AMARILLO, TX – Billing and collecting from state Medicaid programs is more expensive and time consuming for a DME supplier than collecting from a cash-paying customer. It is logical for suppliers to desire to charge a cash-paying customer less than what the supplier bills Medicaid. The question thus arises: Is it permissible for the supplier to do so? Most state Medicaid programs require the supplier to bill the Medicaid program its usual and customary price. The following is a summary of the law in five states, as well as a discussion of federal law.

California
Cal. Code Regs. tit. 22, § 51480(a) states that “[n]o provider shall bill or submit a claim for reimbursement for the rendering of health care services to a Medi-Cal beneficiary in any amount greater or higher than the usual fee charged by the provider to the general public for the same service.” Cal. Code Regs. tit. 22, § 51501(a) clarifies that “[n]otwithstanding any other provisions of these regulations, no provider shall charge for any service or any article more than would have been charged for the same service or article to other purchasers of comparable services or articles under comparable circumstances.” In addition, Cal. Code Regs. tit. 22, §
51008.1, which establishes the upper billing limit for incontinence medical supplies, states, in relevant part, the following:

a) Bills submitted . . . for durable medical equipment . . . , medical supplies . . . , or incontinence medical supplies . . .  shall not exceed an amount that is the lesser of:

1) The usual charges made to the general public, or
2) The net purchase price of the item, which shall be documented in the provider’s books and records, plus no more than a 100 percent mark-up. Documentation shall include, but not be limited to, evidence of purchase such as invoices or receipts.

A) Net purchase price is defined as the actual cost to the provider to purchase the item from the seller, including any rebates, refunds, discounts or any other price reducing allowances, known by the provider at the time of billing the Medi-Cal program for the item, that reduce the item’s invoice amount.
B) The net purchase price shall reflect price reductions guaranteed by any contract to be applied to the item(s) billed to the Medi-Cal program.
C) The net purchase price shall not include provider costs associated with late payment penalties, interest, inventory costs, taxes, or labor.

Illinois
Ill. Admin. Code tit. 89, § 140.12(h) states that the provider agrees to “[m]ake charges for the provision of services and supplies to recipients in amounts not to exceed the provider’s usual and customary charges and in the same quality and mode of delivery as are provided to the general public.” Ill. Admin. Code tit. 89, § 140.481(a), which addressees reimbursement rates for medical equipment, supplies, and related products, clarifies that the term “usual and customary charge” means the provider’s usual and customary charge to the general public.

Minnesota
Minn. R. 9505.0450 states that “[a] provider shall bill the department for the provider’s usual and customary fee only after the provider has provided the health service to the recipient.” Minn. R. 9505.0175 defines “usual and customary” as follows:

“Usual and customary,” when used to refer to a fee billed by a provider, means the charge of the provider to the type of payer, other than recipients or persons eligible for payment on a sliding fee schedule, that constitutes the largest share of the provider’s business. For purposes of this subpart, “payer” means a third party or persons who pay for health service by cash, check, or charge account.

Ohio
Ohio Admin. Code 5160-1-60(D) states that “[p]roviders are expected to report their usual and customary charge (the amount charged to the general public) on all claims.” Ohio Admin. Code 5160-1-17.2(A) states that Medicaid providers agree to “bill . . . for no more than the usual and customary fee charged other patients for the same service.” Furthermore, Ohio Admin. Code 5160-1-02(B) states that “[a] medical service is not reimbursable if . . . the service is charged at a rate greater than the provider’s usual and customary charge to other patients.”

Pennsylvania
Under 55 Pa. Code § 1101.75(a), a provider enrolled in the Pennsylvania Medicaid program “may not, either directly or indirectly . . . [s]ubmit a claim for a service or item at a fee that is greater than the provider’s charge to the general public.”  55 Pa. Code § 1101.62 further states the following:

The Department’s maximum fees or rates are the lowest of the upper limits set by Medicare or Medicaid, or the fees or rates listed in the separate provider chapters and fee schedules or the provider’s usual and customary charge to the general public. For the purpose of establishing the usual and customary charge to the general public, the provider shall permit the Department access to payment records of non-MA patients without disclosing the identity of the patients.

Although Pennsylvania’s regulations do not define “usual and customary charge to the general public,” 55 Pa. Code § 1101.21 clarifies that the term “general public” means “[p]ayors other than Medicaid. The term includes other health insurance plans.” Furthermore, 55 Pa. Code § 1123.60, which addresses limitations on payment for medical supplies, states that “[u]nder no circumstances may the provider be paid an amount that exceeds the price the provider currently charges the self-paying public.”

Federal Law
Federal law prohibits a supplier from charging Medicare or Medicaid substantially in excess of the company’s usual charges, unless there is good cause. Specifically, 42 U.S.C. § 1320a-7(b)(6)(A) provides, in relevant part, as follows:

The Secretary may exclude the following individuals and entities from participation in any Federal health care program (as defined in section 1320a–7b (f) of this title):

A) has submitted or caused to be submitted bills or requests for payment. . . under subchapter XVIII of this chapter or a State health care program containing charges . . . for items or services furnished substantially in excess of such individual’s or entity’s usual charges . . . for such items or services, unless the Secretary finds there is good cause for such bills or requests containing such charges or costs[.]

The key terms “substantially in excess” and “usual charges” are not defined in the statute. The current regulations issued under the statute, codified at 42 C.F.R. § 1001.701, simply repeat the language of the statute, without providing any guidance about the meaning of “substantially in excess” or “usual charges.” The Office of Inspector General (the “OIG”) has provided guidance through OIG Advisory Opinions and a guidance letter regarding the meaning of these terms on several occasions, but that guidance has been inconsistent.

The OIG’s most recent attempt to clarify the meaning of the statute came in 2003, when the agency published a proposed rule. 68 Fed. Reg. 53,939 (Sept. 15, 2003). In the proposed rule, a provider’s “usual charge” was defined as the average or the median of the provider’s charges for the same item or service during the previous year, excluding charges for services provided to uninsured patients free of charge or at a substantially reduced rate; charges under capitated contracts; charges under fee-for-service managed care contracts where the provider is at risk for more than 10% of its compensation; and charges to Medicare, Medicaid and other federal health care programs, except TriCare. In other words, the “usual charge” would be the average or median of (i) charges to cash purchasers, (ii) negotiated rates under commercial indemnity and non-risk commercial managed care contracts, (iii) out-of-network payments from commercial payors, and (iv) charges under TriCare contracts.

It is also important to note that the proposed rule specifically addressed the issue of a separate legal entity being formed to handle non-federal health care program business. The proposed rule required that the charges of “any affiliated entities providing substantially the same items or services in the same or substantially the same markets” be included when calculating the usual charge of a provider. The term “affiliated entity” was defined as “any entity that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the provider.”

Under the proposed regulations, a supplier’s charge to Medicare would be considered “substantially in excess” of its usual charges if the fee schedule amount for an item (or the submitted charge, if the submitted charge was less than the fee schedule amount) was more than 120% of the supplier’s usual charge. Stated another way, the supplier would be considered to be in violation of the statute if its “usual charge” for an item was less than 83% of the Medicare fee schedule amount (i.e., in excess of a 17% discount from the Medicare fee schedule).  

The statute provides an exception for “good cause,” which could allow a supplier’s usual charges to be less than 83% of the Medicare fee schedule if the supplier can prove unusual circumstances requiring additional time, effort or expense, or increased costs of serving Medicare beneficiaries. However, CMS later withdrew the proposed rule. 72 Fed. Reg. 33,430, 33,432 (June 18, 2007). As a result, there is no definitive federal guidance on when a supplier’s charge to Medicare or Medicaid will be viewed as “substantially in excess” of its “usual charge.”

Discussion
The states referenced above do not require a provider to bill Medicaid the lowest price it offers to any payor. Rather, the regulations generally require that a provider not bill Medicaid in excess of its “usual and customary” price. “Usual and customary” is typically defined as the price most commonly charged by the provider for items or services provided to non-Medicaid patients.

If the supplier’s cash sales are small in relation to what the supplier bills Medicaid, the small volume of such cash sales should not appreciably affect the supplier’s usual and customary charges.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. He represents pharmacies, HME companies, and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization. He can be reached at (806) 345-6320 or [email protected].