Playing “The Spread” with Birth Tissues: Organogenesis as a Cautionary Tale

Healthcare billing can be complex. IMHO, one of the dodgier things I have highlighted on this blog about the recent Medicare birth tissue billing scams was the concept of a reimbursement spread. Now we have more information on this potentially illegal practice in a class action lawsuit filed by the investors in a birth tissue company.

Birth Tissue Medicare Scams 101 and “The Spread”

It’s obvious now that the Medicare scams I have been calling out for years that involved billing Medicare for birth tissues used to treat musculoskeletal issues are over. The stories on the street of numerous meetings with multiple justice department lawyers mean that the feds are slowly tightening the noose and not only extracting hundreds of millions in clawback payments from the gullible doctors who billed Medicare for these products but also readying criminal prosecution against the big players. It’s worth reviewing how all of this happened.

Birth tissues like amnion and umbilical cord tissue have minimal data on their usefulness for problems like arthritis, tendinopathy, and spine disorders. As a result, Medicare has made it clear repeatedly in its coverage documents that there is no reimbursement for these products for these uses. However, several birth tissue manufacturers performed an “end around” on that process by sneaking in descriptions of orthopedic use for their products into the Q-codes and having a CMS committee rubberstamp these applications. A Q-code is a billing instrument where Medicare can reimburse for something used during a procedure. Hence, despite the Medicare coverage guidelines stating that these products wouldn’t be reimbursed for an injection to treat knee arthritis, with a creative Q-code description, sophisticated billing companies could trick Medicare into paying for these products. This game lasted several years, and recent estimates are that Medicare incorrectly issued about a billion USD in payments.

Given that a knee injection reimburses for about $60-70, what was in it for providers to buy these expensive birth tissues at about $2,000 per cc? That part of the scam was called “the spread.” Basically, the provider paid less for the product than Medicare would reimburse. Given that this difference was about $800 per cc of product, instead of getting paid a paltry $70 for that injection, the provider could make $1,670 for a two-cc knee injection. The reimbursement spread was one of the things responsible for driving explosive fraudulent reimbursement of these tissues. For example, in a patient with bilateral knee and shoulder pain where six ccs of the product were used, the provider could pocket about $5,000 from Medicare to perform these procedures.

This week, a class action lawsuit filed by the investors in a birth tissue company called Organogenesis sheds more light on how the spread worked.

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“The Spread”

Organogenesis is a birth tissue company that was selling an injectable birth tissue product called “ReNu” which was advertised for use in problems like knee arthritis. The company also sold skin substitutes and birth tissue coverings for surgical use. The details on how the spread worked come from a class action lawsuit filed by investors. After digesting the details of that case, here’s what I found:

  • The spread concept for these products only worked when the product was allowed to be unbundled from a surgical cost or when selling to private clinics. Bundling is when Medicare pays a single price for a specific surgery, regardless of what the hospital or ambulatory surgery center uses to complete the surgery. So in that world, an expensive product like a birth tissue product is a net negative because its high cost is subtracted from a single bundled payment. This incents these facilities to reduce their costs and saves the Medicare system money. However, a new product can be “unbundled” for a short time period and get billed directly to Medicare on top of the bundled surgery price. This incents new products to enter the market, increasing completion and theoretically reducing prices for Medicare. However, as the lawsuit suggests, it also likely incents manufacturers of 361 tissue products to keep coming out with new products to get a new unbundling period (called a “pass-through”).
  • While the spread for facilities depended on this new product unbundling, Medicare incents less expensive in-office care by allowing unbundling for all products used in that setting, not just for new products. Hence, birth tissue companies are incented to approach private practice physicians performing procedures in their offices because they can bill separately for their birth tissues.
  • To drive sales of these products, you need a big spread. The size of the spread depends on a significant difference between what Medicare pays and the high prices that the birth tissue company wants to command for its products. The problem is that eventually, Medicare will assign an ASP (Average Sales Price). If that ASP is too low, the spread will be squeezed, and sales will plummet as the physician’s financial incentive is reduced or goes upside down. The lawsuit points out many instances of a spread squeeze based on bundling or ASP reimbursement where sales fell off a cliff for various products.
  • The lawsuit alleges that Organogenesis targeted specific MACs (Medicare regions) that had yet to assign an ASP and hence were reimbursing higher for their product and, as a result, where the spread was the largest.
  • The lawsuit also alleges that the Organogenesis sales reps would advertise the spread to outpatient clinics and physicians and that this was illegal and violated various fraud and abuse statutes.
  • The case points out that several MACs had weaker policies on reimbursing physicians, not asking for an invoice on what they paid for the product, which basically allowed these physicians to get reimbursed higher. It is also alleged that Organogenesis and its sales reps targeted these MACs.
  • Finally, the lawsuit gives numerous examples where similar spread arrangements were viewed as illegal by CMS, and those resulted in payment clawbacks and billing fraud charges.

Playing the Spread

As you can see above, the lawsuit alleges that Organogenesis and its sales reps played the spread. Basically, when the spread was squeezed, they pivoted to new practices to maximize the spread. For example, when Medicare paid less because an ASP was assigned, they would target MACs that had yet to assign an ASP or that had weak documentation practices.

Weak FDA 361 Regs Made Playing the Spread Far Easier

Since getting a new birth tissue product to market has a very low regulatory bar, this acted like gasoline on the bonfire of playing the spread. For example, while getting a new drug or device to market may take many years and many millions of dollars, getting a new tissue on the market was as simple as a 45-minute self-registration without any FDA review. Hence, when the time period for unbundling for their newest product lapses, unlike a drug company, a birth tissue company can launch a new, very similar product with a new name. Hence, they can continuously game the system to allow their products to be separately billed and reimbursed outside of a bundled surgical fee.

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My Thoughts

The first time I heard about the spread was back in 2020 when Biolab reps (another birth tissue company) explained the concept. It sounded very dodgy back then, and it’s now interesting to understand why these reps were targeting doctors, not hospitals. It’s also interesting to see the examples where Medicare has recouped hundreds of millions in cases where the spread was advertised and manipulated to maximize sales. Hence, if you as a provider get approached by a sales rep telling you that they can sell you a product for (X) and Medicare will reimburse (X + [lots of money]), please run away.

The upshot? This lawsuit is worth reading to understand just how the spread drove various sales practices. Ultimately a jury or judge will decide the veracity of the claims in this particular case, but I can say that what it describes fits with what I witnessed. IMHO, providers weren’t buying this stuff because they had lots of data that it was a miracle cure, but because they could falsely claim it was a “stem cell” product and then get paid big bucks by Medicare. As the lawsuit seems to document, sales declined once the spread was squeezed and providers pocketed less. Which is all very disappointing. In addition, the lawsuit seems to document how these companies can continually play the spread to maximize reimbursements to providers and themselves.

Chris Centeno, MD is a specialist in regenerative medicine and the new field of Interventional Orthopedics. Centeno pioneered orthopedic stem cell procedures in 2005 and is responsible for a large amount of the published research on stem cell use for orthopedic applications. View Profile

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NOTE: This blog post provides general information to help the reader better understand regenerative medicine, musculoskeletal health, and related subjects. All content provided in this blog, website, or any linked materials, including text, graphics, images, patient profiles, outcomes, and information, are not intended and should not be considered or used as a substitute for medical advice, diagnosis, or treatment. Please always consult with a professional and certified healthcare provider to discuss if a treatment is right for you.

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