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Managers of healthcare businesses can find it challenging to navigate federal payor compliance. Learn how a double lockbox setup helps you stay legal while maintaining financial control.
If you’re involved in a Management Services Agreement (MSA) or need one for your management services organization (MSO), you might have come across terms such as “double lockbox” or “sweep account.” Your healthcare attorney may have advised you to set up a double lockbox for compliance reasons if you don’t already have one.
But what is a double lockbox bank account? How does it function, and why would a healthcare practice need one?
Anti-Assignment Rules and Account-Sharing Restrictions
Your MSO likely works closely with the professional entity under the MSA arrangement. The MSO may help manage administrative tasks, personnel issues, billings, and other management functions. It might seem logical for the two business entities (the MSO and the professional entity) to share a single bank account, allowing the MSO full access as needed.
However, Medicare and Medicaid anti-assignment rules do not allow such sharing of accounts. According to the U.S. code that governs payments to providers:
No payment which may be made to a provider of services under this subchapter for any service furnished to an individual shall be made to any other person under an assignment or power of attorney…
And:
…no payment under the plan for any care or service provided to an individual shall be made to anyone other than such individual or the person or institution providing such care or service, under an assignment or power of attorney or otherwise.
In short, anti-assignment rules require that payments received for patient services go directly to the provider who rendered the care — not to a third party who did not render the care and may not be licensed to do so. The provider must maintain direct control over the bank account receiving federal reimbursements.
Implementing a Double Lockbox Arrangement for Compliance
A double lockbox arrangement is a legally permissible method of structuring reimbursements of federal payor receivables for third parties such as an MSO. Federal payor reimbursements, made in the provider’s name, are kept separate to ensure the provider retains ultimate control over the funds. This separation allows the arrangement to comply with Medicare and Medicaid regulations, as the provider directs the disposition of the funds at all times.
In a double lockbox arrangement, the business operation establishes two segregated accounts. The first account is in the provider’s name and receives federal payor reimbursements. The second account, the non-federal payor account, receives private and self-pay reimbursements. This second account can often be in the name of the provider or the MSO, although some states’ corporate practice of medicine (CPOM) rules may not allow the MSO to be on the bank account. All funds from the federal payor account are swept (i.e., transferred) to the non-federal lockbox account or another account controlled by the MSO on a regular schedule.
Deposit Account Control Agreements
The lockbox accounts are governed by a Deposit Account Control Agreement (DACA) between the provider, MSO, and lockbox bank. The DACA for the Federal payor account must include a provision stating that the provider retains the right to direct any disposition of funds in that account. This ensures the provider has the right of rescission — that is, the right to cancel or reverse the regularly scheduled sweep of funds and the depositing of federal payor funds into the account.
The double lockbox structure should:
- Maintain appropriate segregation between federal and private payor reimbursement.
- Establish an agreement between the provider, the MSO, and the bank that gives the provider the right to rescind at any time.
- Include contractual provisions between the provider and the MSO that allow the provider to breach its contractual obligations by directing reimbursements to a different account.
- Allow the third party an automatic remedy to seek a court order mandating payment directly to the MSO for future reimbursements. If a court orders that federal reimbursements be paid directly to the MSO, it is considered a legal assignment of those payments according to the anti-assignment rules, which typically prohibit such assignments.
Remember that Medicaid differs from Medicare in that it is implemented separately by each state. Therefore, states may have unique Medicaid provisions that could affect the lockbox structure. As long as your state has adopted provisions similar to federal law, the double lockbox structure described above is likely compliant.
Get Legal Help.
Interpreting the rules for compliant bank account structures for federal payments can be difficult. If you have questions about your MSA arrangement, want to know how to divide fees compliantly between the provider and an MSO, or think you may need to set up a double lockbox, consider consulting an experienced healthcare attorney.
If you operate in one of the states where we have licensed attorneys, set up a free consultation to learn more about our MSO/MSA services.
This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.
