Fees, Credit, and Collections

Setting Fees

Practitioners must establish two sets of fees: one for examinations and another for materials.

When a patient is examined and receives ophthalmic materials, these charges must be separated (no “one fee” for both).

Examination fees are either “fee-for-service” or “third party reimbursement”.

For the average OD, fee-for-service constitutes about 32% of examination income, while third party reimbursement amounts to 68%.

About 80% of patients are covered by insurance for the average practitioner.

Setting fee-for-service charges is crucial because they determine the fees for third party plans as well: a practitioner cannot charge more for third party reimbursement (most notably Medicare) than for fee-for-service for the same service.

When determining fee-for-service charges, there are several factors that must be considered:

• Comparison to fees charged by similar providers in the community

• Reimbursement paid by third parties (especially Medicare)

• Individual skill, experience and knowledge

But Medicare sets a fee schedule that is deemed to be “usual and customary” by the federal government—so reasonable fees can be at least this amount.

Another important factor is the “chair cost” (pg 362 of textbook). A practitioner must earn more than the cost of operations, or the practice will be unsuccessful financially.

“Chair cost” can be used to estimate the cost of providing services and thus ensure that fees are set appropriately. Or, it can be used to determine the fees necessary to achieve a certain profit margin.

An example can illustrate how “chair cost” is determined.

Calculating Chair Cost• A sole practitioner has an annual gross income of $400,000• Thus the monthly gross income of the practice is $33,333 ($400,000 ÷

12)• The cost of operating the practice (rent, staff, etc) is 35% of gross

income or $11,666 per month ($33,333 x .35)• Prorated operating costs for the practice (typical averages) are:

– 70% for professional services or $8,166 per month ($11,666 x .70)– 30% for dispensing services or $3,499 per month ($11,666 x .30)

• The doctor works 8 hours a day, 5 days per week, 20 days a month, or 160 hours per month (20 x 8)

• The formula for chair cost is professional overhead per month • practitioner hours per month• Using the above figures, chair cost = $8,166 = $51.04 per hour• 160• If the doctor charges $55 for an examination, earnings are $3.96 per

exam ($55.00 – $51.04) or a 7.75% profit margin ($3.96 ÷ $51.04)• If a 20% profit margin is required, the doctor would need to charge

$61.25 per exam ($61.25 - $51.04 = $10.21 and $10.21 ÷ $51.04 = 20%)

Legal Issues Involving Fees

Is it unethical for an optometrist to split professional fees with a business entity?

Most states have laws that prohibit fee-splitting by health care professionals.

The type of optometrist who is uniquely vulnerable to this problem is an independent contractor working as a self-employed doctor for a business entity.

An independent contractor is defined as:

“One who, exercising an independent employment, contracts to do a piece of work according to his own methods and without being subject to the control of his employer except as to the result of the work”.

Thus, control is the essential issue.

Fee-splitting results whenever the independent contractor works on a per diem basis:

For example, an optometrist working at a commercial practice for $400 per day who generates $900 from services allows $500 to be paid to the business entity, thereby allowing the business to receive a portion of the optometrist’s fees for services.

This would be illegal and subject the optometrist to disciplinary action from the state board.

The legal issue raised by fee-splitting is that it permits a business organization, by receiving part of the payment for services to the optometrist, to "practice optometry" just as if it were a licensee.

There are special rules for “fill-in” doctors (called “locum tenens”) who occasionally substitute as independent contractors. They are usually paid per diem, and patients pay the absent doctor’s fees or—if they are insured—the substitute files the insurance claim under the absent doctor’s provider number.

Thus an optometrist who occasionally fills in for a commercial practitioner is not subject to fee-splitting, even though payment is on a per diem basis.

Locum tenens doctors are limited in the number of days they can work at a location (e.g., 90 days in a 12 month period).

Another issue involves “kickbacks” under Medicare. If patients with cataract are referred to a particular surgeon because the patient is always returned to the optometrist for post-op care, Medicare can allege the post-op care is a “kickback” and fine or even terminate the doctors from the Medicare program.

The Medicare “anti-kickback” statute is broadly written and prohibits the knowing and willful solicitation, offer, or payment of any remuneration, whether direct, indirect, overt, covert, in cash or in services, under the Medicare program.

Example: An optometrist leases office space to an eye surgeon to whom cataract patients are referred; the surgeon pays $5000 for the space even though its market value is $1000—the unreasonable payment would be deemed a kickback for the cataract referrals.

The federal “False Claims Act” prohibits a false, fictitious or fraudulent claim from being submitted for payment or approval.

A “claim” under the False Claims Act includes reimbursement from federal programs such as Medicare or Medicaid.

Example: An optometrist allows his brother, also in the practice, to examine Medicaid patients and bill Medicaid for the exams under his name because he is a Medicaid provider and the the brother is not. These billings would be false claims.

Fee-splitting is not an ethical or legal problem when the relationship is between licensee employer and employee, because all income earned by the employee is considered to belong to the employer, who is of course a professional licensee.

In a fee-splitting case brought by a board of optometry, the business entity usually walks away from the dispute free and clear, because it has no professional license to lose. The optometrist gets disciplined.

“Guaranteed” income from a business employer can be construed as a “kickback” since the income is paid to assure that the employer will continue to earn a profit from the sale of eyewear prescribed by the optometrist.

Minimum income guarantees or bonus income paid by an employer optometrist (or physician) to an employee optometrist does not violate the law because it is paid by a licensee.

Fees for Ophthalmic Materials

Charges for ophthalmic materials are based upon two factors: their cost, and the cost of dispensing services (i.e., ordering, verifying, dispensing eyewear).

Ophthalmic materials charges (spectacles and contact lenses) are subject to both legal and competitive issues.

Under the FTC’s “Eyeglasses Rule” patients have a right to spectacle prescriptions and thus may take their prescriptions and purchase eyewear from another dispenser.

Contact lens prescriptions are now controlled by federal law, just like spectacle prescriptions.

Due to this FTC-regulated prescription release rule, patients have a right to receive the prescription for contact lenses after the fitting period, and to have contact lens information verified so that lenses can be purchased from other dispensers.

This may result in reduced contact lens sales to patients by ODs.

One method for the pricing of ophthalmic materials (frames and lenses) is to “mark up” the price to 2 to 3 times the wholesale cost. When this is done, there is no dispensing fee.

The alternative approach is to slightly mark up the materials and charge a dispensing fee that covers the cost of dispensing services. Third party reimbursement plans may require this approach.

Ophthalmic materials are widely advertised and subject to aggressive sales techniques (especially contact lenses), which creates a competitive problem for private practitioners.

The cost of spectacle lenses, frames, and contact lenses purchased from manufacturers is reduced when they are bought in high volumes, which is usually beyond the reach of independent private practitioners.

As a result, private practitioners often form co-ops, in which a number of practitioners to join together for the purpose of purchasing lenses and frames in volume, thus reducing cost.

Practitioners have also resorted to using in-house laboratories, with about 50% of private ODs offering edging, tinting, and coating of lenses to patients; this increases profit and decreases the turnaround time required to dispense materials.

However, the cost of in-house labs is such that the cost cannot be covered unless the number of orders per month is substantial. The utilization of the laboratory is thus a prime consideration of the purchase.

Legal Issues Involving Fees for Ophthalmic Materials

If coupons are used to offer discounted ophthalmic materials, they are legal as long as they do not violate the optometry practice act. Thus, coupons offered by a stand-alone optical or by an optometrist with a dispensary are permissible if they satisfy legal requirements.

But if a commercial entity that has hired an independent contractor optometrist offers a coupon—providing discounts for both materials and services—potential legal problems arise.

Many states prohibit the direct or indirect employment of agents to solicit patients. For example, in Alabama it is a violation of the optometry law to “directly or indirectly employ solicitors, canvassers, or agents for the purpose of obtaining patronage”.

Since an exam is required to purchase glasses, a coupon that discounts both exam and materials would create a violation.

Any coupons used should not be misleading or deceptive.

For example, if patients responding to the coupons rarely purchase the advertised materials because of “bait and switch” tactics by the optical, a case could be made that the advertising was misleading and that the optometrist was a participant in a scheme to defraud.

Discounts for patients with insurance coverage can pose significant legal issues. If the optometrist charges a discounted fee, and an insured patient receives an eye examination to obtain the promised discount on materials, does the optometrist violate the law by filing the insurance claim for the reimbursable amount rather than the discounted fee? The answer depends on the type of insurance involved.

If it is vision insurance, the insurance company has set the fee to pay the optometrist for exams, regardless of what the optometrist charges for fee for services. So the optometrist should be able to bill the insurer, as usual, even though the fee for services has been reduced.

If it is medical insurance, such as Medicare, however, the reimbursement to the optometrist is determined by the usual and customary fees the optometrist charges for a given level of service.

If these fees are discounted below what is usually reimbursed by these plans (say $50), and the optometrist charges Medicare patients the usual and customary fee (say $100), then Medicare is billed for a higher amount than patients paying the discounted fees. The federal government would consider that fraudulent.

One other issue involves ethics. Many states refer to the AOA Code of Ethics in their laws and some states actually have their own code, drawn from the AOA version. The issue of fees is addressed in the AOA’s Standards of Conduct, and the rule is quite specific:

“Professional fees charged the patient for examination, diagnosis and treatment shall be determined by the individual optometrist.”

In any jurisdiction where it could be argued that this proscription applies, an optometrist who discounted fees to accommodate an advertising campaign for discounted materials could be charged with violation of the optometry law and disciplined for unprofessional conduct.

Stark Law

The federal “Stark Law” regulates referrals to entities (such as a clinic or group of health care providers) in which the referring practitioner has a financial interest. If such a referral is made, any health services provided by the entity cannot be legally billed to Medicare. Hefty fines are levied for violations.

Thus the “Stark law” applies to referrals for cataract surgery where the optometrist has a financial interest in the clinic (such as a referral or surgical center) in which the ophthalmologist performs the surgery.

Practitioner to practitioner referrals, in which neither practitioner holds an interest in the other’s practice, do not fall under the “Stark law” prohibitions.

The “Stark Law” also applies to patient referrals to optical shops in which the referring practitioner has a financial interest. If such a referral is made, services or materials provided by the entity (such as eyewear) cannot be legally billed to Medicare/Medicaid (except post-cataract surgery eye correction). However, a “safe harbor” (exception to the rule) is allowed for group practices that wholly own a separate optical shop.

If an optometrist has no financial interest in a separate optical shop, there can be no violation. If the optometrist shares ownership with another entity or individual, a violation can occur if the optometrist’s profit from the shop is based on referrals to it for the sale of eyewear. There is no automatic “safe harbor”.

Credit

There are 5 ways in which patients can pay:

• Advance payment—payment is made before services are rendered (e.g., prepaid service agreements for contact lens wearers)

• Step payments—payments are made as services or materials are received (e.g., planned replacement program for contact lenses)

• Deposit and balance—a partial payment is made after services have been rendered (e.g., 50%) and the balance is paid when materials are received (the remaining 50%)

• Credit and billing—the patient makes no payment until a written statement is received for the amount due (true credit)

• Installment payment—payment is made in stated amounts over a period of time (e.g., equal payments made over 3 months)

Of these methods, only the first two do not result in the extension of credit. The third—deposit and balance—has been the traditional means used by optometrists for fee-for-service, because the deposit can be used to offset the cost of materials if the patient fails to pay the balance.

If credit and billing is used, about 70% of patients will pay after receiving the first statement, about 25% will require extra billings or special arrangements, and about 5% (in a well run practice) will not or cannot pay.

Installment payments must be properly structured to avoid falling under the federal Truth-in-Lending law.

The Consumer Credit Protection Act, passed by the US Congress in the mid-1970s, contains several laws that regulate applications for credit, awarding or denial of credit, and payments or collections related to credit:

• Equal Credit Opportunity Act—requires credit to be awarded on a non-discriminatory basis; credit cannot be refused because of race, color, religion, national origin, gender, marital status, age, or because the patient receives public assistance; if credit is denied, the reason for denial must be documented

Two other important provisions of the act: • Truth-in-Lending—if credit is extended, repayment

must be in four or less installments (not including a down payment) in order to avoid the voluminous disclosure and reporting requirements of Regulation Z of this law; if a finance charge is applied to the unpaid balance, that also falls under the law

• Fair Debt Collections—collections efforts by collections agencies and attorneys are regulated by this law, but in-house efforts by optometrists are not; however, all states have enacted laws that describe acts considered to constitute harassment of debtors, and optometrists must respect these laws when instituting collections efforts

Contracts for services should contain a clause stating that, if the doctor must resort to legal process to collect an amount due, the patient agrees to pay for the costs of an attorney or collections agency, plus any court costs, thereby ensuring that the optometrist will collect the full amount due and not a percent (usually 50%, because an attorney or agency typically charges 33% to 50% of the amount collected for its efforts). The fine print should say:

“The doctor, at the doctor's discretion, may place an UNPAID account with an attorney for collection. In the event the account is referred to an attorney for collection of unpaid charges, the patient or person responsible for the account agrees to pay an attorney's fee, court costs, and any other reasonable costs of collection.”

Contracts for non-essential health services are not enforceable against minors, which means that services or materials provided to minors must be paid for by a responsible adult (a potential problem if the child is from a divorced family).

The adult signing the contract needs to be the one who will pay for the services.

If payment by check is made, but it is not good (“returned for insufficient funds”), the patient should be called and repayment asked for (credit card, cash, money order).

Banks may be contacted to determine if checks can be re-submitted for payment because funds have subsequently become available, or to hold checks until sufficient funds have been deposited.

Post-dated checks (dated in the future) should not be accepted because they cannot be deposited until the date specified, and a “bad check” intent cannot be implied even if funds are insufficient.

If a patient does not pay, the optometrist has to decide whether to try and collect the amount owed or “write it off” (which cannot actually be accomplished).

Credit cards are a preferred method of payment:

• Many patients prefer to pay using plastic instead of cash or checks due to convenience, credit card reward programs, and record keeping and fraud prevention or protection programs.

• The average consumer spends 20% to 30% more per visit when paying with plastic than with cash or checks.

• With credit cards, there is little to no risk to the doctor as long as the card issuer's rules are followed.

• While all major credit card issuers charge fees for accepting their cards, as a percentage of the sale and per transaction (American Express 3.75% to 4.1%, 25¢; Discover 2.43%, 25¢; Visa/Mastercard 2.35%, 25¢), these fees usually outweigh the operating costs of offering your own credit and losses from unpaid credit and bad checks.

Collections

The basic choice a practitioner must make is whether to limit collections to in-office efforts only, hire an attorney or collections agency, or use a combination of both in-office and external collections methods.

Most optometrists utilize some type of in-office collections efforts.

Because of state laws regulating the harassment of debtors, in-office efforts are best limited to a series of 3 letters:

• The first letter is a reminder that payment has not been received

• The second letter requests that contact be made with the office to arrange payment

• The third letter asserts that legal action is imminent unless payment or an explanation is forthcoming (see pg. 370 of textbook).

Three collections letters:Dear Mr. Account:We have not heard from you with regard to our recent statement concerning your

account with this office.If the enclosed account is in error, please contact us so that we may make the

appropriate adjustment.If it is correct, we would enjoy hearing from you soon.

Dear Mr. Account:We are disappointed in the fact that we have not received a response to the letter

and statement mailed to you last month.However, we are aware that unexpected developments can make it difficult to meet

financial obligations from time to time.Please consider how you wish to take care of the enclosed statement of account, and

contact this office within the next few days so that we may discuss this matter with you.

Dear Mr. Account:In our previous efforts to contact you concerning your overdue account, we have

evidently failed to make it clear that this is a matter requiring your immediate attention.

Much to our regret, unless we hear from you about the enclosed statement, we will be compelled to take an alternative course of action.

Please contact this office immediately so that we may resolve this matter.

If in-house efforts are unsuccessful, the practitioner must decide whether to pursue unpaid accounts any further. Some optometrists may be willing to become “lawyer for a day” and resort to Small Claims Court.

These courts resolve disputes over relatively small monetary claims (e.g., $3,000) and because they do not require attorneys or follow strict rules of evidence, optometrists can file the complaints (there is a fee), represent themselves in court, present evidence, question witnesses, and if a judgment is received from the court, collect it by legal process (garnishment of wages, freezing of bank accounts, seizure and sale of assets); the losing party pays court costs.

An attorney or collections agency may be hired to perform collections efforts. Practitioners should determine the limit to which collections efforts will be conducted and communicate this decision to the attorney or agency.

For example, a lawyer may be instructed to write letters but not to commence legal action. (A practitioner may not feel that the potential adverse publicity is worth the relatively small amounts being collected.)

If attorneys or agencies are hired, they should charge for services as a percent of the amount collected rather than on the basis of the time spent or effort made.

If they commit violations of state or federal law, the optometrist may be held liable in part for any civil penalties or damages awarded.