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
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
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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.
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Phased In Items and Services
 Competitive bidding programs have begun for:
 Oxygen and Oxygen Equipment (over $2 billion in annual allowed
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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
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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.
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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.
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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
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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.
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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.
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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
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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
2. 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
3. Publication of National Limits – publish proposed and final
notices in the Federal Register
1.
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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
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Publication of National Limits
 Final Notice:
 Explains the factors and data considered
 Responds to the public comments
 Establishes effective date for special payment limits
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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
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