On November 6, 2014, CMS published a final rule that makes significant and highly technical changes to Medicare payment policies for durable medical equipment (DME), prosthetics, orthotics, and supplies (DMEPOS).  Notably, the rule finalizes a new methodology for adjusting Medicare DMEPOS fee schedule payment amounts across the country using information from the Medicare DMEPOS Competitive Bidding Program (CBP). CMS estimates that this methodology will cut Medicare DMEPOS reimbursement by more than $4.4 billion over fiscal years 2016 through 2020. The rule also finalizes a mechanism to test the use of bundled monthly payment amounts for certain DME under competitive bidding; modifies CBP change of ownership (CHOW) and termination of contract rules; and codifies Medicare hearing aid coverage policy. Note that CMS did not adopt its proposal to clarify practitioner qualifications for providing custom fitting services for orthotics. The following is a summary of the final rule, with particular emphasis on revisions to CMS’s July 11, 2014 proposed rule.

Adjustment to DMEPOS Pricing in Non-CBAs.  The Affordable Care Act mandates that, by January 1, 2016, CMS use pricing information from competitive bidding to adjust DME fee schedule amounts for items furnished in areas where the CBP is not implemented. CMS also is authorized (but not mandated) to make such adjustments for off-the-shelf (OTS) orthotics and enteral nutrients, supplies, and equipment furnished outside of competitive bidding areas (CBAs).

CMS has adopted a complex framework and methodology for adjusting fee schedule amounts based on CPB single payment amounts (SPAs), which are the allowed payments for items furnished in a CBA based on the median of successful bids. The primary methodology, which applies a regional adjustment with national limits, will be used for items bid in more than 10 CBAs. In short, CMS will determine adjusted fee schedule amounts for areas within the contiguous United States based on “regional SPAs” (RSPAs) that are calculated from the average SPAs for an item from all CBAs located in the region. The adjusted payment amount for an item will equal the RSPA limited by a national floor and ceiling of not less than 90 percent and not more than 110 percent of the national average. In contrast, in rural areas that have not been subject to competitive bidding, adjusted fee schedule amounts will be based on 110 percent of the national average RSPA (note that in the final rule, CMS adopted an expanded definition of rural areas eligible for this provision). CMS also adopted special rules for adjustments in areas outside of the contiguous United States.

A second methodology will be used for lower-volume items or other items that were bid in no more than 10 CBAs. Payment amounts for these items in non-CBAs will be 110 percent of the unweighted average of the SPAs where CBPs are implemented. CMS provides additional methodologies to account for other special situations, including when the only available SPA for an item is from a CBP no longer in effect, when accessories are used with different types of base equipment, and when SPAs for lower levels of service are higher than SPAs for higher levels of service. CMS also plans to apply national mail order CBP payments to mail order items furnished in the Northern Mariana Islands.

CMS will update adjusted payment amounts each time an SPA changes following a new competition; no inflation adjustment factor will be applied to adjusted fee schedule amounts. The adjusted fee schedule amounts will become the new bid limits for future rounds of competitive bidding.

In response to comments requesting a transition period, CMS has agreed to phase in adjusted payment amounts over six months. Specifically, CMS will make adjustments to the fee schedule amounts for claims with dates of service from January 1, 2016, thru June 30, 2016, based on 50 percent of the un-adjusted fee schedule amount and 50 percent of the adjusted fee schedule amount. The methodology will be fully implemented as of July 1, 2016. CMS offers the following example: if the unadjusted fee schedule amount that would have gone into effect on January 1, 2016 was $100, and the amount resulting from the final rule methodology is $75, the fee schedule amount in effect on January 1, 2016, will be $87.50. Beginning on July 1, 2016, the fully adjusted fees ($75) will apply. According to CMS, this policy “provides suppliers with an adequate amount of time to make adjustments to their businesses in light of the reduced payment amounts and is more than enough time to determine if the payment amounts are impacting access to items and services in any part of the country.”

Special Bundled Payment Rules for Certain DME under the CBP.  CMS is adopting – with revisions – its proposal to test a limited phase-in of bundled payments for certain types of DME subject to competitive bidding, under the auspices of the CMS Center for Medicare and Medicaid Innovation’s demonstration authority. Under the final rule, CMS will provide continuous bundled monthly payments for the equipment, supplies, accessories and any necessary maintenance and repairs for certain items under competitive bidding in place of capped rental policies. CMS will only apply this policy initially to standard power wheelchairs and continuous positive airway pressure (CPAP) devices furnished under the CBP (CMS had initially proposed including a broader array of products in this initiative). CMS will initially test this payment model in no more than 12 CBAs in conjunction with competitions that begin on or after January 1, 2015; any expansion of the program would follow program evaluation and future notice and comment rulemaking.

Under this policy, the SPA for the monthly rental of DME will be based on bids for the monthly rental of DME and all item and service associated with the rental equipment, including all related supplies, accessories, maintenance, and servicing. Separate payment for replacement of equipment, repair or maintenance and servicing of equipment, or for replacement of accessories and supplies necessary for the effective use of the equipment would not be allowed. CMS is also adopting various special transition policies, grandfathered supplier provisions, rules regarding repair and maintenance of beneficiary-owned power wheelchairs, and rules to ensure that bids submitted for items paid on a continuous rental basis are less than would otherwise be paid. CMS will provide advance notice to suppliers and beneficiaries about any special payment rules to be included in a CBP.

DMEPOS CBP CHOW Rules. Current competitive bidding rules prohibit the sale of a competitive bidding contract. Under the current rules, CMS may permit the transfer of a contract to an entity that merges with or acquires a competitive bidding contract supplier, but only if the new owner assumes all rights, obligations, and liabilities of the entire competitive bidding contract.

CMS is adopting its proposal (with technical revisions) to permit transfer of part of a competitive bidding contract under very specific circumstances. Specifically, a contract supplier will be permitted to sell a distinct company (e.g., an affiliate, subsidiary, sole proprietor, corporation, or partnership) that furnishes one or more specific product categories (PCs) or serves one or more specific CBAs and transfer the portion of the contract initially serviced by the distinct company, including the PC(s), CBA(s), and location(s), to a qualified successor entity that meets all competitive bidding requirements. CMS will require a contract supplier that wants to sell a distinct company having a CBP contract to notify CMS 60 days before the anticipated date of a CHOW, and submit any required documentation within 30 days of the anticipated CHOW.

For CMS to approve the transfer, several conditions will have to be met. For instance:

  • Every CBA, PC, and location of the company being sold must be transferred to the new qualified owner.
  • All CBAs and PCs in the original contract that are not explicitly transferred by CMS must remain unchanged in that original contract for the duration of the contract period (unless subject to a subsequent CHOW).
  • All current CHOW requirements set forth at 42 CFR § 414.422(d)(2) must be met.
  • The sale of the company must include all of the company’s assets associated with the CBA and/or PCs.
  • CMS must determine that transferring part of the original contract will not result in disruption of service or harm to beneficiaries.
  • The new supplier must meet all applicable competitive bidding requirements.
  • The contract supplier and successor entity must enter into a novation agreement with CMS, and the successor entity must accept all rights, responsibilities, and liabilities under the competitive bidding contract.

This policy will apply to contracts issued in future rounds of the CPB, starting with the Round 2 Recompete.

Termination of a Competitive Bidding Contract. CMS adopted its proposal to clarify the effective date of “termination” in the termination notice that it sends to a contract supplier found to be in breach of a competitive bidding contract. Specifically, a contract will be terminated automatically if the supplier does not timely file a hearing request or submit a corrective action plan. CMS also will require a supplier whose competitive bidding contract is being terminated to notify affected beneficiaries that it is no longer a contract supplier no later than 15 days prior to the effective date of termination.

Hearing Aid Coverage. The final rule codifies current Medicare Benefit Policy Manual provisions regarding hearing aids that can be considered a prosthetic device and not subject to the statutory exclusion of hearing aids from Medicare coverage. CMS did not adopt its policy to exclude auditory osseointegrated implant (AOI) devices from coverage.

Minimal Self-Adjustment of Orthotics. CMS had proposed to clarify the “specialized training” that is needed to provide custom fitting services for orthotics if providers are not certified orthotists. The proposal would have limited those individual considered to have specialized training to physicians, treating practitioners, occupational therapists, and physical therapists. Orthotics adjusted by other individuals without “specialized training” would be considered off-the-shelf orthotics” (which are subject to the competitive bidding program). In the final rule, CMS did not adopt this proposal.