Home › Blog › What Can We Learn from the Medicare Birth Tissue Injection Scams?

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As I reported a few days ago, we are in the midst of perhaps the largest single Medicare part B clawback in history. What can providers and patients learn from this massive fraud? Let’s dig in.

Medicare and Birth Tissue Injections

Medicare just issued a sweeping nationwide payment clawback for amniotic, placental, and umbilical cord injections used to treat orthopedic problems. This could be the largest for erroneous payments made to physicians (Part B) in the program’s history. Medicare will be asking thousands of providers to pay back about half a billion dollars. Some practices will owe millions back and likely declare bankruptcy.

How in the World Did This Happen?

So how in the world could thousands of medical practices fraudulently bill Medicare for a service that anyone who could run a Google search could figure out wasn’t covered? Understanding how this happened is really a morality play that explains to the average Joe how the business of modern healthcare works. Or in fact, doesn’t work to help patients, but is often about a sales narrative.

The Frenzy

This story begins with the frenzy around “stem cell” treatments. Regenexx was the first in the world to offer many of these orthobiologic treatments that use the stem cells from the patient’s bone marrow (BMA). However, that created a barrier to entry for those who wanted to follow in our footsteps. They needed to learn and take the time to master a bone marrow aspiration. I remember conversations with sales reps who told me that they often couldn’t convince physicians to adopt these procedures because they didn’t want to take the time to draw blood, let alone a proper BMA. They all wanted a vial of something they could store in the clinic, like a steroid shot they were used to.

However, necessity is the mother of invention. The sales reps soon had a solution for lazy doctors who wanted something “off the shelf” or chiropractic clinics who didn’t possess these skills. They and birth tissue vendors began to claim that they were selling vials of amniotic and umbilical cord “stem cells”.

The “Stem Cell” Scam

Around 2014 I was called by a Florida sales rep who was convinced that a product called “BioD” had millions of living and functional stem cells. I was very intrigued, so he shipped some frozen vials and I had our research lab take a look. The problem? There were no living cells in these vials let alone stem cells. Despite this finding, we began to see more and more vendors pop up who claimed to be selling amniotic or umbilical cord stem cell products. So we tested these as well and found no living and functional stem cells in any of them.

It wasn’t long before clinics began to parrot these claims, so a major consumer scam was afoot. About that time, other labs began to test these products and we all continued to find no viable and functional stem cells. As a result, my message on the fake claims of stem cells eventually began to take hold, with most educated physician consumers getting the memo and shunning the companies that made these claims. Basically, the clinics left that would buy the stem cell claim were mostly chiropractic clinics that were involved in scamming the elderly with dinner seminars. 

Since the barrier to entry to form a new birth tissue vendor was low, we began to see intense competition between these companies. Meaning that all it took to get into business was a contract with a birth tissue processor, a private label, a website, and hiring independent sales reps for a cut of the profit. This led to dozens of small fly-by-night vendors peddling birth tissue injections as orthopedic cures.

361 or 351?

One of the immediate problems for any company claiming to sell a stem cell product is that the FDA regulations make it clear that such a claim makes your product a drug that needs 5-10 years and hundreds of millions of dollars of clinical trials before it can be sold. This is called a “351” product. However, the birth tissue vendors had a workaround for that sticky wicket. They merely registered their products as 361 donor tissue using a free 45-minute FDA online form. While this was the incorrect classification for their products, it served to convince gullible medical providers that the FDA had provided a stamp of approval for their vials of “stem cells” when in fact, the FDA had never reviewed anything.

Eventually, the FDA took notice of this 361 dodge and got involved by issuing a consumer warning on birth tissue injections. With some heat from the feds, you would assume the gig was up. However, what we really saw was the emergence of a new scam. Why? The newer companies in the space needed a hook to gain market share.

The Q-code Shuffle

While all of this was unfolding, a billing code consultant got the idea of applying to CMS for a Q-code. What’s that? These codes are issued by the Centers for Medicare & Medicaid Services (CMS) to define how much they are willing to pay for a product. That product however can’t be reimbursed by Medicare without a guideline document (called an LCD) that approves its use.

These product reimbursement codes normally have plain Jane descriptions, but the consultant decided to expand the description to include orthopedic uses. In an ordinary world where FDA was maintaining its right of first refusal on these decisions, this expansion of “clinical indication” for a 361 birth tissue product would have been immediately rejected. However, as Peter Marks from FDA would later point out, the agency was asleep at the switch, so many of these changes to product descriptions went through and got rubber-stamped by CMS. 

The 20%+ “Billing” Company

Armed with a product description in a Medicare Q-code that now included all sorts of language about orthopedic uses (that were illegal from the standpoint of FDA but that the agency had missed), the vendors of these amniotic and umbilical cor products could now try to bill Medicare for orthopedic injection uses. However, this would prove to be more of an art than a science.

While most physician billing companies charge somewhere around 6%, a few creative billers stepped up to the plate to work with these vendors and the providers to bill Medicare using these new Q-codes. I spoke to one early on who claimed to have a spreadsheet of codes that would unlock the magic Medicare slot machine. Either way, the extra billing fees would cover the Plan B tactic of appealing the initial denial so that someone at the billing company could use teh Q-code description to convince someone at Medicare to pay the claim.

The Beginning of the End

As I witnessed this scam working, I began to send letters to various Medicare contractors about what was going on. Eventually, my blogging and those letters got noticed and I was contacted by a lead in one of the many Medicare Fraud and Abuse groups. This contact was already aware of the explosion in birth tissue Q-code payments and reached out to get more information. At that point, it was clear that this scam was on her radar. However, it wasn’t long before the scam got on every Medicare contractor’s radar which culminated in a Medicare Contractor Advisory Committee (CAC) meeting or a meeting of Medicare medical directors. 

The End of the FDA Discretionary Period

While the FDA had put out a 2019 consumer warning about birth tissue “stem cell ” products and kept a steady stream of warning letters, it didn’t decide to end its formal grace period for these and other companies to come into full compliance with its regulations until May 31st, 2021. The good news was that many birth tissue vendors, faced with the proposition of having to go from a free FDA registration into clinical trials and full FDA approval for the products just closed shop. That left a rag-tag group of vendors who if anything, doubled down on the Medicare billing fraud.

While all of this was happening, I intercepted a blog written by a healthcare firm detailing that Medicare had begun to send out Civil Investigative Demands to clinics and providers who were billing for these products using these Q-codes. Meaning that we were finally beginning to see Medicare reaching out to the problem providers.

The End of the Beginning

This past week, the final hammer fell when all Medicare administrative regions put out a clawback of all payments made on or after December 6th, 2019. This is just the start of what will likely prove to be additional criminal charges against vendors, billing companies, and the top abusing clinics.

What We Can All Learn

So what went wrong here? The overarching problem was the medical sales machine was driving the bus. That’s the exact same thing that happened in the opioid crisis, where sales messages drove the silly concept that somehow narcotics really weren’t addictive. In the same way here, new fly-by-night companies sprang up to create a narrative about fake stem cells and Medicare reimbursement. These were all half-truths, but the providers who fell for all of this never questioned anything, they all just followed like lemmings over a cliff.

In the end, the concept of medical sales driving medical decisions is a problem that is prevalent throughout modern medicine. Instead of doctors taking the time to question the message (which is what we’re all trained to do), it’s often easier to go with the flow, even if that means that patients will suffer. Doctors often do the same thing with insurance coverage. We pick our treatments based on what’s covered and not what’s best for the patient.

Where Regenexx Stood in All of This…

At Regenexx we questioned this false “stem cell” narrative at every turn. First, we dedicated our lab resources to check the claim that these were stem cell products. In the end, we spend hundreds of thousands of dollars testing these products and getting the word out about the results. Then when the Medicare billing narrative began, I reached out to certified coders and legal counsel to vet the idea that a Q-code could be used to get paid for these products. It was quickly clear that this was also a scam, so at Regenexx we avoided this game. In fact, to this day, if we find that any Regenexx network provider billed Medicare for any of these products, that’s grounds for instant termination of that clinic from our network.

The upshot? How this scam unfolded can teach us much about what’s wrong with modern medicine. Sales narratives designed to maximize corporate profits should never be used to drive medical decisions. In this case, because the clinics failed to perform a quick Google search, many will now find out the hard way that Medicare is a tough mistress who always gets her money back!

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