U.S. to get tough if Medicare drugs cost more

By Robert Pear
The New York Times

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WASHINGTON — The Bush administration is proposing a 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 in many cases have 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," it says.

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

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 have more than 75 million beneficiaries, is a draconian penalty. Some suppliers and providers said they should be allowed to charge the government 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 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.

Providers would not be barred from government programs if they could show "good cause" for billing Medicare and Medicaid substantially more than their usual charges.

It would encourage 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.

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

But Richard 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 changing continually, 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 past 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.

But Dr. Michael Hitchcock, a pathologist in Winston-Salem, N.C., endorsed the proposal. "Many laboratories appear to be shifting costs to Medicare," Hitchcock said. "Medicare is the poor sucker holding the bag. The proposed rule is good public policy."

The proposed policy was approved by Health and Human Services Secretary Tommy Thompson on the recommendation of Lewis Morris, chief counsel to the inspector general at the department.

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.

Insurers said they feared that health-care providers, rather than reducing 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 Roll, director of government relations at Anthem Blue Cross and Blue Shield in Connecticut.

Copyright © 2003 The Seattle Times Company