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OIG Advisory Opinion Provides Additional Guidance on Supplier’s/Provider’s “Usual” Charges

on Monday, 30 December 2013 in Health Law Alert: Erin E. Busch, Editor

Much confusion surrounds the issue of whether or not a Medicare supplier or provider may charge individuals or payors other than Federal health care programs less than its usual charges. A recent OIG Advisory Opinion (AO 13-13) addresses free services offered to uninsured patients.


Section 1128(b)(6)(A) of the Social Security Act gives the Secretary permissive exclusion authority in the case of providers and suppliers that bill Medicare, Medicaid or state health programs:


“[f]or items or services furnished substantially in excess of such individual’s or entity’s usual charges (or, in applicable cases, substantially in excess of such individual’s or entity’s costs) for such items or services, unless the Secretary finds there is good cause for such bills or requests containing such charges or costs.”


The statute does not prohibit all price differences between the price charged to Medicare, Medicaid and state health programs and that charged to others, just those that are substantially in excess of the provider’s or supplier’s usual charges to non-Medicare buyers where there is not good cause.


It has sometimes been asserted that, as long as the Federal government had not defined “usual charges,” there was a basis for continuing discounting practices as the provider could assert that it had more than one fee schedule or set of usual charges. The OIG published a proposed rule interpreting the statute in September 2003. The main thrust of the proposed rule was to define key terms in the statute including “usual charges.” The proposed rule defined “substantially in excess” as only those charges or costs that are more than 120% of a supplier’s usual charges or costs. Fed. Reg. at 53942. However, the rule was never made final.


These definitions and limitations set out in the proposed rule are consistent with discussion in a 1998 OIG Advisory Opinion (98-8) which previously was the most current guidance on this issue. That Opinion provided guidance on discounts of 21-32% off Medicare allowable charges and “good cause” for discounts substantially in excess of the usual charges (AO 98-8).


The new Advisory Opinion addresses the request of a non-profit agency that proposed to begin to bill Medicaid for dental services for children while continuing to provide free dental services to uninsured and underinsured children. Specifically, the Requestor asked whether the its charges to Medicaid would be “substantially in excess” of its usual (free) charges. The Requestor did not bill any other Federal health care programs. The OIG concluded that this practice would not constitute grounds for exclusion or imposition of sanctions under the Civil Monetary Penalties Law or generate prohibited remuneration under the Anti-Kickback Statute.


The OIG pointed out that it has never excluded providers or suppliers for providing discounts or free services to uninsured or underinsured patients. The OIG’s stated policy is that the “usual charge” calculation does not include free or reduced charges to uninsured or underinsured patients. With respect to the Ant-Kickback Statute, the OIG found no issue because the Requestor was not providing free services to Medicaid beneficiaries (which might be viewed as an inducement to obtain other services reimbursed by Medicaid) and no other Federal health care programs were being billed that would form the basis for a “swapping” arrangement.1


Julie A. Knutson

1       Swapping is a term coined by the OIG to describe what occurs when free or discounted services are offered to induce the referral of services reimbursed by a Federal health care program, e.g., discounts on private pay services to induce referrals of Medicare/Medicaid business.


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