Deep back-door IR cuts on DME items sought by HCFA
By MATTHEW HAY
HHBR Washington Correspondent
BALTIMORE The Health Care Financing Administration (HCFA; Baltimore) issued a proposed rule last week that creates special payment limits for five items of durable medical equipment (DME) and one prosthetic device using a rarely used provision that allows it to make reductions based on inherent reasonableness (IR). The proposed rule would slash reimbursement for these items 22% to 57%. DME providers see the cuts as part of the agency’s long-running campaign to expand its pricing authority using this authority.
The six items included in the Aug. 13 Federal Register notice are folding walkers (pick-up) (E0135), wheeled walkers without seats (E0143), commode chairs with fixed arms (E0163), TENS units (2 lead) (0720), TENS units (4 lead) (EO730), and vacuum erection systems (L7900). HCFA plans to phase the reductions in over a period of two to four years.
The notice proposes that payment for these items be 80% of the actual charges for the items or the special payment limits set for the items established in the proposed rule, whichever is less. "It is intended to prevent continuation of excessive payment for these items," according to the notice.
HCFA based these revisions on a comparison of the 1998 fee schedule and what the Department of Veterans Affairs (VA; Washington) pays for these items. HCFA then marked up the 1998 VA wholesale price by 67% to come up with the new fees. "The notice gives no indication any consideration was given to prevailing retail prices, what other health plans pay, or any other factors," said Invacare Corp. (Elyria, OH) Director of Government Relations Dave Williams.
The proposed payment limits would replace the current fee schedule amounts for these items. Currently, payment under the Medicare program for these items is equal to 80% of the lesser of the actual charge for the item or the fee schedule amount for the item. HCFA said it determined that Medicare fee schedule amounts for the items were not inherently reasonable because they are grossly excessive compared to the amounts paid for these items by the VA.
The DME industry knew the proposal was under review at the Office of Management and Budget (Washington) prior to its publication. "But the details of the proposal were tightly guarded secrets prior to publication," according to Williams. He said this action is the first time in several years that HCFA has invoked its long established authority to reduce fees it finds to be inherently unreasonable.
"We kept hearing whisperings from HCFA that this was in the works, but we did not know what items were going to be included," said Erin Bush of the Health Industry Distributors Association (Alexandria, VA). "This is under the old authority, not the new authority that was granted through the Balanced Budget Act of 1997 (BBA)," said Bush. "Because this is the old authority it gives HCFA the ability to cut more than 15%, but constrains them in that they have to go through the normal notice and comment period so they can’t just do it by fiat." Bush said this is the method HCFA used to reduce payments for blood glucose monitors in the late 1980s. "I think that is the only time this has ever been used before," she added.
Bush said HCFA selected these items from an examination known as "the 100 items study," completed several years ago, which looked at pricing of DME items with the 100 top HCPCS codes and whether the reimbursement rates were equitable to reimbursement by other payers. "There were many problems with the study, and (former HCFA Administrator) Bruce Vladeck was taken to task by Congress," she said. "Finally, they put out the study that said roughly 20% of the items should have increased reimbursement and roughly 20% should have decreased reimbursement, and the rest were OK."
Bush said HCFA selected these six items because they had the highest outlay amounts for Medicare compared to what the VA paid. "For some reason, that is not at all obvious to anybody, yet they took the VA price and marked it up by 67%," she added.
HCFA’s new IR tactic comes in the wake of news about further delays in proposed IR cuts for six other items, including Category I enteral nutrition formulas and home blood glucose monitors. Those cuts were made under the expanded IR authority that was included in the BBA, which allows HCFA to bypass the notice and comment process if the reduction is less than 15%. But critics charged HCFA with misusing that authority by limiting its reductions to 15% a year, then proposing further cuts later.
House Ways and Means Health Subcommittee Chairman Bill Thomas (R-CA) asked the General Accounting Office (GAO; Washington) to examine whether the agency had overstepped its authority. Even if GAO completes its report this fall, HCFA won’t be able to take any action until next summer because of Y2K updates.
"The good news is that HCFA has admitted they can’t go forward with it until the middle of next summer no matter what GAO comes out with," said one industry representative. HCFA had earlier signaled that it had to have the final IR numbers this month in order to make the necessary system edits or they could not go forward with it until well after the Y2K transmission, the representative added.
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