Inherent Reasonableness of Fee Schedule Amounts for Non-Mail Order Diabetic Testing Supplies

1. Inherent Reasonableness of Fee Schedule Amounts for Non-Mail Order Diabetic Testing Supplies Joel Kaiser Division of DMEPOS Policy Chronic Care Policy Group Center for Medicare

2. Inherent Reasonableness (IR) • Authority provided by section 1842(b)(8) of the Social Security Act (the Act) for adjusting grossly excessive or deficient Medicare fee schedule amounts • Before making a determination that a payment amount is not inherently reasonable by reason of its grossly excessive or deficient amount, CMS must consult with representatives of suppliers likely to be affected by the change in the payment amount

3. Mandate for Competitive Bidding • Section 1847(a)(2)(A) of the Act mandates competitive bidding programs for durable medical equipment (DME) and supplies used in conjunction with DME, such as test strips, lancets and other supplies used with home blood glucose monitors. • The highest cost and highest volume items and services or those that have the largest savings potential must be phased in first under the program.

4. Phased In Items and Services • Competitive bidding programs have begun for: • Oxygen and Oxygen Equipment (over $2 billion in annual allowed charges) • Mail Order Diabetic Testing Supplies (over $1 billion) • Wheelchairs (over $800 million) • Continuous Positive Airway Pressure Devices and Respiratory Assist Devices (over $600 million) • Enteral Nutrients, Supplies, and Equipment (over $500 million) • Non-mail order diabetic testing supplies is last major category ($552 million in 2011) to be phased in

5. Mail Order Diabetic Testing Supplies • In 2011, 73% of total allowed services for diabetic testing supplies were identified on the claim form as furnished via mail order to the beneficiary’s home (HCPCS modifier KL). Total allowed charges for these supplies were $1,045,633,866. • Contracts and national mail order payment amounts for diabetic testing supplies are scheduled to be implemented on July 1, 2013. The new mail order definition that includes all deliveries to the beneficiary and the anti-switching rule take effect at this time.

6. Non-Mail Order Diabetic Testing Supplies • Effective on July 1, 2013, only items that a beneficiary or caregiver picks up in person at a local pharmacy or storefront will be considered non-mail order supplies. The beneficiary or caregiver must leave the store with the supplies as all types of deliveries are considered mail order. • Non-mail order diabetic testing supplies are the only DME items you must pick up in person.

7. Competitive Bidding for Non-Mail Order Diabetic Testing Supplies • Would involve awarding contracts to enough local pharmacies and storefronts capable of meeting demand for non-mail order supplies in each competitive bidding area • Could be as few as 5 local suppliers in an area • All other local suppliers would be unable to receive payment for furnishing non-mail order supplies

8. Price Discrepancy • The single payment amounts for mail order diabetic testing strips (A4253) delivered in the nine local Round One Rebid competitive bidding areas range from $13.88 to $15.62. • The national average fee schedule amount for non-mail order test strips is currently $37.67. • The impact of this significant price discrepancy will be national in scope once the national mail order payment amounts take effect on July 1, 2013.

9. Round One Recompete Product Categories • On April 17, 2012, CMS announced the product categories for the Round One Recompete • A decision not to include non-mail order diabetic testing supplies was part of this announcement. • This delay in phasing in these items was made in order to explore use of the IR authority to achieve mandated savings for these items, which would not involve local suppliers competing for contracts.

10. The IR Option • Can potentially reduce the price discrepancy between mail order and non-mail order sooner than implementing competitive bidding • Allows all enrolled suppliers, such as community pharmacies, to continue furnishing diabetic testing supplies to Medicare beneficiaries who prefer to pick up their supplies for various reasons, such as speaking with a pharmacist in person rather than over the phone

11. Steps of the IR Process – 42 CFR 405.502(h) • Impact Analysis – consider the potential impact of special payment limits on quality, access, beneficiary liability, assignment rates, and participation of suppliers • Supplier Consultation – consult with representatives of suppliers likely to be affected by changes in payment amounts before making a determination that the amounts are not inherently reasonable • Publication of National Limits – publish proposed and final notices in the Federal Register

12. Publication of National Limits • Proposed Notice: • Explains the factors and data considered in determining that the payment amounts are grossly excessive or deficient • Specifies the proposed payment amounts • Explains the factors and data considered in determining the payment amounts including the economic justification for a uniform payment limit, if it is proposed • Explains the potential impacts of the payment limits • Allows no less than 60 days for public comments on the proposed payment limits

13. Publication of National Limits • Final Notice: • Explains the factors and data considered • Responds to the public comments • Establishes effective date for special payment limits

14. Public Comments • Pros and Cons of achieving mandated savings via competitive bidding or inherent reasonableness • Supplier consultation on whether the fee schedule amounts for non-mail order diabetic testing supplies are not inherently reasonable • Mandate to establish competitive bidding programs for non-mail order diabetic testing supplies is not eliminated by a decision not to pursue use of inherent reasonableness