First Round of cuts scheduled for 2005

Wednesday, December 31, 2003

WASHINGTON - The first bruising punches of the Medicare Drug Act will come in January 2005 as a series of reimbursement hits to eight DME products that represent about two-thirds of CMS’s DME expenditures.

Seven of the reductions, based on the median price that private insurers reimburse for beneficiaries of federal employee health plans (FEHP), will range from 3% for the K0011 power wheelchair to 22% for the E0579 compressor nebulizer.

The eighth reduction, for home oxygen, will be revealed after the OIG presents a new pricing report this spring. Sources say the cut to home oxygen is likely to be about 10%. The OIG also is researching the K0011, and CMS has pledged to reduce reimbursement using its inherent reasonableness authority.

The decision by Congress to take a bite out of the HME provider’s bread and butter was a surprise to many who anticipated that Congress would legislate either competitive bidding or a CPI freeze, but not both. Instead, Congress is calling for both, in addition to this surprise round of new cuts.

The eight median FEHP prices referenced in the Medicare Drug Act’s language were contained in a 2002 letter and survey that the OIG produced for Sen. Tom Harkin, D-Iowa.

Already, critics are questioning the validity of FEHP cuts. In its letter to Harkin, the OIG itself admitted that its study was not comprehensive.

“This limited study was not designed to meet the rigorous inherent reasonableness standards for revising Medicare payment rates as defined by Section 4316 of the Balanced Budget Act of 1997,” the OIG analysts wrote in its June, 12 2002 letter.

The Medicare Drug Act legislation had called for seventeen FEHP cuts, but insiders say CMS has interpreted the language in such a way that only eight products will be affected.

The seven items accounted for $1.4 billion, or 21%, of the $6.8 billion that Medicare paid for DME in 2000. Oxygen accounts for roughly 45% of Medicare DME expenditures.

To determine the pricing, the OIG solicited pricing information from 58 fee-for-service FEHPs and received pricing information from 30.

The Office of Personal Management oversees about 200 different health plans, administered by companies such as Aetna and BCBS. The plans cover 9 million people, including 1.8 million active federal employees and about two million seniors.

The HME industry, as it begins to form a strategy to fight the FEHP cuts is likely to marshal two principal objections, said Cara Bachenheimer, vice president of government relations at Invacare.

One, the FEHP patient population, because it is younger and healthier than the Medicare population, requires far less service and follow-up than senior beneficiaries.

And two, the paperwork associated with private FEHP plans is far less arduous and costly than Medicare’s requirements.

“Typically, it’s just the claims form,” said Bachenheimer. “All the additional paperwork is non-existent.”

It will take an act of Congress to undo the FEHP cuts. If the cuts do proceed, providers worry that reimbursement in some of the product lines won’t allow them to make a profit.
Medicare Prescription Drug Act:
Here’s what’s in store for DME
- Freeze the CPI fee schedule for five years.

- Make accreditation mandatory.

- Implement competitive bidding in 2007 in the 10 largest metropolitan statistical areas for six or fewer items; two years later competitive bidding expands to the 80 largest metropolitan areas. CMS can use inherent reasonableness to expand competitive bidding prices for an item nationally.

- Reduce reimbursement for respiratory drugs from 95% of AWP to 85% in 2004. In 2005, reimbursement will be based on the average sales price plus 6%.

- Use the median prices set by the Federal Employee Health Benefit Plan to cut reimbursement for the top eight items and services. Tentatively, the list would include oxygen, wheelchairs, nebulizers, diabetic supplies and hospital beds/air mattresses. Cuts could be as high as 20%.