Are ‘Bankruptcy Claw-backs’ a Threat to Your Practice’s Finances?

July 4, 2017 by Antonio Arias, MBA, CHBME

Topics: Meaningful Use Stage 2, Practice Management, Medical Billing Company

Whether it’s selecting a medical billing firm to manage the revenue cycle, minimizing your embezzlement risk with employees, or monitoring for potential cyber threats, managing your practice’s financial health is an ongoing priority. That financial health depends on income from a variety sources, including patient collections, payer reimbursements, and incentive payments (such as those for Meaningful Use), among others.

Some payment sources, however, are more problematic than others… and may even lead to unexpected losses. Two recent cases are raising the question of whether doctors should be more discerning about what income they receive, less they risk putting themselves in position to lose revenue to possible “bankruptcy clawbacks.”

What are bankruptcy clawbacks? Broadly, in the event of a Chapter 7 bankruptcy, the bankruptcy trustee (which essentially stands in the shoes of the debtor, once the entity has declared) has the right to take back any property or money that the debtor improperly gave away before filing for bankruptcy – improperly being the operative word.

On the Hook to Return Payments?

The threat of clawbacks, unfortunately, compounds related concerns of fraud, waste, abuse, and illegal fees. As most physicians readily know, it’s largely illegal to accept direct referral fees and other kinds of kickbacks. But even though stakeholders readily understand the importance of complying with all applicable laws (and staying alert to possible enforcement actions related to violations of the Stark law or Anti-kickback statute) they may not realize how clawbacks can come into play when or if bankruptcy gets involved.

Consider the Aetna judgment. Earlier this year, Aetna won a $51 million case against Humble Surgical Hospital LLC, finding that Humble had illegally paid more than 100 doctors up to 30% of its “technical fee” in exchange for referrals. Once Humble filed for bankruptcy protection, took aim at the doctors – suing all 103 in order to recoup the illegal payments.

Will Aetna be allowed to claw back the referral-fee income from physicians? At the time of writing, that remains to be seen. Generally, parties to an illegal contract may not sue for a return of payments on an illegal contract – meaning that when payments are issued under a fraudulent agreement, few corporations can get them back in most court proceedings. But many courts see bankruptcy as a different story, given the role of a trustee replacing a debtor in the process.

To keep clawbacks from ever entering your orbit, however, the smartest thing to do is play it safe regarding your relationships to all third parties with which you do business. If payments are involved, make sure they’re on the up-and-up, because the incident with Aetna and Humble (and a similar case involving Health Diagnostics Laboratory) may be just the beginning: As more and more insurers merge, acquire each other, and face down potential regulatory scrutiny as a consequence, they may go clawing for every dollar they can!


Are you interested in learning more revenue cycle management tips? Visit our blog! 

...and if you need help from a medical billing company...


Subscribe to Our Blog

Stay in-the-know on trends, best practices, and news affecting the medical billing industry!