CMS Eyes Controversial Authority To Cut Retail Diabetes Test Supplies Payments

From: Inside Health Policy

CMS is considering invoking a rarely used and controversial payment adjustment mechanism called “inherent reasonableness” to lower Medicare reimbursements for retail diabetic testing supplies instead of putting these supplies in the competitive bidding program, and plans to discuss the option with stakeholders at a public meeting on July 23. The agency’s inherent reasonableness authority, finalized in 2005, creates a process for CMS to establish equitable payment for certain Medicare Part B services if the existing payment amounts are deemed to be grossly deficient or excessive.

The agency says it may try to invoke the authority because the competitive bidding program for mail-order diabetic supplies resulted in prices that are more than two times lower than those for diabetic supplies sold at retail establishments. Such a move would likely spark strong protests from independent retailers whom have said they would oppose having small pharmacies competitively bid or accept lower payments for the supplies.

Rather than phasing-in retail supplies under the competitive bidding program, CMS says in a recent Federal Register notice that it is considering using the information from the Round 1 Rebid to establish in the short run “special payment limits” for the non mail-order supplies “We believe that this alternative would allow beneficiaries the greater degree of choice in deciding where to obtain their non-mail order diabetic testing supplies as suppliers would not have to be awarded contracts to continue furnishing these items to Medicare beneficiaries,” the notice states.

CMS also says that by using its inherent reasonable authority it could reduce the pricing discrepancy — and generate program and beneficiary savings — sooner than through the competitive bidding program.

In 2011, the annual allowed charges for the diabetic supplies was about $1.6 billion, of which about one-third ($552 million) was attributed to retail items, CMS says. This category, CMS says, “represents the highest volume category of items or services yet to be phased in under the DMEPOS competitive bidding program” and based on the results of the mail order supplies and a review or other prices information in general “we believe the savings potential…. is significant.”

The notice points out that in 2011 Medicare-allowed payment amounts for a box of 50 mail order test strips were reduced by an average 55 percent in nine local metropolitan areas as a result of the competitive bidding program. For example, in those nine areas the average Medicare fee schedule payment for the retail supplies was $37.55, the fee schedule for mail order supplies was $34.36 and the competitive bidding amount was $14. 62.

CMS acknowledges that there are pricing differences between mail order and retail supplies due to the delivery method, but says that information about the prices from the mail-order supplies can “inform” the pricing for retail because several key cost components, such as product acquisition and administrative costs, are similar for both.

The community pharmacist lobby says that Medicare must ensure adequate payments for independent pharmacies or the result could be diminished access for seniors which in turn would result in increased overall health costs.

NCPA last fall released results of a survey of more than 800 independent pharmacies who were asked about the impact of subjecting their businesses and patients to competitive bidding prices. Eighty-one percent of respondents said that their average Medicare patient visits the pharmacy two or more times a month for counseling and/or supplies; 84 percent of the pharmacies said that they would likely drop out of the program if forced to take reduced payments or to competitively bid; and 81 percent of said that they regularly deliver diabetic testing products to patients.

The community pharmacists also reported that patients often complain about the waste generated by mail-order auto-shipping.

NCPA is also pushing for legislation — the Medicare Access to Diabetes Supplies Act — that would exempt independent pharmacies (those with 10 or fewer facilities) from any competitive bidding program. The bipartisan legislation sponsored by Reps. Aaron Schock (R-IL) and Peter Welch (D-VT) has 23 cosponsors.

Community pharmacists cried foul back in April when CMS said medical equipment suppliers would have to bid again in the first round of the competitive bidding program and that retail pharmacies, while still excluded from the bidding program, potentially could face mail-order diabetic supply rates.

“We are currently exploring options for adjusting the fee schedule amounts for retail diabetic supplies without requiring local suppliers to compete for contracts and expect to provide additional information on this issue in the coming weeks,” CMS stated in a fact sheet accompanying the April announcement.

Pharmacy sources said at the time that the CMS statement was good news for mail-order suppliers, who have argued that retail pharmacies should not be paid twice as much for diabetic supplies, but bad news for bricks-and-mortar pharmacies that, because of greater overhead and lower volume, contend they cannot sell supplies at the prices set by the mail-order bid program.

The Affordable Care Act requires that, by 2016, CMS either expand the bidding program to all durable medical equipment, orthotics, prosthetics and supplies nationwide or apply bid prices from previous bids to all DMEPOS. Round two, the bidding process for which has already concluded, expands the program from nine metropolitan areas to 100.

An alternative option might be for CMS to hold a separate bidding program for retail pharmacies, a community pharmacist source said back in April, but the source cautioned that such an approach would also have pitfalls. For example, the Affordable Care Act lets small pharmacies supply medical equipment without being accredited, but in order to bid, pharmacies must be accredited. Pharmacies like the accreditation exemption, but it’s a double edged sword under the bidding program. Pharmacies would have to pay the $5,000 cost of accreditation for the chance that their bids are accepted. That $5,000 would be on top of the other requirements that are part of selling medical equipment, such as the audits that pharmacies hate.

The bidding period for the national mail-order program for diabetic testing supplies concluded on March 30, and the new prices are scheduled to go into effect on July 1, 2013. — Amy Lotven