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When a hospital provides medical care to an employee the hospital is the medical provider of the service.

When a hospital is self-funded (as most are) then the hospital is the payer for the service with the employee paying their portion.

 

When a medical provider pays itself to provide medical services to its own employees it is a Related Party Transaction.

When presented with this issue five federal judges (Magistrate, District, and three Appellate) all failed to see that point.

Instead, they 'reasoned' that the language of PRM 4005.2 was 'sufficiently ambiguous' and wondered if The Related Party Rule even applied.

In 2021 I contacted then Senator Burr and suggested that if PRM 4005.2 was not enforceable as written then the regulation should be rewritten so that it would be enforceable.

In January of 2022 I received the following response from Senator Burr:

With regard to your specific concerns, the Centers for Medicare and Medicaid Services (CMS) allows hospitals to include in their cost reports those costs [note the use of the word 'costs'] applicable to services, facilities, and supplies furnished to the provider by organizations related to the provider by common ownership or control.

This, as I understand it, means that a hospital can report on its cost report the actual 'costs' of the care the self-funded hospital provided to the employee (aka, 'domestic care). Note that there is no discussion of a 'market rate'. Rather, the self-funded hospital (in this case a hospital that owns and controls its own claims payer) is to report 'domestic care' services at the hospital's actual 'cost'.

So far, so good...but he continues:

Such costs may not exceed the price of comparable services, facilities, and supplies that could be purchased elsewhere.

What???

The 'price of comparable services...that could be purchased elsewhere' is not a hospital's cost in providing the service. The 'price of comparable services...that could be purchased elsewhere' is a 'market rate'!!!

Transactions between Related Parties are to be reported at actual cost, not a 'market rate'!!!

But wait...there's more:

CMS provides exceptions from these rules in certain cases, such as if the supplying organization is a bona fide separate organization. In the cases of exceptions, the hospital may claim reimbursement for the charges in amounts equal to the cost of the hospital.

While it is true that CMS provides exceptions from the rules limiting Related Party Transactions to actual costs, those exceptions cannot be met (eg, 'bona fide separate organization') when the transaction in question ('domestic care') is between the provider of the service (the hospital/medical provider) and the purchaser of the service (the self-funded hospital/employer).

Now that Senator Burr is out of office I have contacted my House Representative Addison McDowell.

So far, his staff seems to have a better grasp of policy and I am hopeful to meet with him soon to discuss this matter.

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