[Federal Register Volume 64, Number 156 (Friday, August 13, 1999)]
[Notices]
[Pages 44227-44231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-20989]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
[HCFA-1050-PN]
RIN 0938-AJ34
Medicare Program; Special Payment Limits for Certain Durable
Medical Equipment and Prosthetic Devices
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Proposed notice.
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SUMMARY: This notice proposes special payment limits, for five items of
durable medical equipment and one prosthetic device, to replace the
current fee schedule amounts for these items. Currently, payment under
the Medicare program for these items is equal to 80 percent of the
lesser of the actual charge for the item or the fee schedule amount for
the item. We have determined that the Medicare fee schedule amounts for
five durable medical equipment items and one prosthetic device are not
inherently reasonable because they are grossly excessive relative to
the amounts paid for these items by the Department of Veterans Affairs.
This notice proposes that payment for these items be 80 percent of the
actual charges for the items or the special payment limits we set for
these items, whichever is less. It is intended to prevent continuation
of excessive payment for these items. The special payment limits would
be based on the median wholesale prices paid by the Department of
Veterans Affairs for these items plus an appropriate markup.
DATES: We will consider comments if we receive them at the appropriate
address, as provided below, by 5 p.m. on October 12, 1999.
ADDRESSES: Mail written comments (1 original and 3 copies) to the
following address: Health Care Financing Administration, Department of
Health and Human Services, Attention: HCFA-1050-PN, P.O. Box 9016,
Baltimore, MD 21244-9016.
If you prefer, you may deliver your written comments (1 original
and 3 copies) to one of the following addresses:
Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201, or
Room C5-16-03, 7500 Security Boulevard, Baltimore, MD 21244-1850.
Because of staffing and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code HCFA-1050-PN. Comments received timely will be available
for public inspection as they are received, generally beginning
approximately 3 weeks after publication of a document, in Room 443-G of
the Department's offices at 200 Independence Avenue, SW., Washington,
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.
(phone: (202) 690-7890).
FOR FURTHER INFORMATION CONTACT: Joel Kaiser, (410) 786-4499.
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I. Background
A. Payment Under Reasonable Charges
Before January 1, 1989, payment for all durable medical equipment
(DME) and prosthetic devices furnished under Part B of the Medicare
program (Supplementary Medical Insurance) was made on a reasonable
charge basis through contractors known as Medicare carriers and
intermediaries. Reasonable charge determinations were generally based
on customary and prevailing charges derived from historic charge data.
The reasonable charges were established by the carriers using the
methodology set forth in sections 1833 and 1842(b) of the Social
Security Act (the Act) and 42 CFR part 405, subpart E of our
regulations. The reasonable charge for an item 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 could not exceed the 75th percentile of the
customary charges of suppliers in the locality.)
The inflation indexed charge. (The inflation indexed
charge 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.)
B. Payment Under Fee Schedules
Sections 1834(a) and (h) of the Act provide that Medicare payment
for DME and prosthetics and orthotics, respectively, 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.
Customized items.
Oxygen and oxygen equipment.
Other covered items (other than DME).
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 for DME and prosthetic devices are calculated
using average reasonable charges from 1986 and 1987 and are generally
adjusted annually by the change in the Consumer Price Index for all
Urban Consumers (CPI-U), that is, the covered item update, for the 12-
month period ending June 30 of the preceding year. Section
1834(h)(2)(B) of the Act requires that regional fee amounts be
calculated for prosthetic devices. The regional fee
[[Page 44228]]
amounts are equal to the weighted average of the local (Statewide) fee
amounts in each of our 10 regions. In addition, the fee schedules for
DME and prosthetics and orthotics are limited by a ceiling (upper
limit) and floor (lower limit). For DME, the ceiling and floor are
equal to 100 percent and 85 percent, respectively, of the median (mid-
point) of the local (Statewide) fee amounts. For prosthetics and
orthotics, the ceiling and floor are equal to 120 percent and 90
percent, respectively, of the regional fee amounts. The fee schedule
amounts for areas outside the continental United States are not subject
to the ceiling and floor limits for DME or the regional fee amounts and
ceiling and floor limits for prosthetic devices. The local fee schedule
amounts for areas outside the continental United States are not
included in the calculation of the ceiling and floor limits or regional
fee amounts.
C. Exception to the Standard Payment Methodologies--Special Payment
Amounts
Section 1842(b)(8) of the Act states that we may establish special
payment amounts for particular items or services, other than
physicians' services, that are covered under Medicare Part B, for which
we determine that the application of standard Part B pricing rules
results in grossly excessive or grossly deficient payment amounts. The
applicable regulations are located at Sec. 405.502(g) and require us to
consider relevant information in establishing payment limits that are
realistic and equitable. The special payment limit is either a specific
dollar amount or is based on a special method to be used in determining
the payment amount.
Section 405.502(g)(1) provides the following examples of
circumstances that may result in grossly deficient or excessive
charges:
The marketplace is not competitive.
Medicare and Medicaid are the sole or primary source of
payment for a category of items or services.
The payment amounts do not reflect changing technology,
increased facility with that technology, or changes in acquisition,
production, or supplier costs.
The payment amounts for a category of items or services in
a particular locality are grossly higher or lower than the payment
amounts in other comparable localities for the category of items or
services, taking into account the relative costs of furnishing the
category of items or services in the different localities.
The payment amounts for a category of items or services
are grossly higher or lower than acquisition or production costs for
the category of items or services.
There have been increases in payment amounts for a
category of items or services that cannot be explained by inflation or
technology.
The payment amounts for a category of items or services
are grossly higher or lower than the payments made for the same
category of items or services by other purchasers in the same locality.
Section 405.502(g)(3) requires that we publish for public comment
proposed payment limits in the Federal Register. We allow 60 days for
receipt of public comments on the proposal. After we have considered
all timely comments, we publish in the Federal Register a final notice
announcing the special payment limits and our analyses and responses to
the comments.
D. Items for Which Adjustments Are Proposed
Using the authority discussed above, we reviewed the current
Medicare payment amounts for the following items:
Folding walker (pickup), adjustable or fixed height--code
E0135 in the HCFA Common Procedure Coding System (HCPCS).
Folding walker, wheeled, without seat--HCPCS code E0143.
Commode chair, stationary, with fixed arms--HCPCS code
E0163.
Transcutaneous Electrical Nerve Stimulator (TENS), two
lead, localized stimulation--HCPCS code E0720.
TENS, four lead, larger area/multiple nerve stimulation--
HCPCS code E0730.
Vacuum erection system--HCPCS code L7900.
Section 134 of the Social Security Act Amendments of 1994
specifically mandates that we review our payments for decubitus care
equipment, TENS devices, and other items we consider appropriate. We
gathered payment data on 20 items identified as either decubitus care
equipment or TENS devices and 80 additional items drawn from a list of
top 100 items ranked by Medicare expenditures. Based on a review of
retail prices, wholesale prices, and prices paid by payers other than
Medicare, we identified 20 items from this list of 100 items that
warranted further review. We then obtained data on the average payments
made by the Department of Veterans Affairs (VA) for these 20 items and,
based on a review of this data, and as we explain below, we determined
that payment adjustments were necessary for the six items listed above.
These six items represent items that are generally purchased as opposed
to being rented. We feel that more data on rental costs and services is
needed in order to address the reasonableness of the Medicare payment
amounts for rental items for which we obtained the VA data, that is,
items which are generally furnished to Medicare beneficiaries on a
rental basis.
With the exception of HCPCS code L7900, all items are covered as
DME and classified under the inexpensive or routinely purchased DME fee
schedule category. Medicare payment for these items is made on either a
purchase or a rental basis. Total Medicare payment for rentals is
limited to 100 percent of the fee schedule amount for purchase of the
item. HCPCS code L7900 identifies a prosthetic device for which
Medicare payment is made under the fee schedule on a purchase basis
only. All of the items above are high volume items in terms of Medicare
expenditures.
The 1998 fee schedule amounts for purchase of these items for areas
within the continental United States range from $67.97 to $79.97 for
code E0135; $97.48 to $114.68 for code E0143; $89.42 to $105.20 for
code E0163; $298.02 to $350.61 for code E0720; $300.43 to $353.45 for
code E0730; and $357.76 to $477.01 for code L7900. The 1998 fee
schedule amounts for purchase of these items for areas outside the
continental United States (that is Alaska, Hawaii, and Puerto Rico)
range from $90.66 to $115.45 for code E0135; $107.85 to $145.22 for
code E0143; $109.00 to $138.62 for code E0163; $207.89 to $465.26 for
code E0720; $338.93 to $508.22 for code E0730; and $394.65 to $473.37
for code L7900.
Based on a comparison of Medicare payment amounts and payment
amounts from the VA, we determined that the current payment amounts for
these items are grossly excessive.
E. Comparison With the Department of Veterans Affairs
The VA also administers a national program that includes the
furnishing of DME and prosthetic devices. Unlike Medicare, which is a
payer of services and not a provider of services, the VA generally
obtains these items by direct acquisition from manufacturers and
wholesalers and provides them directly to veterans through its network
of medical centers located throughout the United States. Therefore, the
prices paid by the VA for these items represent wholesale prices as
opposed to retail prices charged by outlets that supply these items to
Medicare beneficiaries. To make a valid comparison between Medicare and
VA payments, a price
[[Page 44229]]
markup must be applied to the VA wholesale prices to approximate retail
prices.
We obtained the median wholesale payment amount for the items
identified in section D above from a number of VA medical centers
across the nation. We received data from 109 (approximately 63 percent)
of the VA medical centers across the nation. We increased the median
wholesale amount by a markup of 67 percent; that is, a two-thirds
markup.
The amount of the markup was based on data we compiled from over
200 HCPCS coding recommendations submitted by the industry to us for
medical equipment and devices from 1989 to 1998. When submitting
recommendations for new HCPCS codes, the requester, usually the
manufacturer of the item, is required to list the wholesale and
suggested retail prices for the item. The median markup calculated
using these data was 67 percent. We consider 67 percent to be the upper
end of a range of acceptable markups. If public comments or additional
research indicate that a markup of less than 67 percent is appropriate,
we reserve discretion to establish a markup of less than 67 percent. It
should be noted that requests for new HCPCS codes generally involve new
products or technology; therefore, it can be assumed that the markups
for these items will be, in general, higher than markups for items that
have been on the market for a number of years.
The VA and Medicare payments are compared in the table below.
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Medicare Medicare
Code VA Payment VA+67% floor* ceiling*
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E0135....................................................... $30.24 $50.50 $67.97 $79.97
E0143....................................................... 45.44 75.88 97.48 114.68
E0163....................................................... 37.64 62.85 89.42 105.20
E0720....................................................... 89.89 150.11 298.02 350.61
E0730....................................................... 124.00 207.08 300.43 353.45
L7900....................................................... 131.65 219.86 357.76 477.01
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*Highest and lowest 1998 fee schedule amounts for States within the continental United States.
II. Provisions of This Proposed Notice
Below are the amounts we are proposing as the special payment
limits:
A. Folding Walker (Pickup), Adjustable or Fixed Height--HCPCS Code
E0135
The median VA wholesale payment amount for this item is $30.24.
Using a markup of 67 percent results in an estimated retail payment
amount of $50.50. We propose that the special payment limit for
purchase of this item, when new and when furnished in the continental
United States, be equal to $50.50. This amount is approximately 37
percent below the 1998 Medicare ceiling of $79.97 and 26 percent below
the 1998 Medicare floor of $67.97. In keeping with the Medicare policy
for calculating fee schedule amounts for the purchase of used equipment
and the rental of equipment for which base fee schedule data (that is,
reasonable charge data from 1986 and 1987) are not available (see
section 5102.2.A.2 of the Medicare Carriers Manual), we propose that
the special payment limit for purchase of this item, when previously
used by other patients and when furnished in the continental United
States, be equal to $37.88 or 75 percent of the special payment limit
for purchase of a new item. We propose that the special payment limit
for the monthly rental of this item, when furnished in the continental
United States, be equal to $5.05 or 10 percent of the special payment
limit for purchase of a new item.
B. Folding Walker, Wheeled, Without Seat--HCPCS Code E0143
The median VA wholesale payment amount for this item is $45.44.
Using a markup of 67 percent results in an estimated retail payment
amount of $75.88. We propose that the special payment limit for
purchase of this item, when new and when furnished in the continental
United States, be equal to $75.88. This amount is approximately 34
percent below the 1998 Medicare ceiling of $114.68 and 22 percent below
the 1998 Medicare floor of $97.48. We propose that the special payment
limit for purchase of this item, when previously used by other patients
and when furnished in the continental United States, be equal to $56.91
or 75 percent of the special payment limit for purchase of a new item.
We propose that the special payment limit for the monthly rental of
this item, when furnished in the continental United States, be equal to
$7.59 or 10 percent of the special payment limit for purchase of a new
item.
C. Commode Chair, Stationary, With Fixed Arms--HCPCS Code E0163
The median VA wholesale payment amount for this item is $37.64.
Using a markup of 67 percent results in an estimated retail payment
amount of $62.85. We propose that the special payment limit for
purchase of this item, when furnished in the continental United States,
be equal to $62.85. This amount is approximately 40 percent below the
1998 Medicare ceiling of $105.20 and 30 percent below the 1998 Medicare
floor of $89.42. We propose that the special payment limit for purchase
of this item, when previously used by other patients and when furnished
in the continental United States, be equal to $47.14 or 75 percent of
the special payment limit for purchase of a new item. We propose that
the special payment limit for the monthly rental of this item, when
furnished in the continental United States, be equal to $6.29 or 10
percent of the special payment limit for purchase of a new item.
D. Transcutaneous Electrical Nerve Stimulator (TENS), Two Lead,
Localized Stimulation--HCPCS Code E0720
The median VA wholesale payment amount for this item is $89.89.
Using a markup of 67 percent results in an estimated retail payment
amount of $150.11. We propose that the special payment limit for
purchase of this item, when furnished in the continental United States,
be equal to $150.11. This amount is approximately 57 percent below the
1998 Medicare ceiling of $350.61 and 50 percent below the 1998 Medicare
floor of $298.02.
E. TENS, Four Lead, Larger Area/Multiple Nerve Stimulation--HCPCS Code
E0730
The median VA wholesale payment amount for this item is $124.00.
Using a markup of 67 percent results in an estimated retail payment
amount of $207.08. We propose that the special payment limit for
purchase of this item, when furnished in the continental United States,
be equal to $207.08. This amount is approximately 41 percent below the
1998 Medicare ceiling of
[[Page 44230]]
$353.45 and 31 percent below the 1998 Medicare floor of $300.43.
F. Vacuum Erection System--HCPCS Code L7900
The median VA wholesale payment amount for this item is $131.65.
Using a markup of 67 percent results in an estimated retail payment
amount of $219.86. We propose that the special payment limit for
purchase of this item, when furnished in the continental United States,
be equal to $219.86. This amount is approximately 46 percent below the
highest 1998 Medicare regional fee schedule amount of $406.34 and 43
percent below the lowest 1998 Medicare regional fee schedule amount of
$382.96.
G. Areas Outside the Continental United States
The 1998 DME and prosthetic device fee schedule amounts for areas
outside the continental United States are, on average, 10 percent
greater than the 1998 DME and prosthetic device fee schedule amounts
for areas within the continental United States. For the six items
identified above, we propose using a modified approach to set special
payment limits for areas outside the continental United States (that
is, Alaska, Hawaii, Puerto Rico). We propose that special payment
limits be established by reducing the 1998 fee schedule amounts for
these areas by the percentage difference between the 1998 national
ceilings, or the highest regional fee schedule amount in the case of
HCPCS code L7900, and the special payment limits proposed above for the
continental United States. However, in no case can the special payment
limit for an area outside the continental United States be lower than
the special payment limit for the continental United States increased
by 10 percent. We are, therefore, proposing that the special payment
limits for areas outside the continental United States be at least 10
percent greater than the special payment limits for areas within the
continental United States because of the unique costs of doing business
in these areas. We base this 10 percent parameter on the fact that the
fee schedule amounts for all DME and prosthetic devices for areas
outside the continental United States, in general, are, on average, 10
percent greater than the fee schedule amounts for areas within the
continental United States.
H. Applicability
The initial special payment limits we propose would apply to items
furnished on or after the effective date of the published final notice.
We propose that the fee schedule amounts for the six items identified
be reduced incrementally by a factor of 15 percent or less per year
until they are equal to the special payment limits applicable to each
item. For each calendar year after the calendar year in which the
proposed special payment limits are fully in effect, the special
payment limits would be adjusted using the applicable covered item
update (see ``I. B. Payment Under Fee Schedules'') for the appropriate
calendar year. For example, as noted above, the 1998 fee schedule
amounts for HCPCS code L7900 for areas within the continental United
States range from $382.96 to $406.34. The special payment limit of
$219.86 that we are proposing would be phased in over a number of years
so that in any given year no adjustment would exceed 15 percent. We are
proposing that the special payment amounts be phased in so that the
impact of the reductions is spread out over multiple years and gives
the suppliers an extended period in which to adjust to the reductions
in payment. In addition, most DME suppliers are small businesses and
applying the payment limits at one time would impose a serious burden
on these types of entities, particulary those that specialize in
furnishing the items addressed in this notice. The proposed special
payment limit of $219.86 for HCPCS code L7900 would be phased in as
follows:
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Range in limits within
Calendar year continental U.S.
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1998...................................... $382.96 to $406.34.
1999...................................... $325.52 to $345.39.
2000...................................... $276.69 to $293.58.
2001...................................... $235.19 to $249.54.
2002...................................... $219.86 (special limit fully
implemented).
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For each calendar year after 2002, the special payment limit for HCPCS
code L7900 would be equal to the special payment limit for the
preceding calendar year increased by the appropriate covered item
update for prosthetic devices. The ranges in the proposed payment
limits, by calendar year, for all six HCPCS codes, for items furnished
within the continental United States, are listed in the table below.
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HCPCS 1999 2000 2001 2002 2003 2004
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E0135........ 57.77 to 67.97.. 50.50 to 57.77.. 50.50\1\....... (\2\).......... (\2\).......... (\2\)
E0143........ 82.86 to 97.48.. 75.88 to 82.86.. 75.88\1\....... (\2\).......... (\2\).......... (\2\)
E0163........ 76.01 to 89.42.. 64.61 to 76.01.. 62.85 to 64.61. 62.85\1\....... (\2\).......... (\2\)
E0720........ 253.32 to 298.02 215.32 to 253.32 183.02 to 155.57 to 150.11 to \1\150.11
215.32. 183.02. 155.57.
E0730........ 255.37 to 300.43 217.06 to 255.37 \1\207.08 to 207.08......... (\2\).......... (\2\)
217.06.
L7900........ 325.52 to 345.39 276.69 to 293.58 235.19 to \1\219.86\1\... (\2\).......... (\2\)
249.54.
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\1\ Special payment limit fully implemented.
\2\ Special payment limit equal to the special payment limit for the preceding calendar year increased by the
appropriate covered item update.
I. Proposed Payment
We propose that payment for the six items identified equal 80
percent of the lesser of the actual charge for the system or the
appropriate special payment limit, as described in sections A. through
G. above.
J. Carrier-Granted Exceptions
Section 405.502(h)(3) states that we must set forth the criteria
and circumstances, if any, under which a carrier may grant an exception
to a special payment limit. We are not proposing any circumstances
under which a carrier may grant an exception to the application of the
proposed special payment limits. We are interested in receiving
comments on any circumstances for which a commenter believes an
exception should be granted.
III. Response to Comments
Because of the large number of items of correspondence we normally
receive on Federal Register documents published for comment, we are not
able to acknowledge or respond to them individually. We will consider
all comments we receive by the date and time specified in the DATES
section of this preamble, and, if we proceed with a subsequent
document, we will respond to the major comments in the preamble to that
document.
[[Page 44231]]
IV. Regulatory Impact Statement
We have examined the impacts of this proposed notice as required by
Executive Order 12866 and the Regulatory Flexibility Act (RFA) (Pub. L.
96-354). Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). A regulatory impact
analysis must be prepared for major rules with economically significant
effects ($100 million or more annually). The reductions in total
expenditures over the next 5 years are estimated to be: $10 million in
1999; $20 million in 2000; $30 million in 2001; $30 million in 2002;
and $30 million in 2003. Since the proposed notice results in
reductions in total expenditures of less than $100 million per year,
this notice is not a major rule as defined in Title 5, United States
Code, section 804(2) and is not an economically significant rule under
Executive Order 12866.
RFA requires agencies to analyze options for regulatory relief of
small businesses. For purposes of the RFA, small entities include small
businesses, non-profit organizations, and government agencies. Most
hospitals and most other providers and suppliers are small entities
either by non-profit status or by having revenues of $5 million or less
annually. Individuals and States are not included in the definition of
a small entity. Based on data from the Small Business Administration
(SBA), we estimate that 98 percent of suppliers of DME and prosthetic
devices would be defined as small entities for purposes of the RFA. We
estimate that 106,000 entities bill Medicare for DME, prosthetics,
orthotics, surgical dressings, and other equipment and supplies each
year. We believe the impact on small businesses will be minimal because
the implementation of the payment amounts will be phased in over
several years. The annual adjustment in payment will be no greater than
15 percent per year. Total Medicare expenditures for DME and
prosthetics devices is approximately $5 billion per year. As indicated
above, we estimate that the proposed payment reductions, when fully
implemented, will reduce these expenditures by approximately $30
million per year. Therefore, the overall impact on the total industry
annual receipts will be small, that is, less than 1 percent reduction
in Medicare revenue. However, while the overall impact is small, some
suppliers would be seriously affected as a result of the mix of DME and
prosthetics that they furnish to Medicare beneficiaries.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a proposed 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 603
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 less than 50 beds. We are not
preparing a rural impact analysis since we have determined that this
proposed notice would not have a significant economic impact on the
operation of a substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any proposed notice that may result in an annual expenditure by
a State, local, or tribal government, in the aggregate, or by the
private sector of $100 million. The proposed notice would not have an
effect on the governments mentioned, and private sector costs would be
less than the $100 million threshold.
In accordance with the provisions of Executive Order 12866, this
notice was reviewed by the Office of Management and Budget.
Authority: Sections 1834(a) and 1842(b) of the Social Security
Act (42 U.S.C. 1395m and 1395u).
(Catalog of Federal Domestic Assistance Program No. 93.774,
Medicare--Supplementary Medical Insurance Program)
Dated: January 27, 1999.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
Dated: April 28, 1999.
Donna E. Shalala,
Secretary.
[FR Doc. 99-20989 Filed 8-12-99; 8:45 am]
BILLING CODE 4120-01-P