Chipping Away at Laboratory Reimbursement

PROPOSED NEW MEDICARE RULES by the Office of the Investigator General (OIG) dealing with “discriminatory billing practices” and “usual charges” should be seen as part of a larger trend. The government doesn’t have the money to pay for Medicare and Medicaid. Thus, it is exploring indirect ways to reduce the amount of money it pays providers.

As you will read on pages 2-5, the OIG’s publication of the proposed new rules in the Federal Register last month is just the newest in a series of attempts to align a law passed years ago with today’s healthcare pricing practices. According to this law, no provider should bill Medicare for more than its “customary charge.” Back in the days of fee-for-service medicine, this was a relatively easy thing to do.

But the 1990s brought a host of new contracting and pricing models to the American healthcare system. Not surprisingly, bureaucrats in the federal healthcare programs fell behind developments in the marketplace. So this latest attempt to offer more precise guidance on the subject of discriminatory billing practices is laudable. But I would like to suggest that the proposed new rules represent a new regulatory cycle. Medicare officials recognize that many providers are willing to provide healthcare services at prices that are significantly below Medicare’s.

Focus, for the moment, on the laboratory industry. It is tough to justify a situation where a laboratory performs a test for a physician’s patient, then client-bills the physician for, say, $5.00. (Of course, the physician will then turn around and bill the private insurance company for a greater amount and pocket the difference.) The lab, doing the same test for a Medicare patient, generally bills the Medicare program for its full reimbursement, which, in our hypothetical example, might be $15 or $20.

It seems to me that, sooner or later, senior policymakers within the government, whose mission is to see that Medicare does not pay more than private insurers for similar services, will recognize this situation as one which needs correction. Whether that is motive behind this round of proposed new rules is not for me to say. But I can read all the tea leaves. Client bill arrangements and heavily-discounted fee-for-service contracts between labs, insurers, and IPAs certainly expose this industry, collectively, to a reasonable claim that Medicare is not getting the lab industry’s “usual charge.”