OIG Proposes Regulation Changes Affecting Provider Charge Structures and Related Negotiations with Third Party Payors

Comments Due Nov. 14, 2003

By Susan L. Fine
Sept. 2003

On Sept. 15, 2003, the Office of Inspector General (OIG) proposed changes to the regulation governing its permissive authority to exclude individuals from the Medicare/Medicaid programs for submitting claims “in excess” of “usual charges” or costs. The OIG proposal changes the meaning and significance of “charges” by defining them as the amounts a provider or supplier agrees to accept from contractual negotiations with payors, not the provider’s actual charges. This potentially gives the OIG authority to exclude a provider who continues to request fee schedule payments from Medicare and Medicaid when such provider has agreed to accept less than those amounts from other payors. This proposal has major implications for providers’ charge structures, and may change the way their payor contracts are negotiated. Providers who wish to comment on the proposed regulation must do so by Nov. 14, 2003.

The Social Security Act (SSA) and the implementing regulation generally authorize the OIG to exclude an individual or entity from government programs for requesting payments (based on charges or costs) that were “substantially in excess” of such individual or entity’s “usual charges” or, in applicable cases, “costs.” Historically, OIG regulations never defined the terms “substantially in excess of” or “usual charges.” Under the proposed regulation, the OIG would define “usual charge” to include discounts negotiated with third-party payors and managed care plans, not the provider’s “actual” charge for the service or item.

Proposed Definition of “Usual Charge”

Under the OIG plan, the “usual charge” would include:

• Full amounts billed to cash paying patients, provided the provider makes a good faith effort to collect the full amount (if provider routinely fails to collect the 20 percent co-pay, then 80 percent is used to determine the charge);
  
  
• Amounts billed to patients covered by indemnity insurers (or amounts billed directly to third-party payors) with which provider has no contractual arrangement;
  
  
• Amounts for which provider/supplier contractually agreed to accept from a third- party payer if different than the actual charge (this negotiated rate should be used even if the bill submitted to the payor lists a higher charge);
  
  
• Any contractual rates offered, directly or indirectly, to commercial managed care plans, Medicare+Choice plans, state managed care plans, and other federal managed care plans (including rates that vary by 10 percent or less on conditions such as bonuses or withholds; for such variable rates, the usual charge will be the base rate plus one-half the potential bonus and/or withheld payment);
  
  
• Rates offered to TriCare; and
  
  
• Charges of any affiliated entities (entities controlled by, under control of, or under common control with, the provider or supplier) providing substantially the same items or services in the same or substantially the same markets.

Charges “Substantially in Excess”

The OIG would then use these “charges” to determine either the provider’s “average charge” or “median charge.” This average or median charge would be considered the “usual charge.” Under the OIG proposal, charges or costs that are more than 120 percent of a provider’s usual charge or cost will be deemed to be “substantially in excess.” In cases where the provider’s bill to the government exceeds the applicable fee schedule amount, the OIG considers the fee schedule amount as the charge and compares that amount to the “usual charge.” At the same time, the OIG proposed to add a new exception to the “excess charge or cost” prohibition for cases where the higher charge or cost submitted to Medicare or Medicaid is a result of increased cost associated with serving program beneficiaries.

Analysis

The OIG proposal in effect redefines a provider’s “charges” by equating “charges” with “payments.” It essentially renders a provider’s “actual” charge meaningless, and could force providers to adopt complex contract monitoring systems to avoid running afoul of the proposed excess charge prohibition. In addition, the proposal potentially further increases the gap between Medicare/Medicaid payments and reasonable reimbursement amounts for the costs of providing services to beneficiaries for which providers and suppliers are entitled. The proposed rule would have the greatest impact on providers who submit claims where the payment is based on the lower of a fee schedule or charges (except for a carved out exclusion for physician fee schedule-based payments).

Providers should determine whether they have significant Medicare fee schedule payments and then review their payor agreements to determine whether they have agreed to rates below their actual charge. It should be noted, that providers may be able to establish “good cause” for “excessive charges or costs” based on circumstances unique to their entity, the applicable services, or administrative issues in dealing with the Medicare/Medicaid programs. Again, providers who wish to comment on the proposed regulation must do so by Nov. 14, 2003.

Published by DWT's Health Law Department

Davis Wright Tremaine attorneys are experienced in advising hospitals and physicians concerning how best to minimize the risks of physician recruitment programs and particular transactions.

This Health Law Advisory is a publication of the Health Law Department of Davis Wright Tremaine LLP. Our purpose in publishing this Advisory is to inform our clients and friends of recent developments in health law. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

Copyright © 2003, Davis Wright Tremaine LLP.

return to Advisory Bulletins main page