[Federal Register Volume 60, Number 10 (Tuesday, January 17, 1995)]
[Notices]
[Pages 3405-3410]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1047]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
[BPD-778-FN]
RIN 0938-AG28


Medicare Program; Special Payment Limits for Home Blood Glucose 
Monitors

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final notice.

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SUMMARY: This notice establishes special payment limits for standard 
home blood glucose monitors, identified as code E0607 of the HCFA 
Common Procedure Coding System (HCPCS). This final notice is intended 
to prevent excessive payment for these items. Currently, payment under 
the Medicare program for home blood glucose monitors and other items of 
durable medical equipment (DME) is equal to 80 percent of the lesser of 
the actual charge for the item or the fee schedule amount for the item. 
This notice requires that payment for standard home blood glucose 
monitors be equal to 80 percent of the lesser of the actual charge or a 
special payment limit.

DATES: This notice is effective February 16, 1995.

FOR FURTHER INFORMATION CONTACT: Joel Kaiser, (410) 966-4499.

SUPPLEMENTARY INFORMATION:

I. Background

A. Special Reasonable Charge Limits

    Payment for DME furnished under Part B of the Medicare program 
(Supplementary Medical Insurance) is made through contractors known as 
carriers. Before January 1, 1989, payment for DME was made on a 
reasonable charge basis. The methodology used by the carriers to 
establish reasonable charges is set forth in sections 1833 and 1842(b) 
of the Social Security Act (the Act) and in 42 CFR part 405, subpart E. 
Reasonable charge determinations are generally based on customary and 
prevailing charges derived from historic charge data. The reasonable 
charge for an item of DME was generally set at the lowest of the 
following factors:
     The supplier's actual charge for the item.
     The supplier's customary charge.
     The prevailing charge in the locality for the item.

(The prevailing charge may not exceed the 75th percentile of the 
customary charges of suppliers in the locality.)
     The inflation indexed charge (IIC). The IIC is defined in 
Sec. 405.509(a) as the lowest of the fee screens used to determine 
reasonable charges for services, supplies, and equipment paid on a 
reasonable charge basis (excluding physicians' services) that is in 
effect on December 31 of the previous fee screen year, updated by the 
inflation adjustment factor.
    Section 1842(b)(3) of the Act requires that all payments made under 
Part B of the Medicare program must be reasonable. Paragraphs (8) and 
(9) of section 1842(b) of the Act provide that we may establish a 
special reasonable charge limit for a category of service if, after 
consultation with representatives of affected parties, we determine 
that the standard rules for calculating reasonable charges result in 
grossly deficient or excessive charges.
    Applicable regulations are located at Sec. 405.502(g). Section 
405.502(g) requires that we consider the available information that is 
relevant to the category of service and establish reasonable charge 
limits that are realistic and equitable. The limit on the reasonable 
charge is an upper limit to correct a grossly excessive charge or a 
lower limit to correct a grossly deficient charge. The limit is either 
a specific dollar amount or is based on a special method to be used in 
determining the reasonable charge.

B. DME Fee Schedules

    Section 4062 of the Omnibus Budget Reconciliation Act of 1987 (OBRA 
'87) (Pub. L. 100-203), which added section 1834(a) to the Act, 
provides for a fee schedule payment methodology for DME furnished on or 
after January 1, 1989. (This fee schedule payment methodology is set 
forth in 42 CFR part 414, subpart D.) Sections 1834(a)(1)(A) and (B) of 
the Act provide that Medicare payment for DME is equal to 80 percent of 
the lesser of the actual charge for the item or the fee schedule amount 
for the item. Section 1834(a) of the Act classifies DME into the 
following payment categories:
     Inexpensive or other routinely purchased DME.
     Items requiring frequent and substantial servicing.
     Certain customized items.
     Oxygen and oxygen equipment.
     Other items of DME (capped rental items).

There is a separate methodology for determining the fee schedule 
payment amount for each category of DME. The fee schedules are adjusted 
annually by a covered item update factor. The covered item update 
factor is generally equal to the change in the Consumer Price Index for 
all Urban Consumers (CPI-U) for the 12-month period ending June 30 of 
the preceding year.
    Section 1834(a)(10)(B) provides that we may apply the special 
payment limits authority of paragraphs (8) and (9) of section 1842(b) 
to covered items of DME and suppliers of these items and payments under 
section 1834(a) in the same manner as these provisions apply to 
physician's services and physicians and reasonable charges under 
section 1842(b).

C. Payment for Home Blood Glucose Monitors (Code E0607)

    Standard home blood glucose monitors allow individuals to measure 
their blood glucose and, then, alter their diets or insulin dosages to 
ensure that they are maintaining an adequate blood glucose level. Home 
blood glucose monitors are covered by the Medicare program as DME and 
are classified under the inexpensive and other routinely purchased DME 
payment category defined in section 1834(a)(2) of the Act. Section 
1834(a)(2) specifies that inexpensive and other routinely purchased DME 
are those items of DME that have a purchase price that does not exceed 
$150 or are acquired at least 75 percent of the time by purchase. We 
determined that home blood glucose monitors belong in this category 
based on a review of data that show that these monitors are acquired at 
least 75 percent of the time by purchase.
    Section 1834(a)(2) requires that payment for items falling within 
this category be made on a purchase or rental basis and that local 
purchase and rental fee schedule amounts be calculated for each item. 
Section 414.220(c)(1) provides for the calculation of purchase fee 
schedules [[Page 3406]] for both new and used DME within this category. 
The fee schedule amounts for purchased new, purchased used, and rental 
DME within this category are based on the average reasonable charges 
for purchased new, purchased used, and rental DME, respectively, from 
the base year period of July 1, 1986 through June 30, 1987.

II. Summary of the Proposed Notice

    We published a proposed notice in the Federal Register on January 
6, 1994, (59 FR 755) to announce our intention to establish special 
payment limits for standard home blood glucose monitors.
    We had anticipated that the proposed notice would be published 
during calendar year (CY) 1993 and we used CY 1993 information to 
calculate the proposed special payment limits for home blood glucose 
monitors. We proposed the following special payment limits for a home 
blood glucose monitor furnished before January 1, 1994:
     For a new monitor furnished to Medicare beneficiaries in 
the continental U.S., the upper payment limit would be $57. In Alaska, 
Hawaii, Puerto Rico, and the Virgin Islands, the upper payment limit 
would be $65.
     For a used monitor, the upper payment limit would be 75 
percent of the special payment limit for a purchased new monitor. If 
the special payment limit for a purchased new home blood glucose 
monitor in the continental U.S. would be $57, the special payment limit 
for the used monitor would be $42.75.
     For a rented monitor, the special payment limit would be 
equal to 10 percent of the special payment limit for a purchased new 
monitor. The total payment for a rented monitor would not be allowed to 
exceed the lower of the actual charge or the fee for the purchase of 
the monitor.
    In the preamble to the proposed notice (59 FR 756), we described 
how the 1993 fee schedule amounts for code E0607 accurately reflected 
the average reasonable charges for home blood glucose monitors in 1986, 
adjusted by 1.7 percent (the percentage increase in the CPI-U for the 
6-month period ending with December 1987) and by the cumulative covered 
item update factor. The average 1993 fee schedule amount for purchased 
new home blood glucose monitors, excluding the fee schedule amounts for 
the Virgin Islands, Alaska, Hawaii, and Puerto Rico, was $178.73. 
However, as we explained in the proposed notice, due to manufacturers' 
widespread practice of issuing consumer rebates, the fee schedule 
amounts substantially exceeded the effective purchase amount (the list 
purchase amount less any rebate) paid by the general public in all 
localities.
    In the proposed notice (59 FR 756), we discussed how we reviewed 
numerous sources of pricing and rebate information for the years 1986 
through 1993. We also discussed our decision to focus on home blood 
glucose monitor pricing and national rebate programs listed in the 
Winter 1993 edition of the Bruce Medical Supply catalog (Vol. 15, No. 
1). We explained that the Bruce catalog listed the largest number of 
home blood glucose monitors made by the largest number of home blood 
glucose monitor manufacturers, and reflected the national rebate 
programs offered by these manufacturers. Six different brands of home 
blood glucose monitors, manufactured by five different organizations, 
could be purchased from the Bruce catalog from any location in the 
United States, Puerto Rico, and the United States Virgin Islands and 
were covered under Medicare. We estimated that the six monitors listed 
in the Bruce Catalog accounted for approximately 90 percent of the 
market. By choosing the Bruce catalog as the source of data for 
proposing payment limits, we were not recommending that future 
purchases of home blood glucose monitors by Medicare beneficiaries be 
made through the Bruce catalog. We were confident, however, that 
comparable net prices were available in all localities from the various 
other mail order or retail outlets. Therefore, we believed that 
beneficiaries would have access to home blood glucose monitors for the 
payment limits we were proposing.
    Our finding that new home blood glucose monitors are generally 
available to the general public at a net cost that is well below the 
fee schedule amounts proposed for code E0607 was supported by the 
Office of the Inspector General's (OIG) report ``Durable Medical 
Equipment--Review of Medicare Payments for Home Blood Glucose 
Monitors'' (A-09-92-00034)--issued in December of 1992. In this report, 
the OIG states that excessive Medicare payments have been made for home 
blood glucose monitors because claims were not adjusted to reflect 
manufacturers' rebates. The OIG reviewed a sample of 80 Medicare claims 
for monitors processed by 2 carriers. From this sample, the OIG 
identified 50 claims for which rebates were available at the time the 
monitors were purchased. The OIG found that Medicare payment for only 5 
of these 50 claims were reduced by the amount of the rebate. The OIG 
concluded that the fee schedule amounts established for code E0607 
based on pre-1987 historic charges were excessive.

A. Special Payment Limits for Code E0607

    We proposed that payment for home blood glucose monitors be equal 
to 80 percent of the lesser of the actual charge for the monitor or the 
appropriate special payment limit as described below.
1. New Home Blood Glucose Monitors
    For purchased new home blood glucose monitors furnished to Medicare 
beneficiaries, we proposed the following special payment limits:

                   Initial Year Special Payment Limits                  
------------------------------------------------------------------------
                                       Alaska, Hawaii, Puerto Rico and  
          Continental U.S.                      Virgin Islands          
------------------------------------------------------------------------
$57................................                      $65            
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    These limits were based on pricing and manufacturers' rebates 
contained in the Winter 1993 edition of the Bruce Medical Supply 
catalog. We based the final limits for the continental U.S. on the 
median net cost, rounded to the nearest dollar, of five of the six 
monitors listed in the catalog. We omitted one monitor because this 
monitor was relatively new to the market and had little market history. 
We determined the cost for each monitor to be equal to the Bruce 
Medical Supply list price decreased by the manufacturer's mail-in 
rebate (if applicable) and increased by appropriate shipping and 
handling charges effective December 1992. After making the adjustments 
for rebates and shipping and handling charges, we proposed a limit of 
$57, which exceeded the final cost for four of the six monitors listed 
in the catalog. We permitted an additional shipping charge of $8 for 
monitors purchased in Alaska, Hawaii, Puerto Rico, and the U.S. Virgin 
Islands.
    In the proposed notice, we recognized that shipping and handling 
costs are unique to mail-order outlets and are not generally 
experienced by retail outlets; however, we chose to include these 
shipping and handling costs, without regard to the type of supplier, as 
a proxy for similar costs such as transportation and overhead that 
might be incurred by retail stores. The average shipping and handling 
cost per monitor in the continental U.S. is approximately $7, an amount 
that we believe sufficiently reflects expenses incurred by retail 
stores that supply home blood glucose monitors. The additional shipping 
allowance of $8 is intended to reflect additional costs of shipping 
outside the continental U.S. [[Page 3407]] 
2. Purchased Used Home Blood Glucose Monitors
    Historically, the Medicare-allowed payment amounts for the purchase 
of used DME have been set at approximately 75 percent of the 
corresponding allowed payment amounts for the purchase of new DME. 
Based on this ongoing policy, for purchased used home blood glucose 
monitors, we stated in the proposed notice that the special payment 
limits would be equal to 75 percent of the special payment limits for 
purchased new monitors. If the special payment limit for a purchased 
new home blood glucose monitor would be $57, the special payment limit 
for the purchased used monitor would be $42.75.
3. Rented Home Blood Glucose Monitors
    Historically, the Medicare-allowed payment amounts for the rental 
of DME have been set at approximately 10 percent of the corresponding 
allowed payment amounts for the purchase of new DME. Based on this 
ongoing policy, for rented home blood glucose monitors, the special 
payment limits under the proposed notice would be equal to 10 percent 
of the special payment limits for purchased new monitors. If the 
special payment limit for a purchased new home blood glucose monitor 
would be $57, the special payment limit for a rented monitor would be 
$5.70 each month. The total payment for a rented monitor would not be 
allowed to exceed the lower of the actual charge or the special payment 
limit for the purchase of the monitor.

B. Applicability

    The initial special payment limits in the proposed notice would 
have applied to standard home blood glucose monitors furnished before 
January 1, 1994. (However, as noted above, the proposed notice was not 
published until after that date.) We proposed that, for standard home 
blood glucose monitors furnished in CY 1994, the special payment limits 
would be equal to the initial special payment limits increased by the 
1994 covered item update factor (the factor used to update other items 
of DME). (The covered item update for 1994, and each subsequent year, 
is defined in section 1834(a)(14)(B) of the Act as the percentage 
increase in the CPI-U for the 12-month period ending with June of the 
previous year.) For each calendar year after 1994, we proposed that the 
special payment limits would be equal to the special payment limits for 
the preceding calendar year increased by the covered item update for 
the calendar year to which the limits would apply.
    These special payment limits would not apply to home blood glucose 
monitors with special features (HCPCS code E0609).

III. Supplier Consultation

    Sections 1834(a)(10)(B) and 1842(b)(9)(A)(i) of the Act require 
that we consult with representatives of the suppliers likely to be 
affected by any change in payment before making a determination that a 
fee schedule amount(s) is not inherently reasonable by reason of its 
grossly excessive or deficient amount. In the proposed notice (59 FR 
757), we discussed the meeting held on June 15, 1993, with 
representatives of suppliers of home blood glucose monitors 
(hereinafter referred to as supplier representatives). The purpose of 
the meeting was to discuss issues relating to Medicare payment for 
these devices. The supplier representatives were primarily concerned 
about the use of manufacturer rebate information in determining 
appropriate Medicare payment amounts for home blood glucose monitors. 
They maintained that the rebate programs were purely a marketing tool 
used by the manufacturers to promote the sale of their monitors, that 
the rebates do not relate in any way to the ``market price'' of the 
monitors, and that the rebate programs were not permanent and, 
therefore, should not be used as a basis for establishing payment 
amounts. The supplier representatives also maintained that some rebate 
programs are not available in some areas of the United States.
    The OIG report, previously cited, stated that manufacturer rebates 
for home blood glucose monitors generally range from about $30 to $75 
and that the duration of the rebate offer is continually extended, 
often lasting for more than 1 year or until a new model is introduced. 
Given the facts underlying the pricing of these monitors, we believed 
the retail prices of home blood glucose monitors less the available 
rebate amounts are reasonable measures of the market value of these 
devices. We are not aware of any manufacturer rebate that is not 
offered on a nationwide basis.

IV. Discussion of Public Comments on the Proposed Notice

    In response to the January 1994 proposed notice, we received 8 
timely items of correspondence. Comments were received from a variety 
of correspondents, including manufacturers of home blood glucose 
monitors, the Health Industry Manufacturers Association, the National 
Association of Retail Druggists, Blue Cross and Blue Shield of 
Illinois, pharmacies, and medical equipment suppliers. These comments 
and our responses are discussed below.
    Comment: One commenter was confused by section II.B. of the 
proposed notice which deals with the applicability of the initial 
special payment limits (59 FR 758). In section II.B. of the proposed 
notice, we state that the initial limits ``would apply to standard home 
blood glucose monitors furnished on or after the effective date of the 
published final notice and before January 1, 1994.'' The commenter 
asked if the initial special payment limits would apply to new claims 
for standard home blood glucose monitors furnished in calendar year 
1993 that are received after the date of the final notice.
    Response: We proposed to apply the initial special payment limits 
in the proposed notice to standard home blood glucose monitors 
furnished before January 1, 1994. However, since we did not publish a 
final notice by January 1, 1994, no payments will be made based on 
these proposed special payment limits for any claims for standard home 
blood glucose monitors. Rather, the revised special payment limits 
presented in section V of this final notice will apply to standard home 
blood glucose monitors furnished to Medicare beneficiaries on or after 
the effective date of this final notice and before January 1, 1995. The 
special payment limits for CY 1995 will be equal to the 1994 special 
payment limits increased by the 1994 covered item update factor.
    Comment: One commenter requested that we further define home blood 
glucose monitors with special features (HCPCS code E0609).
    Response: The descriptor for HCPCS code E0609 is ``blood glucose 
monitor with special features (e.g., voice synthesizers, automatic 
timer, etc.).'' Section 60-11 of the Medicare Coverage Issues Manual 
(HCFA-Pub. 6) provides that there are ``blood glucose monitoring 
systems designed especially for use by those with visual impairments. 
The monitors used in such systems are identical in terms of reliability 
and sensitivity to the standard blood glucose monitors (also described 
in section 60-11). They differ by having such features as voice 
synthesizers, automatic timers, and specially designed arrangements of 
supplies and materials to enable the visually-impaired to use the 
equipment without assistance.'' The special payment limits do not apply 
to monitors that are medically necessary and that [[Page 3408]] meet 
this definition. Suppliers are paid the lower of their actual charge or 
the DME fee schedule amount for monitors with special features.
    Comment: Several commenters were concerned about our use of the 
prices listed in the Bruce mail order catalog as the basis of the 
special payment limits. Some commented that only a small percentage of 
home blood glucose monitors are obtained by Medicare beneficiaries 
through mail order catalogs; therefore, the pricing in the Bruce 
catalog does not reflect the retail prices of pharmacies and other 
suppliers of home blood glucose monitors.
    Response: As we explained in the proposed notice (59 FR 756), we 
chose the Bruce catalog as the source of data for proposing special 
payment limits because it listed the largest number of home blood 
glucose monitors made by the largest number of home blood glucose 
monitor manufacturers. Prices comparable to the prices listed in the 
Bruce catalog are available in all localities from the various other 
mail order or retail outlets. We have reviewed numerous other sources 
of pricing and rebate information for the years 1986 through 1994 and 
have found this pricing and rebate information to be consistent with 
the pricing and rebate information listed in the corresponding editions 
of the Bruce catalog. The sources of pricing and rebate information 
that we surveyed include pharmacies and retail stores as well as mail 
order catalogs and mail order advertisements in Diabetes Forecast, a 
publication of the American Diabetes Association.
    Comment: Some commenters maintained that the home blood glucose 
monitors represented in the Bruce catalog do not represent the entire 
home blood glucose monitor market. They noted that newer, 
technologically superior models of home blood glucose monitors such as 
the One Touch Basic, the AccuChek Easy, and the Glucometer Elite are 
not listed in the Winter 1993 edition of the Bruce catalog and 
therefore are not included in the data used in establishing the special 
payment limits for code E0607.
    Response: In the proposed notice, we estimated that the six 
monitors listed in the Bruce Catalog accounted for approximately 90 
percent of the market. Prices comparable to the prices listed in the 
Bruce catalog are available in all localities from other mail order 
catalogs and retail outlets.
    If 1993 pricing and rebate information for the One Touch Basic, 
AccuChek Easy, and Glucometer Elite monitors was added to the data used 
in establishing the special payment limits for code E0607, the result 
would be a decrease in the 1993 special payment limit of $57. The One 
Touch Basic monitor and the AccuChek Easy monitor are both priced less 
than the One Touch II and AccuChek III monitors, the models that appear 
in the Winter 1993 edition of the Bruce catalog. The current net price 
of the Glucometer Elite monitor, which was introduced to the market in 
1993, is approximately $60 (the retail price is approximately $125 and 
a manufacturer rebate of $65 is currently available).
    Comment: One commenter, a supplier of home blood glucose monitors, 
suggested that we use its retail price of $76.69 as the special payment 
limit for code E0607. The supplier submitted an invoice dated February 
1, 1994, to show that its cost per unit was $51.13 for a One Touch 
Basic monitor and stated that the proposed 1993 special payment limit 
of $57 would only allow it a 10-percent profit. Likewise, a 
manufacturer of home blood glucose monitors, suggested that we use $76, 
a median calculation based on average retail pricing for certain 
independent drug stores and DME suppliers, as the special payment limit 
for code E0607, while another manufacturer of home blood glucose 
monitors suggested that we use the Average Wholesale Price (AWP) of 
home blood glucose monitors as the special payment limit for HCPCS code 
E0607. The commenter defined AWP as the price the distributor charges 
the retailer for the product.
    Response: These suggested amounts do not account for available 
manufacturer rebates; therefore, they are not indicative of the actual 
charge for the equipment in accordance with long-standing Medicare 
payment policy. Medicare payment for DME is equal to the lesser of the 
actual charge for the equipment (less the rebate amount) or the fee 
schedule amount.
    On February 1, 1994, the manufacturer of the One Touch Basic 
monitor that the commenter obtained at a cost of $51.13 offered a $25 
rebate paid directly to the supplier of the monitor. The cost of the 
monitor less the rebate is therefore $26.13. In this case, the 1994 
special payment limit of $58.71 would allow for a 125 percent profit 
for the supplier.
    Comment: One commenter maintained that a uniform special payment 
limit does not take into account the cost of doing business and the 
cost of living in different areas of the United States. The commenter 
stated that a payment ``floor'' and payment ``ceiling'' would be more 
appropriate.
    Response: The average of the shipping and handling charges listed 
in the Bruce catalog is $7. This amount is included in the special 
payment limits for purchased new home blood glucose monitors, and 
represents a proxy for expenses incurred by retail stores that supply 
home blood glucose monitors. We reiterate that we are confident that 
prices comparable to the prices listed in the Bruce catalog are 
available in all localities from the various other mail order or retail 
outlets. An additional allowance of $8 is included in the special 
payment limit for new home blood glucose monitors furnished in Alaska, 
Hawaii, Puerto Rico, and the U.S. Virgin Islands.
    Each special payment limit established in this notice for code 
E0607 is an upper payment limit or ``ceiling.'' Lower payment limits, 
or ``floors,'' will not be established for code E0607; however, if the 
actual charge for the monitor is less than the special payment limit, 
then the Medicare payment is equal to the actual charge less any unmet 
deductible or coinsurance amounts.
    Comment: Several commenters were concerned about our use of 
manufacturer rebate information in proposing special payment limits for 
code E0607. This issue was addressed at the supplier consultation 
meeting held on June 15, 1993 and was discussed in the proposed notice 
(59 FR 757). The commenters argued that the rebate programs are 
temporary and therefore should not be considered when developing 
special payment limits for code E0607. In addition, some manufacturers 
of home blood glucose monitors commented that their companies and other 
manufacturers recently developed and implemented costly new rebate 
programs whereby the rebate is paid directly to the supplier of the 
monitor. This new program would allow the supplier to deduct the amount 
of the rebate from the claim submitted to Medicare for payment. These 
manufacturers believe that it is therefore no longer necessary to 
consider manufacturer rebate information when determining special 
payment limits for home blood glucose monitors.
    Response: As we stated in the proposed notice (59 FR 756), 
manufacturer rebates for home blood glucose monitors are widespread and 
have been available for several years. The fact that some manufacturers 
have incurred expenses in order to implement revised rebate programs 
indicates that manufacturer rebates for home blood glucose monitors 
will continue. In addition, we are not aware that all manufacturers 
will implement [[Page 3409]] programs to send the amount of the rebate 
to the supplier rather than to the beneficiary. We would still have no 
way of knowing in all instances if the charge submitted by the supplier 
included the manufacturer's rebate unless the supplier clearly marked 
and deducted an amount for the manufacturer's rebate. We believe the 
special payment limits for HCPCS code E0607 accurately reflect the 
maximum net costs incurred by non- Medicare patients who purchase or 
rent home blood glucose monitors (the supplier's charge less the 
manufacturer's rebate).
    Comment: One commenter stated that the prices listed in the Bruce 
catalog do not reflect the time spent by suppliers on teaching patients 
how to use the monitors.
    Response: As we noted earlier, the special payment limit of $58.71 
exceeds most net prices that we have reviewed. The prices charged by 
suppliers generally include the cost of all services necessary to 
ensure the proper use of the home blood glucose monitor. This service 
includes teaching a beneficiary how to use the monitor. Therefore, the 
special payment limit amount of $58.71 should also include the cost for 
any time spent by a supplier in assisting a beneficiary. The pricing 
information that we reviewed included prices obtained from pharmacies 
and other retail store outlets. In addition, 5 of the 6 monitors listed 
in the Bruce catalog include either an instruction manual or 
instructional audio or video cassettes that explain how to use the 
monitors.
    Comment: Several commenters stated that the special payment amounts 
are too low and would result in a negative impact on beneficiary access 
to standard home blood glucose monitors.
    Response: This issue was discussed in section III.B. of the 
proposed notice (59 FR 759) and in section VI.B. below.

V. Provisions of the Final Notice

    The following special payment limits represent a 3-percent increase 
over the limits published in the proposed notice and apply to standard 
home blood glucose monitors furnished to Medicare beneficiaries on or 
after the effective date of this final notice and before January 1, 
1995:
     For a new monitor furnished in the continental U.S., the 
upper payment limit will be $58.71. In Alaska, Hawaii, Puerto Rico, and 
the Virgin Islands, the upper payment limit will be $66.95.
     For a used monitor, the upper payment limit will be 75 
percent of the special payment limit for a purchased new monitor. For 
CY 1994, the special payment limit for a purchased new home blood 
glucose monitor furnished in the continental U.S. will be $58.71; the 
special payment limit for a used monitor will be $44.03.
     For a rented monitor, the special payment limit will be 
equal to 10 percent of the special payment limit for a purchased new 
monitor. For CY 1994, the special payment limit for a purchased new 
home blood glucose monitor will be $58.71; the monthly special payment 
limit for a rented monitor will be $5.87. The total payment for a 
rented monitor may not exceed the lower of the actual charge or the 
special payment limit for the purchase of the monitor.
     For each calendar year after 1994, the special payment 
limits will be equal to the special payment limits for the preceding 
calendar year increased by the covered item update factor for the 
calendar year during which the limits will apply. The covered item 
update factor is generally equal to the change in the CPI-U for the 12-
month period ending June 30 of the preceding year.

VI. Regulatory Impact Statement

A. Introduction

    This final notice will reduce unnecessary Medicare program 
expenditures for standard home blood glucose monitors. Currently, 
payment under the Medicare program for home glucose monitors is equal 
to 80 percent of the lesser of the actual charge for the item or the 
fee schedule amount for the item. Under this final notice, payment for 
the remainder of CY 1994 will be equal to 80 percent of the lesser of 
the actual charge or the appropriate special payment limit listed in 
this notice.
    We are establishing special payment limits for the remainder of CY 
1994 for a purchased new home blood glucose monitor for Medicare 
beneficiaries of $58.71 if the monitor is furnished within the 
continental U.S. and $66.95 if furnished in Alaska, Hawaii, Puerto 
Rico, or the Virgin Islands.
    During CY 1993, the Medicare program made payments to suppliers of 
approximately $17 million for approximately 130,000 home blood glucose 
monitor services of which 89,585 were purchased new home blood glucose 
monitors. We estimate that imposing special payment limits for 
purchased new home blood glucose monitors will produce savings of 
approximately $5 million annually, or $25 million from FY 1995 through 
FY 1999. Since purchased new home blood glucose monitors account for 
approximately 92 percent of Medicare expenditures for home blood 
glucose monitors, we anticipate negligible savings due to our reduction 
of payment for used or rented home blood glucose monitors.

B. Regulatory Flexibility Act

    Consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612), we prepare a regulatory flexibility analysis unless the 
Secretary certifies that a notice will not have a significant economic 
impact on a substantial number of small entities. For purposes of the 
RFA, all suppliers and manufacturers of home blood glucose monitors are 
considered to be small entities.
    In addition, section 1102(b) of the Act requires the Secretary to 
prepare a regulatory impact analysis if a notice may have a significant 
impact on the operations of a substantial number of small rural 
hospitals. This analysis must conform to the provisions of section 604 
of the RFA. For purposes of section 1102(b) of the Act, we define a 
small rural hospital as a hospital that is located outside of a 
Metropolitan Statistical Area and has fewer than 50 beds.
    In determining whether to adjust payment rates for standard home 
blood glucose monitors, we considered the potential impacts on quality, 
access, and beneficiary liability of the adjustment, including the 
likely effects on assignment rates and participation rates of suppliers 
(as required by section 1842(b)(8)(C) of the Act).
    This notice will affect suppliers of standard home blood glucose 
monitors. Their total Medicare payments could be reduced by the amount 
of the estimated savings. Suppliers can choose the option of accepting 
assignment, which means they agree to accept Medicare's approved amount 
as payment in full. As a consequence of our reducing payments for code 
E0607, the number of suppliers accepting assignment of beneficiary 
claims for Medicare payment for this code may decrease. These suppliers 
may choose instead to charge beneficiaries the full difference between 
the amount charged and the lower Medicare payment. Also, the number of 
suppliers who elect to become ``participating suppliers'' may decrease 
as a result of reduced payments for code E0607. Under the Medicare 
participation program, a supplier that decides to become a 
``participating supplier'' must agree to accept assignment for all 
covered services furnished to Medicare beneficiaries. Participating 
suppliers benefit by being listed in the Medicare Participating 
Physician/Supplier Directories, known as Medpards, which are compiled 
by the Medicare carriers and furnished to various senior citizen 
[[Page 3410]] groups. A Medicare beneficiary can obtain the Medpard for 
his or her State from the Medicare carrier.
    Suppliers who do not accept assignment and charge more than the 
Medicare-approved amount can collect the actual charge minus Medicare 
payment from the beneficiary. Therefore, beneficiaries who receive 
services from suppliers who do not accept assignment are exposed to 
greater financial liability than those who receive services from a 
supplier taking assignment. As a result, Medicare beneficiaries may 
choose to deal with participating suppliers or purchase less expensive 
home blood glucose monitors in order to reduce their financial 
liability.
    Manufacturers of more expensive home blood glucose monitors may be 
affected if, as a result of this notice, suppliers choose to provide 
less expensive monitors or Medicare beneficiaries decide to purchase 
less expensive monitors. We expect that this notice will have minimal 
effects on the quality of monitors furnished to beneficiaries or on 
beneficiary access to quality monitors. As we demonstrated in the 
proposed notice, four of the six home blood glucose monitors listed in 
the Bruce Medical Supply catalog could be purchased in CY 1993 from 
anywhere in the continental U.S. for less than $57.
    Though the decrease in the allowed limit from $185.79 (the 1994 fee 
schedule ceiling) to $58.71 for monitors purchased in the continental 
U.S. appears large, the net decrease is not large, given the size and 
prevalence of the rebates manufacturers have been refunding to 
beneficiaries. Three of the five manufacturers are giving rebates 
ranging from 45 percent to 67 percent of the purchase price. In 
addition, the glucose test strips used with the monitors are 
manufactured to be used with a specific brand of monitor. The 1994 fee 
schedule ceiling for blood glucose test strips, per 50 strips, is 
$37.41 or $.75 each and a beneficiary may use 4 or more each day. 
Therefore, once the beneficiary obtains a home blood glucose monitor, 
Medicare could pay an additional $90 each month the beneficiary uses 
the medically necessary monitor. The income generated in 1 month from 
the sale of the test strips could exceed the total income generated 
from the sale of the monitors. A manufacturer has an enormous incentive 
to promote the sale of its brand of monitors in order to ensure the 
future sale of its brand of test strips. For these reasons, we believe 
that manufacturers and suppliers will continue to provide their 
services to Medicare beneficiaries.
    If a manufacturer's rebate is not reported on a Medicare claim for 
code E0607 and the beneficiary subsequently mails in the rebate form 
and receives the rebate, then the beneficiary receives a kickback in 
the amount of the rebate and the Medicare program is not benefiting 
from the rebate. This notice will effectively eliminate some of the 
kickback that beneficiaries may receive from manufacturer rebates that 
are not reported on Medicare claims for code E0607.
    This notice may eliminate some of the manufacturer's incentive to 
provide beneficiary rebates. However, because a manufacturer realizes 
more income from the cumulative sale of its test strips than the one-
time sale of a monitor, there remains a strong incentive to offer the 
beneficiary inducements to purchase its monitor. If the inducement 
involves a rebate or discount, that price reduction must be reported to 
the Medicare program by the supplier. The failure to disclose such 
discounts may implicate the Medicare anti-kickback statute. Medicare 
payment for DME is based on the lower of the actual charge (less any 
rebate amount) or the fee schedule amount.
    We are not preparing analyses for either the RFA or section 1102(b) 
of the Act because we have determined, and the Secretary certifies, 
that this notice will not have a significant economic impact on a 
substantial number of small entities or a significant impact on the 
operations of a substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.

IV. Paperwork Reduction Act

    This notice does not impose any information collection 
requirements. Consequently, it need not be reviewed by the Executive 
Office of Management and Budget under the authority of the Paper 
Reduction Act of 1980 (44 U.S.C. 3501 through 3511).

(Section 1834(a)(10)(B) of the Social Security Act (42 U.S.C. 
1395m(a)(10)(B)); 42 C.F.R. 405.502(g))

(Catalog of Federal Domestic Assistance Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program)

    Dated: December 5, 1994.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Donna E. Shalala,
Secretary.
[FR Doc. 95-1047 Filed 1-13-95; 8:45 am]
BILLING CODE 4120-01-P