- OIG Clarification of "Usual Charges"
- December 16, 2003 | Author: Holly M. Barbera
- Law Firm: Fox Rothschild LLP - Princeton Office
On September 15, 2003, the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) issued a proposed rule relating to OIG's authority to exclude providers from participation in the Medicare and Medicaid programs when they submit claims for payments that are "substantially in excess" of their "usual charges or costs." If adopted, the proposal would require that discounted rates negotiated with third party payors -- which may account for substantial portions of some providers' revenues -- be considered in determining a given provider's "usual charges."
OIG's view is that market forces have caused many providers' "usual charges" to drop significantly below the Medicare fee schedule allowances: "In this situation, the provider creates a two-tier pricing structure with Medicare paying more than other customers. Unless the price differential can be justified by costs that are uniquely associated with the Medicare program, the provider is simply overcharging Medicare."
Aside from the nightmarish administrative burdens such required calculations could cause, providers may find themselves receiving Medicare payments in amounts that are much less than the full program rates they would otherwise be entitled to receive. The failure to account for lower negotiated rates at the time of claim submission also could lead to potential liability under the False Claims Act.
In sum, if the proposed rule is adopted, providers should take heed when processing claims for submission for federal program payment or negotiating contracts with private payors: the conventional wisdom that actual charges do not really matter (on the theory that, in reality, payors reimburse at their rate of choice anyway) is clearly becoming obsolete and dangerous in many ways.
Proposal Scope and Highlights
The September 15 proposal marks the third time in more than a decade that OIG has attempted to provide ostensible "clarification" to the key terms "substantially in excess" and "usual charges." The following are important highlights:
If the proposed "clarification" is adopted, which providers will avoid its reach? The proposed rule would not apply to claims for physician services reimbursed under the Medicare physician fee schedule. OIG believes that the current reimbursement methodology for professional services is the "functional equivalent" to a prospective payment system. That is because the physician fee schedule is independently developed and updated annually by CMS based on actual service delivery costs, and is subject to strict statutory direction and public notice and comment. Moreover, OIG feels that the physician fee schedules will remain more in line with actual charges than other, less frequently updated schedules. (Note that ancillary services such as clinical laboratory tests and drugs and pharmaceuticals remain within the scope of the proposed rule even if furnished by physicians.) OIG is, however, accepting comments on whether it might be appropriate to subject particular items or services on the physician fee schedules to the proposed rule. Of course, any decision to do so would require additional public notice and comment.
What is "substantially in excess"? OIG proposes that only those charges that are more than 120 percent of a provider's usual charges would be deemed to be "substantially in excess" so as to possibly subject the entity to the extreme sanction of program exclusion. Notably, where an applicable fee schedule rate is lower than the charge actually submitted, the fee schedule rate would be considered to be the provider's "actual" charge. In such a case, the provider would not be subjected to potential exclusion unless the fee schedule rate is greater than 120 percent of the amount determined to be the provider's "usual" charge. Presumably this is to prevent the punishment of providers who routinely file claims that simply indicate their direct costs, yet still reach those providers whose "actual" billed charges (and, by extension in this scenario, the fee schedule rate) are substantially greater than their "usual" charges.
What charges would be included in determining "usual charges"? OIG's proposed definition of "usual charges" turns on what it excludes. "Usual charges" would be the average (or the median; OIG is still undecided and seeks comments on the methodology choice) of all of the past year's charges for a particular item or service offered or contracted for by a provider (and its affiliates - see below). The following charges can be excluded from the computation of "usual charges":
- Free/substantially reduced fee services to uninsured patients;
- Capitated payments; and
- Medicare fee-for-service charges.
By inference, the following are among the charges that must be included:
- Amounts billed to self-pay patients (but only those amounts for which the provider makes a "good faith effort to collect" may be included);
- Amounts billed for patients covered by insurers with which the provider has no contract (the "usual charge" includes the patient's cost-sharing amount); and
- Fee-for-service rates the provider has contractually agreed to accept from any payor -- including discounts negotiated with managed care plans -- together with copayment amounts, if any.
Creating an "affiliated entity" for your non-Medicare business will not allow you to escape the rule. OIG recognizes that some companies operate separate legal entities for their Medicare and non-Medicare products and services, resulting in substantially different charges by each entity. To stop the disparity among related entities' federal program reimbursement rates, the proposed rule would require that amounts billed by affiliated entities be factored into the Medicare provider's "usual charges" calculation. The text of the proposed rule defines "affiliated entity" as an entity that "directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with" the provider. OIG's commentary states that providers should include charges by those affiliates that provide "substantially the same items or services" and are located in the "same or substantially the same markets." (If the proposed rule is truly intended to clarify providers' charging obligations, this significantly narrowing language, with further definitions for "market" area and "substantially the same," ought to be included squarely within the text of any adopted rule.)
Clarification to the statutory "good cause" exception: The current OIG regulations state that providers are not subject to Medicare exclusion if amounts substantially in excess of usual charges are due to unusual circumstances involving more time, expense or effort than typically required. In addition to the generic "other good cause" catchall, OIG proposes to include a specific good cause exception for cases where increased costs are the result of servicing Medicare or Medicaid beneficiaries (e.g., because of claims processing delays and denials). OIG recognizes that there are other circumstances that would justify higher charges (including cost variations among provider types) and is interested in comments on this issue.
Possible Future Implications
If adopted, the proposed rule could pose many potential problems for providers, including:
Increased private pay or decreased Medicare reimbursement amounts: For providers whose "usual charges" under the proposed rule would be less than the Medicare fee schedule rates, there are two possible future results: (i) routine increase in charges to self-pay patients and third party payors, bringing "usual charges" within the proper percentage range of the Medicare fee schedule rate thus allowing providers to continue billing federal programs for that rate or, as intended by OIG: (ii) decreased reimbursement amounts from Medicare.
Administrative compliance nightmare: The new definition of "usual charges" would require that entities that charge self-pay patients and third party payors on a per diem or per case basis (e.g., hospitals) undertake the daunting task of breaking down such charges on a per item or per service basis.
Potential exclusion from the Medicare and Medicaid programs: Although OIG views timely updating of fee schedules as the principal method to prevent overpayments by federal programs, OIG's proposed new rule would put some real teeth into its ability to exercise its discretionary exclusion authority. In light of such recent OIG enforcement actions (e.g., against Tenet Healthcare Corp.), OIG's proposal, if adopted, will serve as yet another notice to providers that excessive charges -- which would now be clearly measured, in part, against negotiated third-party payor rates -- can result in program exclusion.
Potential exposure to False Claims Act liability. Finally, providers could be subjected to liability under the federal False Claims Act if they neglect to take into account the newly defined "usual charges" before submitting claims to federal programs for payment. For example, under the civil False Claims Act, a person that "knowingly presents" a "false or fraudulent claim" to the federal government for payment or approval is subject to treble damages and fines up to $10,000.
Threats of sanctions must be tempered by the reality of OIG's true intent, which is not to exclude providers for the mere sake of excluding them but, rather, to "frighten" them into compliance. OIG pointedly reminds us that its exclusion authority must be exercised only for a "remedial purpose" and not for "isolated or unintentional mistakes." This is quite similar to HHS' expressed policy regarding enforcement of the administrative simplification provisions of HIPAA, which policy is bent towards encouraging providers and working with them towards compliance rather than punishing those who failed to comply, despite good faith attempts. Thus, if the recent proposal on "usual charges" is ultimately adopted, providers would be well advised to make their best reasonable efforts to follow it.