CMS finalized inherent reasonableness

Sunday, December 18, 2005

WASHINGTON - CMS's final rule on inherent reasonableness takes effect Feb. 13, 2006.

The rule finalizes the interim final rule that CMS published in December 2002. Inherent reasonableness is the authority to adjust payments for home medical equipment if CMS believes such payments are unreasonably high or low.

The final rule published last week does not make any substantive changes to the 2002 interim final rule, according to AAHomecare. CMS has considerable discretion in how it uses its inherent reasonableness authority, which is a concern to AAHomecare. In comments to CMS on the interim final rule in February 2003, AAHomecare stated, "While we are encouraged by CMS's 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."

However, CMS is required to make certain that the application of IR is based on "valid and reliable data." The key points in the final rule, according to AAHomecare, include:

-- A Medicare payment amount will be considered grossly excessive or grossly deficient when the overall payment adjustment is 15% or more.

-- The statute authorizes two procedures for performing IR. A formal procedure requiring notice and comment in the Federal Register applies for payment adjustments of 15% or more, and an informal procedure for adjustments of less than 15%. Medicare contractors like the DMERCs can carry out the informal procedure.

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

-- CMS clarified that given the new payment methodologies for outpatient drugs covered under Part B, CMS did not anticipate using IR to make payment adjustments for Part B drugs. But CMS retained its authority to apply IR to Part B drugs in the event there is a need to adjust the payment amounts in the future.

-- CMS or the carrier must ensure that both the determination that a payment adjustment is necessary and the new payment amount arrived at through the use of IR is based on "valid and reliable" data. This requires CMS or the DMERC to develop guidelines for data collection and analysis; ensure consistency in the survey process; and consider the geographic distribution of Medicare beneficiaries, among other requirements.