The Centers for Medicare & Medicaid Services (CMS) has adopted — with limited changes — its controversial plan to rewrite Medicare pricing rules for new items of durable medical equipment (DME), prosthetics, orthotics and supplies (DMEPOS) as part of its annual DMEPOS policy update for calendar year (CY) 2020.  The rule also makes minor changes to DMEPOS competitive bidding program (CBP) rules, streamlines certain requirements for ordering DMEPOS items, and makes other related policy changes.  The rule is effective January 1, 2020.

Revised Pricing Policy for New DMEPOS

CMS currently uses an arcane “gap-fill” process to establish rates for new DMEPOS items.  In short, if pricing is not available for the item in the statutory “base year” (1986 or 1987, depending on the item), CMS considers current fees for comparable items, supplier prices, manufacturer’s suggested retail prices (MSRPs), or wholesale prices.  That amount is then subject to a series of deflation adjustments and statutory updates to achieve the new Medicare rate.  CMS’s reliance on the pricing of existing products has been a point of contention when a manufacturer does not believe any items currently on the market are comparable to the innovative technology.  At the same time, CMS does not believe that MSRPs “represent accurate pricing from actual retail markets.”

To “improve … transparency and predictability,” CMS is adopting a new framework for setting fees for new DMEPOS items (i.e., new Healthcare Common Procedure Coding System (HCPCS) codes that do not have a fee schedule pricing history).  As it proposed, CMS will first seek to use existing fee schedule amounts for DMEPOS that it determines to be “comparable” based on the following five components and attributes (the new product does not need to be comparable within each category, and there is no prioritization of the categories):

Comparable Item Analysis 

(Any combination of, but not limited to, the categories below for a device or its subcomponents)

Components Attributes
Physical Components Aesthetics, Design, Customized vs. Standard, Material, Portable, Size, Temperature Range/Tolerance, Weight
Mechanical Components Automated vs. Manual, Brittleness, Ductility, Durability, Elasticity, Fatigue, Flexibility, Hardness, Load Capacity, Flow-Control, Permeability, Strength
Electrical Components Capacitance, Conductivity, Dielectric Constant, Frequency, Generator, Impedance, Piezo-electric, Power, Power Source, Resistance
Function and Intended Function, Intended Use
Additional Attributes and Features ‘‘Smart,’’ Alarms, Constraints, Device Limitations, Disposable Parts, Features, Invasive vs. Non-Invasive

If CMS determines that there are no items with existing fee schedule amounts that are comparable to the new item, CMS will establish the fee schedule amount based on “supplier price lists.”  Such price lists include catalogs and other retail price lists (such as internet retail prices), payments made by Medicare Advantage plans, verifiable information from supplier invoices, and non-Medicare payer data — but CMS stresses that it will not use MSRP in establishing prices.  Price information would be deflated to the fee schedule base period as needed, and then updated by the annual update factors.  CMS rejected commenters’ suggestions that if the Food and Drug Administration (FDA) assigns “breakthrough” or “expedited access” designation to a device, clears a device under the de novo pathway, or establishes a new category for a device, then CMS should automatically determine that there is no comparable product for the new item and set payment rates using market based pricing data.  CMS argues that FDA classification for the purpose of approving or clearing devices as safe and effective should not “in any way dictate whether one device is comparable to another device for the purposes of establishing a fee schedule amount for the device.”  Instead, CMS states that if “we determine that a new DMEPOS item is comparable to an older item, we believe that the prices established for the older item are a good estimate of what suppliers would have charged for the new item.”

CMS is not adopting its proposal to base prices on technology assessments when price lists are not available or verifiable, or if they “do not appear to represent a reasonable relative difference in supplier costs of furnishing the new DMEPOS item relative to the supplier costs of furnishing DMEPOS items from the fee schedule base period.”  CMS states that it will consider whether to include in future rulemaking a revised proposal including the use of technology assessments in gap-filling.

As proposed, CMS will gap-fill a second time when the market for the item is more stable and competitive, to achieve fee schedule amounts “more reflective of average reasonable charges.”  Specifically, if supplier or commercial prices are used to establish fee schedule amounts for new items, and the prices are shown to decrease within 5 years of establishing the fee schedule price, CMS will make a one-time downward rate adjustment of up to 15%; a change of 15% or more would be addressed under CMS’s separate “inherent reasonableness” adjustment authority regulations.  CMS will not make a similar adjustment for increases in prices since CMS believes that the annual covered item update addresses cost increases.

The final rule also adopts CMS’s proposed policies to address the continuity of pricing when HCPCS codes are divided or combined, in such cases in which “there is a direct relationship between the former HCPCS code(s) and the new HCPCS code(s).”

DMEPOS Competitive Bidding Program (CBP) Amendments

The final rule adopts without change CMS’s proposal to ease various DMEPOS CBP change of ownership (CHOW) requirements.  Notably, the final rule requires contract suppliers to notify CMS 10 days after the effective date of the CHOW, rather than 60 days in advance.

CMS also discusses comments it received regarding sources of market-based data for the national mail order CBP for diabetic testing supplies.  CMS states that it will consider these comments as it contemplates future policies.

Streamlining DMEPOS Requirements

As proposed, the final rule streamlines various requirements for ordering DMEPOS items, including adopting one set of required written order/prescription elements for all DMEPOS items.  In the final rule, CMS revises the specific written order/prescription elements based on commenter feedback to include the following elements:  beneficiary name or Medicare beneficiary identifier; general description of the item; quantity to be dispensed, if applicable; order date; treating practitioner name or national provider identifier; and treating practitioner signature.

In addition, the final rule consolidates into one “master list” those DMEPOS items potentially subject to a face-to-face encounter, written order prior to delivery, and/or prior authorization requirement.  The final master list is set forth in table 13 of the final rule.  The rule also finalizes various updates to the Master List criteria, including lowering the cost threshold for inclusion on the list from $1,000 purchase price/$100 rental price to $500 purchase price/$50 rental price.

CMS also adopts various technical corrections and revisions to regulatory definitions related to the DMEPOS benefit.