An Illinois appeals court has found that thousands of physicians don't have to pay an administrative fee to HealthLink, a St. Louis-based subsidiary of WellPoint that develops provider networks for managed-care insurance companies and third-party administrators.
In a 23-page majority opinion in Vine Street Clinic et al v. HealthLink, filed Nov. 24, the 4th Illinois District Court of Appeals in Springfield overturned a lower court decision and found the fees to be in violation of the fee-splitting ban in the Illinois Medical Practice Act of 1987. Ursula Hatch, M.D., an Illinois OB/GYN, was a co-plaintiff in the case.
The act bars a physician, under penalty of loss of licensure, from "dividing with anyone other than physicians with whom the licensee practices . . . any fee, commission, rebate or other form of compensation for any professional services not actually and personally rendered." The law provides exceptions only if the patient is notified of the fee-splitting arrangement or in the instance of a partnership or joint venture.
According to court documents, the five-physician psychiatric clinic was a member of a HealthLink network between 1989 and 2001 and paid 5% administrative fees totaling at least $21,720; Hatch was a network member from 1993 until June 2002 and also paid fees based on an undisclosed percentage that totaled $24,079. In May 2002, HealthLink changed Hatch's charge structure to a flat monthly fee of $600, which she refused to pay.
In March 2002, Illinois Attorney General Jim Ryan's office issued an opinion that the HealthLink percentage-based fee structure violated state law and was void, after which HealthLink notified its providers that it would charge them a flat fee based on a physician's specialty and volume of claims submitted. Plaintiffs sued, asking the trial court to declare both the percentage and the flat-fee schedule be declared illegal and asked for recovery of all fees previously paid.
The trial court found the flat-fee scheme to be legal and the percentage-based fee system to be illegal, but it dismissed the request for fee reimbursement, "reasoning that even if the agreements for fees were illegal, a party to an illegal contract cannot recover monies paid pursuant to it" according to a summary of the findings in the appeals court decision written by Judge Robert Cook.
In its decision, the appeals court majority found that in Illinois, "A physician may not share his profits with a nonprofessional, even if no referral of patients is involved." It also found that while HealthLink does not technically refer patients on one physician, it "exercises substantial control" over which physicians a member sees.
"We do not perceive any significant difference, however, between referring a patient to a particular physician and charging that physician a fee and referring a patient to several physicians, any of whom will be required to pay a fee." And since the new flat-fee schedule includes a volume calculation, "That fee is simply a percentage calculated by a more circuitous route."
The three-judge panel unanimously denied a return of previously paid fees, however, because physicians never challenged the payments in court; no one "held a gun to plaintiffs' heads" forcing them to accept the arrangement; and the physicians violated the act, not HealthLink. Cook concluded, "(W)e see no reason to depart from the rule that the parties will be left where they have placed themselves."
"Requiring physicians to remit to HealthLink a portion of their fees from each patient encounter is a clear violation of the law," said Kenneth Printen, M.D., president of the 14,000-member Illinois State Medical Society, in a news release. The ISMS filed a friend-of-the-court brief in supporting Vine Street Clinic, a five-physician psychiatric group practice in Springfield.
HealthLink operates in Missouri, Illinois, Iowa, Arkansas, Indiana, Kentucky and West Virginia and produced provider contracts covering 2.4 million people, including 1.3 million people in workers' compensation provider networks, according to WellPoint's latest annual report filed with the Securities and Exchange Commission.
"HealthLink has decided to appeal this ruling, and that's all I'd like to say to you at this point," said HealthLink spokeswoman Deb Wiethrop.
Robert Kane, legal counsel for Illinois State Medical Society, said the ethical consideration behind the fee-splitting ban is the universal concept to put the patient's interest first in any medical decision-making.
"The house of medicine wants to stay away from greed driving the decision," Kane said. That said, it remains to be seen whether the Illinois decision will have legal implications in the other states where HealthLink does business.
"Every state's medical practice act is different, and this decision is based upon Illinois state law," he said.
Tom Immel, attorney for Hatch and the Vine Street Clinic, said the wording of the Illinois practice act "seems to be an Illinois phenomenon," so there may not be similar causes of action against HealthLink by physicians in other states. Still, the numbers in Illinois alone are not small. Immel said the HealthLink Web site lists about 5,000 participating physicians.
"Some extrapolations were done, to which HealthLink did not disagree, that since 1985 they probably have collected $100 million plus in administrative fees in one form or other, be it the 5% or the flat fee, which only came into effect in mid 2002."
Immel said HealthLink also supported legislation to amend the medical practice act, but the effort "failed miserably" in committee.
Immel said he will petition the appeals court to rehear its portion of the decision denying repayment to physicians of fees. The filing deadline is Dec. 15. "That will set the table," he said. "We'll probably both go to the (Illinois) Supreme Court."