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.