Today the Centers for Medicare & Medicaid Services (CMS) published an interim final rule with comment period that will provide a temporary Medicare rate hike for certain durable medical equipment (DME) and enteral nutrition furnished in rural and non-contiguous areas of the country (Alaska, Hawaii, and U.S. territories) that are not included in competitive bidding.

By way of background, the Affordable Care Act mandated that CMS use pricing information from the DME, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program (CBP) to adjust fee schedule amounts for items furnished in areas where the CBP is not implemented. A highly-technical CMS rule implemented these adjustments, with a transition period during January 1, 2016 – June 30, 2016, during which CMS used 50/50 blended rates. The 21st Century Cures Act extended the transition period through December 31, 2016, mandated that CMS study the impact of the CBP on beneficiary access to DME, and established additional factors for CMS to consider in making fee schedule adjustments effective beginning January 1, 2019. Fully-adjusted fee schedule rates went into effect January 1, 2017, with rates that were on average 50% lower than the unadjusted rates for all of the items and services subject to the adjustments (“Adjusted Rates”).

In the preamble to the new interim final rule, published May 11, 2018, CMS discusses information it has collected to date regarding the impact of the Adjusted Rates. CMS notes that stakeholders overwhelmingly believe that these Adjusted Rates are insufficient to cover supplier costs for furnishing items and services in rural and noncontiguous areas and are impacting beneficiary health outcomes. CMS concluded that if it continued to apply the Adjusted Rates in these areas, “adverse impacts on beneficiary health outcomes, or on small businesses exiting the market, could be irreversible.” CMS therefore is resuming the transition period for phasing in adjusted fee schedule rates from June 1, 2018 through December 31, 2018 – but only for those DME items and services furnished in rural areas and non-contiguous areas not subject to the CBP (that is, CMS is not providing an additional transition period for non-rural areas). For items and services furnished on or after January 1, 2019, the fee schedule amount for all areas will equal 100% of the adjusted payment amount. CMS intends to undertake subsequent notice-and-comment rulemaking to address rates for items furnished in 2019 and beyond. CMS also is making various technical changes to codify other Cures Act provisions.

CMS estimates that the rule will increase Medicare program payments by $290 million, in addition to a $70 million increase in Medicare beneficiary cost sharing. CMS believes that its policy “promotes stability in the DMEPOS market in these areas, and enables CMS to work with stakeholders to preserve beneficiary access to DMEPOS.” CMS considered but rejected an alternative approach to apply the extended 50/50 blended rates (or a different balance of rates) in all non-CBAs; CMS cited the significant cost of this alternative ($570 million in Medicare Part B benefit payments and $140 million in beneficiary cost sharing for the full 50/50 blend).

The interim final rule with comment period is effective June 1, 2018. CMS invites comments on the proposed transition policy and ways to improve CMS monitoring of beneficiary impact due to the Adjusted Rates. CMS will accept comments through July 9, 2018.