Center for Athletic Medicine, Ltd. v. Independent Medical Billers of Illinois, Inc. ( 2008 )

THIRD DIVISION
May 28, 2008
No. 1-07-1594
CENTER FOR ATHLETIC MEDICINE, LTD., ) Appeal from the
an Illinois Corporation, ) Circuit Court of
) Cook County.
Plaintiff-Appellant, )
)
v. )
)
INDEPENDENT MEDICAL BILLERS OF )
ILLINOIS, INC., an Illinois Corporation, and )
MEDORIZON, INC., an Illinois Corporation, ) Honorable
) Lee Preston,
Defendants-Appellees. ) Judge Presiding.
PRESIDING JUSTICE QUINN delivered the opinion of the court:
Plaintiff Center for Athletic Medicine, Ltd. (CAM), filed a two-count amended complaint
against defendants Independent Medical Billers of Illinois, Inc. (IMB), and Medorizon, Inc.
(Medorizon), alleging that defendants breached their agreement with plaintiff to perform medical
billing services and, in the alternative, alleging that defendants’ retention of payments without
providing promised services resulted in unjust enrichment. Defendants moved for summary
judgment and the circuit court granted defendants’ motion, finding that the agreement between
plaintiff and defendants was void where it constituted improper fee sharing in violation of the
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Medical Practice Act of 1987 (Medical Practice Act) (225 ILCS 60/22(A)(14) (West 2004)).
Plaintiff now appeals. For the following reasons, we affirm.
I. BACKGROUND
On August 23, 2005, plaintiff filed its two-count amended complaint against defendants.
Plaintiff is a professional corporation of physicians in the business of providing medical care and
services, focusing on sports medicine, in Illinois. Defendant IMB is an Illinois corporation in the
business of providing billing, accounts receivable, and collection services for health care
providers. Defendant Medorizon is the parent company of IMB. Plaintiff and IMB entered into
an agreement on May 2, 1995, in which IMB agreed to provide medical billing services to
plaintiff. Plaintiff alleged that at some point after the agreement was executed, Medorizon
became the parent company of IMB.
The agreement provided in pertinent part:
“(IMB) will provide the following services for * * * (CAM):
Process all approved charges, payment posting, and follow up on all commercial
insurance, * * * Medicare, HMO’s, Commercial, Work Comp. and self pay
accounts for service dates to commence approximately on or around April 17,
1995. Our primary focus will be that of maximizing CAM reimbursements and
minimize your day[s] outstanding from all payors.
***
The fee for the above process will be:
-4.50 % on all reimbursements.
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-6.25 % on all claims not originally processed by IMB.”
In count I of plaintiff’s complaint, plaintiff alleged that defendants breached the contract,
inter alia, by failing to maximize plaintiff’s reimbursements, handle plaintiff’s debt in a timely
manner, and properly encode charge documents. Plaintiff alleged that as a direct and proximate
result of defendants’ breaches of the agreement, approximately 24% of plaintiff’s total charges
during the term of the agreement had been identified as lost and unrecoverable. Plaintiff alleged
that from January 1, 2000, to March 31, 2004, plaintiff suffered damages in excess of $4.4
million as a result of defendants’ alleged breaches. In count II of the complaint, plaintiff alleged,
in the alternative, that defendants were unjustly enriched by failing to provide agreed- upon
services notwithstanding receiving payments from plaintiff for such services.
On September 21, 2006, IMB filed a separate complaint, seeking to recover unpaid fees
allegedly owed by plaintiff for IMB’s medical billing services. On November 13, 2006, IMB’s
suit against plaintiff was consolidated with the instant case.
On December 26, 2006, defendants filed a motion for summary judgment on the grounds
that plaintiff’s breach of contract and unjust enrichment claims were invalid because the
agreement was void where it violated the fee-splitting prohibition of section 22(A)(14) of the
Medical Practice Act. 225 ILCS 60/22(A)(14) (West 2004). Plaintiff filed a response to
defendants’ motion for summary judgment, in which plaintiff argued that the agreement did not
violate the fee-splitting prohibition of section 22(A)(14) of the Medical Practice Act. Plaintiff
also argued that the public policy considerations behind the fee-splitting prohibition were to
prevent influencing referral and patient-care decisions based on motivations unrelated to
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professional judgment and proper treatment. Plaintiff asserted that such public policy concerns
were not implicated by the agreement because defendants provided medical billing services,
dealing primarily with insurance companies, to maximize reimbursements after medical
decisions had been made and treatment rendered. Plaintiff also attached the affidavit of Rebecca
Busch in support of its opposition to defendants’ motion for summary judgment.
In her affidavit, Rebecca Busch stated that she is the president and chief executive officer
of Medical Business Associates and that she has extensive experience, inter alia, with all matters
related to this litigation. Busch attested that she was retained by plaintiff to audit accounts
receivable and to analyze plaintiff’s relationship with defendants. Busch attested that
defendants’ contractual obligations with plaintiff were composed primarily of activities to ensure
the processing of claims and denial management. Busch explained that denial management
comprises activities utilized to have medical bills paid by insurance companies and patients.
Busch stated that denial management is a “back end service” that is entirely focused on
maximizing payment of medical bills by insurance companies and patients. Busch attested that
the billing company is a "back end" operational function that has no impact on utilization of
services by the patient. Busch also attested that the billing company has no impact on the referral
of patients to the provider.
Busch attested that denial management for health providers is necessary due to the
complex nature of medical billing. The health-care reimbursement market is complicated by
multiple-party contracts, fragmented in the relationships between the patient, the payer, and the
plan sponsor. Busch also attested that the practice of billing a percentage of amounts collected
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for the submission of bills, denial management, and advocacy for the consumer has long been
established as the most appropriate protocol. The typical business contract between a billing
agent and a provider is based on a percentage fee basis on the actual collections. Busch further
attested that the percentage fee basis is consistent with market practices between the payer and
the employer, and between the provider and collection services.
Following a hearing on defendants’ motion for summary judgment, the circuit court
granted defendants’ motion and dismissed both counts of plaintiff’s complaint. In doing so, the
circuit court found that the agreement between the parties was void as against the fee-sharing
prohibition of section 22(A)(14) of the Medical Practice Act. The circuit court noted that while
the policy considerations did not appear to be implicated in the arrangement made between the
parties, the plain meaning of the Medical Practice Act and our supreme court’s interpretation of
the statute prohibited the agreement in this case. The circuit court also made a finding that no
just reason existed for delaying appeal under Illinois Supreme Court Rule 304(a) (155 Ill. 2d R.
304(a)). Plaintiff now appeals.
II. ANALYSIS
On appeal, plaintiff contends that the circuit court erred in granting defendants’ motion
for summary judgment where the agreement did not constitute an illegal fee-splitting
arrangement, in violation of section 22 of the Medical Practice Act. Plaintiff maintains that,
pursuant to the agreement, defendants did not receive a percentage of plaintiff’s revenue or fees
charged by plaintiff for services rendered. Instead, plaintiff asserts, defendants received a
percentage of reimbursements recovered by defendants as a result of dealing with insurers and
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other payors.
As this issue concerns the construction of a statute, it is a question of law, and our
standard of review is de novo. Vine Street Clinic v. Healthlink, Inc., 222 Ill. 2d 276, 282 (2006).
The primary rule of statutory construction is to ascertain and give effect to the intent of the
legislature. Illinois Deptartment of Healthcare & Family Services v. Warner, 227 Ill. 2d 223
(2008). The most reliable indicator of the legislature’s intent is the language of the statute, which
is given its plain, ordinary and popularly understood meaning. Warner, 227 Ill. 2d 223. Further,
when interpreting a statute, a court must presume that when the legislature enacted a law, it did
not intend to produce absurd, inconvenient or unjust results. Vine Street, 222 Ill. 2d at 282.
Section 22(A)(14) of the Medical Practice Act provides that the Department of
Professional Regulation may revoke or take other action regarding the license of any person to
practice medicine on a number of grounds, including:
“(14) 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.” 225 ILCS
60/22(A)(14) (West 2004).
Three exceptions exist: (1) where physicians divide fees in an approved partnership, corporation,
or association; (2) where approved medical corporations form a partnership or joint venture; or
(3) where physicians concurrently render professional services to a patient and divide a fee
“provided, the patient has full knowledge of the division, and, provided, that the division is made
in proportion to the services performed and responsibility assumed by each.” 225 ILCS
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60/22(A)(14) (West 2004).
Several Illinois Appellate Court opinions have construed section 22(A)(14) to prohibit
payments by physicians for services based upon a percentage of professional income. In the
earliest of these cases, E&B Marketing Enterprises, Inc. v. Ryan, 209 Ill. App. 3d 626 (1991), a
physician and a marketing firm entered into an agreement whereby the marketing firm would
promote the physician’s name and practice, primarily to insurance companies, in exchange for
10% of all billings collected. The appellate court held that the agreement constituted fee splitting
in violation of the Medical Practice Act1 and was therefore void as against public policy. E&B
Marketing, 209 Ill. App. 3d at 628-30. The appellate court found the fact that the contracting
physician collected the fees from insurance companies, rather than from individual patients, had
no effect upon the illegality of the fee-splitting agreement. E&B Marketing, 209 Ill. App. 3d at
629-30.
In Lieberman & Kraff, M.D., S.C. v. Desnick, 244 Ill. App. 3d 341 (1993), the appellate
court invalidated a contract for the sale of a medical practice which provided compensation to the
1
The appellate court’s determination in E&B Marketing was based on the earlier
statutory language of section 16(14) of the Medical Practice Act (Ill. Rev. Stat. 1985, ch. 111,
par. 4433(14)), which was repealed effective December 31, 1997. See E&B Marketing, 209 Ill.
App. 3d at 629 n.1. However, our supreme court has determined that the slightly different
language of now-repealed section 16(14) did not effect the analysis of whether a prohibited fee
arrangement occurred under section 22(A)(14) of the Medical Practice Act. Vine Street, 222 Ill.
2d at 285-86.
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seller over a 20-year period, holding that the contract was an illegal fee-sharing agreement. The
appellate court noted that the Medical Practice Act does not contain the phrase “fee splitting,”
which occurs “when a physician refers a patient to another physician and then collects a portion
of that patient’s fee.” Lieberman & Kraff, 244 Ill. App. 3d at 345. The court found that “nothing
in the language of the statute indicates an intent to restrict the reach of the statute solely to
conduct traditionally known as fee splitting. Therefore, the issue of whether or not the parties’
agreement falls within the technical definition of ‘fee splitting’ is not relevant *** [Rather, the
issue] is whether the parties’ agreement violates the statute as written." Lieberman & Kraff, 244
Ill. App. 3d at 345.
The appellate court determined that when read as a whole, the plain language of the
Medical Practice Act “prohibits the sharing, pooling, dividing, or apportioning of professional
fees by physicians unless the fee agreement falls within one of the enumerated exceptions.”
Lieberman & Kraff, 244 Ill. App. 3d at 345. The court found that while “[t]he broad language of
the Medical Practice Act clearly prohibits agreements which can be characterized as fee-splitting
agreements,” the statute “also prohibits all other fee-sharing arrangements not specifically
authorized.” Lieberman & Kraff, 244 Ill. App. 3d at 345. In determining that the agreement for
the sale of the medical practice was prohibited by the Medical Practice Act, the appellate court
noted that the fact that the purpose behind the parties’ agreement may have been benign is of no
relevance. The court explained “where an agreement results in fee splitting, the purpose behind
the agreement is irrelevant; the agreement is void.” Lieberman & Kraff, 244 Ill. App. 3d at 346,
citing E&B Marketing, 209 Ill. App. 3d at 630.
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Shortly after Lieberman & Kraff, the appellate court decided Practice Management Ltd. v.
Schwartz, 256 Ill. App. 3d 949 (1993). In that case, nonphysicians (optometrists) formed a
partnership with physicians (ophthalmologists) where the parties and their separate companies
would refer patients to each other and split the partnership’s profits. The partnership would also
provide management services to the ophthalmologists and their company. The nonphysicians
argued that they were seeking compensation for performing legitimate services having nothing to
do with the referral of patients. Practice Management, 256 Ill. App. 3d at 954. The appellate
court held that even though some legitimate management services were performed by the
nonphysicians, the fee arrangement was improper. The agreement allowed nonphysicians to be
compensated through a percentage of the net profits generated by the licensed physicians in
violation of the Medical Practice Act, which prohibits not only fee splitting, but all other fee-
sharing arrangements not specifically authorized therein. Practice Management, 256 Ill. App. 3d
at 953-55.
In TLC The Laser Center, Inc. v. Midwest Eye Institute II, Ltd., 306 Ill. App. 3d 411
(1999), the appellate court again considered whether a prohibited fee arrangement occurred in the
context of a service agreement contract between a group of ophthalmologists and the purchaser
of the ophthalmological practice’s assets. The court held that the service contract violated
section 22(A)(14) of the Medical Practice Act because it provided, in part, for an annual fee to be
paid by the ophthalmological practice to the purchaser, an unlicenced corporation, in addition to
specific reimbursements. TLC, 306 Ill. App. 3d at 428. The court noted that “the service
agreement clearly reveals that the amount of the annual fee was determined by defendants’
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‘revenues for year.’ ” TLC, 306 Ill. App. 3d at 428. Although the annual fee was not calculated
on a straight percentage, the court found a “direct relation” between the revenues generated by
the practice and the fee the ophthalmologists were required to pay to the purchaser. The court
noted that the establishment of a floor and a ceiling for the annual fee did not change the
character of the relationship. TLC, 306 Ill. App. 3d at 428. In finding the fee arrangement
invalid, the TLC court observed the broad language of the statute:
“Section 22 of the Medical Practice Act does not only prohibit sharing of fees for
patient referrals; Illinois courts have struck down contracts for the sale of a
medical practice (see Lieberman & Kraff v. Desnick, 244 Ill. App. 3d 341 ***
(1993)) and contracts which involved ‘performance of some legitimate
management services’ (see Practice Management Ltd. v. Schwartz, 256 Ill. App.
3d 949 *** (1993)) on the basis that the contracts ran afoul of the statute. The
‘reach of the statute is not limited to "fee-splitting." The Medical Practice Act also
prohibits all other fee-sharing arrangements not specifically authorized.’
Lieberman & Kraff, 244 Ill. App. 3d at 345 ***.” TLC, 306 Ill. App. 3d at 427.
Finally, in Vine Street, our supreme court determined that an agreement requiring
participating physicians to pay the operator of a network of health-care providers a percentage-
based fee for administrative services violated section 22(A)(14) of the Medical Practice Act,
where the fee was equal to 5% of the amount allowed in the operator’s rate schedule for services
provided to members by the physicians. Vine Street, 222 Ill. 2d at 292-93. With respect to this
5% fee agreement, our supreme court observed:
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“[S]ection 22(A)(14) of the Act prohibits: (1) ‘traditional’ fee splitting
for patient referrals between licensees, except those in a partnership or
corporate-type relationship and licensees concurrently rendering
professional services to a patient; and (2) fee-sharing agreements whereby
a licensee ‘divides with anyone,’ for any service rendered to the licensee, a
percentage of the monies earned by the licensee for medical services he or
she has performed. 225 ILCS 60 22(A)(14) (West 2002). ***.
‘Nonphysicians can receive a fee for services rendered, apart from referral,
but cannot receive a percentage of the physician’s profit, or its equivalent.’
[Vine Street Clinic v. Healthlink, Inc., 353 Ill. App. 3d 929, 935 (2004)].”
Vine Street, 222 Ill. 2d at 292-93.
Healthlink, Inc. 222 Ill. 2d at
292-93.
Our supreme court concluded that the percentage fee was violative of section 22(A)(14) because
the agreement required participating physicians to pay the operator of the network of health-care
providers a portion of the fee the physicians received from each patient for medical services they
performed. Vine Street, 222 Ill. 2d at 294.
However, our supreme court found that the operator’s amendment of the agreement to
allow a flat fee for administrative services was not invalid, where the flat fee was paid monthly
on a basis independent of the physician’s fees. The court found that the operator’s flat fee was
“not based or linked to revenue, gross receipts or billings collected.” Instead, it was based on
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“the volume of claims” that the operator processed for a physician during the prior year and the
physician’s specialty. Vine Street, 222 Ill. 2d at 294. The court explained that unlike the
agreement in TLC, which involved a fee that increased as the revenues increased, the operator’s
flat fee was based on the volume and complexity of the administrative services provided. The
operator’s fee would not automatically increase as the revenue of the participating physician
increased. The court, therefore, concluded that the monthly flat fee did not constitute prohibited
fee sharing under section 22(A)(14). Vine Street, 222 Ill. 2d at 295.
In doing so, our supreme court rejected the physicians’ claim that section 22(A)(14) was
meant to prohibit the division of fees between licensees and any other individual or entity that
may render professional services under the Act, where the court found that “professional
services” cannot be performed by anyone other than those licensed to practice medicine. Vine
Street, 222 Ill. 2d at 291. The court found that because the operator’s provision of administrative
services to the physicians “does not encompass medical ‘professional services’ within the
meaning of the Act, no violation of section 22(A)(14) can occur.” (Emphasis in original.) Vine
Street, 222 Ill. 2d at 296. While this language can be interpreted to mean that billing services do
not constitute “professional services” under section 22(A)(14), our supreme court made clear that
the percentage fee for billing services was violative of section 22(A)(14) because the agreement
required the physicians to pay the operator a portion of the fee the physicians received from each
patient for medical services they performed. Vine Street, 222 Ill. 2d at 292-93. In contrast, our
supreme court also determined that the flat fee agreement for administrative services did not
constitute prohibited fee sharing under section 22(A)(14). Vine Street, 222 Ill. 2d at 295.
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Following the plain meaning of section 22(A)(14) and these interpretations by the
appellate court and our supreme court, we conclude that the agreement in the present case
constitutes prohibited fee sharing under the Medical Practice Act. Here, the agreement provided
that the amount of the fee defendants would receive for medical billing services was “4.5 percent
on all reimbursements” and “6.25 percent on all claims not originally processed by [defendants].”
The agreement structured the fee in terms of plaintiff’s revenues for providing medical services
to patients. Defendants were to receive a fee based on the percentage of plaintiff’s revenues that
defendants collected from payors. Accordingly, the fee increased as plaintiff’s revenues
increased. Since defendants do not fall within any of the exceptions in section 22(A)(14), we
find that the agreement violated the Medical Practice Act because defendants, nonphysicians, are
prohibited from receiving a percentage of the physician’s profit, or its equivalent. See Vine
Street, 222 Ill. 2d at 292-93. The agreement is therefore void as against Illinois law.
Plaintiff, nonetheless, argues that the policy reasons behind the fee-splitting prohibition
are not implicated by the present agreement, where defendants provided medical billing services
and dealt primarily with insurance companies, rather than patients, after medical decisions had
been made and treatment rendered to patients.
“ ' The policy reasons behind the prohibition are the danger that such an arrangement
might motivate a nonprofessional to recommend a particular professional out of self-interest,
rather than the professional’s competence. In addition, the judgment of the professional might be
compromised, because the awareness that he would have to split fees might make him reluctant
to provide proper (but unprofitable) services to a patient, or, conversely, to provide unneeded
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(but profitable) treatment. [Citations].' TLC, 306 Ill. App. 3d at 427-28.” Vine Street, 222 Ill. 2d
at 288-89.
Plaintiff presented evidence, in Busch’s affidavit, regarding the complex nature of
medical billing. Busch attested that defendants’ “back end” operational function had no impact
on the utilization of services by a patient or on the referral of patients. Busch also attested to the
purpose and common practice of a billing company and provider contracting on a percentage fee
basis. Plaintiff maintains that the policy reasons cited in Vine Street are not readily apparent in
this case where the agreement entails defendants collecting revenues after services by the
physicians have already been rendered. During oral arguments, defendants argued that if medical
billers were paid on a percentage basis, they would have an incentive to increase fees for medical
services provided to a patient by “upcoding” a different medical procedure for billing purposes.
Contrary to plaintiff’s policy argument, the appellate court has previously determined that
the fact that fees were collected from insurance companies, rather than from individual patients,
has no effect upon the illegality of a fee-splitting agreement. See E&B Marketing, 209 Ill. App.
3d at 629-30. In addition, in determining whether an arrangement constitutes prohibited fee
splitting, the fact that the purpose behind the parties’ agreement may have been benign is of no
relevance. Lieberman & Kraff, 244 Ill. App. 3d at 346. In this case, the agreement resulted in
fee splitting and is void, irrespective of the purpose and common practices involved in medical
billing agreements.
Plaintiff further argues that an interpretation of the Medical Practice Act that bars any and
all percentage-based agreements between physicians and nonphysicians would lead to illogical
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results, such as rendering void plaintiff’s agreement with the electric company to pay its
percentage of electricity because such payment would be made from plaintiff’s revenue.
The appellate court rejected a similar argument by plaintiffs in Practice Management.
The plaintiffs argued that if the court found that the arrangement in that case constituted illegal
fee sharing, then virtually every payment made by a doctor for such things as supplies, electricity
or nurses, would constitute fee sharing since that payment would ultimately come out of money
derived from patient fees. Practice Management, 256 Ill. App. 3d at 954. In finding that the
agreement constituted improper fee sharing, the appellate court found: “Plaintiffs’ argument is
not compelling, however, since generally, payments made to the electric company or members of
a doctor’s support staff do not depend on how much money the doctor earns. Such payments
must be made regardless of whether the doctor makes or loses money that month. Under the
agreement at issue here, plaintiffs were to be compensated through a percentage of the net profits
generated by the defendant physicians.” Practice Management, 256 Ill. App. 3d at 954-55.
Similarly, in the present case, defendants were to be compensated based on a percentage of
revenues defendants collected for plaintiff. Unlike the electric company, which did not receive
payment based on plaintiff’s profits, defendants’ fee was dependent on the amount of money
collected for plaintiff. We therefore find plaintiff’s argument unconvincing.
Since the agreement is void as against Illinois law, we affirm the circuit court’s order
granting defendants’ motion for summary judgment on both counts. Defendants argue that
plaintiff waived review of the circuit court’s grant of summary judgment on its unjust enrichment
claim, count II, by failing to present any argument on that issue.
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Plaintiff maintains that the circuit court’s grant of summary judgment for both count I
(breach of contract) and count II (unjust enrichment) was based on its finding that the contract
violated the Medical Practice Act. Plaintiff asserts that because this court’s determination
regarding the application of the Medical Practice Act applies to both counts, separate arguments
were not necessary in this case. Plaintiff also acknowledges that our supreme court has held that
if a contract violates the Medical Practice Act, “ ‘the court will leave the parties where they have
placed themselves.’ ” Vine Street, 222 Ill. 2d at 299, quoting Practice Management, 256 Ill. App.
3d at 955.
We find that plaintiff is unable to sue in equity for unjust enrichment where there was a
contract between the parties, although the contract is void as a matter of law. See Hedlund &
Hanley, LLC v. Board of Trustees of Community Colleges District No. 508, 376 Ill. App. 3d 200,
207 (2007) (when a contract exists between the parties, no quasi-contractual claim, such as
quantum meruit can arise). “ ‘[T]he law will not aid either party to an illegal act, but will leave
them without remedy as against each other,’ with the caveat that they are of equal knowledge,
wilfulness and wrongful intent, or in pari delicto. [Citation; see also King v. First Capital
Financial Services Corp., 215 Ill. 2d 1, 33-34 (2005).] (the doctrine of in pari delicto embodies
the principle that a plaintiff who has participated in wrongdoing may not recover damages
resulting from the wrongdoing).” Vine Street, 222 Ill. 2d at 297. Where this court has found that
the percentage-based fee agreement between plaintiff and defendants violated the broad
prohibition against fee sharing set forth in section 22(A)(14), the proper course is for the parties
to be left
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“ ‘where they have placed themselves.’ ” Vine Street, 222 Ill. 2d at 299, quoting Practice
Management, 256 Ill. App. 3d at 955.
III. CONCLUSION
For the above reasons, we affirm the circuit court’s order granting defendants’ motion for
summary judgment on both counts of plaintiff’s complaint.
Affirmed.
THEIS and CUNNINGHAM, JJ., concur.
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