[Federal Register Volume 60, Number 131 (Monday, July 10, 1995)]
[Rules and Regulations]
[Pages 35492-35498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16805]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 414

[BPD-494-F]
RIN 0938-AD65


Medicare Program; Payment for Durable Medical Equipment and 
Orthotic and Prosthetic Devices

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

ACTION: Final rule.

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SUMMARY: This final rule addresses comments received on an interim 
final rule with comment period published on December 7, 1992. The 
interim final rule implemented section 4062(b) of the Omnibus Budget 
Reconciliation Act of 1987. It specified that payment under the 
Medicare program for durable medical equipment (DME), prosthetics, and 
orthotics furnished on or after January 1, 1989 is limited to the lower 
of the actual charge for the equipment or the fee schedule amount 
established by the carrier. This final rule describes amendments to the 
methods for computing fee schedules covering the six classes of DME and 
how they are updated in subsequent years in accordance with sections 
13542 through 13546 of the Omnibus Budget Reconciliation Act of 1993.

DATES: These final regulations are effective August 9, 1995.

FOR FURTHER INFORMATION CONTACT:
Sharon Hippler--(410) 966-4633 (Coverage Issues)
William Long--(410) 966-5655 (Payment Issues)

SUPPLEMENTARY INFORMATION:

I. Background

    The provisions of sections 1833 and 1842 of the Social Security Act 
(the Act) set forth the general payment authority for most physician 
and other medical and health services furnished under Part B of the 
Medicare program. Section 1834 sets forth the 6 classes of DME and 
specifies that payment for these items is limited to 80 percent of the 
lesser of the actual charge or a fee schedule amount established by 
each Medicare carrier.
    We published an interim final rule on December 7, 1992 (57 FR 
57675) that set forth the methods for computing fee schedules for the 
six classes of DME effective for services furnished on or after January 
6, 1993. The interim rule also described how the fee schedules are 
updated. The December 1992 rule explained in detail the various 
legislative changes that led to its publication (57 FR 57676).
    On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 
(OBRA 93, Public Law 103-66), revised the statutory provisions upon 
which the DME payment rules that appeared in the December 1992 final 
rule were based. We are including these provisions in this final rule 
since the revisions are not discretionary but follow the explicit 
language contained in sections 13542 through 13546.
    A summary of the provisions of these sections of OBRA 93 follows :
     Section 13542 amends sections 1834(a)(2), (a)(3), (a)(8), 
and (a)(9) of the 

[[Page 35493]]
Act by providing that for 1994 and subsequent years, the national 
limited payment amount for (1) inexpensive or routinely purchased DME, 
(2) items requiring frequent and substantial servicing, (3) oxygen, and 
(4) other DME (capped rental) is equal to one of the following amounts:
     If the local payment amount is not in excess of the 
median, nor less than 85 percent of the median, of all local payment 
amounts--100 percent of the local payment amount.
     If the local payment amount exceeds the median--100 
percent of the median of all local payment amounts.
     If the local payment amount is less than 85 percent of the 
median--85 percent of the median of all local payment amounts.
     Section 13543(a) amends section 1834(a)(3)(A) of the Act 
by deleting nebulizers and aspirators from the statutory list of items 
that require frequent and substantial servicing. It also clarifies that 
ventilators that are either continuous airway pressure devices or 
intermittent assist devices with continuous airway pressure devices are 
excluded from the frequent and substantial servicing class.
     Section 13543(b) amends section 1834(a)(2)(A) of the Act 
by specifying that accessories used in conjunction with a nebulizer, 
aspirator, or ventilator excluded from the frequent and substantial 
servicing class are included in the inexpensive or routinely purchased 
equipment class.
     Section 13544(a) amends section 1834(h)(1) of the Act by 
providing that payment for ostomy supplies, tracheostomy supplies, and 
urologicals be made using the methodology for inexpensive or routinely 
purchased equipment.
     Section 13544(b) adds a new paragraph (i) to section 1834 
of the Act to provide that payment for surgical dressings must be made 
using the methodology for inexpensive or routinely purchased equipment. 
It further specifies the national limited payment amount for surgical 
dressings must be based on local payment amounts using average 
reasonable charges for the 12-month period ending December 31, 1992 
increased by the covered item updates for 1993 and 1994.
     Section 13545 amends section 1834(a)(1)(D) of the Act by 
providing that the reduced payment amount for transcutaneous electrical 
nerve stimulator (TENS) devices, furnished on or after January 1, 1994, 
be based on the payment amount effective April 1, 1990, reduced by 45 
percent.
     Section 13546 amends section 1834(h)(4)(A) of the Act by 
specifying that the term ``applicable percentage increase'' used for 
computing the local purchase price for prosthetic and orthotic devices 
is ``0'' percent for 1994 and 1995. It also specifies that for 
subsequent years that term means the percentage increase in the 
consumer price index for all urban consumers for the 12-month period 
ending with June of the previous year.

II. Summary of Public Comments and Responses for the December 1992 
Final Rule

    We received comments from seven groups representing the industry 
and one State agency. We have summarized the comments related to the 
fee schedule payment methodology and have presented them below along 
with our responses.
    Several comments were received that concerned other issues related 
to medical equipment (for example, refining the coverage definitions of 
medical equipment and updating the HCFA Common Procedure Coding System 
(HCPCS)) but did not pertain to the subject matter of the interim final 
rule, which dealt only with the six classes of DME and the 
corresponding fee schedule methodologies. We are not responding in this 
final rule to any comments unrelated to the fee schedule payment 
methodologies.
Inexpensive and Routinely Purchased DME (Section 414.220(a))

    Comment: One commenter suggested that we not change to a State-by-
State methodology for classifying an item as inexpensive even if the 
local submitted purchase price is less than $150. The commenter stated 
that changing the status of an item from State to State would be 
hopelessly confusing to suppliers and would contribute to increased 
claims processing costs.
    Response: We agree with the commenter. Classifying items by State 
would create inconsistencies among carrier jurisdictions and would be 
inconsistent with the thrust of the national limited payment amounts 
that went into effect in 1991. For example, a capped rental item in one 
jurisdiction could be considered inexpensive in an adjacent 
jurisdiction. Therefore, we intend to continue using the national 
weighted mean submitted charge for purchase of an item (whose price did 
not exceed $150 during the period from July 1, 1986 through June 30, 
1987) for classifying the item as inexpensive.

Frequently Serviced DME (Section 414.222(a))

    Comment: One commenter agreed that we should add or delete items in 
the frequently serviced class by making modifications to this class on 
a simplified basis. Another commenter suggested that we not change the 
methodology for adding or deleting items in the frequently serviced 
class. The commenter argued that, since some items in this class are 
mandated by the Act, any attempt by us to administratively restructure 
this class would violate congressional intent.
    Response: We believe that the second commenter may have 
misunderstood our intent in this matter. Section 1834(a)(3) of the Act 
specifically mandates that certain DME be included in the class of 
items that require frequent and substantial servicing. In 
Sec. 414.222(a) of the interim final rule, we announced our intention 
to specify other items requiring frequent and substantial servicing. It 
was, and continues to be, our intention to delete only those items that 
we previously added administratively. Section 414.222(a) permits us and 
the carriers to define those items needing frequent and substantial 
servicing.
    We will not delete any of the statutorily mandated items from this 
class of items absent a change in the Act. However, we will add or 
delete items we previously added in this class by announcing additions 
and deletions in an administrative instruction rather than in the 
regulations.
    Comment: One commenter suggested that the following items belong in 
the frequently serviced class: continuous passive motion machines, 
memory monitors, powered air flotation beds, air fluidized beds, and 
alternating pressure mattresses. Conversely, the commenter believed 
that nebulizers and aspirators do not belong in the frequently serviced 
class. Two commenters suggested that infusion pumps should be placed in 
the frequently and substantially serviced class. The commenters stated 
that few infusion pumps last 5 years without major servicing and that 
pumps more than a few years old may not be serviceable because of a 
lack of replacement parts. They also stated that infusion pump 
manufacturers often stop producing cassettes once the pumps are no 
longer in production and the Food and Drug Administration believes that 
infusion pumps should be tracked because the risk of failure presents 
the potential for serious adverse health consequences.
    Response: Continuous passive motion machines currently appear in 
the class of items that require frequent and substantial servicing 
(Sec. 414.222(a)). We will consider whether memory monitors, powered 
air flotation beds, air fluidized beds, alternating pressure 

[[Page 35494]]
mattresses, and infusion pumps should also be added. If after our 
review, we agree that these items belong in this class, we will add 
them through an administrative instruction.
    Section 1834(a)(3) of the Act specifically mandated that 
aspirators, nebulizers and ventilators be included in the frequent and 
substantial servicing class. However, section 13543 of OBRA 93 deleted 
aspirators, nebulizers and some ventilators from this class effective 
January 1, 1994. Consequently, we have revised Sec. 414.222(a) to 
remove aspirators, nebulizers, and certain ventilators from the 
frequent and substantial servicing class. (Depending on changes in the 
data, items may be moved into any of the other classes, for example, 
inexpensive or routinely purchased, or capped rental).

Capped Rental DME (Section 414.229)

    Comment: Three commenters suggested that we provide a new 15-month 
rental period if a beneficiary moves outside the supplier's service 
area or changes suppliers, even though there would be additional cost 
and a potential for abuse. One commenter suggested giving the second 
supplier a 12-month rental period.
    Response: We agree that these proposals would result in additional 
program cost and have the potential for abuse. We also believe that we 
are precluded by section 1834(a)(7)(A) of the Act from providing a new 
rental period beyond the original 15-month rental period. This section 
provides that ``* * * payments under this clause may not extend over a 
period of continuous use of longer than 15 months * * *.'' Therefore, 
if the beneficiary changes suppliers during or after the 15-month 
rental period, that change would not result in a new rental period.
    In asking for comments regarding this provision, we specifically 
requested comments on which supplier would be responsible for 
furnishing the capped rental equipment to the beneficiary if the 
beneficiary changes suppliers during or after the 15-month rental 
period. In the December 1992 rule (57 FR 57683), we indicated our 
initial position that the supplier that provided the item in the 
fifteenth month of the rental period would be responsible for supplying 
the equipment and for maintenance and servicing after the 15-month 
period.
    We mentioned that, as an alternative position, we considered 
requiring the supplier that had furnished the item for the longest 
portion of the rental period to be responsible for the period of 
continuous use of the equipment after the 15-month period expired. 
However, we were concerned about the possible inconveniences to the 
beneficiary and the initial supplier; for example, the longest term 
supplier may be located some distance from the beneficiary's residence 
at the end of the 15-month period. In addition, we did not believe it 
was appropriate to require a supplier to service equipment that it did 
not furnish and with which it may not be familiar.
    We also mentioned that we considered requiring the last supplier of 
an item to be responsible for a period of continuous use after the 15-
month period but only if the supplier furnished the item for 3 
consecutive months. However, based on advice received from the DME 
industry, we rejected this option because of the possible 
inconveniences similar to those discussed in the option set forth 
above.
    Other than the comments suggesting that we provide for an 
additional rental period if the beneficiary changes suppliers, which is 
precluded by the Act, we received no comments regarding this provision. 
Further, since this provision became effective on January 1, 1989, we 
received no significant correspondence from Medicare beneficiaries or 
the DME industry indicating that this rule presents a problem. This 
corroborates what representatives of the DME industry indicated to us 
after the passage of section 4062 of the Omnibus Budget Reconciliation 
Act of 1987 (Public Law 100-203) (OBRA 1987). At that time, they 
indicated that suppliers would be able to accommodate beneficiaries who 
change suppliers (for example, because of a change of residence or 
dissatisfaction with a supplier). They further indicated that the DME 
industry preferred making the supplier that rents the item in the last 
(that is, fifteenth) month of the rental period responsible for 
supplying the equipment after the last month of rental payments and for 
continued maintenance and servicing of the equipment.
    Therefore, the rules governing this class of equipment will remain 
the same. Responsibility for supplying equipment in the capped-rental 
class that has been rented for 15-consecutive months remains with the 
supplier that rented the item in the last month of the rental period. 
Responsibility for maintenance and service of the item also remains 
with that supplier. A move by the Medicare beneficiary does not relieve 
the supplier that rented the item in the last rental month of either 
responsibility.
    Of course, we will not object to the responsible supplier 
establishing an arrangement with a supplier located nearer to the 
beneficiary's new residence to furnish the actual maintenance and 
service of the equipment.

Reasonable Useful Life (Section 414.229(f))

    Comment: One commenter suggested that we should establish 
reasonable useful lifetime guidelines for equipment but did not offer 
specific suggestions for these guidelines. Other commenters suggested 
that a 5-year useful life was too long and that the useful life should 
be considered to end 12 months after the period identified in the 
manufacturer's warranty. Another commenter suggested that we meet with 
manufacturers of medical equipment, especially manufacturers of 
orthotic devices, to develop specific standards regarding the useful 
life of equipment.
    Response: While we specifically solicited comments regarding the 
useful life of DME, prosthetics, orthotics, and supplies (DMEPOS), we 
received only one comment indicating what that useful life should be 
(which was 12 months after the date indicated in the manufacturer's 
warranty) for any item of medical equipment. We selected a 5-year 
useful life because that is the useful life of capped rental DME 
established in section 1834(a)(7)(C)(iii) of the Act. We continue to 
believe that a minimum useful life of 5 years is reasonable for payment 
purposes and should be applied to other items of DME, prosthetics, and 
orthotics.
    We believe that establishing a useful life of 12 months beyond a 
manufacturer's warranty is unsupported and arbitrary. We would welcome 
meeting with manufacturers of medical equipment to discuss information 
that supports considering an alternative to the 5-year useful lifetime 
of equipment. We will maintain the minimum 5-year useful lifetime 
provision for payment purposes for all medical equipment unless we 
receive evidence that supports some other timeframe.

Implementation of the Fee Schedule Methodology Through Program 
Instructions

    Comment: One commenter suggested that implementation of the fee 
schedule payment methodology has decreased payments and increased 
regulatory and paperwork burdens, significantly affecting small 
suppliers of medical equipment. The commenter asserted that since we 
have implemented the fee schedule methodology through Medicare Carrier 
Manual issuances, the industry's opportunity to present its case in the 
public forum of rulemaking has been denied. 

[[Page 35495]]

    Response: We disagree with the commenter. While the December 1992 
interim final rule became effective 30 days after it was published, it 
provided an opportunity for public comment and potential 
reconsideration of the policies it set forth. We usually implement 
legislation by following the rulemaking process that affords all 
parties an opportunity to comment before we implement the legislation. 
The Congress, in mandating the OBRA 87 changes establishing the DME fee 
schedule methodology, expressly authorized the Secretary to issue the 
implementing regulations on an interim basis. However, because of the 
need to implement the fee schedule as soon as possible, it was 
necessary that we issue instructions in the Medicare Carriers Manual 
while developing the interim rule.

Access to Common Working File

    Comment: Two commenters suggested that suppliers need access to our 
Common Working File to determine if a beneficiary has previously rented 
a piece of equipment and, if so, for what period of time.
    Response: There are always privacy considerations concerning the 
release of beneficiary information contained in the Common Working File 
systems. However, we intend to investigate the effects of disclosing 
beneficiary information to DME suppliers. Nevertheless, the option to 
furnish equipment rests with the supplier. Since the supplier is able 
to communicate with the beneficiary before furnishing medical 
equipment, we believe that the supplier should be responsible for 
determining whether a beneficiary has ever rented equipment. We are 
responsible for ensuring that we do not pay for services furnished to a 
patient who is not entitled to Medicare benefits and that we do not pay 
for equipment after the appropriate rental period.

Budget Savings Resulting From the DME Fee Schedule Methodology

    Comment: Two commenters noted that budget savings associated with 
the interim rule continue to remain elusive, noting that while the fee 
schedule methodology was estimated to save Medicare more than $2 
billion, a study by the General Accounting Office (GAO) issued in July 
1992 found that the fee schedule methodology actually cost more than 
the reasonable charge system it replaced.
    Response: The GAO found that for the first 2 years after 
implementation of the fee schedule methodology, Medicare program 
expenditures increased by 16 percent compared to what the costs would 
have been under the reasonable charge system. The GAO also projected 
that when fully implemented in 1993, the Omnibus Budget Reconciliation 
Act of 1990 (Public Law 101-508, enacted on November 5, 1990) (OBRA 90) 
would offset the program cost increases that occurred when the fee 
schedule methodology was implemented. The savings generated would save 
the Medicare program more than $2 billion over 5 years beginning in 
1992.

Uniform Payment, Coverage, and Utilization Criteria

    Comment: One commenter suggested that we adopt national uniform 
payment, coverage, and utilization criteria for prosthetic and orthotic 
devices. The commenter also suggested that the term ``region'' should 
encompass geographic areas as large as possible, preferably dividing 
the nation into four areas that comport with the four new regions of 
the DMEPOS regional carriers.
    Response: The December 1992 interim rule defined ``region'' as 
those carrier service areas administered by the ten HCFA regional 
offices (57 FR 57689). This was the longstanding definition of 
``region'' in use when legislation established a fee schedule 
methodology for prosthetic and orthotic devices that was to be 
calculated on a regional basis.
    We believe it was the intent of the Congress that we recognize 
differences in the costs of supplying prosthetic and orthotic devices 
among the ten geographic regions then in use. Since this was the 
definition of region that we used when the Congress passed the fee 
schedule methodology, we will continue to group States together by the 
ten HCFA regions for pricing purposes.
    Effective October 1, 1993, we contracted with four ``regional'' 
carriers that process all DMEPOS claims nationally. We expect that 
having the four carriers will result in more uniform payment, coverage, 
and utilization of Medicare services. However, we continue to believe 
that using a ten region structure for pricing of services is 
appropriate. We believe that a larger number of regions gives more 
recognition to local variations in the cost of providing equipment.
    Reducing the number of regions to four rather than the current ten 
would give less emphasis to local variation. If we based the pricing of 
services on a four region system, each region would cover a greater 
number of suppliers, which could produce greater disparity in 
suppliers' costs throughout the region. Having a larger supplier pool 
could dilute the impact of outlying suppliers whose labor, material, 
and overhead costs are significantly higher than the median.
    By retaining a pricing system based on ten regions, we expect that, 
for any item of DME, the costs of suppliers within each region would be 
more similar to each other and the resulting fee schedule more 
reflective of costs in the local supplier population.
    Comment: One commenter asked if we intend that the regional 
purchase price be determined State-by-State.
    Response: As described in the interim final rule (57 FR 57691), 
regional pricing is based on local prices within a carrier area, which 
usually is an entire State. Specifically, our methodology for computing 
the regional purchase price is to first calculate a local purchase 
price, then calculate a regional purchase price by averaging the local 
purchase prices for the region (weighted by the relative volume of all 
claims among the carriers in the region).

Use of the Term ``Durable Medical Equipment''

    Comment: One commenter suggested using the term ``home'' to define 
medical equipment used in the home rather than the term ``durable.'' 
Another commenter suggested that we expand the definition of DME in 
Sec. 414.202 to include coverage of equipment not used in the home and 
provide for coverage of additional items of disposable equipment.
    Response: Section 1861(n) of the Act defines ``durable medical 
equipment.'' We are bound by the definition of DME contained in the 
law.

Applicability to Medicaid

    Comment: One commenter suggested that the Medicare payment 
methodology should also be applicable to State Medicaid programs.
    Response: The statute does not authorize us to impose the Medicare 
payment methodology on States, therefore, the Congress must pass 
legislation to authorize us to do so.

Fraud and Abuse

    Comment: One commenter noted that the rules regarding TENS, seat 
lift mechanisms, and electric wheelchairs should help eliminate fraud 
and abuse.
    Response: We agree.
III. Provisions of This Final Rule

    To implement the requirements of sections 13542 through 13546 of 
OBRA 93, we are revising part 414, subpart D.
    We expand the list of inexpensive or routinely purchased items in 
Sec. 414.220(a) to include, effective January 1, 1994--

[[Page 35496]]

     Accessories used in conjunction with a nebulizer, 
aspirator, or ventilator excluded from Sec. 414.222.
     Ostomy supplies, tracheostomy supplies, urologicals, and 
surgical dressings not furnished as incident to a physician's 
professional service or furnished by a home health agency.
    We add a new paragraph (f)(4) to Sec. 414.220 to reflect that, for 
1994 and subsequent years, the national limited payment amounts are 
calculated using the median rather than the weighted average. We make 
conforming changes to paragraph (f)(3).
    We add a new paragraph (g) to Sec. 414.220 to state that payment 
for surgical dressings effective January 1, 1994 is based on the 
national limited payment amount increased by the covered item updates 
for 1993 and 1994.
    We revise Sec. 414.222(a) to delete aspirators, nebulizers, and 
certain ventilators from the list of items requiring frequent and 
substantial servicing.
    We add a new paragraph (e) to Sec. 414.222 to set forth the 
following transition rules that apply to rental of DME that was paid 
for under the frequent and substantial servicing class but is no longer 
paid for under that payment class. For purposes of calculating the 15-
month rental period, beginning January 1, 1994, if payment is 
subsequently made under the other DME (capped rental) payment class for 
an item that formerly required frequent and substantial servicing, the 
period begins with the first month of continuous rental, even if that 
rental period began before January 1, 1994.
    For example, if the rental period began on July 1, 1993, the 
carrier must use this date as beginning the first month of rental. 
Section 1834(a)(7)(A)(i) limits total rental payments to 15 months (or 
13 months if the beneficiary elects the purchase option). If we 
calculated the 15-month period beginning on January 1, 1994 instead of 
July 1, 1993 (the first month of rental), rental payments would be made 
for an additional 6 months beyond the 15-month limit. We do not believe 
that this would be consistent with the law. Thus, under this final 
rule, if the beneficiary reached the purchase price limitation on a 
rental claim before January 1, 1994, no further rental or purchase 
payments would be made.
    Likewise, for purposes of calculating the 10-month purchase option, 
the rental period also begins with the first month of continuous rental 
without regard to when that period started. For example, if the rental 
period began in August of 1993, the 10-month purchase option must be 
offered to the beneficiary in May of 1994, the 10th month of continuous 
rental.
    Likewise, for purposes of calculating the purchase ceiling, if an 
item that is paid under the frequent and substantial servicing class is 
subsequently paid under the inexpensive or routinely purchased payment 
class, the rental period begins with the first month of continuous 
rental under the frequent and substantial servicing class, even if that 
period began before January 1, 1994.
    The transition rules for items previously in the frequent and 
substantial servicing class are the same as those (Sec. 414.229(f)) 
that were promulgated for use in computing the 10- and 15-month periods 
for capped rental DME. We believe that these transitional requirements 
are necessary to carry out the statutory intent, to limit capped rental 
equipment payments to 15 months, or 13 months if the beneficiary elects 
the purchase option, and to limit rental payments, for inexpensive and 
routinely purchased items to the purchase price. For example, if we 
were to begin calculating the 15-month period on January 1, 1994 
instead of the first month of rental, payments would be incurred for up 
to 15 additional months beyond the 15-month limit. For inexpensive or 
routinely purchased DME, if we were to begin calculating the purchase 
price limitation on January 1, 1994 instead of the first month of 
rental, we could pay twice the purchase price. We believe that such a 
result would be contrary to the direction of the law.
    We revise Sec. 414.228(b)(2) to reflect that the applicable 
percentage increase in the purchase price for prosthetic and orthotic 
devices is 0 percent for 1994 and 1995.
    We revise Sec. 414.232(a) to reflect that the payment amount for 
TENS computed under Sec. 414.220 was reduced by 15 percent by OBRA 87, 
effective April 1, 1990. The payment amount originally reduced by 15 
percent was further reduced by an additional 15 percent, effective 
January 1, 1991, by OBRA 90. Effective January 1, 1994, OBRA 93 changed 
the percent of reduction mandated by OBRA 90 from 15 percent to 45 
percent.

IV. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.).
V. Regulatory Impact Statement

A. Introduction

    This final rule implements changes required by sections 13542 
through 13546 of OBRA 93. Section 13543 removed aspirators and 
nebulizers and certain ventilators from the class of DME items 
requiring frequent and substantial servicing. These aspirators, 
nebulizers, and ventilators are now considered to be either capped 
rental or inexpensive/routinely purchased items. Also, section 13545 
provides that the payment amount for TENS devices furnished on or after 
January 1, 1994 be based on the payment amount effective April 1, 1990, 
reduced by 45 percent. The Medicare program had expenditures of 
approximately $5.6 million for an estimated 34,000 TENS units furnished 
in calendar year (CY) 1993.
    Section 13546 provides that there will be no percentage increase in 
payment in CYs 1994 and 1995 for orthotics, prosthetics, and prosthetic 
devices. The percentage increase in the consumer price index is 
expected to resume for payment in subsequent years.
    Listed below is a table showing the estimated savings as a result 
of the various OBRA 93 changes.

           Estimate of Medicare Savings OBRA 93 (In millions)*          
------------------------------------------------------------------------
   FY 1995        FY 1996        FY 1997        FY 1998        FY 1999  
------------------------------------------------------------------------
$45..........         $75            $85            $90          $100   
------------------------------------------------------------------------
* Rounded to the nearest $5 million.                                    

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 rule will not have a significant economic 
impact on a substantial number of small entities. For purposes of the 
RFA, most manufacturers and suppliers of DME and orthotic and 
prosthetic devices are considered to be small entities. Some 
manufacturers and suppliers, however, clearly have substantial regional 
or national sales, and do not, therefore, meet the definition of a 
small entity. Individuals and States are not included in the definition 
of a small entity.
    Also, section 1102(b) of the Act requires the Secretary to prepare 
a regulatory impact analysis if a rule 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 

[[Page 35497]]
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.

C. General Effects

    Since beneficiary copayments are linked to the level of allowed 
payments for DME, the reduction in fee schedule amounts will reduce 
costs to beneficiaries. The magnitude of savings to beneficiaries will 
coincide with the reduction in payment levels for DME. Section 13543 of 
OBRA '93 limited payment for aspirators, nebulizers, and certain 
ventilators by deleting them from the group for items requiring 
frequent and substantial servicing. Beneficiaries who had been renting 
these items for an unlimited period will in the future be required to 
pay copayment fees on payment up to only the allowed purchase price or 
rental cap amount of the device.
    Section 13545 reduces the payment amount for TENS devices furnished 
on or after January 1, 1994 by 45 percent from the payment amount 
effective April 1, 1990. As the payment for the TENS device will be 
reduced, the beneficiaries copayment portion will also be reduced.
    From the perspective of manufacturers and distributors, the 
reductions in Medicare payments for certain DME, nebulizers and 
aspirators, TENS devices, and orthotics, prosthetics, and prosthetic 
devices will result in some revenue losses. Manufacturers and suppliers 
that do not specialize in these items may see minimal reductions in 
their revenues. We do not have detailed data that will enable us to 
predict the economic impact on individual suppliers and manufacturers. 
Considering that the total DME sales in CY 1993 equaled an estimated 
$2.4 billion and the limited reductions we are making at this time, we 
do not believe the impact on DME manufacturers and suppliers will 
significantly affect the quantity or quality of DME available to 
Medicare beneficiaries.
    The provisions of this rule conform the regulations to legislative 
provisions. Therefore, 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 rule 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 
rule was not reviewed by the Office of Management and Budget.
List of Subjects in 42 CFR Part 414

    Durable medical equipment, Medicare, Prosthetic and orthotic 
devices.

    42 CFR part 414, subpart D, is amended as set forth below:

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

    1. The authority citation for part 414 is revised to read as 
follows:

    Authority: Secs. 1102, 1833(a), 1834 (a) and (h), 1848, 1871, 
and 1881 of the Social Security Act (42 U.S.C. 1302, 1395l(a), 1395m 
(a) and (h), 1395w-4, 1395hh, and 1395rr).

    2. In Sec. 414.220, the introductory text for paragraph (f) is 
republished, paragraphs (a), (b), and (f)(3) introductory text, 
(f)(3)(i), and (f)(3)(ii) are revised, and new paragraphs (f)(4) and 
(g) are added, to read as follows:


Sec. 414.220  Inexpensive or routinely purchased items.

    (a) Definitions--(1) Inexpensive equipment means equipment the 
average purchase price of which did not exceed $150 during the period 
July 1986 through June 1987.
    (2) Routinely purchased equipment means equipment that was acquired 
by purchase on a national basis at least 75 percent of the time during 
the period July 1986 through June 1987.
    (3) Accessories. Effective January 1, 1994, accessories used in 
conjunction with a nebulizer, aspirator, or ventilator excluded from 
Sec. 414.222 meet the definitions of ``inexpensive equipment'' and 
``routinely purchased equipment'' in paragraphs (a)(1) and (a)(2) of 
this section, respectively.
    (b) Payment rules. (1) Subject to the limitation in paragraph 
(b)(3) of this section, payment for inexpensive and routinely purchased 
items is made on a rental basis or in a lump sum amount for purchase of 
the item based on the applicable fee schedule amount.
    (2) Effective January 1, 1994, payment for ostomy supplies, 
tracheostomy supplies, urologicals, and surgical dressings not 
furnished as incident to a physician's professional service or 
furnished by an HHA is made using the methodology for the inexpensive 
and routinely purchased class.
    (3) The total amount of payments made for an item may not exceed 
the fee schedule amount recognized for the purchase of that item.
* * * * *
    (f) Calculating the national limited payment amount. The national 
limited payment amount is computed as follows:
* * * * *
    (3) For 1993, the national limited payment amount is equal to one 
of the following:
    (i) 100 percent of the local payment amount if the local payment 
amount is neither greater than the weighted average nor less than 85 
percent of the weighted average of all local payment amounts.
    (ii) 100 percent of the weighted average of all local payment 
amounts if the local payment amount exceeds the weighted average of all 
local payment amounts.
* * * * *
    (4) For 1994 and subsequent years, the national limited payment 
amount is equal to one of the following:
    (i) If the local payment amount is not in excess of the median, nor 
less than 85 percent of the median, of all local payment amounts--100 
percent of the local payment amount.
    (ii) If the local payment amount exceeds the median--100 percent of 
the median of all local payment amounts.
    (iii) If the local payment amount is less than 85 percent of the 
median--85 percent of the median of all local payment amounts.
    (g) Payment for surgical dressings. For surgical dressings 
furnished after December 31, 1993, the national limited payment amount 
is computed based on local payment amounts using average reasonable 
charges for the 12-month period ending December 31, 1992, increased by 
the covered item updates for 1993 and 1994.
    3. In Sec. 414.222, paragraph (a) is revised and paragraph (e) is 
added to read as follows:


Sec. 414.222  Items requiring frequent and substantial servicing.

    (a) Definition. Items requiring frequent and substantial servicing 
in order to avoid risk to the beneficiary's health are the following:
    (1) Ventilators (except those that are either continuous airway 
pressure devices or intermittent assist devices with continuous airway 
pressure devices).
    (2) Continuous and intermittent positive pressure breathing 
machines.
    (3) Continuous passive motion machines.
    (4) Other items specified in HCFA program instructions.
    (5) Other items identified by the carrier.
* * * * *
    (e) Transition to other payment classes. For purposes of 
calculating the 

[[Page 35498]]
15-month rental period, beginning January 1, 1994, if an item has been 
paid for under the frequent and substantial servicing class and is 
subsequently paid for under another payment class, the rental period 
begins with the first month of continuous rental, even if that period 
began before January 1, 1994. For example, if the rental period began 
on July 1, 1993, the carrier must use this date as beginning the first 
month of rental. Likewise, for purposes of calculating the 10-month 
purchase option, the rental period begins with the first month of 
continuous rental without regard to when that period started. For 
example, if the rental period began in August 1993, the 10-month 
purchase option must be offered to the beneficiary in May 1994, the 
tenth month of continuous rental.
    4. In Sec. 414.228, the introductory text for paragraphs (b) and 
(b)(2) are republished, paragraph (b)(2)(ii) is revised, and new 
paragraphs (b)(2)(iii) and (b)(2)(iv) are added, to read as follows:


Sec. 414.228  Prosthetic and orthotic devices.

* * * * *
    (b) Fee schedule amounts. The fee schedule amount for prosthetic 
and orthotic devices is determined as follows:
* * * * *
    (2) The carrier determines a local purchase price equal to the 
following:
* * * * *
    (ii) For 1991 through 1993, the local purchase price for the 
preceding year is adjusted by the applicable percentage increase for 
the year. The applicable percentage increase is equal to 0 percent for 
1991. For 1992 and 1993, the applicable percentage increase is equal to 
the percentage increase in the CPI-U for the 12-month period ending 
with June of the previous year.
    (iii) For 1994 and 1995, the applicable percentage increase is 0 
percent.
    (iv) For all subsequent years the applicable percentage increase is 
equal to the percentage increase in the CPI-U for the 12-month period 
ending with June of the previous year.
* * * * *
    5. In Sec. 414.229, the section heading is revised, the 
introductory text for paragraph (c) is republished and paragraph (c)(3) 
is revised, to read as follows:


Sec. 414.229  Other durable medical equipment--capped rental items.

* * * * *
    (c) Determination of purchase price. The purchase price of other 
covered durable medical equipment is determined as follows:
* * * * *
    (3) For years after 1991. The purchase price is determined using 
the methodology contained in paragraphs (d) through (f) of 
Sec. 414.220.
* * * * *
    6. In Sec. 414.232, paragraph (a) is revised to read as follows:


Sec. 414.232  Special payment rules for transcutaneous electrical nerve 
stimulators (TENS).

    (a) General payment rule. Except as provided in paragraph (b) of 
this section, payment for TENS is made on a purchase basis with the 
purchase price determined using the methodology for purchase of 
inexpensive or routinely purchased items as described in Sec. 414.220. 
The payment amount for TENS computed under Sec. 414.220(c)(2) is 
reduced according to the following formula:
    (1) Effective April 1, 1990--the original payment amount is reduced 
by 15 percent.
    (2) Effective January 1, 1991--the reduced payment amount in 
paragraph (a)(1) is reduced by 15 percent.
    (3) Effective January 1, 1994--the reduced payment amount in 
paragraph (a)(1) is reduced by 45 percent.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: June 28, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 95-16805 Filed 7-7-95; 8:45 am]
BILLING CODE 4120-01-P