In the past year, we have seen a dramatic uptick in audits and overpayment claw backs involving two high-dollar products: skin substitutes for wound care and injectable amniotic fluid used for musculoskeletal conditions. While there is no question that these products work, practitioners are often guilty of listening uncritically to sales pitches by vendors who promise high reimbursement and certain payer coverage. Failure to conduct due diligence on these products puts providers at high financial risk because of the substantial cash outlay required to purchase the products, typically upfront.
The following real-life examples illustrate the risk providers incur if they fail to do proper due diligence (names have been changed to protect privacy).
Skin Substitutes: A Cautionary Tale
Dr. Jones recently attended a conference in which a vendor was marketing skin substitute products for wound care. The brochures Dr. Jones picked up at the vendor’s booth stated in large bold type that the product was “on the CMS fee schedule” and “reimbursement is $1,000 per square centimeter” for the product. The brochure also promised free insurance verification services as well as “documentation guidelines” for Medicare, a wound care app and a debridement tool which “reimburses at $435-600 per debridement”.
Intrigued by the brochure, Dr. Jones started using the skin substitutes with his patients and was extremely pleased with the high reimbursement and excellent patient outcomes. Soon, Dr. Jones’ volume of skin substitute purchases increased to where he was paying over $100,000 out-of-pocket annually for the skin substitute products.
Two years later, Dr. Jones got an audit notice from his Medicare contractor. The audit notice requested records for the entire two-year period in which he was using the skin substitutes. After reviewing the records, a Medicare contractor sent Dr. Jones an overpayment determination and demanded that he refund $450,000 to CMS.
Dr. Jones was stunned. He had provided good care to his patients and Medicare had paid for the skin substitutes without question for over two years. Now he was facing a financial hit that would cripple his practice. Fortunately, Dr. Jones was insured with us, and he tendered the matter.
In handling Dr. Jones’ case, we saw some common errors and misunderstandings about Medicare coverage requirements. We found that Dr. Jones had a false sense of security because the vendor had submitted “insurance verification” paperwork on his claims. Such forms, however, have no legal effect in the Medicare system. (Even with commercial payers, these forms do not guarantee coverage.) Further, Dr. Jones naively assumed that if Medicare was paying for a service, this meant that he had billed appropriately. Dr. Jones failed to recognize that Medicare billing is done on the honor system where Medicare pays claims based on the limited claim form information. In Medicare’s “pay and chase” model, payment of a claim does not mean Medicare approved it.
Worse yet, Dr. Jones had failed to study and follow his Medicare carrier’s Local Coverage Determination (LCD) and Local Coverage Article (LCA), which contained extensive, detailed, and burdensome medical record documentation requirements. For example, the LCD/LCA required 30 days of documented failed conservative care prior to the use of skin substitutes. Dr. Jones had not consistently documented this.
The LCD/LCA also required a written plan of care, and wound measurements on every visit, but Dr. Jones had not documented all these things. The LCD/LCA required that the wound be free from active infection and that the patient be a non-smoker or, alternatively, for smokers, that smoking cessation counseling be documented. Again, Dr. Jones did not consistently document these matters.
The vendor representative who sold the skin substitute products to Dr. Jones had not discussed the above issues with him or even mentioned them while highlighting the big reimbursements and the efficacy of the product. The brochures provided by the vendor did mention some, though not all, of the LCD/LCA requirements, but Dr. Jones had not carefully reviewed the fine print. Much too late, Dr. Jones realized that the big reimbursements promised by the vendor had required rigorous effort and careful documentation, much of which he had failed to do.
Our legal counsel’s ability to defend Dr. Jones was seriously impaired by his inadequate medical records, and they were only able to slightly reduce the Medicare overpayment on appeal. In other skin substitute cases, where the medical records were better, PICA’s team has had good success in appeals.
Amniotic Fluid Injections: Warning Signs
Dr. Smith received a visit at her office from a vendor, who was marketing an amniotic fluid product for injections to treat musculoskeletal conditions such as plantar fasciitis, tendonitis, and arthritis. The vendor gave Dr. Smith product literature, including a few medical studies showing the great promise of amniotic fluid injections. The product literature also stated that amniotic fluid was “approved by the FDA” and “covered by Medicare.” But what blew Dr. Smith away was the vendor’s statement that the amnio injections were being reimbursed at $9,500 per injection. As he left Dr. Smith’s office, the vendor promised her that his company would “have her back” if there was ever a problem in billing Medicare or any other payer.
Dr. Smith used the amniotic fluid injections for a few years, until June 2021, when she became aware that the FDA had directed the amnio fluid company to take its product off the market. Shortly thereafter, Dr. Smith received an audit notice, which ultimately resulted in a demand from Medicare for a refund of $1.2 million. A large part of this demand included monies Dr. Smith had paid upfront to purchase the amniotic fluid product.
As our legal counsel began representing Dr. Smith, she disclosed that the vendor was no longer returning her calls. In meeting with Dr. Smith, counsel advised her that the FDA had never “approved” the use of amniotic fluid injections for musculoskeletal conditions. The FDA had approved the use of amniotic products for wound care, but had specifically issued public letters warning that the use of amniotic fluid injections for musculoskeletal conditions was not yet medically accepted or approved by the FDA for such purposes.
It turned out that the issue of FDA approval was much more complex than the vendor had explained. Human tissue/cell products meeting the criteria to be designated as “Section 361 products” do not require FDA pre-market approval, whereas products not meeting those criteria must undergo years of studies before FDA approval is granted – a process that can take years and millions of dollars. When amniotic fluid companies first apply for CPT codes, they also file paperwork with the FDA in which they “self-designate” whether their product meets Section 361 criteria, thus avoiding the need for FDA pre-market approval. The self-designation is done on the honor system by the product maker and may be reversed once the FDA finally does an actual review and inspection of the product.
Faced with many amnio vendors who were self-designating their products as Section 361 compliant, the FDA instituted a period of “enforcement discretion,” during which it did site inspections of the various product manufacturers and reviewed the existing medical studies on the use of amniotic fluid injections. On May 31, 2021, the FDA concluded that the medical literature was not yet fully developed as to the effectiveness of amniotic fluid for musculoskeletal conditions, and the FDA ended the enforcement discretion, directing most amniotic fluid manufacturers to take their products off the market.
None of the above was disclosed to Dr. Smith by her vendor, nor did she investigate the matter herself. Dr. Smith failed to research whether the medical literature was of sufficient breadth and quality to support the use of amniotic fluid injections for musculoskeletal conditions.
Dr. Smith’s case is now awaiting hearing before a Medicare Administrative Law Judge where she faces an uphill battle to overturn the enormous Medicare overpayment.
Conclusion: Two Key Mistakes to Avoid
The scenarios described above are not outliers – they reflect the experience of many providers, including podiatric physicians, who made two key mistakes: (1) they accepted at face value the representations made by vendors, and (2) they failed to independently assess and comply with the billing requirements for the products in question.
The discussion above does not suggest that all vendors are overly aggressive or dishonest. The interest of vendors, however, is very different than that of providers. The primary interest of vendors is to sell product and to present their product in the most favorable light. Vendors may be interested in whether Medicare and other payers will provide reimbursement, but that is not their primary interest. Astute providers will recognize the conflicting interests between themselves and vendors and act to protect themselves. Providers need to do their own due diligence, especially when the product in question is a big-ticket item that is likely to bring increased scrutiny from payers. Unfortunately, most providers are not equipped to do the needed due diligence on products such as skin substitutes or amniotic fluid. Providers may need coding and billing consultants, industry organizations, the APMA and, potentially, legal counsel to evaluate the risks involved. Providers who are not able to engage in the due diligence that is needed may be wise to either decline to use certain high-risk products or delay such use until the products have achieved more mainstream acceptance.
Continue reading about this topic in our article, "More on Amniotic Fluid Injections," where we continue the conversation around amniotic fluid injections by answering three of the most asked questions so you can make informed decisions at your practice.
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The information contained on the PICA Blog does not establish a standard of care, nor does it constitute legal advice. The information is for general informational purposes only. We encourage all blog visitors to consult with their personal attorneys for legal advice, as specific legal requirements may vary from state to state. Links or references to organizations, websites, or other information is for reference use only and do not constitute the rendering of legal, financial, or other professional advice or recommendations. All information contained on the blog is subject to change.