Summer Updates

Medical Supply Costs under Intense Government Scrutiny

   The government believes Medicare pays too much for durable medical equipment and medical supplies (DMEPOS). In 2000, Medicare Part B costs for DMEPOS totaled more than $6.8 billion - $1.3 billion of which was paid out-of-pocket by Medicare beneficiaries. The Office of Inspector General (OIG) of the Department of Health and Human Services provided testimony before the Senate Committee on Appropriations on June 12, 2002 regarding Medicare reimbursement for medical equipment and supplies.¹

   The OIG compared prices Medicare pays for 16 DMEPOS items to the median prices for the same items from other government purchasers such as the Veterans Administration (VA), state Medicaid agencies, fee-for-service Federal Employee Health Benefit (FEHB) plans, and retail suppliers. The 16 items evaluated included blood glucose strips and lancets, enteral feeding supply kits, walkers, some support surfaces, TENS units, and other DME. Ostomy, continence, and surgical dressings were not among the list studied.

   Studies comparing Medicare costs to other government purchasers have historically raised concerns that they are not comparing "apples to apples." Medicare is a payer of services, not a supplier or provider of services. As a large purchaser of medical equipment and supplies, the VA has access to best wholesale prices. These prices do not take into consideration the Medicare supplier costs associated with getting an item to a Medicare beneficiary (eg, postage, delivery vans, drivers), complying with 21 government supplier standards and regulations to qualify as a Medicare supplier (eg, maintaining a physical facility, delivering items to the beneficiary, providing education to the beneficiary, and maintaining a complaint resolution procedure), or expenses related to claims submission (eg, rigorous documentation and software requirements). These stipulations add to the suppliers' cost of doing business but are not directly reimbursed by Medicare.

   The government has two options available to control unreasonably high or low payments for medical equipment and supplies - the Inherent Reasonableness Process and Competitive Bidding. To date, the final rule for inherent reasonableness has not been determined. The Balanced Budget Act of 1997 authorized the Centers for Medicare and Medicaid Services (CMS) to enter into competitive bidding demonstrations for some categories of DMEPOS. The CMS has conducted two demonstrations to date. The first completed demonstration showed savings of 17% for five categories of DMEPOS studied, compared to payments that would have been incurred under the 2000 Medicare fee schedule. The CMS has projected that a third demonstration will produce 22% savings.

   The call for competitive bidding has been a familiar one in Washington - especially during recent months since President Bush issued his 2003 budget proposal - and it seems to be more serious now than it has ever been. Because the national budget surplus has evaporated, lawmakers are looking for ways to cut costs. These factors, in conjunction with Congress' moving toward passing a massive prescription drug benefit, only serve to increase the urgency of lawmakers' search for dollars.

   On June 19, the U.S. House Ways and Means Committee approved a bill that establishes a national competitive bidding program for DME and related inhalation drugs. This bill also contains a provision requiring certain beneficiaries to pay $40 for each home health episode of care. On June 21, the U.S. House Energy and Commerce Committee also approved a plan for a competitive bidding program, but its bill excluded the $40 home health payment. On June 28, the House Republicans pushed through a Medicare prescription drug bill, "H.R. 4954- Medicare Modernization and Prescription Act of 2002" that includes a competitive bidding provision for DME but does not contain provisions for a $40 per episode home health copayment. The Senate must now consider the issue. Whether the Senate will reach an agreement with the House on the subject before the end of the session remains to be seen. If no agreement is reached, a resolution on the subject may be postponed until the fall.

Paperwork Reduction Set for MDS and OASIS

   The Department of Health and Human Services (HHS) has asked the CMS to submit a package for public comment to eliminate aspects of OASIS that are duplicative or unnecessary to promote quality care or accurate payment. The CMS has proposed eliminating two of the 10 OASIS assessments and reducing the number of required items collected in two other follow-up assessments.² The CMS believes these changes will reduce the amount of time home health nurses and therapists spend on OASIS by 25% and reduce the number of data items collected by 27%. The bulk of work is done in three assessments, but the critical renewal assessment would be reduced from 92 items to 25 - a 72% reduction.

   Effective July 1, nursing homes can use a shorter assessment form to gather information needed to pay Medicare claims. The CMS believes these changes will reduce the time needed to complete the MDS from 90 minutes to 45 but will not impair the tool's ability to collect data needed to measure the quality of care in nursing homes.

1. Rehnquist J. Medicare reimbursement for medical equipment and supplies. Testimony before the Senate Committee on Appropriations Subcommittee on Labor, HHS, and Education, June 12, 2002. Available at: www.oig.hhs.gov/testimony. Cited: June 13, 2002.

2. HHS moves to free home health nurses to focus on patient care. HHS News. U.S. Department of Health and Human Services. Press release: June 10, 2002. Available at: www.hhs.gov/news. Cited June 13, 2002.