In an unprecedented administrative action, the U.S. Department of Health & Human Services Office of the Inspector General (“HHS-OIG”) penalized a medical billing company for preparing and submitting claims to Medicare for diagnostic tests that were never conducted. On September 19, 2016, the owner and operator of a New Jersey billing company entered into a $100,000 settlement agreement with HHS-OIG and agreed to be excluded from participation in federal health care programs for a minimum of five years under the Civil Monetary Penalties Law.

The medical billing company was responsible for preparing and submitting claims to Medicare on behalf of an OB-GYN practice based, in part, on “superbills” identifying the services purportedly performed during a patient encounter. According to HHS-OIG, the billing company routinely added additional CPT codes to Medicare claims for unperformed services that the billing company knew were neither performed nor identified as performed on the superbill.

Although we do not have details on the specific compensation arrangement between the billing company and the OB-GYN practice, most billing companies are paid based on a percentage of the amount the billing company collects for the provider from third party payors – including federal health care programs. This compensation structure creates an incentive for billing companies to collect as much as possible from third party payors and can potentially give rise to fraudulent billing practices if appropriate safeguards are not put in place.

It is important to note that billing companies have been subject to federal and state civil and criminal prosecution over their billing practices since the 1990s. However, this is the first time HHS-OIG has imposed administrative sanctions against a billing company. In announcing the settlement agreement, HHS-OIG spokesman Donald White noted that this first-of-its-kind penalty demonstrates that HHS-OIG expects “compliance throughout the full range of federal health care program processes.”

There has always been the need for health care providers to be vigilant in choosing and monitoring claims submitted by billing companies on their behalf. Now, HHS-OIG has signaled that billing companies face administrative penalties and possible exclusion for their improper billing practices. In light of this action, health care providers and billing companies should review their current billing practices to ensure all billing is accurate and their arrangements in compliance with all federal and state laws.