Prescription for Change

It’s been a few weeks since Dec. 8, when President Bush signed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 into law. With regard to its impact on the home medical equipment industry, this is, without a doubt, the most devastating package of legislation ever passed by Congress.

The following summary details some of the many HME-related provisions in the new law and explains the potential impact of those provisions on individual providers and the industry as a whole.

Mandatory Accreditation

The U.S. Dept. of Health and Human Services will establish and implement “quality standards” to be applied by independent accreditation organizations. Durable medical equipment suppliers must comply with these standards in order to furnish DME to Medicare beneficiaries and to receive and retain their Medicare supplier numbers.

These quality standards will apply to DME, orthotics and prosthetics, medical supplies and parenteral and enteral nutrition (PEN). Within one year of the date the quality standards are implemented, HHS will designate one or more independent accrediting organizations.

Since there is no effective date, this provision is likely to be a “back-burner” issue for CMS, given the agency’s overwhelming workload to implement the many prescription drug provisions.

Face-to-Face Examination

HHS will specify certain items that require a face-to-face examination of a Medicare beneficiary by a physician, or other qualified prescriber, and a prescription before a supplier can submit a claim to Medicare.

Power wheelchairs will be added to the list of items requiring a prescription prior to delivery. Further, upon medical review, the durable medical equipment regional carriers will be looking at the patient’s medical record for evidence that an in-person examination was performed by a physician, and that those medical records reflect the need for and prescription of a power wheelchair.

This provision was effective on Dec. 8, 2003, the date of enactment. (See the “Headline News” section in this issue for more.) It is unclear how CMS will define what constitutes a “face-to-face” examination and the timeframe within which an examination must be performed prior to the physician completing the certificate of medical necessity.

HHS is required to apply these same standards to items for which the department determines there has been a proliferation of use, consistent findings of charges for items not delivered or consistent findings of falsification of documentation.

Competitive Bidding

CMS will establish “competitive acquisition areas” in the 10 largest metropolitan statistical areas (MSAs) in 2007 (currently, these are New York-Northern New Jersey; Los Angeles; Chicago; Washington-Baltimore; San Francisco-Oakland-San Jose, Calif.; Philadelphia-Wilmington, Del.; Boston; Detroit; Dallas and Houston), and in the 80 largest MSAs in 2009.

The first items to be included will be the highest cost and highest volume items, or those items determined to have the largest savings potential. Competitive acquisition applies to the following items: DME, including items used in infusion and drugs and supplies used in conjunction with DME; enteral nutrition and supplies; and off-the-shelf orthotics. Items excluded are inhalation drugs used with DME, Class III devices and parenteral nutrition and supplies.

HHS can exempt (1) rural or low population density areas unless there is a significant national market through mail order for the item or service, and (2) items and services not likely to result in significant savings.

In the case of oxygen, suppliers providing services before the start of the competitive acquisition program will be able to continue to provide oxygen to their beneficiaries, at the bid rate, after the competitive bidding program is implemented.

HHS and CMS will award multiple winners of bids, but may limit the number of winners to the number of suppliers needed to meet projected demand for items and services.

Mandatory assignment limits beneficiary out-of-pocket payments to 20 percent of allowable. However, this does not preclude the use of an advanced beneficiary notice with respect to the provision of a competitively priced item or service.

To protect small suppliers, the HHS will take “appropriate steps” to ensure that small suppliers have an opportunity to be considered for participation in the program.

HHS will establish a program advisory and oversight committee to advise the department on implementation and establishment of financial standards; establishment of requirements for collection of data for the efficient management of the program; the development of proposals for efficient interaction among manufacturers, providers of services, suppliers and individuals; and the establishment of quality standards. This committee will terminate on Dec. 31, 2009.

There is no administrative or judicial review of the establishment of payment amounts, awarding of contracts, designation of competitive acquisition areas, the phased-in implementation, selection of items and services to be included or the bidding structure and number of contractors selected. (This is an onerous limitation that will eliminate the industry’s ability to challenge the processes and results of the entire competitive bidding process.)

HHS will submit a report to Congress by July 1, 2009, including information on savings, reductions in cost sharing, access to and quality of items and services, and satisfaction of affected individuals. In addition, the General Accounting Office will conduct a study on the impact of competitive acquisition of DME on suppliers, manufacturers and patients, and will include the impact on access to and quality of the items. The GAO will submit its report and recommendations to Congress by Jan. 1, 2009.

Clearly, competitive bidding will have a major impact on providers. It is likely to exclude many companies currently providing Medicare beneficiaries with DME items and services. Because it will be implemented in phases, competitive bidding will be extremely complex for the government to administer. The industry must work to ensure that Congress repeals this provision as soon as possible — no later than its initial implementation year of 2007.

Transitional Freeze

For 2004 through 2008, there will be no covered item update, except for Class III devices. Therefore, the DME fee schedules will not receive an inflation-based update in these years.

Competitive Bid Rates Used For IR Authority

Effective Jan. 1, 2009, HHS may use information on the payment amounts determined in the competitive acquisition areas to adjust the payment amounts for items not in a competitive acquisition area. This provision will enable CMS to use competitive bidding rates across the country without going through the administrative complexities of establishing competitive bidding nationwide.

Changes to AWP

Effective Jan. 1, 2004, Medicare Part B pays for inhalation drugs administered through DME at 85 percent of the average wholesale price (AWP) as of April 1, 2003, or at an amount published in a recent GAO and OIG study, if that amount is between 80 and 85 percent. AWP may also be determined by the HHS based on data that was submitted by a manufacturer to the Secretary by Oct. 15, 2003. In none of these cases will AWP be less than 80 percent.

Payment Reductions Based On FEHBP Prices

Beginning in 2005, Medicare payments for eight DME items will be reduced based upon the median Federal Employees Health Benefits Program (FEHBP) price, as reported in the Office of Inspector General’s June 12, 2002, testimony before the Senate Committee on Appropriations (or in any other subsequent report by the Inspector General).

The draft Medicare Conference Agreement identified oxygen and oxygen equipment as subject to reductions, but those items were not included in the OIG report. However, an OIG report is in progress on this issue, and is expected to be released in April 2004 with comparisons to FEHBP pricing for home oxygen.

The chart on this page identifies the OIG-reported FEHBP payment amount and the percentage difference between the FEHBP amount and the Medicare 2002 allowable for the item.

A specialist in health care legislation, regulations and government relations, Cara C. Bachenheimer is vice president, government relations, for Invacare Corp., Elyria, Ohio. Bachenheimer previously worked at the law firm of Epstein, Becker & Green in Washington, D.C., and at the American Association for Homecare and the Health Industry Distributors Association. You can reach her by phone at 440/329-6226 or by e-mail at [email protected].