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US demands providers bill Medicare, Medicaid comparable rates to
HMO-negotiated charges

New York Times, December 28, 2003

Some Health Care Providers May Face Payment Penalty

By ROBERT PEAR

WASHINGTON, Dec. 27 - The Bush administration is proposing a new policy
that would punish hospitals, drugstores and other health care
providers that charge Medicare or Medicaid substantially more than
their usual charges to private insurers.

Violators could be excluded from participation in any federal health
care program, a severe penalty that is being bitterly fought by the
health care industry.

Employers and private health plans have in many cases negotiated deep
discounts, using their market power to obtain bargains not available
to Medicare, the federal insurance program for 40 million elderly and
disabled people.

As a result, the administration says in its new policy, "the Medicare
program pays considerably more for some items and services than other
payers." Some health care providers are "simply overcharging
Medicare," the administration says.

A federal official who worked on the proposal said, "Medicare should
not have to do business with people who gouge the Medicare program."

Under federal law, health care providers can be excluded from Medicare
and Medicaid if they submit claims that are "substantially in excess"
of their usual charges for particular items or services.

The administration would define charges as excessive if they were more
than 20 percent above the provider's usual charge for an item or
service.

The health care industry is urging the administration to abandon the
proposal.

In interviews and in more than 150 letters to the government, health
care providers said that medical payments were so complex and
convoluted that it was impossible to make meaningful comparisons
between Medicare and other insurers.

Moreover, they said, exclusion from Medicare and Medicaid, which
together have more than 75 million beneficiaries, is a draconian
penalty. Some suppliers and providers said they should be allowed to
charge the government not just 20 percent but 50 percent more than
their usual charges to private insurers.

"No hospital in the United States could ever comply with the rules,"
said Cal Calhoun, vice president of the Georgia Hospital Association.
Jim Smith, senior vice president of CVS, said the proposal "would
create an administrative nightmare for pharmacies."

The government is reviewing the criticisms of the proposal and expects
to issue a final rule soon.

To determine a provider's "usual charges" under the proposal, the
government would look at the amounts billed to cash-paying patients
and to private insurers, including discounted rates negotiated with
managed care plans for specific services.

Such negotiated rates account for a large share of the income of many
health care providers.

"To the extent that a provider agrees to discount its rates, the
discounted contract rate is its `charge' to those patients," the
administration said.

Federal officials said the new policy would not impose significant new
costs or record-keeping requirements on health care providers.

But Richard J. Pollack, executive vice president of the American
Hospital Association, said, "Compliance with the proposed rule would
be unworkable, extremely burdensome and exceedingly expensive,"
costing perhaps $1 billion a year.

"Most hospitals have 10,000 or more items or services" on their fee
schedules, they typically have contracts with 25 to 100 or more
insurers, and the terms of those contracts are continually changing,
Mr. Pollack said.

So, he asserted, hospitals will be overwhelmed in trying to calculate
their "usual charges," defined by the government as either the average
or the median of the amounts charged to private patients and private
insurers for a particular service in the last year.

Susan Evans, president of the American Association for Clinical
Chemistry, said laboratories would face similar difficulties in trying
to compute their usual charges for 1,100 tests on the Medicare fee
schedule.

Wal-Mart complained that it would have to analyze prices charged on
more than 100 million prescriptions for 3,500 drugs.

But Dr. Michael G. Hitchcock, a pathologist in Winston-Salem, N.C.,
endorsed the proposal.

"Many laboratories appear to be shifting costs to Medicare," Dr.
Hitchcock said. "Medicare is the poor sucker holding the bag. The
proposed rule is good public policy."

Robert H. Lux, chief financial officer of the Temple University Health
System, a teaching hospital in Philadelphia, said, "In this market,
Medicare is generally considered your gold standard, one of your
better payers."

The proposed policy was approved by Tommy G. Thompson, the secretary
of health and human services, on the recommendation of Lewis Morris,
chief counsel to the inspector general at the department.

Mr. Morris emphasized that the new policy would not require health
care providers to give Medicare and Medicaid their "best price" for a
service. Rather, he said, the rule "addresses the narrow situation in
which providers are charging Medicare or Medicaid substantially more
than they regularly charge a majority of their other customers."

The new rule would not apply to doctors' services provided under the
Medicare fee schedule. But it would apply to prescription drugs
administered by doctors, pharmacy services, ambulance services,
medical equipment and supplies, laboratory tests and diagnostic
imaging, among other items.

S. Lawrence Kocot, senior vice president of the National Association
of Chain Drug Stores, said the proposal would have the perverse effect
of discouraging pharmacists from dispensing lower-cost generic drugs.

A pharmacy that billed Medicaid 150 percent of its usual charge for a
generic drug would risk exclusion from the program, Mr. Kocot said.
But even with a 50 percent markup, he said, a $10 generic drug would
be much less expensive than an equivalent brand-name drug that costs
$100.

Insurers said they feared that health care providers, rather than
reducing their charges to the government, would increase their charges
to private insurers, thus driving up health costs and insurance
premiums.

"The final result of this rule will be an unnecessary increase in
insurance premiums, not a reduction in Medicare payments," said Donald
L. Roll, director of government relations at Anthem Blue Cross and
Blue Shield in Connecticut.

The new policy says providers will not be barred from government
programs if they can show "good cause" for billing Medicare and
Medicaid substantially more than their usual charges.

It encourages hospitals to give discounts and charity care to people
without insurance. If a hospital provides care to uninsured patients
free of charge or at substantially reduced rates, it could ignore
those cases when determining its usual charges.

Legal aid lawyers welcomed this part of the proposal, saying it would
protect indigent patients against inflated charges.