VGM Analyzes DME Provisions in Senate Health Reform Bill

News

WASHINGTON — The Senate Finance Committee has released the
legislative language for its health reform bill, “America’s Health
Future Act of 2009,” which was approved by a committee vote of 14
to 9 on Oct. 13.

Before it can move forward for a full Senate vote, the language
must be combined with the Senate Health, Education, Labor and
Pensions (HELP) Committee’s health reform bill, called the
“Affordable Health Choices Act.”

The following is an analysis from The VGM Group, Waterloo, Iowa,
of the Finance Committee’s DME provisions. View the full text of the bill obtained by VGM.

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Sec. 5010. Adjustments to the Medicare Durable Medical
Equipment, Prosthetics, Orthotics, and Supplies Competitive
Acquisition Program.

Present Law

Medicare Part B covers a wide variety of durable medical
equipment, prosthetics, orthotics, and other medical supplies
(DMEPOS) if they are medically necessary and are prescribed by a
physician.

Medicare pays for most durable medical equipment (DME) on the
basis of a fee schedule. The Medicare Prescription Drug Improvement
and Modernization Act of 2003 (MMA, P.L. 108-173) required the
Secretary to establish a competitive acquisition program for
specified durable medical equipment; the single payment amount
derived from the competitive acquisition program would replace the
Medicare fee schedule payments. The Medicare Improvements for
Patients and Providers Act of 2008 (MIPPA, P.L. 110-271) delayed
the phase-in and made changes to the program. The program is to be
phased-in, starting in nine of the largest metropolitan statistical
areas (MSAs) in 2009 (round one), expanding to an additional 70 of
the largest MSAs in 2011 (round two), and remaining areas after
2011.

Starting in 2011, the Secretary has the authority to use
information on payments determined in competitive acquisition areas
to adjust payments for items and services in non-competitive
acquisition areas. Before 2015, the following three types of areas
are exempt from the competitive acquisition program: (a) rural
areas; (b) metropolitan statistical areas (MSA) not selected under
round one or round two with a population of less than 250,000; and
(c) areas with a low population density within an MSA that is
otherwise selected to be part of the competitive acquisition
program.

Committee Bill

The Committee Bill would require the Secretary to expand the
number of areas to be included in Round Two of the program from 79
of the largest MSAs to 100 of the largest MSAs by including the
next 21 largest MSAs by population. The provision would also
require that the Secretary extend the competitive acquisition
program, or apply competitively-bid rates, to the remaining areas
by 2016. All other provisions in Present Law would remain in place,
such as the Secretary’s discretion to exempt rural areas and areas
with low population density within an MSA.

Sec. 3136. Revision of Payment for Power-Driven
Wheelchairs.

Present Law

Wheelchairs, including power-driven wheelchairs, are covered by
Medicare under the capped-rental category of the durable medical
equipment (DME) benefit. Medicare pays for power-driven wheelchairs
in one of two ways: either Medicare will pay the supplier a monthly
rental amount during the beneficiary’s period of medical need
(though payments are not to exceed 13 continuous months), or the
payment is made on a lump-sum basis at the time the supplier
furnishes the chair if the beneficiary chooses the lump-sum payment
option. If the reasonable lifetime of a power-driven wheelchair is
reached, or the wheelchair is lost or irreparably damaged, Medicare
will pay for a replacement. The beneficiary may elect to have the
replacement purchased through either monthly rental payments not to
exceed 13 months, or a lump-sum payment.

Rental payments for wheelchairs are statutorily determined as
ten percent of the purchase price of the chair for each of the
first three months of rental and 7.5 percent of the purchase price
for each of the remaining ten months of the rental period.

Medicare pays for most DME on the basis of a fee schedule.
However, the Medicare Prescription Drug Improvement and
Modernization Act of 2003 (MMA, 108-173) required the Secretary to
establish a competitive acquisition program for specified durable
medical equipment; the competitive acquisition program would
replace the Medicare fee schedule payments. The program is to be
phased-in, starting in nine of the largest metropolitan statistical
areas (MSAs) in 2009; expanding to 80 of the largest MSAs in 2011
and remaining areas after 2011.

Committee Bill

Starting January 1, 2011, the Committee Bill would limit the
option to purchase a power-driven wheelchair with a lump-sum
payment only to complex, rehabilitative power wheelchairs. The
lump-sum payment option would be eliminated for all other
wheelchairs. The provision would also eliminate the lump-sum
purchase option for replacing a wheelchair for all chairs except
complex, rehabilitative power wheelchairs. This provision would not
apply to competitive acquisition areas prior to January 1,
2011.

Also starting January 1, 2011, the Committee Bill would change
the calculation of the rental payment for power-driven wheel
chairs. The rental payment for power-driven wheelchairs would be 15
percent of the purchase price for each of the first three months
(instead of ten percent), and six percent of the purchase price for
each of the remaining ten months of the rental period (instead of
7.5 percent).

Productivity Adjustments:

Certain durable medical equipment. The productivity
adjustment factor would be applied to the CPI-U used to increase
the fee schedules for certain durable medical equipment (DME)
beginning in CY2011. Under Present Law, certain DME are to receive
a payment increase of CPI-U plus 2 percentage points in CY2014. The
provision would eliminate the two percentage point increase.

Prosthetic devices, orthotics, and
prosthetics. The productivity adjustment
factor would be applied to the CPI-U update for the applicable fee
schedule for this DME category starting in CY2011.

Other items. The productivity
adjustment factor would be applied to the CPI-U update for this DME
category starting in CY2011.

Sec. 6009. Imposition of Annual Fee on Medical Device
Manufacturers and Importers.

Present Law

IRS authority to assess and collect taxes is generally provided
in subtitle F of the Code (secs. 6001 -7874), relating to procedure
and administration. That subtitle establishes the rules governing
both how taxpayers are required to report information to the IRS
and to pay their taxes, as well as their rights. It also
establishes the duties and authority of the IRS to enforce the
Federal tax law, and sets forth rules relating to judicial
proceedings involving Federal tax.

Present law does not impose an annual sector fee on companies
that manufacture or import medical devices for sale in the United
States.

Committee Bill

The Committee Bill imposes a fee each calendar year on each
covered entity engaged in the business of manufacturing or
importing medical devices offered for sale in the United States.
The aggregate fee under the provision is $4 billion payable
annually beginning in 2010. The fee is due each calendar year
on a date to be determined by the Secretary, but in no event later
than September 30th. Under the provision, the aggregate fee would
be apportioned among the covered entities each year based on each
entity’s relative share of gross receipts from medical device sales
taken into account for the prior year.

A covered entity is defined under the provision as any
manufacturer or importer with gross receipts from medical device
sales. For purposes of the provision, covered entity includes all
persons treated as a single employer under subsection (a) or (b) of
section 52 or subsection (m) or (o) of section 414. The otherwise
applicable exclusion of foreign corporations under those rules is
disregarded for these purposes.

Under the Committee Bill, medical device sales means sales for
use in the United States of any medical device, other than the
sales of a medical device that has been classified in class II
under section 513 of the Federal Food, Drug, and Cosmetic Act and
is primarily sold to consumers at retail for not more than $100 per
unit, or has been classified in class I under such section. A
medical device is any device as defined in section 201(h) of the
Federal Food, Drug, and Cosmetic Act intended for humans. The
Secretary has authority under this provision to publish guidance
necessary to carry out the purposes of this provision. It is
expected that the Secretary will provide guidance as to class II
items primarily sold to consumers at retail for not more than $100
per unit, such as a list of class II items excluded under this
provision. The provision is intended to exclude low cost items
(such as pregnancy tests, contact lenses, and blood pressure
monitors) that are normally sold directly to consumers through
retail outlets.

The Committee intends that a unit is an entire item as typically
sold (for example a box of 30 disposable contact lenses), and does
not refer to an item’s component parts. Additionally the Secretary
may publish guidance for the treatment of gross receipts from the
sale of medical devices by a covered entity directly to another
covered entity for use as a material in the manufacture or
production of, or as a component part of a medical device for
subsequent sale in order to eliminate double inclusion of the gross
receipts from such sales.

Under the Committee Bill, each covered entity is required to
file an annual report of its gross receipts from medical device
sales for the preceding calendar year. Under the provision, a
covered entity’s individual assessment for each calendar year is
the total fee multiplied by the ratio of (1) the covered entity’s
gross receipts from medical device sales taken into account during
the preceding calendar year to (2) the aggregate gross receipts
from medical device sales of all covered entities taken into
account during such preceding calendar year.

Sales taken into account for this purpose includes zero percent
of a covered entity’s gross receipts from medical device sales for
the preceding calendar year up to $5 million; 50 percent of a
covered entity’s gross receipts from medical device sales for the
preceding calendar year over $5 million and up to $25 million; and
100 percent of a covered entity’s gross receipts from medical
device sales for the preceding calendar year over $25 million.

The following is an example of how the relative market share
would be determined if the medical device market included three
covered entities, Company A with gross receipts from covered
medical device sales of $1 million, Company B with gross receipts
from covered medical device sales of $20 million and Company C with
gross receipts from covered medical device sales of $979 million
for a combined market of $1 billion.

Effective Date

The Committee Bill is effective for calendar years beginning
after 2009. The fee is allocated based on the market share of gross
receipts from medical device sales for calendar years beginning
after December 31, 2008.

Sec. 3110. Exemption of Certain Pharmacies from Accreditation
Requirements.

Present Law

MMA required the Secretary to establish and implement quality
standards for suppliers of durable medical equipment, prosthetics
and supplies (DMEPOS) under Part B of Medicare. MIPPA requires
DMEPOS suppliers to prove their compliance with the quality
standards by being accredited by October 1, 2009. MIPPA, however,
exempted eligible professionals from having to comply with the
accreditation requirement unless the standards and accreditation
requirements being applied were specifically designed to be applied
to those professionals.

The statutes defines the following as eligible professionals:
physicians, physical or occupational therapists, qualified
speech-language pathologists, qualified audiologists, physician
assistants, nurse practitioners, clinical nurse specialists,
certified registered nurse anesthetists, certified nurse-midwives,
clinical social workers, clinical psychologists, or registered
dietitians or nutrition professionals. The Secretary was given
authority to exempt additional professionals from the accreditation
requirements. Pharmacists and pharmacies were not listed as exempt
from the accreditation requirements.

Committee Bill

Effective January 1, 2010, the Committee Bill would make certain
pharmacies eligible for an exemption from the accreditation
requirements. A pharmacy would be exempt from the accreditation
requirements under the following circumstances: (1) the pharmacy
submits an attestation that its total Medicare DMEPOS billings are,
and continue to be, less than a rolling three year average of five
percent of total pharmacy sales; (2) the pharmacy submits an
attestation that it is enrolled as a provider of durable medical
equipment, prosthetics, orthotics, and supplies under the Medicare
program for at least 5 years and has had no adverse determination
against it for the last five years due to fraud; and (3) the
pharmacy is willing to submit documentation to the Secretary (based
on a random sample of pharmacies) that would allow the Secretary to
verify the information in (1) and (2). The documentation submitted
for (3) would be required to consist of an accountant certification
or filing of tax returns by the pharmacy.

The provision would also allow the Secretary to determine
accreditation standards that are more appropriate for pharmacies.
The Secretary would have the authority to implement this amendment
by program instruction or otherwise.

Sec. 5005. Physicians who Order Items and Services Required to
be Medicare Enrolled Physicians or Eligible Professionals.

Present Law

Medicare statute defines eligible professionals as physicians,
certain types of practitioners (i.e., physician assistants, nurse
practitioners, clinical social workers, and others), physical or
occupational therapists, qualified speech language pathologists, or
qualified audiologists.

Committee Bill

Beginning January 1, 2010, the Committee Bill would require
durable medical equipment or home health services to be ordered by
a Medicare eligible professional or physician enrolled in the
Medicare program. The Secretary would have the authority to extend
these requirements to other Medicare items and services, including
covered Part D drugs, to reduce fraud, waste, and abuse.

Sec. 5007. Face-to-Face Encounter with Patient Required Before
Physicians May Certify Eligibility for Home Health Services or
Durable Medical Equipment Under Medicare.

Present Law

Home health services are covered under Medicare Parts A and B.
In order to receive payment from Medicare, physicians are required
to certify and re-certify that specified services (i.e., inpatient
psychiatric services, post-hospital extended care services, and
home health services) meet certain conditions. In the case of home
health services, physicians are required to certify that such
services were required because the individual was confined to his
home and needed skilled nursing care or physical, speech, or
occupational therapy; a plan for furnishing services to the
individual has been established; and such services were provided
under the care of a physician.

In the case of DME, the Secretary is authorized to require that
payment be made for specified covered items and services only if a
physician has submitted to the supplier a written order for the
item.

Committee Bill

The Committee Bill would require that, after January 1, 2010,
physicians have a face-to-face encounter (including through
telehealth) with the individual prior to issuing a certification
for home health services or DME as a condition for payment under
Medicare Parts A and B. The Committee Bill would also apply to
physicians making home health and DME certifications in Medicaid
and CHIP. Physicians must document that they had the face-to-face
encounter with the individual during the six-month period preceding
the certification, or other reasonable timeframe as determined by
the Secretary. The Secretary would be authorized to apply the
face-to-face encounter requirement to other Medicare items and
services based upon a finding that doing so would reduce the risk
of fraud, waste, and abuse.

Sec. 5011. Expansion of the Recovery Audit Contractor (RAC)
Program.

Present Law

Recovery Audit Contractors (RACs) are private organizations that
contract with the CMS to identify and collect improper payments
made in Medicare’s fee-for-service (FFS) program. In the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA,
P.L. 108-173), Congress required the Secretary to conduct a
three-year demonstration of RACs. However, the Tax Relief and
Health Care Act of 2006 (TRHCA, P.L. 109-432) made the RAC program
permanent and mandated its expansion nationwide by January 1, 2010.
The RAC program expansion still applied only to Medicare Parts A
and B. CMS began the national rollout of the permanent RAC program
in 19 states in March 2009.

Committee Bill

By December 31, 2010, states would be required to establish
contracts, consistent with state law, and similar to the contracts
the Secretary has established for the Medicare RAC program, with
one or more RACs. These state RAC contracts would be established to
identify underpayments and overpayments and to recoup overpayments
made for services provided under state Medicaid plans as well as
state plan waivers.

The state Medicaid RAC program would be subject to exceptions
and requirements the Secretary may establish for the state RAC
program or for individual states. States would be required to
provide the Secretary with the following assurances for their RAC
programs:

(1) RACs would be paid only from recovered amounts;

(2) the contracts would be contingent on collecting
overpayments;

(3) payments may be made in such amounts as the state may
specify for identifying underpayments;

(4) the state has a process for appealing adverse RAC
determinations;

(5) the state’s RAC program follows requirements established by
the Secretary;

(6) amounts expended by the state would be considered
administrative expenditures (as necessary for the proper and
efficient administration of the state plan or waiver);

(7) recovered amounts would be subject to a state’s quarterly
expenditure estimates and the funding of the state’s share; and

(8) the state will coordinate the efforts of RACs with other
program integrity contractors performing audits of entities
receiving payments for any Medicaid services, including
coordination with Federal and state law enforcement (the Department
of Justice, the Federal Bureau of Investigation, the HHS OIG, and
the state Medicaid fraud control unit.

The Secretary, acting through CMS, would be required to
coordinate with states on the RAC program expansion to Medicaid,
particularly to ensure that each state enters into a contract with
a RAC prior to December 31, 2010. The Secretary would be required
to promulgate regulations to implement the RAC program expansion to
Medicaid, including conditions for Federal financial
participation.

In addition, the Secretary would be required to submit an annual
report to Congress. The Secretary’s report would assess the
effectiveness of the RAC program expansion to Medicaid and Medicare
Parts C and D and also would include recommendations for expanding
or improving the program.

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