The Legal Risks of Boutique Medicine

Whether the law adapts to permit or prohibit boutique medical practices remains to be seen

A small but growing trend in medicine is the establishment of “concierge” or “boutique” medical practices. For a fee, ranging anywhere from $900 to $20,000 per patient per year, a physician agrees to provide a range of primary care medical services to a limited number of patients.

The range of services typically focuses on wellness or preventative medicine, but can span the entire scope of a primary care practice. Often included in the services provided are amenities and preferences that are not usually associated with physician practices, including 24-hour/seven-day-a-week access to the physician, same-day or next-day-preferred appointments, private reception areas, and even such luxuries as free hotel rooms for out-of-town patients, heated towel racks, and monogrammed bathrobes. Membership is usually limited to 300 to 600 patients. Some practices cater exclusively to these patients, refusing to take any Medicare or private insurance. Others continue to provide these services and apply the membership fee only to those services that are not covered by Medicare or private insurance.

There are several high-profile examples of these types of practices throughout the country. In Florida, a company called MDVIP has been in the forefront of this movement and offers ambitious plans to recruit 1,000 physicians nationwide. In Seattle, the former team physician for the Seattle Supersonics has converted his practice into this type of arrangement. Two well-known internists in the Boston area converted their practice into a boutique arrangement. Even in Arizona, such practices have already been established and more are on the way.

Physicians who have begun these practices extol their virtues in glowing terms. They cite the financial and psychological benefits of being free from dealing with the legal requirements and billing nightmares associated with Medicare and insurance companies. Because the number of patients permitted to become members of a boutique practice is limited, physicians are able to spend much more time with each patient, which these doctors are certain increases the quality of care provided.

On the other hand, many medical ethicists, consumer advocates, and government officials express concern over the creation of a two-class system of medicine, with more services and higher quality available to those who can afford the often substantial membership fees required by these practices. They ask what will happen to the Medicare system if more doctors elect to opt out and attempt to serve an all-cash patient population only.

These practices have not slipped under the radar screen of government officials, as numerous investigations and other efforts to stop this movement have begun. The most visible action was a letter sent in March of this year to the Inspector General for the Department of Health and Human Services by five members of Congress, including Representative Henry Waxman from California and Representative Pete Stark, the author of the Stark self-referral law. In their letter, the Congressmen raise several concerns that the boutique practices are violating federal laws, and they asked the Inspector General to take “rapid action” against these practices. Last year, Senator Bill Nelson of Florida introduced a bill in Congress to prohibit physicians from charging additional fees to Medicare patients. In addition, various state agencies have begun their own investigations. Departments of Insurance in the states of Massachusetts and Florida are reviewing the practice.

The legal risks with these practices can be briefly summarized. Most of these risks arise when a practice continues to seek reimbursement from Medicare and private health insurance companies for covered services in addition to providing these additional “boutique” services for a separate fee.

VIOLATION OF MEDICARE REGULATIONS

Medicare regulations prohibit charging Medicare beneficiaries for services covered by Medicare. Some argue that the services offered for the additional membership fee overlap with services that are covered by Medicare. To the extent that there is such overlap, charging for such services would constitute a clear violation. However, there is significant dispute over whether any such services would be reimbursable under Medicare.

VIOLATION OF THE FALSE CLAIMS ACT

In their letter, the five Congressmen alleged that the annual membership fee should be considered part of the charges for basic office visits, which charges are often reimbursed by Medicare or health insurance plans. As the letter itself explains:

An MDVIP patient, for example, might pay $1,500 per year in order to see his or her doctor five times for covered services, with each visit costing an additional $100 (billed to Medicare). Looking back, the true charge for each visit, including the value of the annual fee, was really $400. By failing to put the true charge on its claim to Medicare, a physician could be violating the False Claims Act. Of course, if the membership fee is for additional services provided by the doctor, then it may not be accurate to allocate that fee to office visits and other items normally covered by Medicare.

VIOLATIONS OF PROVIDER AGREEMENTS WITH PRIVATE INSURANCE COMPANIES

Most private insurance company provider agreements prohibit balance billing of patients in a manner that could prevent charging any amounts to enrollees of those health plans, even for non-covered services. If these arrangements were found to violate Medicare regulations, they are likely to also violate private health insurance provider contracts in the same manner.

VIOLATION OF STATE INSURANCE LAWS

To the extent that these practices require annual prepaid membership fees, they could be viewed as offering insurance without a license. If the physician is taking the risk of providing these services for a cost greater than the fee paid to him, insurance statutes define the offering of insurance broadly enough in many respects to encompass such an arrangement.

VIOLATION OF THE ANTI-KICKBACK STATUTE OR OTHER LAWS PROHIBITING PAYMENTS TO INDUCE PATIENT REFERRALS

To the extent that the practices offer amenities such as heated towel racks, free hotel rooms, special bathrobes, and the like, these luxuries could be viewed as improper inducements under the federal anti-kickback statute or provisions of the Health Insurance Portability And Accountability Act that prohibit such inducements. Of course, since these amenities are offered only upon payment of a fee, they could be nothing more than an exchange of fair value in return for what was paid.

ABANDONMENT OF EXISTING PATIENTS

Often, a physician who attempts to transition an existing practice to a boutique practice which limits the number of patients will have to terminate his relationship with many existing patients. If that is not done correctly, the physician could expose himself to liability for abandonment.

In many situations, trends in the health care industry have run far ahead of the applicable law, requiring the law to be changed to catch up with what quickly becomes common industry practice. For example, the explosion of physician networks or IPAs required clarifications of the antitrust statutes in order to permit them.

On the other hand, sometimes common practices are shut down once the law catches up to them, such as the widespread practice of physicians selling prescription drugs over the Internet. Clearly, boutique medical practices are ahead of the law at this point. Whether the law adapts to permit or prohibit them remains to be seen.