Home Health & Hospice Week

Switch will take $11.5 million out of suppliers' pockets annually.

Almost four years after soliciting testimony on the appropriate payment category for certain respiratory devices, the Centers for Medicare & Medicaid Services has made up its mind on the matter - and suppliers aren't likely to be happy with the decision.

CMS proposes to move respiratory assist devices with bi-level capability and a back-up rate out of the frequent and substantial servicing (FSS) payment category and into the capped rental category, according to a notice in the Aug. 22 Federal Register.

Furthermore, CMS contends it was faulty directions from durable medical equipment regional carriers that led to these RADs being paid for in the FSS category to begin with. "We conclude that all payment made for these devices in the past under the FSS payment category were erroneous," CMS declares in the rule. That conclusion raises the spectre of possible takebacks for such payments, experts worry.

Little Servicing Needed, CMS Maintains

In proposing the payment category switch, CMS dismisses arguments from suppliers that these RADs require a patient visit from a respiratory therapist to make sure the patient uses the device correctly and complies with the treatment. After the RT visits the patient and consults with the patient's physician, an adjustment to the device's pressure setting frequently is necessary, suppliers maintained.

But CMS says that is not the same as saying "the equipment itself requires FSS," so the higher payments aren't warranted. The original manufacturer of the devices said the equipment requires "very little maintenance and servicing," the agency points out in the proposed rule.

And suppliers are paid for maintenance and servicing under the capped rental category as well. Therefore, CMS is "confident that this change in payment category will not result in a decrease in the current level of service being provided to the beneficiaries," it says.

The HHS Office of Inspector General estimates the switch will reduce payments by $11.5 million annually to suppliers of these devices, CMS notes (see article "Statistics").

Respiratory companies whose business includes a large proportion of these RADs will be hit hard, predicts Michael Gallagher, president of Skokie, IL-based CPAP Solutions. "The impact of this change will depend on how many devices are actually provided," Gallagher points out. Suppliers with a diverse product mix will take the payment reduction in stride, while those with significant revenues depending on these devices will take a bigger financial hit.

Adding the administrative hassle that goes along with capped rental items will also take its toll on suppliers, Gallagher adds. "It will be a great challenge to track these," he says.

Even with the payment switch, the Medicare reimbursement rate should still cover the cost of the device, judges Joe Guilford, owner of The CPAP Store in Kennewick, WA. Suppliers "should recoup the cost of the [device] in seven to eight months," and the remaining 13 to 15 months of the capped rental rate will go to cover overhead including labor, Guilford tells Eli.

The slimmer profit margin means suppliers will have to tighten up operations and procedures and manage more efficiently, says Guilford, who accepts only private pay orders for The CPAP Store. Guilford founded the company as private pay-only to avoid just these kinds of Medicare changes and to ensure up-front cash flow, he says.

Under the frequent and substantial servicing payment category, Medicare pays a monthly rental rate for as long as the beneficiary requires the device. Under the capped rental category, Medicare pays a monthly rate for 13 months if the beneficiary purchases the equipment or 15 months if the supplier retains ownership.

When the beneficiary purchases the equipment under capped rental, Medicare pays for maintenance and servicing arranged by the beneficiary. When the supplier retains ownership, the supplier can receive a maintenance and service fee on a semi-annual basis for not more than 10 percent of the equipment's price. v

Editor's Note: The proposed rule is at www.access.gpo.gov/su_docs/fedreg/a030822c.html.