OIG Proposed Rule on "Excessive" Medicare Charges

Background

On September 15, 2003, the HHS Office of the Inspector General (OIG) proposed regulations providing guidance on the application of Medicare and Medicaid program exclusion authority for submitting claims containing excessive charges. Under the Proposed Rule laboratories could be excluded from participation in federal health care programs if they charge Medicare more than 120 percent of what they charge other payors for even one of the over 1,000 tests on the fee schedule. The Proposed Rule applies to claims submitted for clinical laboratory services, durable medical equipment, medical supplies, and drugs.

On two previous occasions – April, 1990 and September, 1997 – the OIG published proposed rules providing guidance on excessive charges. In both instances, after reviewing comments, the OIG elected not to publish a final rule.  The proposed rule was withdrawn in June 2007.

ACLA Position

The ACLA believes that there are compelling arguments for exempting laboratory services from the proposed rule. First, the OIG is attempting to set reimbursement policy that has been the purview of CMS and Congress, as well as redefining the long-standing regulatory concept of "charges," contradicting congressional intent and statute. This proposed rule's application to laboratory services is based on the mistaken and false premise that the government pays more than other third party payers for lab tests.

To demonstrate this last point, ACLA asked the accounting firm Ernst and Young to conduct a survey of ACLA members to compare average reimbursement rates for Medicare, Medicaid, and third party payers. The survey was conclusive in finding that, overall, Medicare and Medicaid are paying lower prices than third party payers. These findings hold true even when adjusting the results for differences in the complexity of tests, and when adjusting for the number of tests ordered per claim.

The results of the survey came as no surprise to laboratories because lab reimbursement has been cut or frozen for almost 15 years straight, and the original lab fee schedule was set in 1984 at 60 percent of prevailing rates. Unlike most other Medicare providers, per beneficiary spending on laboratory services was actually less in 2003 than it was in 1993.

The proposed OIG rule exempts physician services on the theory that they are based on actual costs and updated annually. That being the case for physicians fees, then the case for exempting labs is even stronger as lab payments are even less than "actual costs" and are frozen for the foreseeable future – the Medicare 2004 drug legislation froze the laboratory services fee schedule for another five years.

The impact of the proposed OIG rule will not be good for Medicare, beneficiaries, or laboratories. It could cause labs to raise third party payer reimbursement for some tests and, potentially, cause some labs to not be able to continue to do business with Medicare.