Physicians and practice managers: Your practice can be held directly liable for fraudulent or improper billing carried out by your medical billing contractor – even if you were unaware of the violations.
Under federal healthcare fraud laws, including the False Claims Act, Stark Law, and the Anti-Kickback Statute, providers are responsible for all claims submitted under their taxpayer identification number (TIN).
Careless or improper billing and collections can also lead to recoupments and collection rates far below industry standards. Health insurance SIUs and Medicare auditors are on alert for billing contractors that violate plan agreements and abuse the law.
Understanding where liability in medical billing falls is critical to protecting your practice.
What Makes a Medical Billing Contractor's Actions Illegal?
Medical billing fraud – also called fraudulent billing or healthcare billing fraud – occurs when a billing company submits claims that misrepresent the services rendered, the provider, or the patient encounter.
Billing practices by contractors that can expose providers to liability include:
- Billing for services not rendered: Filing claims for services not rendered or not sufficiently documented
- Missing documentation for claims
- Phantom billing: submitting claims for patients who were never seen
- Impersonating patients to negotiate bills
- Failing to collect copays or deductibles
- No good-faith effort to collect
- Patients never received a bill
- Crediting patients or forgiving patient fees while still billing the insurer for the full amount
- Handling protected personal information (PPI) without a business associate agreement (BAA) in violation of HIPAA
- Unbundling claims: A common form of healthcare billing fraud in which codes that should be billed together are split to inflate reimbursement
- Upcoding: filing claims under a higher-paying procedure code than the service actually provided
- Filing claims under non-reimbursable procedure codes
- Filing claims under a reimbursable code while documentation indicates a non-reimbursable procedure or service
- Filing claims for multiple units of a billing code when only one unit is allowed per session
- Failing to follow the appeals process outlined in plan documents
Ignorance is no defense if the independent contractor is under contract with your practice or acting with your agency.
Legal & Financial Consequences of Billing Company Fraud for Healthcare Providers
When a billing contractor commits fraud under your TIN, the consequences extend far beyond the contractor themselves. As the provider of record, you can be held 100% liable for fraudulent or illegal acts and the ensuing damages
Consequences can include:
- Delayed or denied payments
- Audits
- Recoupment
- Medicare exclusions
- Civil penalties
- Criminal liability, including fines and incarceration.
There are also significant consequences if your contractor is not abiding by insurance plan documents or other requirements. Failure to meet plan requirements – such as consistent coding errors, making late (or no) appeals, and not following administrative procedures – can render your claims ineligible for payment.
How to Audit Your Medical Billing Contractor and Reduce Liability
To protect your practice, you should have a written medical billing independent contractor agreement that clearly defines compliance obligations, HIPAA responsibilities (including a signed Business Associate Agreement), and performance benchmarks like collection and denial rates. Regular audits of billing records – ideally conducted with guidance from a healthcare compliance attorney – are essential.
Key performance indicators to monitor:
- Net collection rate: should be 90–95%+ (AAFP minimum: 95%)
- Denial rate: industry average is 5–10%; above that warrants investigation
- Appeals activity: confirm your contractor is following plan-specific appeals processes
If your collection or denial rates fall below these averages, it’s time to take action against your medical billing company. At Hendershot Cowart P.C., we can help you audit your billing records, identify service failures, and send a formal demand to request corrective action from your third-party biller. If performance does not improve, it may be time to pursue legal action – and to find a new billing partner.
Facing Liability for Your Billing Contractor's Actions? Contact a Medical Billing Fraud Attorney
If your practice is facing an audit, recoupment demand, or potential liability for a billing contractor's actions, you need an experienced medical billing fraud attorney. Hendershot Cowart P.C. is a healthcare billing fraud law firm based in Houston with extensive experience defending physicians and practices against False Claims Act violations, Stark Law investigations, and billing contractor disputes.
Don’t leave your practice at risk. Contact our experienced attorneys at Hendershot Cowart P.C. by calling (713) 783-3110 today for more information.