The Centers for Medicare & Medicaid Services (CMS) is planning a potentially-significant overhaul of Medicare pricing rules for new items of durable medical equipment (DME), prosthetics, orthotics and supplies (DMEPOS) as part of its proposed annual DMEPOS policy update for calendar year (CY) 2020. The proposed rule also includes DMEPOS competitive bidding program (CBP) updates and proposals to streamline requirements for ordering DMEPOS items.

Under a decades-old policy, CMS uses a highly imprecise “gap-fill” process to establish fees for new items of DMEPOS for which charges in the statutory “base year” are unavailable. In such cases, CMS and its contractors use fees for comparable items, supplier prices, manufacturer’s suggested retail prices, or wholesale prices plus a markup to approximate current pricing. To remove the impact of inflation, CMS next “deflates” the prices back to the base year period (1986 or 1987 depending on the item – well before the time the item was available or likely even invented). CMS then applies the annual covered item update factors specified in the statute to establish current rates.

CMS notes that it has “heard frequently from manufacturers that do not agree that their newly developed DMEPOS item is comparable to older technology DMEPOS items and services.” Nevertheless, CMS contends that there are benefits to identifying and basing rates on comparable items, including avoiding providing a competitive advantage to manufacturers of new items. To improve transparency and predictability in the sources of data and selection of comparable items and services for gap-fill purposes, however, CMS proposes to codify a framework for establishing fees for new DMEPOS items (i.e., new Healthcare Common Procedure Coding System (HCPCS) codes) that do not have a fee schedule pricing history).

CMS’ proposal is complex. In general, under the proposal, CMS would first seek to use existing fee schedule amounts for DMEPOS that it determines to be “comparable” based on one or more of the following “components and attributes”:

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 considered comparable to the new item, CMS would establish the fee schedule amount based on either:

  1. What CMS describes as “more accurate sources of commercial pricing data,” including supplier price lists (including catalogs and other retail price lists such as internet retail prices), payments made by Medicare Advantage plans, and verifiable information from supplier invoices and non-Medicare payer data. Such pricing would be deflated to the fee schedule base period and updated by the annual covered item update factors.
  2. A technology assessment performed by biomedical engineers, certified orthotists and prosthetists, and/or others knowledgeable about the cost of DMEPOS items and services to determine the relative cost of new items and services to those with existing fee schedule amounts. The relative cost would be translated into a “pricing percentage,” and applied to the existing fee schedule amount to calculate the rate for the new HCPCS code. CMS proposes to use technology assessments “when supplier or commercial price lists are not available or verifiable or 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 also proposes to revise such newly-established gap-filled prices if it finds “excessive fee schedule amounts in cases where the market for the new category of items is not yet competitive due to a limited number of manufacturers and suppliers.” 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 proposes a one-time rate adjustment to reflect “a market that is more established, stable, and competitive” than when fee schedule amounts were initially established. CMS would only make a downward adjustment to fee schedule prices if the new supplier or commercial prices would be no more than 15% lower than the initial fee schedule amounts; if the change were more than 15%, presumably CMS’s separate “inherent reasonableness” adjustment authority would apply. CMS does not propose to make a similar adjustment for increases in prices “since the fee schedule calculation methodology already includes an annual covered item update to address increases in costs of furnishing items and services over time.” The proposed rule also would establish policies to address the continuity of pricing when HCPCS codes are divided or combined.

CMS believes that its DMEPOS pricing proposal would “foster improvements and innovations in DMEPOS technology and ensure more competitive prices.” However, CMS’s emphasis on tying the prices of innovative technologies to older equipment that it chooses to characterize as “comparable” may raise stakeholder concerns that CMS prioritizes ensuring that “taxpayers are getting the best deal” over encouraging innovation in this area.

In addition to addressing pricing for new DMEPOS items, the proposed rule would, among other things:

  • Streamline requirements for ordering DMEPOS items, including adopting one set of required written order/prescription elements for all DMEPOS items.
  • Consolidate into one “master list” those DMEPOS items potentially subject to a face-to-face encounter, written orders prior to delivery, and/or prior authorization requirements (the proposed master list is set forth in table 10 of the proposed rule).
  • Ease various DMEPOS CBP change of ownership (CHOW) requirements, including requiring contract suppliers to notify CMS 10 days after the effective date of the CHOW, rather than 60 days in advance. CMS also solicits comments regarding sources of market-based data for the national mail order CBP for diabetic testing supplies.

CMS will accept comments on the proposed rule until September 27, 2019.