AMARILLO, TX – The traditional Medicare fee-for-service (“FFS”) model began changing about 20 years ago. Now, DME suppliers must not only satisfy traditional Medicare FFS requirements, but they must also satisfy requirements of Medicare Advantage Plans (“MAPs”).
Today, approximately 54% of Medicare beneficiaries are covered by almost 4000 MAPs. This means that for DME suppliers to have access to over half of their potential patient base, the suppliers must successfully navigate the managed care landscape.
Scrutiny of Medicare Advantage
Medicare Advantage has increasingly been criticized for waste, fraud, and abuse. A key issue lies in how the government reimburses these private insurers. Insurers receive payments based on the “risk score,” which is supposed to ensure higher payments for sicker patients who require more expensive care. This system has been widely manipulated, with insurers inflating patients’ risk scores by exaggerating diagnoses to receive higher payments from the government.
Overbilling and Risk Adjustment Fraud
One of the most prominent fraud cases involves UnitedHealth Group, the largest Medicare Advantage provider. The U.S. Justice Department (“DOJ”) alleged that the insurer overcharged the government by more than $1 billion through an arrangement that involved manipulating patient records to make patients appear sicker than they were. According to the DOJ, this led to inflated risk scores and higher payments from Medicare, without corresponding increases in care quality or patient outcomes.
Whistleblowers
Whistleblowers have played a crucial role in exposing these fraudulent activities. Multiple lawsuits filed under the False Claims Act have alleged that insurers, including UnitedHealth, knowingly submitted false data to Medicare to maximize profits. These cases revealed that the company often failed to report unsupported diagnoses and ignored findings from its audits that showed errors in risk scoring. For example, a federal audit found that nearly half of the diagnoses at one UnitedHealth plan were invalid, leading to substantial overpayments to the insurer.
Office of Inspector General Review
In April 2022, the Office of Inspector General (“OIG”) published a review called “Some Medicare Advantage Organization Denials of Prior Authorization Requests Raise Concerns About Beneficiary Access to Medically Necessary Care.” In this review, the OIG looked into a random sample of 250 denials of prior authorization requests and 250 payment denials issued by 15 of the largest Medicare Advantage Organizations (“MAOs”) during June 1-7, 2019.
Based on its review the OIG found that 13% of prior authorization denials were for service requests that met Medicare coverage rules, likely preventing or delaying medically necessary care for Medicare Advantage beneficiaries, and 18% of payment denials were for claims that met Medicare coverage rules and MAO billing rules, which delayed or prevented payments for services that providers had already delivered.
Imaging services, stays in post-acute facilities, and injections were three prominent service types among the denials that met Medicare coverage rules, and MAOs reversed some initial prior authorization denials and payment denials for requests that met Medicare coverage rules and MAO billing rules.
Imaging services, stays in post-acute facilities, and injections were three prominent service types among the denials that met Medicare coverage rules, and MAOs reversed some initial prior authorization denials and payment denials for requests that met Medicare coverage rules and MAO billing rules.
Based on this review, the OIG recommended that CMS (i) issue new guidance on the appropriate use of MAO clinical criteria in medical necessity reviews, (ii) update its audit protocols to address the issues identified in the report, such as MAO use of clinical criteria, and/or examine particular service types, and (iii) direct MAOs to take additional steps to identify and address vulnerabilities that can lead to manual review errors and system errors.
The OIG performed an additional review that was published early 2023 titled “The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight.” This review revealed that the current systems and processes fail to accurately identify denied claims within Medicare Advantage plans, significantly impairing efforts to detect and prevent fraud.
Political Influence and Lobbying
The Medicare Advantage industry wields considerable political power that has made it difficult for regulators to implement reforms. Insurers have successfully lobbied against efforts to tighten oversight and enlisted seniors to oppose proposed cuts to Medicare Advantage benefits. Groups like the Better Medicare Alliance, which advocates for MA plans, have spent millions on advertising and lobbying campaigns to protect their interests. For instance, the Better Medicare Alliance ran a Super Bowl ad in 2023 warning that cuts to Medicare Advantage would harm seniors, portraying any reduction in payments as an attack on the vulnerable elderly population.
Key lawmakers have called for more rigorous oversight of the Medicare Advantage program. In a letter sent to CMS in 2023, they highlighted private insurers’ wasteful spending and unlawful denials of care. They asked for CMS to (i) address perverse incentives in MA’s payment system, including favorable selection and risk code gaming, (ii) reform the flawed Quality Bonus Program, and (iii) crackdown on private insurers that unlawfully deny care.
Negotiating Strategies
Before executing a managed care contract, the DME supplier should focus on the following:
• Preparation – Research payor trends, reimbursement models, what competitors are doing, and unique services your company can offer.
• Establishing Leverage – Highlight your company’s unique value proposition; showcase patient outcomes, quality metrics, and cost savings.
• Focus on Important Contract Terms – Define clear terms for favorable pricing; negotiate clauses for rate adjustments, performance metrics, and dispute resolution.
• Don’t Get Caught Up in the Chase – Don’t sign the contract just because you feel like you must have a contract; no contract is better than a bad contract; be prepared to walk away.
Securing a Managed Care Contract
A challenge faced by many DME suppliers is that Plans have “closed panels.” This means that the Plan tells the DME supplier: “We have enough DME suppliers on our provider panel. We don’t need you. Therefore, we will not sign a TPP Contract with you.”
The end result for the supplier is that if a patient wants to obtain a product/service from the supplier, and if the patient is covered by a TPP Contract for which the supplier is not on the panel, then the supplier must turn the patient away…unless, of course, the patient is willing to pay cash to the supplier without getting reimbursed by the Plan. When this occurs, what are the provider’s options?
Squeaky Wheel Gets the Grease
There are scenarios in which a DME supplier simply wears the Plan down. That is, the supplier continually contacts the Plan until the Plan eventually relents…perhaps because another DME supplier drops off the Plan or the Plan determines that it needs additional DME suppliers.
Accepted Onto a Plan in a Limited Capacity
Assume that the DME supplier has developed a niche pertaining to products and/or services. Assume that suppliers currently on the Plan’s panel do not have this niche expertise. Perhaps the DME supplier can convince the Plan to allow the supplier onto the Plan in the limited capacity to provide the niche products/services. Once the Plan becomes accustomed to using the DME supplier for the niche products/services, then it may be easier for the supplier to convince the Plan to allow the supplier to provide the full array of products/services.
Enlist the Help of the Local Hospital and/or Physician Group
Assume that a local hospital or physician group, loyal to the DME supplier, is on the Plan’s panel. The supplier can ask the hospital/physician group to contact the Plan and lobby for the supplier to be included on the panel.
Purchase All or a Portion of the Stock of a DME Supplier That is on the Plan
Assume that ABC, Inc. (owned by John Smith) is on the Plan. Assume that XYZ, Inc. is not on the Plan. XYZ can purchase 100% of Smith’s stock in ABC, resulting in ABC becoming a wholly-owned subsidiary of XYZ. This does not mean that XYZ is on the Plan. Rather, it means that XYZ can refer Plan patients to its subsidiary (ABC). ABC’s profits flow upstream…thereby allowing XYZ to financially benefit from the products/services provided to Plan patients.
XYZ can purchase e.g., 40% of Smith’s stock in ABC. XYZ can refer Plan patients to its affiliated company (ABC). As a 40% stockholder of ABC, XYZ will be entitled to 40% of any dividend distributions declared by ABC.
Subcontract Agreement
Assume that Supplier A is on the Plan’s panel. Assume that Supplier B is not on the panel. If Supplier A and Supplier B desire to enter into a Subcontract Agreement, which can also be called a Patient Services Agreement (“PSA”), then in order to be legally compliant, here are the steps they should take:
• Review the Plan Contract – The parties need to review Provide A’s Plan Contract to determine if it addresses subcontract arrangements.
• Supplier A Must Retain a Level of Operational Responsibilities and Financial Risk – So that it can credibly assert that it is the “provider,” Supplier A must have a level of operational responsibilities and financial risk. For example, Supplier A needs to handle the intake, assessment and coordination of care. This means that Supplier A must determine if the patient qualifies for coverage under the Plan Contract.
• Inventory – Under the PSA, Supplier B will deliver the product/service to the patient “for and on behalf of Supplier A.”
• Flow of Money – At the end of the day, Supplier B will be referring (or arranging for the referral of) patients to Supplier A…and Supplier A will be paying money to Supplier B. Therefore, the arrangement needs to comply with (or substantially comply with) the Personal Services and Management Contracts safe harbor to the Federal anti-kickstart statue.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Texas with a national healthcare practice. He represents pharmacies, infusion companies, HME companies, manufacturers, and other healthcare providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or [email protected].
