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Pros and Cons of Charging Administrative Fees in Healthcare

Executive Summary


As the administrative costs of healthcare continue to rise, healthcare organizations are increasingly relying on fees to support certain administrative tasks. Administrative fees are not all created equal, which has stirred much debate as to whether fees are worth charging in light of regulatory and reputational risk. This article provides guidance on how to charge fees, the types of fees available to healthcare organizations and the advantages and risks to be aware of when charging administrative fees. 


Recommended Actions
  • Give notification and obtain consent from your patients before issuing an administrative fee.
  • Avoid charging patients insured by Medicare or Medicaid an administrative fee. If you do choose to charge these patients, be extremely cautious.
  • Ensure that the administrative fee is reasonable to avoid upsetting patients and raising red flags to payors and regulators.
  • Have a plan in place for patients who refuse to pay, such as referring them to another physician or allowing patients to opt out of paying the fee. 


Types of Administrative Fees


Administrative Fees for Services


The typical administrative fee model uses a patient’s insurance for covered items, but charges a fee for uncovered administrative or operational tasks. Services covered by this fee include consulting patients over the phone, faxing documents to employers, calling in prescription refills and completing forms. This fee is usually small, ranging anywhere from $20 to $150 per patient annually.[1] Fees can be charged either on an annual or per-item basis. 


Direct Payment Fees


Direct payment fees cut out insurance altogether. The healthcare organization is paid directly by patients rather than by insurance. Also, the patient does not pay for each visit, but rather pays a monthly fee to be a member — generally, $100-$200 per month.


This model relies on time savings to make up for the fees the healthcare organization would charge the health insurance company. Since patients pay a flat rate and no third parties are involved, healthcare staff is less bogged down with billing and insurance paperwork.


Also, under this model, healthcare organizations can be more flexible in the way they see patients. Where many traditional health insurance providers require patients to come in for an office visit for billing purposes, healthcare organizations that use direct payment fees can determine whether a phone or virtual consultation will suffice, allowing the healthcare organization to use its time more efficiently. Further, healthcare organizations can focus on patient care and give special attention to patients who most need care.[2]


Concierge Medicine Fees


Concierge medicine differs from the first two types of fees in that it is generally a premium service, hence healthcare organizations charge significantly more for it. The fee is usually charged in addition to insurance and ranges from a few hundred dollars a year to tens of thousands depending on how comprehensive the coverage is. Concierge medicine often involves same-day appointment scheduling and yearly preventive check-ups.[3]


Benefits of Charging Fees


In recent years, healthcare organizations have begun spending more time on non-billable services.[4] Data indicates that physicians spend nearly twice as much time on administrative tasks as opposed to seeing patients.[5] The advantage of an administrative fee is that a physician and healthcare organization can be paid for their time performing these services and that they can provide them to patients in the most efficient way possible. 


Risks of Charging Fees


Charging fees can present both legal and reputational risks. If a fee doesn’t offer value to the patient, the insurance company or a regulator may determine that a practice is charging for services already covered by insurance. Federal law strictly prohibits billing for services already covered and imposes expensive fines to those in violation.[6] Health insurance contracts usually also have clauses to enforce this rule further.[7]  


Regarding reputation, consider whether fees will put a strain on the doctor-patient relationship. Fees may seem particularly unreasonable to those not accustomed to paying them.[8] Determine from a reputational standpoint whether an administrative fee may cause patients to leave your practice. 


Charging Fees to Medicare/Medicaid Patients


Charging Medicare/Medicaid patients an administrative fee can present significant risks because the line between what is covered and what isn’t is fuzzy. Charging administrative fees for Medicare patients varies depending on who the Medicare provider is and their contract with the government. Medicaid varies by state, and the majority of states ban administrative fees outright for Medicaid patients.[9] Many healthcare organizations exclude charging patients with insurance through Medicare or Medicaid because they feel the risk does not exceed potential reward. 


If a healthcare organization wants to explore this option further, they should consider utilizing a consultant on a per-practice basis to set up guidelines based on each Medicare provider and each state’s Medicaid guidance. 


Notifying Patients and Receiving Consent


Patients should be sent a letter notifying them of the implementation of any sort of administrative fee or a change in the fee charged at least 60 days in advance. With the notification, all patients should sign a fee agreement. Some items must be included in the fee agreement for it to be binding and effective against liability. In the agreement, the patient must:

  1. Understand that their health insurance plan will not pay the fee because the services it covers aren’t covered under insurance. 
  2. Assume financial responsibility for the payments.
  3. Agree not to submit a bill to their healthcare insurance provider.


The healthcare organization may also wish to reserve the right to change the fee periodically. A template fee agreement including these items can be found here[SZ1] .


Quiz


Answers are provided below

True or false?


Question 1: A healthcare organization is looking to charge an annual administrative fee of $20 to all of its patients including those with Medicare and Medicaid. So long as the healthcare organization gives its patients notice and receives consent from each patient to charge the patient (not their insurance) the administrative fee, the healthcare organization can safely charge and collect the administrative fee. 


Question 2: A healthcare organization has grown tired of dealing with insurance. They recently sent notice to their patients that they will no longer accept insurance, but instead collect a monthly fee from their patients that the patients must pay out-of-pocket. The monthly fee will give patients access to care when they need it, relying on the flexibility of scheduling appointments and the cost savings from not having to deal with insurance. This is an example of a direct payment type of administrative fee.


Multiple Choice


Question 3: Which of the following consequences could occur if a healthcare organization fails to notify their patients that they will begin charging a fee? Choose all that apply.

  • A.Regulators from the U.S. Department of Health and Human Services could impose a penalty for billing for services already covered by insurance. 
  • B. Third-party health insurance providers could file a successful complaint against the healthcare organization for billing for services already covered by insurance.
  • C. Patients could file a successful complaint against the healthcare organization for billing for services already covered by insurance.
  • D. Patients could feel blindsided, resulting in reputational damage to the healthcare organization.
     

Answers


Question 1: False. Charging an administrative fee to Medicare/Medicaid covered patients is risky and the healthcare organization needs to speak with an expert to see if charging the fee is allowed for the patient and within the state they operate. For Medicare, depending on who the Medicare provider is and their contract with the federal government, administrative fees may or may not be permitted. For Medicaid, most states prohibit charging administrative fees for Medicaid patients. 


Question 2: True. The characteristics presented in this question are those of a direct payment type of administrative fee. Direct payment fees are always paid outside insurance. This model relies on time savings to make up for the fees the healthcare organization would charge insurance.

Question 3: A, B, and D. 

  • A is correct because the No Surprises Act strictly prohibits billing for services already covered. If a patient isn’t notified that their administrative fee isn’t covered by insurance and the insurance provider is charged, federal regulators could charge a penalty. 
  • B is correct, for the same reason as A. The insurance company has a right to file a complaint against the healthcare organization if the patient’s insurance policy does not cover administrative fees. 
  • C is incorrect because the No Surprises Act protects insurance companies from being charged for services they do not cover. Patients are expected to pay for services they receive if insurance will not cover them. 
  • D is correct because while healthcare administrative fees are a growing trend, patients who are not used to paying them might see them as unacceptable, especially if they are not given an explanation as to why the fee is being charged. 

[1] James F. Doherty, Jr. & Samantha E. Freed, User Fees in Health Care: Physician Charges for Administrative Services, 1, https://cdn.laruta.io/app/uploads/sites/7/legacyFiles/uploadedFiles/MSBA/Member_Groups/Sections/Health_Law/MBJ%20Article%20Final.pdf.
[2] Rob Lamberts, The value of the direct pay monthly fee to physicians and patients, Med. Econ. J., Vol. 95, Iss. 23, Dec. 10, 2018, https://www.medicaleconomics.com/view/value-direct-pay-monthly-fee-physicians-and-patients.
[3] James F. Doherty, Jr. & Samantha E. Freed, User Fees in Health Care: Physician Charges for Administrative Services, 9-10, https://cdn.laruta.io/app/uploads/sites/7/legacyFiles/uploadedFiles/MSBA/Member_Groups/Sections/Health_Law/MBJ%20Article%20Final.pdf.
[4] Rob Lamberts, The value of the direct pay monthly fee to physicians and patients, Med. Econ. J., Vol. 95, Iss. 23, Dec. 10, 2018, https://www.medicaleconomics.com/view/value-direct-pay-monthly-fee-physicians-and-patients.
[5] Danielle Ofri, The Patients vs. Paperwork Problem for Doctors, N.Y. Times, Nov. 14, 2017, https://www.nytimes.com/2017/11/14/well/live/the-patients-vs-paperwork-problem-for-doctors.html.
[6] No Surprise Act, 26 U.S. Code § 9816 (2022).
[7] Amy Lynn Sorrel, Extra Fee, Extra Hassle, Tx. Med., May 2013. https://www.texmed.org/Template.aspx?id=26991.
[8] Amy Lynn Sorrel, Extra Fee, Extra Hassle, Tx. Med., May 2013. https://www.texmed.org/Template.aspx?id=26991.
[9] See Ga. Dept. of Comm. Health, Policies And Procedures For Medicaid/Peachcare For Kids, I.106(CC) (2022).

10/22

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Disclaimer

The information provided in this resource does not constitute legal, medical or any other professional advice, nor does it establish a standard of care. This resource has been created as an aid to you in your practice. The ultimate decision on how to use the information provided rests solely with you, the PolicyOwner.