AMARILLO, TX – As we discussed in last week’s Medtrade Monday article, until recently DME suppliers have primarily provided products to Medicare patients on an assigned basis. Under an assignment model, Medicare pays the DME supplier directly and the patients are only obligated to pay their copayments and deductibles. However, in today’s climate of competitive bidding and low reimbursement, it is challenging for suppliers to rely entirely on the assignment model. What we are now witnessing is that an increasing number of DME suppliers are (i) electing to be non-participating and billing non-assigned and (ii) selling products to patients for cash.
If a non-participating supplier elects to sell a Medicare-covered item for cash, at a price that is greater than the Medicare allowable, then the supplier can set whatever price it wants. On the other hand, if the supplier desires to sell a Medicare-covered item for cash at a price that is less than the Medicare allowable, then the supplier needs to be aware of 42 U.S.C. § 1320a-7(b)(6)(A), which prohibits a supplier from charging Medicare substantially in excess of the supplier’s usual charges unless there is good cause. A DME supplier that violates this prohibition is at risk of being excluded from federal health care programs.
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 law, without providing any guidance about the meaning of “substantially in excess” or “usual charges.” On several occasions, the Office of Inspector General (“OIG”) has provided guidance through Advisory Opinions and guidance letters regarding the meaning of these terms, but that guidance has been inconsistent. In the OIG’s Advisory Opinion 98-8, the OIG said that charging Medicare 21% – 32% more than cash-and-carry customers would likely violate the statute absent “good cause.” At the same time, the OIG stated that additional costs incurred by the supplier to comply with Medicare program requirements could constitute “good cause” and suggested that a “useful benchmark” was to compare the profit margins on a cash sale and a Medicare sale. According to the OIG, the statute would not be violated if the profit margin on a Medicare sale was less than or equal to the margin on the cash sale.
The government’s most recent attempt to clarify the meaning of the statute came in 2003, when CMS issued a new set of proposed regulations (68 Fed. Reg. 53939 (Sept. 15, 2003)). In the proposed regulations, a provider’s “usual charge” is 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 percent 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.
Under the proposed regulations, a DME 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 percent 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 percent of the Medicare fee schedule amount (i.e., in excess of a 17 percent 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 percent of the Medicare fee-schedule if the supplier can prove unusual circumstances requiring additional time, effort or expense, or increased costs of serving Medicare patients. In June, 2007, CMS withdrew the proposed rule. 72 FR 33430, 33432 (June 18, 2007).
Based on the above, while there is no definitive guidance on when a supplier’s charge to Medicare will be viewed as “substantially in excess” of its “usual charge,” it is unlikely that CMS/OIG will take action against a supplier whose usual charges do not exceed a 17 percent discount off the Medicare fee schedule for “cash and carry” customers. If the discount exceeds 17% from the Medicare fee schedule amount, then the supplier should have documentation that shows that such a discount is justified by the cost savings in not having to bill and collect from Medicare.
AAHOMECARE’S EDUCATIONAL WEBINAR
Managed Care Contracts: How to Negotiate and How to Access Another Supplier’s Contract
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Tuesday, November 19, 2019
2:30-3:30 p.m. EASTERN TIME
At the end of the day, DME suppliers primarily serve the elderly (Medicare) and those on the lower end of the socio-economic scale (Medicaid). Both the Medicare and Medicaid programs are gravitating towards “managed care.” Approximately 35% of Medicare beneficiaries are signed up with Medicare Advantage Plans, while approximately 70% of Medicaid beneficiaries are signed up with Medicaid Managed Care Plans. These percentages are increasing. Medicare and Medicaid Plans work essentially the same way: (i) the government health care program contracts with a “Plan” that is owned by an insurance company; (ii) the Plan signs up patients; (iii) the Plan signs contracts with hospitals, physicians, DME suppliers and other providers…these providers will take care of the Plan’s patients; and (iv) the government program pays the Plan that, in turn, pays the provider. Increasingly, DME suppliers will be asked to sign managed care contracts. In so doing, the supplier needs to be careful. Not only must the contract provide sufficient reimbursement to the supplier, but the contract will have some “trap” provisions that may be harmful to the supplier. This program will discuss the most important provisions that are contained in managed care contracts. The program will discuss how the supplier can negotiate with Plans; and the discussion will point out the provisions that are often non-negotiable and the provisions that are open to negotiation.
Register for Managed Care Contracts: How to Negotiate and How to Access Another Supplier’s Contract on Tuesday, November 19, 2019, 2:30-3:30 p.m. ET, with Jeffrey S. Baird, Esq., of Brown & Fortunato, PC.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Texas. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or email@example.com.
 In the preamble to the proposed regulations, the OIG said that it had not decided whether the average or the median charge was the better measure of the “usual charge.”