CMS is expected to publish several major final Medicare payment rules for 2015 in the coming days. The agency has already submitted to the White House Office of Management and Budget (OMB) for regulatory clearance the final 2015 rules updating Medicare payments for outpatient hospitals, ambulatory surgical centers, home health agencies, and end-stage renal disease facilities, along with reimbursement policy updates impacting suppliers of durable medical equipment, prosthetics, orthotics, and supplies. The final Medicare physician fee schedule rule is not yet at OMB, but it should be following shortly. While the text of the regulations are not yet available, we expect that the rules will be put on display at the Federal Register in the near future. We will be providing summaries of the final rules in future updates.
CMS Announces Plans for Medicare DMEPOS Competitive Bidding Round 2 Recompete and National Mail-Order Recompete
On July 15, 2014, the Centers for Medicare & Medicaid Services (CMS) announced its plans to recompete the supplier contracts awarded in Round 2 of the Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program and the National Mail-Order diabetic testing supplies competition, as it is required by statute to do at least every three years. The current contract period expires June 30, 2016; the new contracts will begin on July 1, 2016. For the recompete, CMS is making changes to both the composition of the product categories (including adding new products) and the number of competitive bidding areas (CBAs).
The product categories to be included in the Round 2 Recompete are as follows:
- Enteral Nutrients, Equipment and Supplies
- General Home Equipment and Related Supplies and Accessories
- includes hospital beds and related accessories, group 1 and 2 support surfaces, commode chairs, patient lifts, and seat lifts
- Nebulizers and Related Supplies
- Negative Pressure Wound Therapy (NPWT) Pumps and Related Supplies and Accessories
- Respiratory Equipment and Related Supplies and Accessories
- includes oxygen, oxygen equipment, and supplies; continuous positive airway pressure (CPAP) devices and respiratory assist devices (RADs) and related supplies and accessories
- Standard Mobility Equipment and Related Accessories
- includes walkers, standard power and manual wheelchairs, scooters, and related accessories
- Transcutaneous Electrical Nerve Stimulation (TENS) Devices and Supplies
This configuration reflects the following changes: the current Oxygen and CPAP Devices/Respiratory Assist Devices product categories were combined into a single product category; the current Walkers and Wheelchairs/Scooters categories were combined into a single product category; a new General Home Equipment category was created, including the previous Hospital Beds and Support Surfaces categories in addition to new products; and a new TENS devices product category was added. Suppliers can bid on one or more product categories, but they must bid on all specified HCPCS codes within the category. A list of the specific items in each product category is available on the Competitive Bidding Implementation Contractor (CBIC) website.
CMS is conducting the Round 2 Recompete in the same geographic areas that were included in Round 2. Because of changes to the metropolitan statistical areas and boundary changes to ensure that no CBA is included in more than one state, however, there will be 117 CBAs in the Round 2 Recompete (compared to 100 in the current competition). A list of the ZIP codes included in each CBA is also available on the CBIC website.
CMS will also be conducting the National Mail-Order Recompete for diabetic testing supplies concurrently with the Round 2 Recompete. The competition will include all parts of the United States, including the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa.
CMS has announced the following general timeline for the Round 2 Recompete/National Mail Order Recompete:
July 15, 2014
- CMS begins “pre-bidding supplier awareness program”
- CMS announces bidding schedule
- CMS begins bidder education program
- Bidder registration period to obtain user ID and passwords begins
- Bidding begins
Suppliers considering bidding should prepare now, including ensuring that their enrollment files at the National Supplier Clearinghouse are current, and that they are accredited and hold all necessary state licenses for any products for which they will bid. For more information about the DMEPOS bidding program, see our previous postings at http://www.healthindustrywashingtonwatch.com/tags/dmepos-competitive-bidding/.
CMS Proposes Major Changes to Medicare DMEPOS Payment/Coverage Policy Inside/Outside of Competitive Bidding Areas
On July 2, 2014, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule that would make a series of significant changes to Medicare coverage and payment policies for durable medical equipment (DME), prosthetics, orthotics, and supplies (DMEPOS). Notably, the proposed rule would establish a methodology for adjusting Medicare DMEPOS fee schedule payment amounts across the country using information from the Medicare DMEPOS Competitive Bidding Program (CBP) – which CMS estimates would cut Medicare DMEPOS reimbursement by more than $7 billion in FYs 2016 through 2020. The proposed rule also would: test the use of bundled monthly payment amounts for DME and enteral nutrition under the CBP; modify CBP change of ownership (CHOW) and termination of contract rules; clarify qualifications for providing custom fitting services for orthotics; and revise Medicare hearing aid coverage policy. These provisions, which were part of a broader proposed rule that would also update the Medicare end-stage renal disease prospective payment system for 2015, are summarized in our Client Alert.
OIG Reports Assess Impact of Mail-Order Competitive Bidding on Diabetes Test Strips Market Concentration
The OIG has issued two reports on Medicare market share of mail-order diabetes test strips – one examining the market share before the start of Medicare mail-order competitive bidding in July 1, 2013 and a second report examining the three-month period after competitive bidding went into effect. By way of background, the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) prohibited CMS from awarding competitive bidding program contracts for mail order diabetes test strips to suppliers that do not demonstrate that their bid covers at least 50%, by volume, of all types of mail order diabetes test strips. MIPPA also requires the OIG to complete a study to determine market shares of diabetes test strips in the competitive bidding program.
In a report entitled “Medicare Market Shares of Mail Order Diabetes Test Strips Immediately Prior to the National Mail Order Program,” the OIG provides a baseline for the 3-month period of April to June 2013. Based on a sample of 1,210 claims, the OIG concluded that 152 suppliers submitted at least 62 types of mail order diabetes test strips during this period, with two types of diabetes test strips accounting for approximately 34% of the Medicare mail order market share, four types accounting for 51%, and 10 types accounting for 75%.
In a second report, “Medicare Market Share of Mail Order Diabetes Test Strips from July–September 2013,” the OIG examined a sample of 1,210 Medicare claims in the first three-months of mail-order competitive bidding. According to the OIG, 22 suppliers submitted at least 43 types of mail order diabetes test strips in this period, but two types of diabetes test strips accounted for approximately 45% of the Medicare mail order market share, three types of diabetes test strips accounted for 59% of the market share, and 10 types accounted for 90%. The OIG did not make recommendations in the report, but noted that CMS may choose to consider these data when determining whether subsequent rounds of suppliers’ mail order diabetes test strip bids comply with the MIPPA 50% requirement.
CMS has just released a proposed rule that would require Medicare prior authorization (PA) for certain Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) items that the agency characterizes as “frequently subject to unnecessary utilization.“ As part of the rulemaking, CMS has developed a “Master List” of initial items that it considers to meet this standard based on being (1) identified in a GAO or HHS OIG national report published in 2007 or later as having a high rate of fraud or unnecessary utilization; or (2) listed in the 2011 or later Comprehensive Error Rate Testing (CERT) program's Annual Medicare FFS Improper Payment Rate Report DME Service Specific Overpayment Rate Appendix. CMS also proposes limiting the items on the Master List to those with an average purchase fee of at least $1,000 or an average rental fee schedule of at least $100 to allow CMS to focus on items with the largest potential savings for the Medicare Trust Fund. CMS proposes that the Master List will be “self-updating” annually, and that items generally will remain on the list for 10 years. Note, however, that presence on the Master List would not automatically require prior authorization. CMS would limit the PA requirement to a subset of items (called the “Required Prior Authorization List") “to balance minimizing provider and supplier burden with our need to protect the Trust Funds." CMS would publish the Required Prior Authorization List in the Federal Register with 60-day notice before implementation. CMS also proposes that the PA program could be implemented nationally or locally. The proposed rule does not announce the first items on the Required Prior Authorization List. Instead, CMS is seeking public comment on the number of items that should be selected initially and in the future, and the frequency with which CMS should select items.
The proposed PA process would not create new clinical documentation requirements for the selected DMEPOS items. Instead, the same information necessary now to support Medicare payment for the item would be submitted to the contractor, but before the item could be furnished to the beneficiary and before the claim could be submitted for payment. Upon receipt of a PA request, CMS or its contractors would determine whether the item complies with applicable coverage, coding, and payment rules, and then communicate a decision that provisionally affirms or non-affirms the request. CMS or its contractors would “make reasonable efforts” to provide a decision within 10 days of receipt of all applicable information, unless this timeline could “seriously jeopardize the life or health of the beneficiary,” in which case the target review period would be 2 business days.
The proposed rule also discusses, among other things: the process for updating the Master List; liability for an item on the Required Prior Authorization List if authorization is submitted and denied, the opportunity for unlimited PA resubmissions, and applicability to competitive bidding areas. The rule also would add a contractor's decision regarding prior authorization of coverage of DMEPOS items to the list of actions that are not initial determinations and therefore not appealable. The official version will be published on May 28, 2014. CMS will accept comments on the proposed rule until July 28, 2014.
In a related development, CMS has announced that it is expanding its current demonstration for prior authorization for power mobility devices to 12 additional states. CMS also will launch two payment model demonstrations to test prior authorization for hyperbaric oxygen therapy and repetitive scheduled non-emergent ambulance transport; information from these models will inform future CMS policy decisions on the use of prior authorization.
On April 8, 2014, the OIG and GAO each issued reports focusing on different aspects of the “Round 1 Rebid” of the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program. By way of background, under DMEPOS competitive bidding, only suppliers that are winning bidders, meet licensing and other standards, and enter into a contract with CMS may furnish selected categories of DMEPOS to Medicare beneficiaries in competitive bidding areas (CBAs), with very limited exceptions. Contract suppliers are paid based on the median of the winning suppliers’ bids in the CBA, rather than the DMEPOS fee schedule amount. The Round 1 Rebid was in effect for a 3-year period, from 2011 through 2013, involving nine DME product categories in nine CBAs. CMS subsequently “recompeted” contracts in the Round 1 areas (including additional products), with three-year contracts effective January 1, 2014. CMS also established a second round of bidding covering 100 CBAs, along with a national mail-order diabetic testing supplies competitive bidding program; those three-year contracts went into effect July 1, 2013.
The OIG report assesses CMS compliance with DMEPOS bidding rules in the Round 1 Rebid. The OIG concluded that CMS generally followed its competitive bidding program rules when it selected suppliers and computed single payment amounts for the Round 1 Rebid – although a number of CMS errors were identified. Specifically, the OIG conducted a review based on a random sample of 100 of the 3,011 established DMEPOS single payment amounts in the Round 1 Rebid Program and the selection process for 266 winning suppliers associated with the sampled payment amounts. The OIG determined that CMS followed all applicable requirements for 255 of the 266 winning suppliers, but nine winning suppliers did not meet financial documentation requirements, and CMS incorrectly used two suppliers in one single payment computation. While the OIG characterizes the overall effect on Medicare payments to suppliers as “immaterial,” the OIG estimates that CMS paid suppliers $34,000 less than they would have received without any errors (less than 0.1 percent of the $113 million paid under the Round 1 Rebid Program during the first 6 months of 2011). The OIG recommends that CMS: (1) follow its established program procedures and applicable federal requirements consistently in evaluating the financial documents of all suppliers, and (2) ensure that all bids of winning suppliers are included in the calculation of single payment amounts before offering contracts. CMS concurred with the recommendations, and pointed out that it has enhanced the financial review process to ensure that all reviewers are accountants or certified public accountants. Looking ahead, the OIG will be conducting a similar analysis for Round 2 of competitive bidding; this analysis may include an analysis of CMS’s procedures for ensuring supplier compliance with applicable state licensure requirements (depending on the results of an ongoing limited scope review).
The GAO issued a broader review focusing on data from the second year of the Round 1 Rebid contracts, covering the Round 1 Rebid’s effects on Medicare beneficiaries, contract suppliers, and non-contract suppliers. Among other things, the GAO observed that:
- The number of beneficiaries furnished DME items included in the competitive bidding program generally decreased more in CBAs than in demographically similar “comparator” areas. CMS suggests that such declines may be attributable to reduced inappropriate usage of DME and do not necessarily reflect beneficiary access issues. In fact, CMS stated in comments on the report that its “sophisticated real-time claims monitoring system has continuously found that beneficiary access to all necessary and appropriate competitive bid items has been preserved since the program began” – a conclusion generally disputed by industry.
- A small number of contract suppliers generally had a large proportion of the market share in the nine competitive bidding areas.
- The total number of DME suppliers and Medicare allowed charges decreased more in CBAs than in the comparator areas. For instance, the number of suppliers with Medicare allowed charge amounts of $2,500 or more per quarter decreased an average of 27% in the CBAs compared to 5% in the comparator areas.
- The number of grandfathered suppliers had so diminished that CMS was no longer monitoring them after the second quarter of 2012.
- The program did not appear to have adversely affected beneficiary access to covered items, although additional monitoring would be needed to monitor the impact of the national mail-order diabetic testing supplies program and Round 2.
On February 26, 2014, CMS published an advance notice of proposed rulemaking (ANPRM) seeking public comments on two potential changes to Medicare reimbursement for durable medical equipment (DME), prosthetics, orthotics, and supplies (DMEPOS) that could impact payment to DMEPOS suppliers nationwide regardless of whether they participate in competitive bidding. At this point, CMS is providing more questions than answers on the future of Medicare DMEPOS reimbursement policy, as discussed below.
First, CMS is requesting comments on how to implement a statutory requirement that it use pricing information from the DMEPOS competitive bidding program to adjust Medicare payments for DMEPOS items and services furnished outside of competitive bidding areas (CBAs). By way of background, the Affordable Care Act (ACA) requires CMS to use information from the DMEPOS competitive bidding program to adjust DME fee schedule amounts in areas where competitive bidding programs are not implemented by January 1, 2016; CMS also is authorized (but not mandated) to make such adjustments for off-the-shelf orthotics and enteral nutrients, supplies, and equipment in areas where competitive bidding programs have not been established. CMS must promulgate its methodology for making such adjustments through notice and comment rulemaking, and it must consider costs outside of CBAs compared to rates in CBAs.
Prior to issuing a proposed methodology for adjusting payments in non-CBAs, CMS is soliciting public comments on a number of aspects of this policy, including the following:
- Do the costs of furnishing DMEPOS items and services vary based on the geographic area in which they are furnished, and if so, how should the methodology account for these geographic variations?
- Do the costs of furnishing DMEPOS items and services vary based on population size, distance covered, or other logistical or demographic factors?
- How should CMS adjust payments for items that have not been included in all competitive bidding programs (such as transcutaneous electrical nerve stimulation (TENS) devices that have only been included in nine Round 1 areas so far)?
- Should competitive bidding programs be established in all areas of the country for a few high-volume items to gather general cost information (e.g., rural vs. urban area costs)?
- What factors should be used to determining a competitive service area in rural areas?
In addition to seeking comments related to adjustments of DMEPOS payments outside of CBAs, CMS is considering potential modifications to its competitive bidding payment policy to allow the use of bundled payments for certain types of DME and enteral nutrition. Under this concept, which would require future rulemaking, suppliers would submit one bid that reflects the average per beneficiary monthly cost of furnishing the DME, supplies, and accessories along with the maintenance and servicing costs. CMS would make monthly payments to the supplier for as long as the equipment were medical necessary; that is, rental payments would no longer reach a cap, but at the same time, CMS would no longer make separate payment for supplies, accessories, enteral nutrients, or maintenance and servicing. The supplier would retain title to the equipment. Whether CMS proceeds with proposing this change depends on issues such as administrative burden and feasibility, as well as other potential issues raised in public comments. CMS states that it is particularly interested in feedback on issues such as:
- Are lump sum purchases and capped rental payment rules for DME and enteral nutrition equipment still needed if monthly payment amounts can be established under competitive bidding?
- Are there reasons that beneficiaries need to own expensive DME or enteral nutrition equipment rather than use such equipment as needed on a continuous monthly basis?
- What would be the advantages and disadvantages to beneficiaries and suppliers associated with such a bundled approach?
- Would bundled monthly payment adversely impact beneficiary access to personalized items such as speech generating devices and specialized wheelchairs?
- If CMS maintains payment on a capped rental, rent-to-own basis or lump sum purchase basis, should CMS require that the supplier that transfers the equipment title to the beneficiary be responsible for all maintenance and servicing of the beneficiary-owned equipment for the remainder of the equipment's reasonable useful lifetime with no additional payment? The associated costs ostensibly would be factored into bids and payment amounts.
- Would payment on a bundled, continuous rental basis adversely impact the beneficiary's ability to direct their own care, follow a provider’s plan of care, or provide for appropriate care transitions?
Comments are due to CMS by March 28, 2014. Interested parties will have another opportunity to comment on these provisions when the proposed regulations are issued.
As part of the CY 2014 Medicare end stage renal disease (ESRD) prospective payment system (PPS) final rule, published on December 2, 2013, CMS has adopted updates to three Medicare durable medical equipment (DME), prosthetics, orthotics, and supplies (DMEPOS) policies.
- 3-Year Minimum Lifetime Requirement (MLR). CMS previously issued regulations providing that, effective for items classified as DME after January 1, 2012, the item must have an expected life of at least 3 years to be considered “durable.” The final ESRD PPS rule clarifies the treatment of a “grandfathered item” classified as DME on or before January 1, 2012 if that product is subsequently modified (e.g., upgraded, refined, or reengineered). Specifically, effective April 1, 2014, if a grandfathered product is modified, and the modified product has an expected life that is shorter than that of the original product, the modified item will lose its grandfathered status and it will be subject to the 3-year MLR requirement. The impact of the loss of grandfathered status on coverage would depend on the new expected lifetime of the modified product. For instance, if a grandfathered product covered as DME prior to 2012 with a lifetime of four years is modified, resulting in a product with a lifetime of 2.5 years, this product would lose its grandfathered status and no longer meet the definition of DME because the 3-year MLR would not be met. On the other hand, if this modification reduced the lifetime of the product to 3.5 years, the product would lose its grandfathering status but would satisfy the 3-year rule and continue to meet the definition of DME.
- Reclassification of Routinely-Purchased DME. The final clarifies the definition of routinely purchased equipment at §414.220(a)(2) to address inconsistencies in how CMS has classified certain expensive items as routinely purchased, rather than capped rental. CMS adopted its proposal to reclassify as capped rental items about 80 DME and DME accessory HCPCS codes added after 1989 that are currently classified as routinely purchased (although CMS agreed with commenters that E0760, Osteogenesis Ultrasound Stimulator, should remain classified as routinely purchased equipment). The complete list of codes subject to this provision is set forth in Table 11. The effective dates for the reclassifications are: (1) April 1, 2014, for items not included in DMEPOS competitive bidding (which is 3 months later than CMS initially proposed); (2) July 1, 2016, for (a) items furnished in all areas of the country if the item is included in a Round 2 competitive bidding program (CBP) and not in a Round 1 Recompete CBP, and (b) for items included in a Round 1 Recompete CBP but furnished in an area other than one of the nine Round 1 Recompete areas; and (3) January 1, 2017, for items included in a Round 1 Recompete CBP and furnished in one of the nine Round 1 Recompete areas.
- Fee Schedules for Splints, Casts, and Certain IOLs. CMS has adopted its proposal to implement on a budget-neutral basis Medicare fee schedules for splints and casts, and intraocular lenses (IOLs) inserted in a physician’s office. This provision is effective for services furnished on or after April 1, 2014. In future years, the fee schedule amounts will be updated by the percentage increase in the CPI-U for the 12-month period ending with June of the preceding year, reduced by the multifactor productivity adjustment.
CMS also has adopted certain technical amendments to DMEPOS payment regulations.
CMS has announced the names of 282 suppliers that have been awarded 3-year contracts under the Medicare DME, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program “Round 1 Recompete.” As discussed in our previous reports, this phase of bidding applies to nine geographic areas where competitive bidding contracts have been in effect since 2011, but it includes a broader array of products than currently covered. The contract period for the Round 1 Recompete is January 1, 2014 through December 31, 2016.
By way of background, under DMEPOS competitive bidding, only suppliers that are winning bidders, meet licensing and other standards, and enter into a contract with CMS may furnish selected categories of DMEPOS to Medicare beneficiaries in competitive bidding areas (CBAs), with very limited exceptions. Contract suppliers are paid based on the median of the winning suppliers’ bids in the CBA, rather than the DMEPOS fee schedule amount. CMS reported earlier this year that Medicare reimbursement will be cut by an average of 37% compared to fee schedule amounts under the Round 1 Recompete contracts, which include the following six product categories: (1) Respiratory Equipment and Related Supplies and Accessories (includes oxygen, oxygen equipment, and supplies; continuous positive airway pressure devices and respiratory assist devices, and related supplies and accessories; and standard nebulizers); (2) Standard Mobility Equipment and Related Accessories (includes walkers, standard power and manual wheelchairs, scooters, and related accessories); (3) General Home Equipment and Related Supplies and Accessories (includes hospital beds and related accessories, group 1 and 2 support surfaces, transcutaneous electrical nerve stimulation devices (TENS), commode chairs, patient lifts, and seat lifts); (4) Enteral Nutrients, Equipment and Supplies; (5) Negative Pressure Wound Therapy Pumps and Related Supplies and Accessories; and (6) External Infusion Pumps and Supplies.
CMS reports that Round 1 Recompete contract suppliers have 620 locations to serve Medicare beneficiaries in the CBAs, and about 58% of these suppliers are “small suppliers” with gross revenues of $3.5 million or less. CMS will now accelerate educational efforts aimed at suppliers, referral agents, and beneficiaries in preparation for the new contracts.
Medicare Rates to Fall by Average of 37% under DMEPOS Competitive Bidding "Round 1 Recompete" Contracts
CMS has announced the contract prices for items included in the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding “Round 1 Recompete.” As discussed in our previous reports, this phase of bidding applies to nine geographic areas where competitive bidding has been in effect since 2011, but it includes a broader array of products. The contract period for the Round 1 Recompete is January 1, 2014 through December 31, 2016.
Contract prices under the Round 1 Recompete will average 37% below Medicare's fee schedule rates for the six product categories, according to files posted by the Competitive Bidding Implementation Contractor (CBIC) on October 1, 2013. The weighted average savings by product category are as follows:
Enteral Nutrients, Equipment & Supplies
External Infusion Pumps & Supplies
General Home Equipment and Related Supplies & Accessories
NPWT Pumps and Related Supplies & Accessories
Respiratory Equipment and Related Supplies & Accessories
Standard Mobility Equipment & Related Accessories
These savings compare to a 45% average cut for suppliers participating in Round 2 of the competitive bidding program and a 72% reduction under the national mail order competition for diabetic testing supplies; contracts for both of these programs went into effect July 1, 2013.
The CBIC also posted statistics on the number of Round 1 Recompete contract offers extended for each competitive bidding area (CBA) and product category and the number of supplier locations represented in those offers. The contracting process for the Round 1 Recompete is now underway. Bidders who were not “winners” will be notified of the reasons they were not offered contracts. CMS plans to announce the names of contract suppliers this fall.
A recent OIG report examines the extent of improper Medicare reimbursement for diabetes test strips (DTS), including the effect of mail-order DTS being subject to competitive bidding in nine geographic areas beginning in 2011 (CMS subsequently implemented a national competitive bidding program for mail-order DTS, effective July 1, 2013). According to the OIG, in 2011, Medicare inappropriately allowed $6 million for DTS claims billed for beneficiaries without a documented diagnosis code for diabetes, or that inappropriately overlapped with an inpatient hospital stay or an inpatient skilled nursing facility stay. Moreover, the OIG identified $425 million in Medicare-allowed DTS claims in 2011 that had characteristics of questionable billing, such as claims in excess of utilization guidelines, claims at perfectly regular intervals, or overlapping claims for the same beneficiary. The OIG observes that the Medicare competitive bidding program appears to have been successful in reducing questionable billing for mail-order DTS, since Medicare allowed claims for mail order DTS for suppliers exhibiting questionable billing in CBAs fell from $33.2 million to $4.3 million between 2010 and 2011. The OIG recommended that CMS take additional action to address inappropriate DTS claims, such as expanding supplier education, enforcing claims edits, and increasing monitoring of DTS suppliers’ billing. CMS also agreed to take appropriate action regarding inappropriate Medicare DTS claims and suppliers identified by the OIG, including referral of questionable claims to the Recovery Auditors and Medicare Administrative Contractors (MACs).
Two recent OIG reports point out the savings that state Medicaid programs could attain if they based reimbursement for DME, prosthetics, orthotics, and supplies (DMEPOS) on Medicare competitive bidding payment amounts – although at least one state is pushing back on this idea. In the first report, “Medicaid DMEPOS Costs May be Exceeding Medicare Costs in Competitive Bidding Areas,” the OIG calculated the potential savings Texas could have achieved in 2011 if it adopted Medicare DMEPOS bidding prices for selected items of DMEPOS. According to the OIG, Texas Medicaid fee-schedule could have saved approximately $2 million (state/federal shares combined) in the Dallas/Fort Worth area if it had based Medicaid rates on the Medicare DMEPOS competitive bidding amounts for 32 DMEPOS items covered under both programs. The OIG states that its report provides “a tangible example of potential State and Federal savings for Medicaid programs if the programs were to use the Medicare Competitive Bidding payment amounts for DMEPOS items.” This report did not include recommendations or state reaction.
In the second report, “New Jersey Medicaid Program Could Achieve Savings by Reducing Home Blood-Glucose Test Strip Prices,” the OIG estimates that the New Jersey Medicaid program could have saved approximately $1.8 million to $2.7 million in 2011 by reducing home blood-glucose test strip reimbursement rates to retail rates or by establishing a competitive bidding program for test strips. Such policy changes for test strips also could reduce Medicaid managed care organization reimbursement rates by up to 70%. However, the New Jersey Department of Human Services disagreed with the OIG’s recommendations to align state Medicaid reimbursement with average retail price or Medicare competitive bidding pricing, citing, among other things, doubts about the feasibility of attaining such savings and concerns about patient access and the impact on proper diabetes management.
CMS has updated its list of Healthcare Common Procedures Coding System Codes (HCPCS) codes that it considers to be off-the-shelf (OTS) orthotics – and therefore subject to inclusion in a future round of the DMEPOS competitive bidding program. Under the Social Security Act, OTS orthotics are those that require minimal self-adjustment for appropriate use and do not require expertise in trimming, bending, molding, assembling, or customizing to fit to the individual. CMS has defined "minimal self-adjustment" to mean an adjustment that the beneficiary, caretaker for the beneficiary, or supplier of the device can perform and that does not require the services of a certified orthotist or an individual who has specialized training. The statute authorizes CMS to included OTS orthotics in DMEPOS competitive bidding, although CMS has not included these items in the competitions announced to date. CMS notes that while it has not determined the schedule for bidding OTS orthotics, it will identify the specific OTS orthotic codes included in a competitive bidding program through program instructions or website posting. The 2014 listing, which was posted on August 12, 2013, revises a preliminary listing CMS released in February 2012. CMS also responds to public comments it received on the 2012 listing. CMS expects to make subsequent coding updates to the OTS list through program instructions.
CMS Announces "Winners" of Medicare DMEPOS Competitive Bidding Round 2/National Mail Order Competition
On April 9, 2013, CMS announced the names of 799 suppliers that have been awarded 3-year contracts under Round 2 of the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program, along with the 18 suppliers that accepted contracts under the national mail order competition for diabetic testing supplies. Under competitive bidding, only suppliers that are winning bidders, meet licensing and other standards, and enter into a contract with CMS may furnish selected categories of DMEPOS to Medicare beneficiaries in competitive bidding areas (CBAs), with very limited exceptions. Winning bidders who sign contracts are paid based on the median of the winning suppliers’ bids in the CBA, rather than the DMEPOS fee schedule amount. Contracts under Round 2 and national mail-order contracts begin on July 1, 2013. As previously reported, Medicare reimbursement will be cut by an average of 45% for suppliers participating in Round 2, which covers eight product areas in 100 CBAs. Mail-order diabetic testing supplies contracts cover all 50 States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa. Medicare reimbursement for diabetic testing supplies will fall 72% compared to current fee schedule amounts (the new prices will be applied in the retail setting as well under separate legislative authority). CMS notes that Round 2 contract suppliers have 2,988 locations to serve Medicare beneficiaries in the CBAs, and about 63% of these suppliers are “small suppliers,” with gross revenues of $3.5 million or less. CMS will now step up educational efforts aimed at suppliers, referral agents, and beneficiaries in preparation for the expansion of competitive bidding this summer.
CMS Requests Comments on New Forms to Disclose Competitive Bidding Contract Supplier Ownership Changes
CMS is seeking comments on new forms it intends to require suppliers to use to report changes of ownership (CHOW) involving contract suppliers under the Medicare durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) competitive bidding program. CMS will evaluate the information in the forms to determine if a supplier that merges with or acquires a contract supplier meets the conditions for awarding a competitive bidding contract as specified in regulations. The proposed Change of Ownership Purchaser Form and Contract Supplier Notification Form will be used in all rounds of competition. CMS will accept comments on the forms through April 30, 2013.
A new OIG report, “Part B Payments for Drugs Infused through Durable Medical Equipment,” calls for changes in the Medicare reimbursement methodology for Part B infusion drugs administered in conjunction with DME in light of potentially inaccurate pricing. By way of background, DME infusion drugs are reimbursed at 95% of the drug’s average wholesale price (AWP) in effect on October 1, 2003, compared to 106% of the average sales price (ASP) for most Part B drugs. Based on a comparison of actual Medicare reimbursement and the amount that would have been paid under the ASP methodology for each DME infusion drug from 2005 to 2011, the OIG found that payment exceeded ASPs by 54%-122% annually. On the other hand, reimbursement for up to one-third of DME infusion drugs were below the ASP, indicating that in some cases Medicare may underpay for these drugs. On the whole, the OIG estimates that Medicare spending on DME infusion drugs would have been cut by 44% ($334 million) between 2005 and 2011 if payment had been based on ASP. The OIG recommends that CMS either (1) seek legislation requiring DME infusion drug payment to be based on ASP, or (2) include DME infusion drugs in the next round of the DMEPOS competitive bidding program. CMS was noncommittal on legislative changes, but said it would include DME infusion drugs in the next round of competitive bidding (CMS has not yet provided other details on future expansion of competitive bidding).
CMS Slashes Medicare Reimbursement under Round 2 of the Medicare DMEPOS Competitive Bidding Program/National Mail Order Competition for Diabetic Testing Supplies
Medicare reimbursement will be cut by an average of 45% for suppliers participating in Round 2 of the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program, CMS announced on January 30, 2013. Medicare reimbursement will fall even more dramatically under the national mail order competition for diabetic testing supplies, with payment reduced by 72% compared to current fee schedule amounts (and under the terms of the new “fiscal cliff” law, these prices will be applied in the retail setting as well). Round 2 and national mail-order contracts and prices are scheduled to go into effect on July 1, 2013. CMS estimates that competitive bidding will save the Medicare Part B Trust Fund $25.7 billion and Medicare beneficiaries $17.1 billion between 2013 and 2022.
By way of background, under competitive bidding, only suppliers that are winning bidders, meet licensing and other standards, and enter into a contract with CMS may furnish selected categories of DMEPOS to Medicare beneficiaries in competitive bidding areas (CBAs), with very limited exceptions. Winning bidders who sign contracts are paid based on the median of the winning suppliers’ bids in the CBA, rather than the DMEPOS fee schedule amount. The Round 1 “Rebid” went into effect January 1, 2011 in nine CBAs, involving nine product categories. Payment amounts under the Round 1 rebid average 32% below the Medicare DMEPOS fee schedule amounts. CMS has recently conducted a “recompete” for six product categories in the Round 1 Rebid areas (including additional products) to take effect in 2014.
Round 2 will take place in 100 CBAs covering 91 metropolitan statistical areas, with three-year contracts effective July 1, 2013. CMS announced yesterday that the weighted average savings by product category are as follows:
- Oxygen, Oxygen Equip. & Supplies - 41%
- Standard (power & manual) Wheelchairs, Scooters, & Accessories - 36%
- Enteral Nutrients, Equip. & Supplies - 41%
- CPAP/RAD & Related Supplies & Accessories - 47%
- Hospital Beds & Accessories - 44%
- Walkers & Accessories - 46%
- Support Surfaces (Group 2 Mattresses & Overlays) - 63%
- NPWT Pumps & Related Supplies & Accessories - 41%
CMS also conducted a national mail-order competition for diabetic testing supplies concurrent with the Round 2 competition. CMS announced that Medicare payment for diabetic testing supplies (100 lancets and test strips) under competitive bidding will be reduced from $77.90 to a national rate of $22.47. While the competition for diabetic testing supplies was intended to apply only to mail-order suppliers, it is important to note that the American Taxpayer Relief Act of 2012 (ATRA), which was signed into law on January 2, 2013, sets Medicare payment amounts for retail diabetic supplies at the national mail order competitive bidding single-payment amounts, effective July 1, 2013. In other words, as a result of the ATRA, the competitive bidding process is being used to reduce pricing for DMEPOS other than items that actually were subject to competitive bidding. This policy was adopted despite CMS’s previous acknowledgment that "there are pricing differences between mail order and non-mail order diabetic testing supplies because of the delivery methods for these supplies." Even though under competitive bidding program rules, only successful bidders that sign a contract with CMS will be eligible to furnish mail order diabetes supplies to Medicare beneficiaries as of July 1, 2013, Medicare beneficiaries will not be limited to using contract suppliers to obtain retail/storefront diabetes supplies. In sum, a Medicare beneficiary must use a contract supplier to obtain mail order diabetic testing supplies, but can pick up diabetic testing supplies from any local retailer; the payment to the supplier and the beneficiary copayment will be the same in either setting. (The ATRA also temporarily reduces fee schedule amounts for retail diabetic testing supplies to mail order amounts from April 1, 2013 until the national mail-order program single payment amounts start on July 1, 2013.)
CMS next will be mailing contracts to “winning” bidders. According to a CMS fact sheet, 14,654 contract offers will be made to 867 Round 2 bidders, who have 3,109 locations to serve Medicare beneficiaries in the CBAs. CMS also will offer 15 contracts for the national mail-order program; the national mail-order program winners have 48 locations in all. CMS notes that about 62% of Round 2 winning suppliers are small suppliers (gross revenues of $3.5 million or less), and 33% of national mail-order contract offers will go to small suppliers. When the contracting process is complete, unsuccessful bidders will be notified of the reasons they were not offered a contract. CMS expects to announce the names of the contract suppliers in the spring of 2013. CMS and the Competitive Bidding Implementation Contractor (CBIC) also will be stepping up educational activities leading up to implementation of Round 2 and national mail-order bidding.
For more information, including the single price amounts for each code subject to bidding, see the CBIC website, and Reed Smith’s previous reporting on the competitive bidding program is available here.
The OIG is calling on CMS to lower Medicare payment for certain back orthosis products, either by subjecting these products to the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program or by making an inherent reasonableness adjustment. This recommendation stems from the OIG’s findings that Medicare payment amounts far exceeded supplier acquisition costs for lumbar-sacral orthoses billed under L0631. Specifically, between July 2010 and June 2011, the average Medicare-allowed amount for L0631 was $919, compared to the average supplier acquisition cost of $191, resulting in Medicare paying an estimated $37 million more than supplier costs. Moreover, while the code descriptor for L0631 references fitting and adjustment services, the OIG found that for 33% of claims the supplier did not report providing such services, and only 7% of suppliers reported providing any additional services other than general instructions. CMS agreed that Medicare payments for back orthoses billed under HCPCS code L0631 “should be adjusted to more closely reflect the supplier’s acquisition costs for the device and the level of service provided when furnishing the device.” CMS indicated that it would be pursing competitive bidding rather than an inherent reasonableness adjustment, noting that it is working to finalize its classification of HCPCS codes that may be considered to be “off-the-shelf” orthotics and subject to DMEPOS competitive bidding.
OIG Finds DMEPOS Competitive Bidding Not Spurring Suppliers to Solicit Specific Brands/Modes of Delivery
The OIG has released a statutorily-mandated report on the extent of supplier solicitation of physicians under the Round 1 rebid of the Medicare DMEPOS competitive bidding program, which began in nine competitive bidding areas on January 1, 2011. Under competitive bidding rules, a physician can prescribe a specific brand or mode of delivery (e.g., gaseous or liquid oxygen system) if the physician determines it is needed to avoid an adverse beneficiary medical outcome. In such cases, the contract supplier must furnish the item as prescribed, ask the physician to approve an alternative brand, or help the beneficiary find a contract supplier to furnish the prescribed brand (if a physician does not prescribe a specific brand, the supplier may choose a brand within the HCPCS code). Concerns have been raised that suppliers might have a financial motivation to solicit physicians to change a prescribed brand if the supplier does not carry the brand or have it in stock rather than send the patient to a different supplier, even though it would not result in a different Medicare payment amount. For its report, “Limited Supplier Solicitation of Prescribing Physicians under Medicare DMEPOS Competitive Bidding Program,” the OIG surveyed a sample of 294 physicians who prescribed competitive-bid items during the first half of 2011. The OIG found that 58% of the physicians did not prescribe brand-specific products, so had no reason to be solicited by suppliers regarding brand changes. Of the physicians that did prescribe a specific brand or mode of delivery, 69% did not receive any requests for brand changes. Only 33 physicians in the sample reported solicitations (22 of which were for diabetes supplies), and they told OIG that supplier reasons for change requests included the supplier’s belief that a change would better meet patient needs, the supplier not carrying the prescribed brand, and patient requests. The OIG also observed that none of the 37,000 Medicare hotline calls related to the competitive bidding program involved concerns about supplier solicitation of physicians regarding brand or mode of delivery.
On January 2, 2013, President Obama signed into law (via autopen) the “fiscal cliff” deal, H.R. 8, the American Taxpayer Relief Act of 2012 (ATRA). In addition to making well-publicized changes to the tax code, the new law includes numerous Medicare payment provisions. Most notably, the law includes a one-year Medicare physician fee schedule (MPFS) fix that is paid for by approximately $30 billion in other health care (mainly Medicare) spending reductions over 10 years. ATRA also delays until March 2013 the automatic, across-the-board “sequestration” cuts in federal spending imposed by the Budget Control Act of 2011, which was expected to reduce Medicare provider payments by more than $11 billion in fiscal year (FY) 2013 and $123 billion over the period of FY 2013 to 2021 (CBO subsequently estimated that the 2013 cut to Medicare payments now will be approximately $9.9 billion due to changes in the sequestration targets under the ATRA). The delay in sequestration, coupled with the government again reaching its debt ceiling, sets up another near-term battle on federal spending, during which Medicare, Medicaid, and other health care programs could be targeted for even more significant cuts.
The health provisions of ATRA are summarized in our Client Alert.