Home Health & Hospice Week

Competitive bidding won't necessarily forestall quicker payment decreases. 

Suppliers of enteral nutrition should brace themselves for slashes to Medicare payment rates for the item.

That's what will happen if the HHS Office of Inspector General gets its way. The Medicare program would have reduced payments for enteral nutrition by $82 million in 2001 if payment rates had been set at the median of purchase prices reviewed by the OIG in a recent report.

Medicare spent $201 million on Category I enteral nutrition (code B4150) in 2001. The OIG surveyed 177 contracts' product prices from a national wholesaler, a group purchasing organization and a supplier who negotiated directly with an enteral nutrition manufacturer.

The findings: Medicare's reimbursement rate of $0.61 in 2001 exceeded median contract prices by 70 to 115 percent, the OIG says.

The proposal: The OIG calls for the Centers for Medicare & Medicaid Services to use its inherent reasonableness authority to cut payment rates for the product.

CMS actually proposed a 16 percent cut to Category I enteral nutrition rates back in 1998. But Congress suspended CMS' IR authority in 1999, so the cuts never took place.

It looks likely that CMS is sharpening its knives for enteral nutrition cuts again. It agrees with the OIG that it should consider the products for IR cuts, CMS says in its response to the draft report.

But cuts will have to wait until CMS gets its IR procedures in place. Although an interim rule restored CMS' IR authority in February 2003 (see Eli's HCW, Vol. XIII, No. 5), CMS is still working with a contractor on developing and finalizing its IR protocol, it says.

Acquisition Cost Not the Wole Story 

Basing future IR cuts on the OIG's data is a mistake, warns attorney Alan Parver with Powell Goldstein Frazer & Murphy in Washington, DC. The survey accounts only for the acquisition cost of the products -- a fact the OIG admits throughout the report.

"The estimates of potential program savings presented in the findings of this report would be lower if median contract prices had included associated supplier costs," the OIG acknowledges.

Suppliers' profit margins on enteral nutrition must pay for all the related services that go with furnishing the product, Parver notes. That includes training patients, troubleshooting use of the product, the cost of submitting claims, and especially the cost of doing business as a Medicare provider, he adds. "It presents an unrealistic and inaccurate picture" to focus on acquisition cost only, Parver charges.

"The estimates of potential program savings ... would be lower if median contract prices had included associated supplier costs," the OIG acknowledges.

The cost of doing Medicare business is likely to get even higher soon. The Medicare law passed in December requires durable medical equipment suppliers to comply with upcoming quality standards, Parver points out.

While CMS has barely started formulating the standards, it appears they will be clinically oriented and will be administered by an accrediting body. That will spell significantly higher costs for suppliers, Parver predicts.

Don't be fooled: Suppliers who think they are safe from payment cuts because enteral nutrition will go under competitive bidding soon should think again, Parver says. CMS appears ready and willing to make IR cuts before bidding begins in 2007. That's especially considering that nationwide bidding won't start until 2009, and could conceivably be delayed even further by future legislation.

Juicy profit margins offered up by the OIG are just the motivation CMS needs to make enteral nutrition one of the first items subject to IR, experts warn.

Editor's Note: The OIG report is at www.oig.hhs.gov/oei/reports/oei-03-02-00700.pdf.