Vendor Charges and Insurance Co Handling: Fraud? Error?

[drdigital1]

My doctor prescribed and my insurance company approved a Respironics BIPAP AUTO M Series with Bi-Flex, SmartCard, and Humidifier and Mirage Quattro Full Face Mask w/Headgear. In October-November 2009, when I got the machine, at least 10 suppliers were showing this model with suggested retail price for the machine, humidifier and headgear around $1,600. All these vendors were offering the machines at substantial discounts from the suggested retail price. The model that I got is not available anymore, however some suppliers still list the model I have with similar pricing as mentioned above.
I expected that my insurance company would allow a price similar to what was offered by various vendors on the web, and for sure, no more than the suggested retail price. To my disbelief, the total vendor charge is $7,051 and my insurance company allows $3,541 which is MORE THAN DOUBLE the retail price. My co-payment is 20% of the allowed amount of $3,541.
IMHO these amounts are obscene. What do you think: is this fraud? error? normal? And, most important, is there anything I can/should do about this?
Thanks for your advice.

[Kevin G.]

Fraud would imply some form of misrepresentation.

I believe that you will find that this is a case of the DME proposing a high, but not necessarily illegal, price and the insurance carrier of agreeing to pay a slightly smaller but still very high price. I think that your insurance company is not very smart but that is not illegal. Other insurancce companies and Medicare would have paid considerably less.

The equipment manufacturers are complicit in this since at leastr some never formally set a suggested retail price.

I refer to this as predatory pricing. The DME bills all machines at this inflated price. Where the insurance company has enough clout they end up accepting much smaller payments. But if the customer does not have insurance or the DME doesn't have its act together they make a lot more profit. This appears to be normal practice for DME's.

It is not clear that this predatory pricing is illegal although I believe that there should be some changes in the laws to deal with these practices. As a minimum I propose that the DME's should tell the customer the total price they will be receiving from the insurance company prior to delivery of the machine. They should also be required to disclose, or the feds should disclose, the amount they will receive from Mecicare. The insurance companies should have more generous policies that encourage customers to use the internet suppliers when this would result in savings to both the insurance company and the patient.

When looking at insurance costs one should also factor in the effect similar policies have on your total expenses.

[Janknitz]

They should also be required to disclose, or the feds should disclose, the amount they will receive from Mecicare. The insurance companies should have more generous policies that encourage customers to use the internet suppliers when this would result in savings to both the insurance company and the patient.

Medicare publishes its schedule for reimbursement for DME on the CMS website (sorry, the link is on my office computer) so it's very available to the public. The reimbursement amount varies by state, but there are handy, dandy spreadsheets that show the "allowable rate" for each piece of equipment and each supply for every state. Medicare pays 80% of the allowable fee, and the cpap user and/or their Medicare Supplement policy pay the remaining 20%. Or if the hapless cpap user stumbles upon a DME provider that doesn't "accept assignment", he or she may pay an additional 15% above the Medicare allowable fee.

Medicare and private insurers do not want people using online suppliers over which they have no control. Supposedly, for the extra amount that brick and mortar providers receive, they are required to provide certain "services" to the insurer and the insured. The theory is that the compliance reporting DME companies (I will refer to brick and mortar DME's as "DME companies" and online providers as "suppliers") provide prevents fraud and abuse of the insurance system--most online suppliers don't monitor compliance since they are selling to consumers, not insurers.

The DME's are also supposed to provide services--instruction and assistance to the CPAP users ( ), maintenance, and support. The additional amount over the savings that could be realized by reimbursing online suppliers is supposed to cover these "services". Some people actually even receive them .

[jmcd]

My insurance carrier's contracted rate for my machine is considerably less than the MSRP and what online retailers are charging. I will own my Resmed S9 Elite for less than $600 and I will only pay 10% of that. The humidifier and other equipment (mask, hoses, etc) are significantly less than what I can find them for online.

[chunkyfrog]

Can we say,"KICKBACK?"
Isn't that illegal?

[brazospearl]

digital, honey, I am so sorry this happened to you! Unfortunately, it is probably legal and there probably isn't much you can do about it now. Situations like this are exactly why the forum members here caution newbies to DO THE RESEARCH before you pick out a machine and then DO THE MATH before you accept that machine from a particular source. Sadly, what happened to you has happened to many cpap users. Now you know how your insurance handles this sort of thing, so do your research to see if you'll keep more money in your pocket by purchasing you supplies online. Paying out-of-pocket for masks, filters, hoses, all the other stuff we use might well be cheaper than buying through your insurance. Our host site, cpap.com, has great prices and customer service.

[drdigital1]

Thanks for the comments.
1. It didn’t cross my mind to check the vendor pricing because I was sure that the insurance company has strong rules about the charge amount they allow.
2. My insurance company is a major player (BCBS) and I expected them to have clout and get very favorable terms. This is why my first thought was that this is either fraud or an error.
3. I found the Medicare site mentioned; it is http://www.cms.gov. I still have to figure out where to find the handy, dandy spreadsheets that show the "allowable rate" for each piece of equipment and each supply for every state

[Kevin G.]

A kickback where the insurance company tells you it paid x while it actually paid less then x would be illegal if you can prove it.

Agreeing to pay more when it knows it could pay less is probably a violation of the insurance contract if you can prove that they knew they could pay less.

The insurance company that pays more than it needs to because it is ignorant and lazy is stupid. The reality is that stupidity is not a crime.

If an insurance company gets enough premiums to make an acceptable profit they may not be motivated to spend a lot of effort to reduce the amount they pay out or they may believe that overall they can save more money by focusing on other expenses than DME charges. In some cases it may make sense to pay more than they need to.

In some markets it may be that all of the DME's have the same policies thus leaving the insurance companies with no option but to agree to paying excessive amounts. In these cases they just raise your insurance premium. If there is only one DME provider the insurance company may have no option. If multiple providers have similar policies it may be difficult to prove that they agreed to restrain trade.

[Janknitz]

I still have to figure out where to find the handy, dandy spreadsheets that show the "allowable rate" for each piece of equipment and each supply for every state

Here it is, but I didn't update the link for the updated fee schedule as of July 2010:
http://www.cms.gov/DMEPOSFeeSched/LSDME ... PerPage=10

And here are the CPAP item identifications:
E0601 Continuous airway pressure (CPAP) device (e.g. smart CPAP, auto CPAP, CPAP)
E0561 Humidifier, used with CPAP device
E0562 Heated humidifier, used with CPAP device
A7033 Nasal pillows/seals, replacement for nasal application device, pair
A7034 Nasal interface (mask or cannula type) used with positive airway pressure device, with or without head strap
A7035 Headgear, used with CPAP device
A7036 Chin strap, used with CPAP device
A7037 Tubing, used with CPAP device
A7038 Disposable filter used with CPAP device
A7039 Non-disposable filter used with CPAP device
A7044 Oral interface used with positive airway pressure device
A7046 Humidifier chamber - replacement
E0470 Bilevel

HAVE FUN!
E0471 Bilevel with backup rate
E1399 Miscellaneous durable medical equipment items

[drdigital1]

Thanks Janknitz,
Wow, did I learn A LOT! I studied the Medicare payment schedule for durable medical equipment (DME), at the link you gave me at cms.gov and I noticed 3 things about the amount allowed by my insurance company
1. some items are EXACTLY as listed in the Medicare list e.g., heated humidifier ($273 allowed), headgear ($36 allowed)
2. other items are different or not listed, but they shouldn’t make a huge difference
3. the biggest discrepancy is in the CPAP machine itself i.e., item E0601 Continuous airway pressure (CPAP) device (e.g. smart CPAP, auto CPAP, CPAP):
a) my insurance company allowed 13 monthly payments of $232 (total $3,016 )
b) Medicare allows 10 times the monthly payment of $101.10 (total $1,011). Note, the rental can be spread across 13 months indeed, but beginning with the fourth month, the fee schedule amount is equal to 75 percent of the fee schedule amount paid in the first three rental months such that the total paid by Medicare is 10 times the rent for the first month.

The discrepancy of $2,000 is the source of the ridiculous amount allowed by the insurance company.
I’ll contact the insurance company and ask why are they following the Medicare fee structure only for some items but not even close for the CPAP machine. Any other idea?

Thanks,

[Janknitz]

why are they following the Medicare fee structure only for some items but not even close for the CPAP machine. Any other idea?

Clout is probably the answer. Medicare has enormous clout. I'd guess somewhere around 80% of CPAP users are on Medicare. If DME's want to stay in business, they provide equipment at Medicare reimbursement rates for Medicare clients. But each insurer, in each region, has to negotiate with each supplier for reimbursement rates. Smaller insurers, with just a few insured "lives" are going to have less negotiating clout than larger insurers, so they will pay more for the same equipment. It's a volume thing.

In addition, there is negotiation give and take. A big company like BCBS might agree to pay more on the machines, but less on the supplies because over a long period of time, it's supplies that will cost more.

I'm a Kaiser member and Kaiser has HUGE clout because they cover thousands and thousands of people on CPAP. They made a sweet deal with Crapria--they get things for much less, but in return, there is a limited "formulary" so that Crapria can maximize its profit by holding a limited inventory for Kaiser. And, since Kaiser is it's own DME (Crapria is merely the supplier) they don't have to spend money on service for Kaiser patients.

[Guest]

3. the biggest discrepancy is in the CPAP machine itself., item E0601 Continuous airway pressure (CPAP) device ( smart CPAP, auto CPAP, CPAP):





This is because you don't have a CPAP (E001) you have a BIPAP (E0470)

[drdigital1]

If my BiPAP machine is indeed E0470 (hard for me to figure out from the description in the Medicare document i.e.,"RAD w/o backup non-inv intfc") then the monthly amount allowed by my insurance company is EXACTLY the amount Medicare allows i.e., $232 for capped rental. The only difference between the allowance of my insurance company and Medicare would then be the TOTAL amount allowed: Medicare allows 10 times the first month rental i.e., $2,320 while my insurance company allows 13 times that amount i.e., $3,016. This is still significant but not as outrageous. Still puzzled by the huge difference between the CPAP and BiPAP allowances but, at least, it would seem that my insurance company allowances are consistent with Medicare.

Thanks for the quick education!