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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.
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