Published on Sep 16, 2021
Ahead of last year’s federal benefits open enrollment, Blue Cross Blue Shield Federal Employee Program (BCBS FEP) the largest provider of benefits to federal employees, added clarifying language to its policy brochure to reiterate that it does not cover over-the-counter hearing aids.
A spokesperson for Blue Cross Blue Shield Association explained in an email to The Capitol Forum that the carrier defines over-the-counter (OTC) hearing aids as “hearing aid devices that are available without a prescription.”
The carrier also issued guidance effective April 1 to facilitate the use of medically necessary air-conduction hearing aid devices when replacement hearing aids are requested within a certain time frame after the previous hearing aid claim. To be considered medically necessary by the carrier, the replacement hearing aids must be FDA-approved and dispensed by prescription from a licensed healthcare provider, among other things.
The OTC exclusion language and guidance regarding medical necessity are likely to negatively affect Eargo (EAR), a manufacturer of air-conduction hearing aid devices that are available without a prescription. Eargo’s products can be purchased directly from the company and at BestBuy and Amazon, with the Amazon webpage specifically stating “No in-Person Visit Needed.”
Eargo says customers do not need an audiogram hearing test before purchase, and according to a company graphic depiction of the sale process, telecare support with a licensed hearing professional is available after a customer has purchased and received the Eargo device.
“Eargo does employ licensed providers, both audiologists and hearing instrument specialists,” a former Eargo sales representative said when they spoke with The Capitol Forum on the condition of anonymity. “Those are the people who typically will make an outbound phone call after you’ve bought the product. Their job is to walk you through how to set up the app, put the hearing aids in your ears, take them out of your ears, and answer any technical questions. And then send you on your merry way,” they said.
Eargo has aggressively courted federal employees to purchase the company’s hearing aids. One Eargo advertisement says, “You may be eligible for Eargos at no cost to you through the Federal Employees Health Benefits (FEHB) program. INTRIGUED? WE THOUGHT YOU MIGHT BE [emphasis in original].”
Eargo’s webpage specifically identifies BCBS FEP as one that includes reimbursement for hearing aids every five years. And the FAQ section of the company’s webpage instructs customers about the information they need to provide to their local BCBS plan to help the local plan locate Eargo in the provider directory.
In addition to new customers, the company specifically stated that it was targeting existing customers in connection with the launch of its Eargo 5 product to try to convince them to upgrade their devices.
On the company’s most recent earnings call, Eargo CEO Christian Gormsen said, “We’ve initiated robust direct marketing to existing Eargo customers…offering a unique opportunity for current customers to own our latest generation product.”
It is not clear if Eargo’s repeat customers are legitimately assessed for medical necessity of a replacement device.
Because Eargo’s devices likely constitute over-the-counter products as defined by BCBS FEP and upgraded replacements are often unlikely to meet the insurer’s medical necessity criteria, Eargo could face an uphill battle in seeking insurance reimbursement from the carrier.
These changes may already be affecting Eargo’s ability to be reimbursed for its hearing aids.
Earlier this year, Eargo disclosed that it was subject to a claims audit with its largest third-party payer, who accounted for 57 percent of the company’s gross accounts receivable as of March 31, 2021. By the next quarter, that figure had ballooned to 80 percent of the company’s gross accounts receivable.
Eargo acknowledged that the increase in gross accounts receivable was primarily due to the claims audit because the carrier suspended payment on claims beginning on the first of March.
Because those claims have not been paid, the dollar figure of Eargo’s net accounts receivable shot up to $15.4 million as of end of June, up from $3.8 million as of end of December 2020.
Neither Eargo nor BCBS answered questions about whether BCBS FEP was the insurance carrier that suspended claims payment. But the former Eargo sales representative who spoke with The Capitol Forum said that BCBS FEP was Eargo’s largest third-party payer as of spring of this year when the employee left the company.
In addition to the claims audit from its largest insurance payer, the company disclosed in its August filing that a second carrier is also conducting a claims audit but that carrier is processing and approving Eargo’s claims consistent with normal business practices during the audit.
Regarding the risk from insurance audits, the company, in its quarterly filing, said, “In addition to the risk that the insurance companies may deny the claims subject to the current audits, and we have received some denials to date, it is possible that they may seek recoupments of previous claims paid and deny any future claims. While we believe the claims submitted are valid and reimbursable with these insurance companies, and there exist processes for appeal and, if necessary, corrective action, an unfavorable outcome of the ongoing audits could have a material adverse effect on our future financial results, including our revenue recognition, sales return rate and bad debt reserve. We are unable to provide assurances regarding the outcome of these audits.”
Eargo’s CEO has been asked about the audit during a recent earnings call and recent conferences. In response, Gormsen has indicated Eargo is educating the carrier on the company’s business model and was confident in the company’s ability to provide the carrier with the required documentation.
Gormsen, during the August earnings call, said, “We are a single provider with a high volume and hence a lot of dollars flowing through. They’re actually doing their diligence by auditing everything we do because we do it in a different way than it’s been—we don’t do it through a clinic, right? We do it through telecare, online experiences and phone experiences.”
“We believe all the claims we submitted are valid reimbursable,” continued Gormsen, “and we have had a very productive call even this week with the payer, and we are confident we’re able to provide them with all the requested documentation. Of course, I can’t speculate on where the claims will—whether they will absolutely be processed or not.”
“So, this is more, as I see it, an education of our business model and how our business model works differently from the classic way of distributing hearing aids,” Gormsen said.
The outcome of the audits could have broader implications for the company, as insurance carriers that administer federal health benefits are required to report instances of fraud, waste, and abuse. The U.S. Office of Personnel Management (OPM) defines fraud, waste, and abuse terms and includes as an example of abuse billing for items or services that should not be paid for by the program, according to an OPM letter to carriers.
Carriers are contractually bound by OPM to assess vulnerability to fraud, waste, and abuse and to submit annual fraud, waste, and abuse reports. In addition to the annual reports, carriers must
provide “written notification to OPM Office of the Inspector General within 30 business days of identifying potential FWA issues impacting the FEHB Program regardless of the dollar value” according to an April 2021 OPM Office of the Inspector General (OPM-OIG) report.
OPM-OIG holds quarterly carrier task force meetings to discuss fraud, waste, and abuse recommendations and strongly encourages carriers to participate.
OPM-OIG told The Capitol Forum in an email that the agency cannot provide any comments on specific carriers or providers and that the quarterly carrier task-force meetings are non-public.
Eargo did not respond to request for comment for this article.