Health Industry Washington Watch : Washington DC Healthcare Industry Law Firm : Reed Smith : Health Industry Washington Watch : Regulations, Medicare/Medicaid, Governmental Organizations

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.

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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.

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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 ME infusion drugs in the next round of competitive bidding (CMS has not yet provided other details on future expansion of competitive bidding). 

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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. 

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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 (the preliminary classification list included HCPCS code L0631). 

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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.

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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.

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A recent OIG report – “Supplier Billing for Diabetes Test Strips and Inappropriate Supplier Activities in Competitive Bidding Areas” -- assesses how suppliers have changed their delivery and billing practices for DTS in areas where the Medicare DMEPOS competitive bidding program for mail-order DTS was implemented in 2011. By way of background, Round 1 of the DMEPOS competitive bidding program, currently underway in nine competitive bidding areas (CBAs), applies to mail-order DTS and certain other specific items of DME. For purposes of Round 1 only, the term “mail-order” is defined as ordered remotely and delivered by common carrier; in contrast, DTS delivered to a beneficiary’s home by a local store front supplier using its own vehicles and W2 employees is not considered mail order under Round 1, and therefore is not subject to competitive bidding. The net effect if this bifurcation is that beneficiaries residing in one of the Round 1 CBAs must purchase mail-order DTS from a winning contract supplier, but may purchase non-mail order DTS from any enrolled Medicare supplier. Significantly, the mail-order DTS contract prices under Round 1 average less than half of the Medicare fee schedule amount, and the OIG observes that this price disparity provides suppliers with “a financial incentive to bill for non-mail order DTS,” even though beneficiaries in turn will be responsible for higher copayments for non-mail order DTS. According to the OIG report, claims for non-mail order DTS increased by 33% in 2011 compared to 2010, while claims for mail-order DTS fell by 71%. The OIG also states that sampled beneficiaries sometimes reported receiving less expensive mail-order DTS – notwithstanding that Medicare claims records reflected billing for non-mail order items (although the OIG warns that self-reported data from beneficiaries were not independently verified, and beneficiaries’ ability to recall events over a span of 2 years could affect the data). The OIG observed that suppliers’ inappropriate waiver of beneficiaries’ copayments did not appear to contribute to the increase in non-mail order DTS claims, but almost a quarter of the sample of beneficiaries interviewed by the OIG reported supplier activities such as routine waver of copayments or shipments of unsolicited DTS that the OIG determined to be inappropriate. The report does not contain any recommendations. Note that a national mail order (NMO) program for diabetic supplies is scheduled to go into effect July 1, 2013, and will apply nationally to DTS that are delivered via any method (i.e., common carrier or supplier delivery).

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On October 15, 2012, CMS opened the 60-day bidding window for the Round 1 Recompete of the Medicare DMEPOS competitive bidding program; the bid window closes on December 14, 2012.  As discussed in our previous reports, the recompete applies to nine geographic areas where competitive bidding currently is in effect, but it includes a broader array of products. The contract period for the Round 1 Recompete is January 1, 2014 through December 31, 2016. All potential bidders must register by October 19, 2012 at 9 p.m. Eastern Time to be eligible to bid. CMS encourages bidding suppliers to take advantage of the covered document review process, under which CMS will notify suppliers that submit their hardcopy financial documents by November 14, 2012 of any missing financial documents.

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A number of recent Congressional hearings have focused on health policy issues, including the following:

• A House Small Business Healthcare Subcommittee hearing on “Medicare's Durable Medical Equipment Competitive Bidding Program: How Are Small Suppliers Faring?”
• Senate Aging Committee hearings on “Implementing the Physician Payments Sunshine Act” and “Eliminating Waste and Fraud in Medicare: An Examination of Prior Authorization Requirements for Power Mobility Devices.” 
• A House Oversight Committee hearing entitled “Administration's Failure to Prevent/End Medicaid Overpayments.” 
• House Ways and Means Committee hearings on (1) implementation of ACA health insurance exchanges and related provisions; (2) the status of Medicare Advantage (MA) plans; and (3) the Internal Revenue Service’s (IRS) implementation of various ACA tax provisions.
• A House Energy and Commerce Committee hearing on HHS’s use of special hiring authorities under Title 42 to appoint and compensate specialized science and research positions. 

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The Senate Health, Education, Labor and Pensions Committee held a field hearing in Connecticut on “Lyme Disease: A Comprehensive Approach to an Evolving Threat.”  On September 11, 2012, the House Ways and Means Oversight Subcommittee is holding a hearing on the Internal Revenue Service’s implementation of various ACA tax provisions. Also on September 11, the House Small Business Healthcare Subcommittee is holding a hearing on "Medicare's Durable Medical Equipment Competitive Bidding Program: How Are Small Suppliers Faring?"

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On August 16, 2012, CMS announced the detailed timeline for the Round 1 Recompete of the Medicare DMEPOS competitive bidding program, which applies to nine geographic areas where competitive bidding currently is in effect. As we previously reported, although CMS is calling this a “recompete,” the agency is actually making significant changes to the products included in Round 1, including subjecting new products to bidding for the first time (i.e., products that were not in the original Round 1 competitive bidding process), and expanding the range of products included in a single product category (which is significant because a contract supplier must furnish all products within a product category, either directly or through a qualified subcontract, in the competitive bidding area). The following is the timeline for registering and bidding (note that dates are subject to change):  

• 8/20/2012 -- Registration for user IDs and passwords begins
• 9/7/2012 -- Authorized Officials strongly encouraged to register by this date
• 9/28/2012 -- Backup Authorized Officials strongly encouraged to register by this date
• 10/15/2012 -- CMS opens 60-day bid window
• 10/19/2012 -- Registration closes
• 11/14/2012 -- Covered document review date for bidders to submit financial documents
• 12/14/2012 -- 60-day bid window closes
• Spring 2013 -- CMS announces single payment amounts, begins contracting process
• Fall 2013 -- CMS announces contract suppliers, begins education campaign
• January 1, 2014 -- Implementation of Round 1 Recompete contracts and prices

As CMS announced in the spring, the product categories for the Round 1 Recompete are: (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.

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On June 26, 2012, CMS published a notice announcing that it is considering using its “inherent reasonableness” (IR) authority to establish special Medicare payment limits for diabetic testing supplies furnished on a non-mail order basis.  Under the statutory IR authority, CMS can adjust certain Medicare Part B payment amounts that are “grossly excessive” (generally cases in which an adjustment of 15% or more is justified). According to the June 26 notice, CMS is examining ways to use pricing information obtained during the Medicare DMEPOS competitive bidding program for mail-order diabetic supplies to adjust payment for retail diabetic supplies without requiring local suppliers to compete for contracts.  In the notice, CMS cites several reasons for considering an IR adjustment for these products, including high annual allowed charges (approximately $552 million, which makes it the highest volume category of items or services yet to be phased in under the DMEPOS competitive bidding program). Under the round 1 “rebid” of the DMEPOS competitive bidding program in 2011, Medicare payment for mail order test strips were reduced by 55% on average in 9 bidding areas. While CMS states that it recognizes that "there are pricing differences between mail order and non-mail order diabetic testing supplies because of the delivery methods for these supplies," CMS contends that there are components that are identical for both distribution methods (e.g., product acquisition costs and administrative costs, including claims processing and paperwork costs). CMS also suggests that "maintaining a significant discrepancy between what Medicare pays for mail order supplies versus non-mail order supplies may encourage fraud and abuse such as billing for mail order supplies as if they were furnished on a non-mail order basis.” The use the IR authority to limit payment for non-mail order diabetic testing supplies may render it unnecessary to include these items under competitive bidding in the future, according to the notice. CMS is holding a July 23, 2012 meeting to discuss this issue, including the rationale for an IR adjustment and the procedural steps involved. The meeting registration deadline is July 16.  CMS also will accept written comments on the proposal until July 30, 2012.  This information is consistent with our May 23rd blog report that CMS briefly posted – then removed – a web site announcement regarding this meeting.

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CMS has announced that it is considering using its “inherent reasonableness” (IR) authority to establish special Medicare payment limits for diabetic testing supplies furnished on a non-mail order basis.  Under the statutory IR authority, which was codified in a 2005 final rule, CMS can adjust certain Medicare Part B payment amounts that are “grossly excessive” (generally cases in which an adjustment of 15% or more is justified). CMS has stated that it is examining ways to use pricing information obtained during the Medicare DMEPOS competitive bidding program for mail-order diabetic supplies to adjust payment for retail diabetic supplies without requiring local suppliers to compete for contracts.  CMS is planning a July 23, 2012 public meeting in Baltimore to consult with suppliers and the public about this potential policy.  Registration is required..

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Recent hearings on health policy issues include:

• A House Ways and Means Committee hearing on the impact of limitations on the use of tax-advantaged accounts for the purchase of over-the-counter medication.
• A Senate Finance Committee discussion on “Medicare Physician Payments: Understanding the Past so We Can Envision the Future.”
• A Ways and Means Health Subcommittee hearing on the Medicare DMEPOS competitive bidding program.  A GAO report released at the hearing found it is too soon to determine the full effects of competitive bidding on beneficiaries and suppliers.
• A House Energy and Commerce Subcommittee on Oversight and Investigations hearing on “Budget and Spending Concerns at HHS.”  At the hearing, the GAO issued a report reiterating its recommendations to minimize improper Medicare payments (such as using prepayment controls to identify potentially-improper DME claims and enhanced payment safeguards for physicians who use advanced imaging services) and improve oversight of Medicaid payments.

In addition, the Senate HELP Committeehas scheduled hearings May 15 and 16 on HIV/AIDS drug costs and health care delivery reforms, respectively. In addition, the House Judiciary Subcommittee on Intellectual Property and Competition is holding a hearing May 18 on health care consolidation and competition after the ACA . 

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On April 17, 2012, CMS announced that it is recompeting Round One Medicare DME, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding contracts in nine geographic areas, as it is required by statute to do at least every three years.  CMS is making important changes to the product categories for the recompete, however, including subjecting new products to competitive bidding for the first time and expanding the products within single product categories (meaning that a supplier would need to furnish all of the products within that product category, either directly or through a qualified subcontract, in order to bid in a competitive bidding area). Additional details are provided after the jump.

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On March 9, 2012, CMS released a final rule revising certain Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) supplier safeguards. The rule, which adopts without change the agency’s April 4, 2011 proposed rule, includes the following policies:

• The rule removes the definition of and modifies requirements regarding the prohibition on “direct solicitation” of Medicare beneficiaries that were included in a August 27, 2010 final supplier standard rule. Prior to the 2010 rule, CMS regulations required suppliers to agree not to contact a beneficiary by telephone when supplying a Medicare-covered item unless certain exceptions applies (such as the individual gave written permission for such contact, the supplier is coordinating delivery of an item, or the supplier has furnished at least one covered item to the individual during the preceding 15-month period). The 2010 rule expanded the scope of this prohibition to include in-person contacts, e-mail, and instant messaging. CMS subsequently determined this expansion was “unfeasible”; CMS therefore is removing all references to “direct solicitation,” and clarifying that the prohibition is limited to telephonic contact. Note that CMS has posted frequently asked questions about its telemarketing policy.
• The rule allows DMEPOS suppliers, including DMEPOS competitive bidding program contract suppliers, to contract with licensed agents to provide DMEPOS supplies unless expressly prohibited by state law (CMS notes that the absence of express state law has led to confusion about contracting rules).
• The rule removes the requirement that DMEPOS suppliers comply with local zoning as part of the supplier standards. While suppliers still must comply with all applicable local zoning requirements, CMS leaves it to local municipalities to enforce zoning requirements.
• The rule modifies certain state licensing requirement exceptions to allow prosthetic and orthotic professionals to qualify for the minimum square footage exception if the state does not offer a licensure option. If a state does offer licensure for such professionals, however, the professionals would be required to obtain licensure in order to qualify for the exception to the minimum square footage requirement. CMS also clarifies that certain physical and occupational therapists are exempt from the minimum hours of operation requirement.

The official version of the rule will be published March 14, 2012. The rule is effective April 13,
2012. 

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On February 15, 2012, CMS released updated information on the health status of Medicare beneficiaries under the DMEPOS competitive bidding program, reflecting beneficiary observations through November 2011. CMS reports that based on health outcomes such as deaths and emergency room visits in competitive bidding areas compared to areas not subject to bidding, “beneficiary health outcomes appear stable across time for Medicare beneficiaries in the competitive bidding areas.”

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Bidding is now underway for Round 2 of the Medicare DMEPOS competitive bidding program and the national mail-order program for diabetic testing supplies. All bids must be submitted via the online bidding system by March 30, 2012. The deadline for submitting hardcopy financial documents for the covered document review process is February 29, 2012; under this process, the Competitive Bidding Implementation Contractor (CBIC) will notify suppliers of any missing financial documents. Note that CMS has announced that it is extending the licensure deadline for Round 2 and the national mail-order competitions. The original licensure deadline required suppliers to have all required state licenses on file with the National Supplier Clearinghouse (NSC) and indicated in the Provider Enrollment, Chain, and Ownership System (PECOS) before submitting a bid. Bidding suppliers must now ensure that copies of all applicable state licenses are received by the NSC by May 1, 2012. For additional background information on the competitive bidding program, see our previous reports.

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CMS has released a list of 2012 Healthcare Common Procedures Coding System Codes (HCPCS) codes that it considers to be off-the-shelf (OTS) orthotics – setting the stage for these items to be considered 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 they were not included in the Round 1 Rebid or Round 2. 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. CMS will accept comments on the list until March 8, 2012.
 

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