Schrödinger's Cat: Financial perils of Allograft diabetic ulcer grafts

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When I was a kid, we played an electronic board game called “Operation,” a surgical game of skill. The gist of it was, kids took a pair of tweezers and attempted to remove plastic items from the patient, a “funny bone” for example. If we touched the metal edges of the make-believe incision, the patient’s red nose lit up and a buzzer sounded. The game box was emblazoned with an imperative subtitle, “make him better or get the buzzer!” Meaning, mistakes were instantly punished.

We aren’t kinds anymore, and while CMS (as well as commercial payers) are not kidding around when it comes to the treatment of diabetic ulcers with human tissue-based placental membrane grafts; mistakes are not always punished and certainly not “instantly.”

As a health lawyer representing physicians, nurse practitioners, and physician’s assistants, I am seeing a significant spike in Medicare and commercial insurance investigations, with staggeringly high recoupments or “clawbacks.”Clinics are being audited and the result is a demand to repay as much as $500,000 to $1 million per patient.

Worse, even when practitioners don’t make a mistake, they are nevertheless being haunted with the threat of recoupment audits, months and even years after CMS paid the claim.

“Schrödinger's Cat”

A 1935 thought experiment called “Schrödinger's Cat,” (in which a cat is in a box with a lethal device with 50-50 chance activating, until we open the box, we can think of the cat as being both dead and alive) is often used as a rhetorical metaphor, to describe any situation in which someone is in a “superposition.”

Although originally employed to describe quantum mechanics, any 10-year-old fan of American football understands how it works. If the defense jumps offsides, a flag is thrown but the game is not stopped. The flag informs the quarterback he is in a “superposition.” He gets to try to throw a reckless touchdown pass, which only counts if it works, but does not count if intercepted. The Quarterback is in a “superposition,” because no matter what, he can’t lose.

What does this have to do with placental membrane grafts in the treatment of diabetic foot and venous leg ulcers? Much more than you would think.

Human tissue-based placental membrane grafts are more frequently being pitched to clinics and mobile home care practitioners as an effective method of treating diabetic foot ulcers and venous leg ulcers, when these wounds do not respond to conservative treatment. Priced per cm² with higher end costs ranging from $50,000.00 to $250,000.00 per graft, the course of treatment can be very expensive.

Practitioners must ordinarily purchase the grafts from people calling themselves “distributors,” apply the grafts to wounds that won’t heal, and then hope to get paid.

There are at least four problems with this model: (1) the FDA has never determined tissue-based placental membrane grafts are an effective method of treating diabetic foot ulcers (2) CMS and private plans generally won’t pay for any treatment that is not FDA approved (3) there is a method which is somewhat supported by two Local Coverage Determinations “LCD’s” one is the old version (marked “superseded”) but the new one has been pushed back until 2026 and is marked “future effective.” The government can use this pair of LCDs as a “superposition,” to either pay a claim or deny the payment because the LCD is not yet in effect  (4) there is a way to game the payment system by artificially inflating wholesale price, then offer rebates to doctors, as described in a New York Time article entitled “Medicare Bleeds Billions on Pricey Bandages” .

In essence, while Medicare and private payers might pay for the use of less expensive allografts, especially if they work, but the risk of an audit and recoupment grows exponentially with the price tag. Unlike the child’s game, practitioners can “make him better” and still “get the buzzer” if the price tag is too high.

CMS and commercial payers are in a superposition of waiting until the treatment plays out, then deciding whether or not to call a “penalty,” depending upon how much the treatment cost. I have seen cases where a doctor was flagged for not documenting the recommendation that patient “quit smoking” as a more conservative treatment.

Takeaway: If a practitioner intends to incorporate allografts into diabetic foot and leg ulcers, it is critical to obtain advice from a health lawyer who is knowledgeable in this area.

Martin Merritt is a health lawyer and health care litigator at Martin Merritt PLLC, and serves as the executive director of the Texas Health Lawyers Association as well as the board of directors of the Dallas Bar Association Health Law Section. He can be reached at Martin@martinmerritt.com.