surgeries were valid and billable. The billing agents would then make a second call to verify patients' eligibility and coverage. After the costs were confirmed, United would tell the associations how much it would pay for the claim, and then after surgery, pay that amount. This occurred for several years, with United paying the physician associations both of the fees for hundreds of surgeries performed at ASCs.

The physician associations filed a lawsuit against United, saying that there was a breach of implied-in-fact contract, negligent misrepresentation and violations of the Texas Insurance Code and the Texas Business and Commerce Code, among others. Additionally, the surgeons allege United underpaid other claims totaling approximately $10 million. The case was consolidated in 2013 with another case against United brought by physician associations with similar allegations.

In response to the surgeons' allegations, United asserted a number of defenses. Its primary argument was that the physician associations were not entitled to recover reimbursements for the facility fees because the physician associations were not ASCs licensed by the state of Texas, and therefore were not permitted to provide the services for which they sought reimbursements.

According to United, the licensed ASCs — such as Palladium, not the physician associations — provided the facility services. Since the associations were seeking payment for the ASC facility services that they could not legally provide, they were not entitled to payment.

United even went as far as to argue that even if the physician associations were ASCs or had provided the ASC facility services, they still would not be entitled to a facility fee because the patients' healthcare plans specifically required that ASC providers be licensed and/or excluded reimbursement for services provided by an unlicensed provider.

United also argued that these facility fees were unlawful. According to United, the physician associations' arrangements with the facilities where the procedures were performed constituted illegal kickbacks that violated state and federal laws. According to United, under the agreements between Palladium and the physician-owners, the surgeons — through their physician associations — were allowed to keep half of the ASC facility fees they collected. United argues that this created an illegal incentive that encouraged the surgeons to perform the procedures at Palladium.

2 takeaways
Now more than ever, it's crucial to pay attention to regulatory requirements and to review compliance as private payors are assessing provider compliance with an eye toward denial of claims. Here are 2 lessons we can learn from this case:

Private payors are policing their providers. In addition to government-instituted investigations, private payors are starting to examine their providers' arrangements for compliance. Be sure your user agreements are compliant with state and federal anti-kickback laws, whether your facility is accepting federal healthcare or solely private-payor dollars. Even if you only work with private payors, you may still incur liability from any otherwise non-compliant arrangements.

Private payors are aware of state licensing requirements. They may deny coverage if a provider fails to meet those requirements. In DAC Surgical Partners, United denied claims because the physician associations were not licensed by the State of Texas and therefore were not permitted to provide ASC facility services. Accordingly, United asserted that the claims submitted by the physicians failed to meet plan requirements or fell under certain exclusions because of the failure to meet state licensing requirements.

Understand applicable state licensing and other requirements in order to avoid having payors deny claims on the basis of non-compliance. In addition, familiarize yourself with coverage requirements under health benefit plans and insurance policies. Otherwise, a private payor may deny claims under a contractual basis because of failure to meet plan requirements. Check with your attorney to be sure your facility complies with state licensing and other requirements to avoid having claims denied for non-compliance.