CMS Finalizes ‘Inherent Reasonableness’ Rule

BALTIMORE–In an effort to eliminate excessive profits, CMS
announced last week that it would continue to reduce reimbursements
for some Medicare Part B services and equipment when payments are
excessively high.

The agency finalized its “inherent reasonableness” rule,
published in Tuesday’s Federal Register, without substantial
changes to its interim policy, which was published in December
2002. The rule applies to Medicare Part B services other than
physician services or those paid under a prospective payment
system. It also applies to orthotics and prosthetics but not Part B
drugs, although CMS retained the authority to apply IR to these
drug payments in the future.

According to the rule, when the payments for a particular item
or service are found to be “grossly excessive or deficient” by 15
percent–and, therefore, not inherently reasonable–the agency has
the authority to make payment adjustments.

In the rule, CMS said that such an adjustment to reduce
reimbursement “will merely serve as a vehicle for eliminating
excessive profits. An adjustment would benefit the Medicare program
by reducing costs and benefit beneficiaries by reducing coinsurance
payments.”

The agency also said it will monitor complaints about adjusted
payments from beneficiaries, suppliers, providers and others
regarding patient access, and does not believe that using its
authority will limit beneficiaries’ choice of equipment or
services.

“If a payment amount is adjusted upward because it is deficient,
it will benefit suppliers and beneficiaries. A more generous
payment amount may result in greater availability of items and
services to Medicare and beneficiaries,” CMS stated. If the payment
is adjusted downward, the agency said, “the lower payment amount
should not necessarily result in a lack of availability of items
and services because the revised payment amount would be realistic
and equitable.”

CMS also said it will publish impact statements whenever the
dollar impact of inherent reasonableness determinations exceeds
$100 million in any year or when payment adjustments would have a
significant impact on a large number of small businesses.

In response to the final rule, the American Association for
Homecare said it is concerned that CMS has “considerable discretion
in how it uses its inherent reasonableness authority.”

Even though CMS must base the application of IR on “valid and
reliable data,” the association pointed out that the statute
authorizes two procedures for performing IR: a formal procedure
requiring notice and comment in the Federal Register for
adjustments of 15 percent or more, and an informal procedure for
adjustments of less than 15 percent, which can be carried out by
Medicare contractors such as the DMERCs.

The rule permits CMS to delegate IR to the DMERCs for overall
payment adjustments greater than 15 percent, as long as the payment
adjustment does not exceed 15 percent in any one year. “In other
words,” the association noted, “the DMERCs can implement a 30
percent reduction for an item of DME staggered over two years (15
percent each year).”

In comments to CMS on the interim final rule in 2003, AAHomecare
stated: “While we are encouraged by CMS’ choice of a quantitative
bright-line test for determining what payment adjustments will
trigger the IR authority, the regulation remains vague with respect
to the factors CMS or the contractors will consider in arriving at
that determination.”

To view the rule, which takes effect Feb. 13,
click here.