80 Durable Medical Equipment. Durable medical equipment (DME), including oxygen equipment

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1 80 Durable Medical Equipment Durable medical equipment (DME), including oxygen equipment Summary: Marwood expects the Competitive Bidding Program (CBP) to proceed as currently scheduled. Marwood believes CMS views the program as very successful. CMS has repeatedly stated that it has not detected beneficiary-access problems nor received significant beneficiary complaints. Additionally, CMS notes that the program is reducing fraud and overutilization, and reducing expenditures for DME. On February 24, 2014, CMS announced a request for information, to assist in the implementation of competitive bidding pricing for included items nationwide in 2017 and to consider reforms of capped rental policies and options for bundling-related categories into single payments. This update follows the October 1, 2013 CMS announcement of prices for the recompete of Round 1 of the CBP for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS). Round 1 of DME competitive bidding began in 9 Metropolitan Statistical Areas (MSAs) in January 2011, and CMS is required by law to rebid supplier contracts at least once every 3 years. The agency announced aggregate savings of 37% across categories, compared to 32% in the first Round 1. Average savings in Round 2 of competitive bidding (which applies to 91 MSAs) was 45%. Marwood notes that overall savings in the Round 1 Recompete have generally come in higher than the original Round 1 back in 2010, but have come in lower than the Round 2 prices announced in This signals to us that competitively bid pricing in the Medicare program is beginning to stabilize for DME. Round 2 contracts officially took effect on July 1, 2013, and expanded the program to 100 MSAs, encompassing over half the population of the United States. CMS is authorized to further expand competitive bidding by area and to additional product categories and to use competitive bidding prices to adjust payment for products under the DME fee schedule. By 2016, CMS must use prices based on competitive bidding rates where there is such a rate whether or not it is in an area that has competitive bidding. Additionally, the American Taxpayer Relief Act of 2012 requires CMS to use the single-payment amounts that are the result of the bidding for the reimbursement rate for retail diabetic test strips that are not mail-order. CMS added external infusion pumps and transcutaneous electronic nerve stimulation (TENS) devices to the categories for this recompete of Round 1. The bidding for this recompete occurred in the fall of 2012 and contracts took effect in On December 11, 2014, CMS announced the bidding timeline for the Round 2 Recompete and the national mail-order recompete of the DMEPOS CBP, as required by law. CMS opened the bidding window on January 22, 2015, and it closed March 25. The contracting process will begin in the winter of 2016 and implementation of the new contracts and prices will take place by July 1, 2016, according to CMS. On May 22, 2014, CMS issued a proposed rule that would build on a successful demonstration program and establish a prior authorization process for certain DMEPOS items. Under the proposed rule, the prior authorization process would not create new clinical documentation requirements. Instead, it would require the same information necessary to support Medicare payment, just earlier in the process. This would ensure that all relevant coverage, coding, and clinical documentation requirements are met before the item is furnished to the beneficiary and before the claim is submitted for payment. CMS is soliciting public comment on establishing a prior authorization process for certain DME and supply items that are frequently subject to unnecessary utilization. Additionally, CMS is soliciting public comments on the development of a Master List of items that may be subject to prior authorization based on the following: a history of improper payment, criteria for the Master List, and the process for implementing prior authorization for items on the Master List. CMS has yet to finalize this proposal.

2 81 On July 2, 2014, CMS released a proposed rule for End-Stage Renal Disease Prospective Payment System (ESRD PPS) for CY 2015, which included a proposal for implementation of competitive bidding-based prices for DMEPOS. This rule proposes methodologies to implement the use of information from the DME- POS CBP to adjust the fee schedule amounts for DME in areas where CBPs are not implemented. This rule also proposes to codify the specific exceptions when a device could be considered a prosthetic device and not subject to the hearing aid exclusion. Current rules prohibit the sale of a competitive bidding contract. However, CMS may permit the transfer of a contract to an entity that merges with or acquires a competitive bidding contract supplier if the new owner assumes all rights, obligations, and liabilities of the competitive bidding contract. This proposed rule would establish an exception to the prohibition against subdividing a contract that would allow a contract supplier to sell a distinct company which furnishes a specific product category (PC) or a specific competitive bidding area (CBA). Under this exception, CMS would sever the CBAs and PCs that the company serves, along with that company s location(s), from the original contract; incorporate those CBAs, PCs, and locations into a new contract; and transfer the contract to a new owner under specific circumstances. This change to the regulation would apply to all current and future rounds. In December 2014, CMS finalized the DMEPOS rule, implementing all of the proposed modifications to the program. Deficit reduction discussions have considered the following DME policies: a prepayment review for power wheelchairs with a possible $0.2 billion in savings over 10 years for Medicare; reductions to pharmacy payments for diabetic test strips that would produce $0.2 billion in savings over 10 years; and altering Medicaid DME payments for $5 billion in savings over 10 years. These proposals will likely resurface in deficit reduction efforts during The President s FY 2015 budget included limits to DME reimbursement for Medicaid beneficiaries that would cap reimbursement at the Medicare levels. This proposal would save a projected $3.1 billion over 10 years. Sequestration, as applied to Medicare, reduced payments by 2% beginning in April 2013 and will continue through 2024 under current law. Congress enacted a 12-month doc fix patch through March 31, In 2014, the ACA expansion resulted in approximately 8 million new Medicaid enrollees and over 8 million individuals enrolled in the state- and federally run exchanges. In 2015, Medicaid is projected to gain roughly 4 million additional enrollees (resulting in 46 million total lives) and the exchanges are expected to grow an additional 4 million, to roughly million. Background: DME includes items such as standard oxygen delivery systems, hospital beds, wheelchairs, sleep therapy devices, braces and crutches, artificial limbs, and parenteral and enteral nutrition products. DME also includes diabetes-related supplies such as glucose monitors, test strips, and lancets. DME suppliers are paid according to a fee schedule that reflects their historical charges to Medicare rather than current market prices. Typically, fees represent the average of the allowed charges from 1986 and 1987, adjusted by the consumer price index to account for inflation. Exceptions to this general rule include prices for: Customized equipment and medications; Most medications used in conjunction with DME; and Home oxygen.

3 82 CMS employs a separate fee schedule for each state to account for geographic differences in prices for equipment, paying the lesser of the provider s charge and the state fee schedule amount. Acceptable fees for orthotics and prosthetics are also determined by states, subject to regional limits. However, there is no state or regional variation in the price of drugs; the payment is determined by the location of beneficiaries as opposed to the location of the provider. Competitive Bidding Process and Rules: Certain categories of DME in select regions are supplied to Medicare beneficiaries under competitively bid contracts. Under the CBP, DMEPOS suppliers compete to become Medicare contract suppliers by submitting bids to furnish certain items in CBAs, and CMS awards contracts to enough suppliers to meet beneficiary demand for the bid items. The new, lower payment amounts resulting from the competition replace the Medicare DMEPOS fee schedule amounts for the bid items in these areas. Product categories: 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 Diabetic testing supplies (national mail-order) All contract suppliers must comply with Medicare enrollment rules, be licensed and accredited, and meet financial standards. Qualifications: All bidders must be accredited (or be in the process of becoming accredited) by a CMS-approved accreditation organization; All bidders must abide by final quality standards, including financial, business, and customer service standards, in addition to product-specific standards; and All bidders must provide evidence of financial resources to support potential market expansion. CMS will also analyze certain financial ratios of bidders. Bidding defined by Healthcare Common Procedure Coding System (HCPCS) codes: Bidding by product categories requires bidders to submit bids on multiple items (by HCPCS code) within the PC. CMS will aggregate these individual bids into a composite bid in order to compare bidders with each other. The composite bid would be equal to the weighted sum of the bids for the items in the PC; and Competitive bidding items will be classified by product categories and identified by HCPCS codes.

4 Suppliers may choose to bid on one, some, or all of the product categories, but if they bid on a category, they must bid on each item in the category. 83 Sufficient suppliers: If a supplier estimates that it can furnish more than 20% of the expected beneficiary demand for the PC in the CBA, CMS will lower that supplier s capacity estimate to 20%. This capacity adjustment is necessary to ensure that at least 5 suppliers furnish the items per PC; In an unlikely scenario, CMS will award at least 2 contracts if there are less than 5 suppliers meeting the requirements and these suppliers have sufficient capacity to satisfy beneficiary demand for the PC calculated; and The provisions do not apply to regional or nationwide mail-order CBAs. Selection of winners by price: Bidders who bid at or below the pivotal bid are winning bidders, assuming they meet accreditation and other requirements; The pivotal bid is the point where beneficiary demand is met by supplier capacity. Generally, all bids above this point (in $) are non-contract, or losing, bidders; CMS will evaluate the composite bid of all eligible bidders for an entire PC beginning with the lowest bid and adding subsequently higher bids until the capacity is met (pivotal bid); CMS will use the median price of the bids submitted by the winners; If one of the successful bidders decides not to accept a contract, then a contract will be offered to the supplier whose composite bid was the lowest of the unsuccessful bids; There is a 3-year term, subject to option/renewal; and There must be no discrimination against Medicare beneficiaries. Special rules for small suppliers: A small supplier is a supplier that generates gross revenue of $3.5 million or less (compared to the proposed rule s $6 million in revenues); CMS set a target number of 30% for small supplier participation. Small suppliers must meet all bidding requirements; CMS will review whether the number of small suppliers whose bids are at or below the pivotal bid is less than the 30% CMS target number; If the number of small suppliers is lower, CMS will offer small suppliers whose bids were closest to but above the pivotal (cutoff) bid the option of accepting a contract to furnish the PC at the contract amount; and The 30% target requires 30% of the winning bidders to be designated as small suppliers. This does NOT suggest that 30% of the Medicare payments in any PC will be directed to small suppliers. Networks: Small suppliers that are unable independently to serve the entire CBA may join a network; Networks must comply with all applicable laws, including the federal antitrust laws; The small suppliers forming the network must have market shares that do not exceed 20% of the expected beneficiary demand for the PC; and No more than 20 small suppliers may participate in a network.

5 84 Payments: CMS will pay the supplier 80% of the single payment amount for the item in the CBA where the beneficiary maintains a permanent residence; The remaining 20% will be the beneficiary s coinsurance responsibility; The payment amount will remain in effect for the full 3-year term of the contracts; Contract suppliers will be required to accept assignments; and Suppliers may still use Advance Beneficiary Notice of Noncoverage (ABNs) for items for which Medicare might not pay. Specific brands and modes of delivery: A physician may prescribe a particular brand of an item or a particular mode of delivery if it is determined that the brand or mode of delivery would avoid an adverse medical outcome for the beneficiary; The supplier must either provide the brand/mode prescribed or consult with the physician to find an appropriate alternative brand/mode and obtain a revised prescription or, alternatively, assist the beneficiary in locating a contract supplier that can furnish the prescribed item; and Medicare will pay the supplier only the single payment amount. The regulations specify that there is no extra payment for a specific brand or mode of delivery ordered by a physician. National Mail-Order Program: In the FY 2011 rule, CMS finalized its proposal for a national competitive bid program for mail-order diabetic supplies. The program awards contracts to suppliers to furnish replacement diabetic testing supplies across the nation. Regarding national mail-order bids, CMS: Requires contract suppliers to provide, at a minimum, 50% of all of the different types of diabetic testing products on the market by brand and model name Issued a proscription prohibiting contract suppliers from influencing or incentivizing beneficiaries to switch their brand of monitor and testing supplies. Recent Legislation: ACA incorporated a productivity adjustment into the DME annual update, effective In 2013, ACA created a 2.3% excise tax on medical devices, and generally requires that importers or distributors be responsible for paying the tax. The fee excludes eyeglasses, contact lenses, hearing aids, and other devices determined by the agency to be predominantly purchased at retail for individual use. IRS issued a final rule that applies a factors test for determining items that qualify for the individual use exemption. The final rule would allow, if the other factors are met, the individual purchase exemption to apply where devices come from DME suppliers. The tax raises $29 billion over the next 10 years. On April 26, 2013, Representative Tom Price (R-GA) and 150 cosponsors introduced H.R. 1717, promoting the modified bidding program supported by industry. Similar bills, H.R and H.R. 6490, were introduced in 2011 and 2012 and had similar support. The legislation was referred to the House Ways and Means Subcommittee on Health, but failed to report from the committee. In July 2014, Representative Price, as part of a bipartisan coalition, sent a letter to HHS OIG requesting a study be conducted on the DMEPOS CBP and the national mail-order program for diabetic testing supplies. The purpose of the study was to determine what impact these programs had on the accessibility and quality of care for beneficiaries. The results of the study have yet to be released.

6 85 Recent Regulation: On May 22, 2014, CMS issued a proposed rule that would build on a successful demonstration program and establish a prior authorization process for certain DMEPOS items. The proposed rule aims to prevent unnecessary utilization while ensuring beneficiaries access to medically necessary items. Under the proposed rule, the prior authorization process would not create new clinical documentation requirements. Instead, it would require the same information necessary to support Medicare payment, just earlier in the process. This would ensure that all relevant coverage, coding, and clinical documentation requirements are met before the item is furnished to the beneficiary and before the claim is submitted for payment. This helps ensure beneficiaries are not held responsible for the cost of items that are not eligible for Medicare payment. CMS believes prior authorization is an effective way to reduce or prevent fraudulent billings and improper payments for medical equipment and supply items. Currently, the DME prior authorization proposal has not been finalized. On July 2, 2014, CMS released a proposed rule for ESRD PPS for CY 2015, which included a proposal for implementation of competitive bidding-based prices for DMEPOS. This rule proposed methodologies to implement the use of information from the DMEPOS CBP to adjust the fee schedule amounts for DME in areas where CBPs is not implemented. The major provisions in this proposal were: Adjust fee schedule amounts for states in different regions of the country based on competitive bidding pricing from competitions in these regions. The regional prices would be limited by a national ceiling (110% of the average of regional prices) and floor (90% of the average of regional prices); Use national ceiling as adjusted fee for states that are predominantly rural or sparsely populated (frontier states); and Adjust fee schedule amounts for non-contiguous areas based on the average of competitive bidding pricing from these areas or the national ceiling, whichever is higher. In addition, the rule proposed a limited phase-in of bundled monthly payment amounts for the equipment, supplies, accessories, and any necessary maintenance and repairs for enteral nutrition, oxygen and oxygen equipment, standard manual wheelchairs, standard power wheelchairs, hospital beds, CPAP devices, and respiratory assist devices furnished under the CBP in place of capped rental policies. Extending the use of these payment rules to additional CBAs and/or items would be addressed through future notice and comment rule-making. This rule also proposed to codify the specific exceptions when a device could be considered a prosthetic device and not subject to the hearing aid exclusion, and the rule proposed to update the regulation to reflect program guidance on what specialized training is needed to provide custom fitting services if providers are not certified orthotists. The proposed rule would establish an exception to the prohibition against subdividing a contract that would allow a contract supplier to sell a distinct company which furnishes a specific PC or a specific CBA. Under this exception, CMS would sever the CBAs and PCs that the company serves, along with that company s location(s), from the original contract; incorporate those CBAs, PCs, and locations into a new contract; and transfer the contract to a new owner under specific circumstances. This change to the regulation would apply to all current and future rounds. On December 2, 2014, CMS finalized the CY 2015 ESRD and DMEPOS rule, implementing the above-

7 86 mentioned proposals without modification. On December 11, 2014, CMS announced the bidding timeline for Round 2 Recompete and the national mail-order recompete of the Medicare DMEPOS CBP, as required by law. CMS also launched a comprehensive bidder education program. This program is designed to ensure that DMEPOS suppliers interested in bidding receive the information and assistance they need to submit complete bids in a timely manner. CMS opened the bidding window on January 22, 2015, and it closed March 25. The contracting process will begin in the winter of 2016 and implementation of the new contracts and prices will take place by July 1, 2016, according to CMS. MedPAC: In September 2011, MedPAC released a report on reforming the SGR with potential offsets. MedPAC stated that $7 billion in proposed offsets could come from DME through extensions of the CBP across all previously non-eligible DME categories. With the continued pressure to replace the SGR this year, it is possible that Congress could use these recommendations from MedPAC for potential offsets. Medicaid: Payment rates for DME in Medicaid vary from state to state. DME is not a required Medicaid benefit, other than that provided as part of other covered services, but many DME items generally are covered by state Medicaid programs. In order to reduce expenditures for DME and supplies, states have considered or implemented a number of initiatives, such as manufacturer rebates, prior-authorization requirements, preferred-product lists, lower reimbursement levels, and competitive sole-source contracting. Additionally, the President s FY 2014 budget proposed setting a national upper payment limit on DME for Medicaid that would be set at Medicare prices. On August 2, 2013, CMS released guidance that directs dual eligible beneficiaries and those coordinating their care to only purchase DME from competitively bid providers. The guidance states, All Original Medicare beneficiaries who also have Medicaid coverage and who live in a CBA will have to get competitively bid DMEPOS from a Medicare contract supplier or a grandfathered supplier in most cases. Medicare beneficiaries within the CBA who are enrolled in managed care organizations (MCOs) will also be subject to the guidance if the MCO is paid a capitated rate that includes cost-sharing. If Medicare denies payment within a CBA for DME because it was not purchased through a competitively bid supplier, Medicaid will automatically deny payment and the beneficiary will be forced to pay out-of-pocket.