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Medicare Compliance & Reimbursement

REIMBURSEMENT:

Class III DME Could Lose Out On Payment Update

Published on Sun Feb 26, 2006

Rapid spending growth, pre-marketing costs for high-risk devices concern GAO.

Class III durable medical equipment devices won't have their own distinct annual payment update on the DME fee schedule if the Government Accountability Office gets its way.

Congress should establish a uniform payment update to the DME fee schedule for 2008 for both class II and III devices instead of updating class III devices uniquely, the GAO recommends in a recent report.

The Department of Health and Human Services should also provide a uniform payment update to the 2007 DME fee schedule for these devices, the GAO recommends. HHS has discretion to set the 2007 rates, while Congress must set the 2008 rates via law.

In the three-tier medical device classification system, class III devices pose the greatest risk for patient use and, as a result, have the highest level of regulation. Most class III devices must undergo a rigorous Food and Drug Administration regulatory review before manufacturers can market them in the U.S.

Medicare coverage for class III DME devices includes osteogenesis stimulators, infusion pumps and related supplies, neuromuscular stimulators, and certain ultraviolet light therapy systems and external defibrillators and supplies.

Class III Payments Soar

While payments for class III DME amount to less than 1 percent of Medicare's total DME spending, they increased from $16.9 million to $53.2 million--215 percent--from 2001 to 2004, according to the report. This rapid growth inspired the study.

Osteogenesis stimulators--devices that promote bone growth in difficult fractures or after spinal fusion surgery--accounted for the lion's share of class III DME payments during the 2001 to 2004 time span. They cornered more than 96 percent of total class III spending in 2004, the GAO finds.

Congress required the GAO to report on class III DME reimbursement for 2007 and 2008 when it passed the Medicare Modernization Act of 2003.

From 2004 through 2006 and for 2008, the MMA set the class III DME payment update to equal the increase in the consumer price index of all urban consumers. MMA requires HHS to determine the payment update for 2007.

Retail Price Setting Impacts Fee Determination

In creating its report, the GAO examined whether class III devices have unique pre-marketing costs and determined how the fee schedule accounts for pre-marketing. Class III devices generally have higher pre-marketing costs than similar class II devices, the GAO found. These costs include FDA user fees and research and development costs. The FDA user fee for class III devices in 2005 was $239,237, while the user fee for class II devices was $3,502, the GAO finds.

The FDA application and approval process takes longer for class III devices, which means manufacturers must wait longer to bring their products to market than they might for a similar class II device. The FDA requires class III manufacturers to submit clinical data for their devices but only occasionally requests such information from class II manufacturers, the GAO reports. Both class III and class II manufacturers told the GAO that they take into account their pre-marketing costs when setting their retail prices, however.

Distinct payment rates for the two different device classes are unwarranted, the GAO concludes. That's because the DME fee schedule corresponds to retail prices or an equivalent measure and therefore consistently accounts for the device costs in both classes.

But the GAO hasn't given any clues to what the uniform payment update may be, much to the chagrin of the Advanced Medical Technology Association. The trade group representing medical device manufacturers encouraged the GAO to specify a percentage for the update in its report, an AdvaMed spokesperson tells Eli. But the GAO didn't include one.

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