Defining the “Usual and Customary Charge” for Federally Covered Services

I encountered a situation recently in which another law firm learned that an organization had a lower cash price it offered to a very small subset of patients.

The law firm suggested that the discount converted all of the other charges into false claims, and recommended that the organization pay the difference between what Medicare paid and the lower cash price by the handful of patients. The refund would have been incredibly large: enough to cover the salary of a star baseball player for a year or two.

But while I readily agree that having disparate prices can create a host of issues, it’s simply wrong to assert that you must charge Medicare your lowest price.

Medicare has a definition for its usual and customary charge, found at 42 CFR §405.503(b). The wording is quite unusual. The regulation defines “customary charges” as “the uniform amount which the individual physician or other person charges in the majority of cases for a specific medical procedure or service.”

Simplifying that a bit, if more than half of your patients are charged a particular amount for a service, that’s your usual and customary charge. Of course, that will not always be the case. In that case, the regulation continues:

“If the individual physician or other person varies his charges for a specific medical procedure or service so that no one amount is charged in the majority of cases, it will be necessary for the carrier to exercise judgment in the establishment of a ‘customary charge’ for such physician or other person. In making this judgment, an important guide, to be utilized when a sufficient volume of data on the physician’s or other person’s charges is available, would be the median or midpoint of his charges, excluding token and substandard charges as well as exceptional charges on the high side. A significant clustering of charges in the vicinity of the median amount might indicate that a point of such clustering should be taken as the physician’s or other person’s ‘customary’ charge. Use of relative value scales will help in arriving at a decision in such instances.”

The bottom line is that Medicare is not entitled to the lowest price that you charge anyone. In fact, you could have 40 or 45 percent of your patients paying less than the Medicare amount and still be legal.

That isn’t to say that different prices won’t create other issues. They may. And Medicaid has different rules in many states, in some cases requiring that you give Medicaid your lowest rate. But you won’t have a Medicare overpayment.

Bad advice to the contrary had the potential to cost one healthcare entity a great deal of money.