Articles on Compliance Strategies

OIG Drops Rule on Exclusion When Medicare Charges Exceed Those of Private Payers

Reprinted from the June 25, 2007, issue of REPORT ON MEDICARE COMPLIANCE, the nation's leading source of news and strategic information on false claims, overpayments, compliance programs, billing errors and other Medicare compliance issues.

Almost four years after OIG proposed a rule fleshing out its authority to exclude providers for charging Medicare or Medicaid 120% or more than they charge other payers for the same items or services, OIG withdrew the rule June 18. One big reason: OIG concluded there's not enough data to set a uniform fixed benchmark that could be applied equitably across the industry.

The withdrawal notice was published in the Federal Register. The withdrawal means that "OIG has listened to what representatives from the industry told them - the 120% proposal didn't make sense across the board," says Los Angeles attorney Tim Blanchard, who notes that OIG reviewed 323 comments.

Even though the regulation is gone, the law at the root of it is still in effect, and OIG said it will enforce the law on a case-by-case basis (though it apparently has never been enforced). The law is a section of the Social Security Act that authorizes OIG to use its permissive-exclusion authority against individuals and entities that bill Medicare substantially in excess of what the usual charges are for other payers.

"OIG will continue to evaluate billing patterns for individuals and entities on a case-by-case basis and will use all tools available to address instances where Medicare or Medicaid are charged substantially more than others without good cause," OIG spokesman Don White tells RMC. "This is the situation as it has been for a long time. We tried with [the proposed rule] to clarify it."

Notwithstanding the withdrawal, OIG wants to make it absolutely clear that hospitals can still discount bills to uninsured and underinsured patients without skewing charges. "Providers can still do that," says Washington, D.C., attorney Anne Sullivan, who is with the law firm Morgan, Lewis & Bockius. "The withdrawal of this proposed rule doesn't change OIG's interpretation.that the calculation of usual charges need not include the free or reduced charges to the uninsured and underinsured, without dropping your other prices." OIG says as much in a June 18 addendum to its 2004 guidance on hospital discounts (see story below).

A lot of angst has surrounded this regulation, which had its roots in the Medicare and Medicaid Patient and Program Protection Act of 1987. Congress gave OIG the authority to exclude providers for substantially excessive charges, but neither Congress nor OIG ever spelled out exactly what that meant. In 2003, OIG came up with a bright-line definition of "substantially in excess": when providers charge Medicare 120% more than they charge other payers for the same goods and services. The rule applies to various services subject to Medicare fee schedules, including outpatient drugs, medical supplies and clinical lab work, but it explicitly exempts the physician fee schedule because it is based on very trustworthy data, OIG says. The proposed rule exempted charges to uninsured or underinsured patients from the calculations.

Ultimately, OIG felt it couldn't enforce a bright-line standard like 120%. In the withdrawal notice, OIG said it was concerned it lacked enough data to "to establish a single, fixed numerical benchmark for 'substantially in excess' that could be applied equitably across health care sectors and across items and services." OIG also isn't sure the rule wouldn't end up raising health care costs. But the Medicare watchdog agency's worries persist about discrepancies between amounts that providers and suppliers charge Medicare and Medicaid versus what they charge private payers.

Blanchard, who is with the law firm of McDermott, Will & Emery in Los Angeles, says it became clear that "it might not be good for the public or the programs if the rule were vigorously enforced because of likely unintended consequences affecting some providers that are part of the safety net."

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