August 01, 2003
2 min read

Charging for non-Medicare patients at less than the Medicare rate

A practice’s “usual charge” does not apply to managed care patients, according to informal government opinions.

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May the practice bill for non-Medicare patients at a significant discount from the Medicare charge?

Case compliance logoA practice decides it does not want to make contractual adjustments after receiving payments from its various payers. A contractual adjustment is the write-off a practice takes after it is paid by a payer to reflect the difference between the provider’s charges and the allowable that has been paid. Accordingly, the practice abandons its single-fee schedule and develops one that, for each payer, makes the applicable charge what that payer will accept as the maximum allowable. Because the practice is located in an area where there is a heavy penetration of managed care providers, charges for 54% of the practice’s patients under this system will be significantly lower than the Medicare allowable for the service.

The Medicare statute contains a prohibition against a physician or provider from charging the Medicare program an amount substantially in excess of the practice’s usual charge. The penalty for violating this provision is exclusion from the Medicare and Medicaid programs. Unfortunately, there has been no formal guidance from the Office of the Inspector General or the Centers for Medicare and Medicaid Services concerning the standards to apply in determining how much is “substantially in excess” and what constitutes a practice’s “usual charge.” As a result, practices have had to rely on common sense and the limited informal guidance that has developed over the years.

The more significant issue is what constitutes a practice’s “usual charge.” It has been generally recognized that the “usual charge” is the amount charged to the practice’s typical patient. Thus, if a practice charges a rate to most of its patients, it likely would be considered a practice’s “usual charge.”

In this case, however, the majority of the patients are covered by managed care programs. According to informal opinions from the former Health Care Financing Administration, the managed care population is not considered when a practice’s “usual charge” is determined. Instead, it appears that the program would limit its consideration to patients who are not covered by managed care programs.

Therefore, in this example, even though the practice’s charge to a majority of its patients may be substantially below the Medicare charge, it appears that the statutory prohibition would not be triggered, as long as the charge to non-managed care patients is consistent with the Medicare charge.

Regarding the question of what constitutes “substantially in excess,” there is absolutely no guidance. Here, common sense must dictate a practice’s pricing decisions. Clearly, if Medicare were charged a premium above all other payors, the government undoubtedly would view such conduct unfavorably and would argue that even a modest premium could constitute “substantially in excess.” On the other hand, if the practice’s charges varied widely, and there were no “Medicare premium” pricing, such a position would be less likely.

There is one final consideration with respect to this issue. The government has never pursued an exclusion action against a physician for such conduct. While that fact should provide some comfort, it is important to be sensitive to the statutory prohibition. No physician wants to be the test case.