Wound care manufacturer controversy calls attention to shady dealings

Legacy Medical Consultants, a wound care manufacturer, is under fire for its business practices that critics say are another example of companies in the industry exploiting the Medicare system.

A recent investigation posted to YouTube uncovered how Fort Worth, Texas-based Legacy Medical Consultants has gained customers by offering its products at an artificially raised price and then giving a rebate for physicians to pocket, potentially leaving the providers liable for criminal penalties.

Legacy sells products, like its Zenith Amniotic Membrane which provides a protective wound covering, to physicians for between $1,475 and $11,804. But when Legacy Medical offers rebates to customers, they will raise the product’s price. YouTuber Spencer Cornelia received invoices and internal communications showing the company would offer rebates up to 45%, and the company was shown to charge one Zenith Amniotic Membrane item for more than $30,000.

By offering this rebate to providers, the physicians are incentivized to do business with Legacy, increasing the company’s total sales.

Providers are required to report the net cost of these payments to Medicare, as any discount or rebate should be clearly listed on the invoice. The video claims Legacy Medical led providers astray of proper reporting requirements, allowing the company to operate in a hazy gray space and absolve itself of fault once federal agencies notice the situation and come knocking.

If the Centers for Medicare & Medicaid Services (CMS) determines providers are not seeking correct reimbursement, they can seek to recoup the funds, withhold payments, kick providers out of Medicare and refer providers to the justice department for legal punishment.

Legacy refuted the video, calling the post “defamatory” and saying it has “no basis in fact.”

Jonathan Knutz
Legacy Medical Consultants CEO Jonathan Knutz (LinkedIn)

“Legacy’s core values have always focused on integrity and customer service,” said CEO Jonathan Knutz in a statement to Fierce Healthcare. “Furtherance of those values, and because we respect our customer relationships, we prioritize doing business the right way, in compliance with all laws and regulations. Legacy is committed to firmly and swiftly addressing the spread of the misinformation in Spencer’s YouTube video so that its providers can continue to focus their attention on patient care and utilize our products with peace of mind.”

The company said rebate programs are common practice in the pharmaceutical industry and encouraged by CMS, but that Legacy has never paid any illegal kickbacks to providers.

“At the end of each month, Legacy provides its customers with an invoice reconciling any rebate amounts applied and specifying the qualifying rebate prices,” said Knutz. “Under the safe harbor, customers are responsible for reporting any rebate amounts to Medicare.”

Legacy employees told Cornelia that the company sends an invoice with the rebate amount to providers through a portal that Medicare doesn’t have access to. They shared emails that seemingly direct Legacy’s customers to submit the full cost invoice to Medicare, all while ensuring a full cost purchase agreement is in Legacy’s possession.

When doctors submit a full price invoice from Medicare, they receive a greater reimbursement from Medicare, when they should only receive a partial payment from Medicare if they would’ve submitted the invoice with a rebate. Providers can be liable if they don’t send the correct figure to Medicare, even when they might not be aware a distinction must be made.

“Any time you sign a contract you should be aware,” said Robert Mueller, general manager of RedDress, a medical equipment manufacturer that developed ActiGraft Pro, a blood-derived product for non-healing wounds. “But it’s kind of the same situation as your iPhone where there’s a term of agreement that’s 80 pages long.

There definitely are some physicians that were taken advantage of in this scenario,” he added. “I think there is some responsibility as a manufacturer to make sure you're not setting up your clinicians for failure. You're basically creating an environment that somebody is going to do something illegal. That's not good in the long term.”

Cornelia was told Legacy instructed clients to improperly fill out Medicare forms by telling them to input the full gross price, not the net price, leading to overpayment from Medicare.

Emails between Legacy employees and distributors appear to show that the company knows two separate invoices, one with the full cost and one with the rebate, exist. Another email from Legacy to a provider tells the doctors that the full price invoice should be used for insurance reimbursement.

In its statement to Fierce Healthcare, Legacy said the company and its billing consultants do not fill out Medicare claims forms for providers, and that Legacy reports its average sales price appropriately.

Even if Legacy’s legal standing is strong, its dealings with distributors and providers raise questions about how the company charges clients.

“Ethically, should they have done something [different]?” asked Mueller. “I tend to think the answer is yes.”

Mueller said that CMS could address the underlying conditions that caused this situation to exist by cracking down on cost-plus payment arrangements and instead requiring a fixed payment. This would change the incentive structure between clinicians and manufacturers like Legacy.

CMS is motivated to make changes, and new guidance is expected to be released by the end of the year. Medicare fraud, estimated to cost the system $100 billion a year, is prevalent in the wound care industry, and with wound care utilization for amniotic treatments rising in recent years, CMS is expected to limit the number of skin substitute applications from 10 to four.

Law firm Hogan Lovells, which provided legal guidance to Legacy, did not answer a request for comment in time for this story’s publication.