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Home Health & Hospice Week

Inherent Reasonableness:

IR RULE THREATENS DME PROFITS

Published on Tue Nov 22, 2005

Inherent reasonableness, competitive bidding may put a double whammy on suppliers.

Forgive durable medical equipment suppliers if they see something suspicious in the timing of the Centers for Medicare & Medicaid Services' move to finalize inherent reasonableness.

The agency now has authority to adjust payments for DME if it believes such payments are unreasonably high or low, thanks to a Dec. 13 final rule. The final rule does not make substantial changes to the interim rule unveiled in 2002.

Under inherent reasonableness, a Medicare payment amount is considered grossly excessive or grossly deficient when the overall payment adjustment is 15 percent or more.

"It's curious," attorney Seth Lundy of Fulbright & Jaworski's Washington office tells Eli. "We've been waiting for the competitive bidding proposed rule for months now, yet this is the first rule to hit."

Lundy and other DME industry insiders were already worried that the feds would use prices in areas of the country subject to competitive bidding to set prices for other areas as well. With CMS's inherent reasonableness authority finalized, their worries intensify.

"Competitive bidding pricing could be used to determine market pricing for inherent reasonableness," Lundy observes. "It's clearly a way that smaller competitive-bidding areas could have greater national pricing effects."

CMS has considerable discretion in how it uses its IR authority--a concern for the American Association for Homecare "While we are encouraged by CMS' choice of a quantitative bright-line test for determining what payment adjustments will trigger the IR authority, the regulation remains vague with respect to the factors CMS or the contractors will consider in arriving at that determination," AAHome-care wrote in February 2003 comments on the policy.

The final rule sets out two procedures for performing IR adjustments. There is a formal procedure requiring Federal Register notice and comment for payment adjustments of 15 percent or more. There's also an informal procedure for adjustments of less than 15 percent that can be carried out by the DME regional carriers.

However, CMS may delegate IR authority to the DMERCs for payment adjustments greater than 15 percent as long as the adjustment doesn't exceed 15 percent in any one year. That means DMERCs can impose a 30 percent reduction for a DME item as long as the adjustment is carried out over two years at 15 percent each year.

CMS or the DMERC must ensure that IR-based decisions on the need for payment adjustments and the new payment amounts are based on "valid and reliable" data. That means CMS or the DMERC must develop guidelines for data collection and analysis, ensure consistency in the survey process and consider the geographic distribution of Medicare beneficiaries, among other requirements.

And while CMS does not anticipate using inherent reasonableness to make payment adjustments for Part B drugs, it retains the authority to do so. The final rule takes effect Feb. 13, 2006.

Note: To see the final rule, visit the Dec. 13 issue of the Federal Register at www.gpoaccess.gov.

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