Gaining Clarity on Medicare Changes

   Getting one's brain wrapped around the enormous changes to the Medicare program contained in the Medicare Prescription Drug, Improvement, and Modernization Act is no simple task. The gargantuan bill enacts some of the most sweeping changes Medicare has ever seen - above and beyond those in the Balanced Budget Act of 1997 (BBA 97). The majority of provisions are aimed at cutting costs, improving quality, standardization, and establishing competition as a mechanism for driving down escalating healthcare costs.

   Fortunately, most of the provisions do not take effect for a few years, giving healthcare providers an opportunity to develop strategies and systems to cope with them and/or challenge them in Congress. The following is a brief overview of some of the Act's provisions that will likely affect ostomy, incontinence, and wound care.

Payment Levels Frozen for DME/Medical Supplies

   Updates (fee schedule changes) for durable medical equipment (DME) and medical supplies such as ostomy supplies, surgical dressings, support surfaces, and urological supplies will be frozen in 2004 through 2008. No inflation-based update will be determined for those years. In 2005, the payment amount for certain items, including semi-electric hospital beds with mattresses, will be reduced. The payment amount will be reduced by the percentage difference between the amount of payment for the item and the median price for the same item (and HCPCS code) in the Federal Employees Health Benefits Program (FEHBP) as of June 2002. After 2008, payment updates for those items not included in competitive bidding will be determined according to the consumer price index (CPI).

National Competitive Bidding Program for Durable Medical Equipment

   The Centers for Medicare and Medicaid Services (CMS) must establish a national competitive bidding (CB) program for most DME, including medical supplies, home dialysis supplies, "off-the-shelf" therapeutic shoes, enteral nutrients, equipment and supplies, electromyogram devices, salivation devices, blood products, and transfusion medicines that are paid under the Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) fee schedule. Beginning in 2007, CMS will establish "competitive acquisition areas" in 10 of the largest metropolitan statistical areas (MSAs), followed by 80 of the largest MSAs in 2009; and the remaining MSAs after 2009.

   The first items and services to be phased into competitive bidding will be those CMS views to have the highest cost and the highest volume or those determined to have the most potential for cost savings.

   Of particular interest to wound, ostomy, and continence healthcare professionals is the establishment of a process that allows a physician to prescribe a particular brand of supply within a specific HCPCS category if the physician determines that use of the item would avoid an adverse medical outcome for the patient. This ability to "call" brands, however, will not affect the amount of payment. The Office of Inspector General (OIG) at the Department of Health and Human Services (HHS) will be monitoring the extent to which suppliers of covered items subject to competitive bidding are soliciting physicians to prescribe certain brands based solely on profitability.

   Payment for competitively bid items will be based on the bids submitted and accepted. The Centers for Medicare and Medicaid Services then will determine a single payment amount for each item in each competitive acquisition area that will replace the Medicare fee schedule allowable for that item. Medicare Part B payment will remain 80% of the payment amount determined and beneficiaries will still be responsible for a 20% copayment. Suppliers awarded contracts must accept assignment, submit claims to Medicare, and accept Medicare payment as payment in full. The use of Advanced Beneficiary Notices (ABN) is still applicable.

   The Centers for Medicare and Medicaid Services cannot award contracts to suppliers in a particular area unless the supplier meets the following criteria: 1) the supplier meets CMS quality and financial standards; 2) the total amounts paid under the contracts are less than would otherwise be paid; and 3) Medicare beneficiaries have access to multiple suppliers. Contracts are subject to terms and conditions and must be "re-competed" every 3 years.

Quality Standards for DME Suppliers

   After consulting with "representatives of relevant parties," HHS will establish and implement quality standards to be applied by independent accreditation agencies. These standards must not be less stringent than the quality standards otherwise in place. A supplier must comply with these standards in order to furnish DME to a Medicare beneficiary and to receive and retain their Medicare supplier number. These standards will be applicable to suppliers of DME, orthotics, prosthetics, and medical supplies. The Act does not contain a specific date for implementation of this provision; obviously, it will be required before the launch of CB in 2007 as suppliers must be compliant to these standards in order to submit bids.

Time Will Tell

   As the implications of this Act become clearer, manufacturers, suppliers, distributors, and healthcare professionals will have to establish mechanisms to deal with them. Remaining profitable and providing quality healthcare under these provisions will be a great challenge to all vested parties. Competition will continue to increase. Payment levels will continue to decrease. Providers must quickly learn how to operate more efficiently and share the financial burden while remaining profitable.