Medicare Part B Durable Medical Equipment and

Drugs

Laurence D. WilsonDirector, Chronic Care Policy Group, CMSJohn Warren, DirectorDivision of Ambulatory Services, CMS

Presentation Topics

Durable Medical Equipmente.g., Power Mobility Devices, Oxygen, Diabetic Supplies.

Part B Drugse.g., Cancer Drugs

Overview of Medicare benefitsIssues in coverage, coding, and paymentRecent changes and future outlook

Coverage, Coding, and Payment

CoverageMedicare Benefit Category“Reasonable and Necessary”Local versus National Coverage

National Coverage Determination (NCD)Local Coverage Determination (LCD)

Coverage, Coding, and Payment

HCPCS CodesAlphanumeric System that Provide information to Insurers.Codes facilitate Timely and Accurate processing of Claims and appropriate payment for Services.

Examples of Codes:E0250 Hospital bed, fixed height, with any type side rails, with

mattressE0251 Hospital bed, fixed height, with any type side rails, without

mattress

Coverage, Coding, and Payment

How much Medicare will payWhat method Medicare will use to pay

Fee scheduleProspective Payment System (PPS)Competitive bidding/acquisitionAverage Sales Price (ASP)

Durable Medical Equipment

$10 billion in Medicare Expenditures annually110,000 suppliers.

90 percent have revenues less than $1million per year.Suppliers include home delivery models, physician offices, pharmacies, and mail order.Medicare key player in the market—establishes benchmarks for coverage and payment.

Top Categories of DMEPOS expenditures

Allowed Charges 1 Year Growth Allowed Charges

Product Group 2005 (2004 to 2005) 2004

1 Oxygen Supplies/Equipment $2,669,015,203 0% $2,669,021,768

2 Wheelchairs/POVs $1,512,581,843 13% $1,343,018,842

3 Diabetic Supplies & Equipment $1,176,121,037 7% $1,100,088,776

4 Enteral Nutrition $582,085,753 -1% $589,085,632

5 CPAP $378,084,371 33% $284,525,054

Total $6,317,888,207

Fee schedule amounts for oxygen and oxygen equipment were reduced in 2005 in accordance with MMA

DME: Scope of Benefits

DME is defined as equipment that is furnished by a supplier or a home health agency that:Can withstand repeated use,Is primarily and customarily used to serve a medical purpose,Generally is not useful to the individual in the absence of an illness or injury, andIs appropriate for use in the home.

DME: Basis of Payment

Fee scheduleEstablished in 1989 using historical charge dataUpdated Annually based on statute

MMA 2003 froze fees through 2007Fee is determined for each HCPCS codeNew technology/HCPCS Codes are “gap-filled”

based on fees for comparable items, orretail pricing information

DME: Payment Categories

Cap Rental – Expensive items/equipment. Monthly rental payments up to 13 months when title

transfers to beneficiary (e.g., hospital beds). Inexpensive/Routinely Purchased.

Medicare pays full fee up front (e.g., canes and crutches).Frequently Serviced

Medicare pays a continuous monthly payment (e.g., ventilators).

OxygenMonthly (“modality neutral”) payments up to 36 months when title transfers to beneficiary.

Issues in DME

Congress and CMS have taken important steps to address key issues in the DME benefit:

Fraud and AbuseExcessive paymentsNeed for improvements in current payment structureNeed for improved quality and oversight.Need for more comprehensive payment reform

Medicare Modernization Act

Establishes Key Reforms aimed at providing value and improved quality to Medicare and its beneficiaries.

Competitive Bidding for DME. Prices determined through competition among suppliers.Accreditation of all suppliers based on new quality and financial standards to all suppliers.

Competitive Bidding for DME MMA 2003

Competitive Bidding Areas throughout the United States.Phased-In Implementation

10 of the largest Metropolitan Statistical Areas (MSAs) in 200780 of the largest MSAs In 2009Additional areas after 2009Items with highest cost and volume or those with largest savings potential will be phased in first

Quality Standards MMA 2003

Applied by independent Accreditation organizations chosen by the Secretary.Apply to all suppliers, not just competitive bidding areasTwo types of standards:

General Financial and Quality standards Applied to all suppliers regardless of specializationProduct-Specific Quality Standards with additional requirements for specific product categories provided by a supplier.

Hot button Areas: Power Mobility and Oxygen

Power Mobility Devices:Area characterized by dramatic growth/fraud and abuse historically.

Expenditures increased by 2700 percent from 1995 to 2003.

Congress & CMS instituted key reforms recently:“Face-to-Face” visit and physician prescription – MMANational Coverage Determination and Local coverage changes to enhance clinical basis of coverage policyUpdated HCPCS codes to better describe current technologyRevised Medicare Fees to pay more appropriately

Hot button Areas: Power Mobility and Oxygen

Oxygen:high payments historically due to Medicare’s payment method.

For example, continuous monthly rental payments could result in $6,000 in total payments for a $600 Oxygen Concentrator.

Congress establishes a 36 month cap on rental payments in in Deficit Reduction Act of 2005. CMS implements cap along with beneficiary protections and special payments for new (oxygen generating) technology.

Medicare Part B Drug Coverage

Medicare Part B covers a limited number of prescription drugs and biologicals1861(t) of the Social Security Act definesDrugsBiologicalsAnti-Cancer drugs and biologicals

Medicare Part B Drug Coverage

Medicare Part B covered drugs not paid on a cost or prospective payment basis generally fall into three categories:Drugs furnished incident to a physician’s service DME drugs.Drugs specifically covered by statute

Historical Pricing Methodology

Prior to CY 2004, Part B drugs were paid at the lesser of 95% of the Average Wholesale Price (AWP) for the least costly brand or median generic drug or the actual charge. In CY 2004, most drugs were paid at 85% AWP; The statutorily specified vaccines, blood products (except clotting factor and IVIG), and drugs administered in the home by an external infusion pump continue to be paid at 95% AWP.

Average Sales Price

In CY 2005 and beyond most Medicare Part B drugs not paid on a cost or prospective payment basis are paid under the Average Sales Price (ASP) ASP uses market data submitted to us quarterly by manufacturers. Medicare also pays:

a dispensing fee for inhalation drugs, a furnishing fee for blood clotting factors, a supplying fee for certain Part B drugs, anda pre-administration services fee for IVIG

Pricing Under ASP

Manufacturers submit quarterly ASP data by 11-digit National Drug Code (NDC) For multiple source drugs, the payment allowance limit for all drugs assigned to a billing code is 106 percent of the weighted average of the ASPs reported for the NDCs assigned to that billing code. For Single Source Drugs, the payment allowance limit is based on 106 percent of the Wholesaler Acquisition Cost (WAC), if less than the weighted average of the ASPs.

Pricing Under ASP (cont.)

National prices are established for a broad list of billing codes (approx. 550+ codes) and for a subset of drugs billed using the not otherwise classified billing codes. Drugs that are not assigned a national payment limit are priced by the claims processing contractor.

ESRD Drugs

Payment Methodology:2004 95% Average Wholesale Price2005 Price as determined by OIG or CMS2006 106% Average Sales Price

Source of payment methodology: Section 1881(b)(13)(A)(iii) Examples of Products covered:

Epogen, Iron Dextran, Calcitriol and Iron Sucrose

Immunosuppressive Drugs

General Rule: If an individual has Medicare at the time of their transplant due to age or disability (but not for ESRD), their Medicare and post-transplant medication coverage will continue for the duration of the organ, as long as Medicare paid for the transplant (or if Medicare did not pay for the transplant, Medicare was the secondary payer), the transplant occurred at a Medicare approved facility and met all coverage criteria, and the beneficiary had Part A entitlement at the time of the transplant and Part B entitlement at the time of the dispensing of the immunosuppressive drugs. If the individual has Medicare solely on the basis of ESRD, then their Medicare coverage will continue for 36 months following the transplant and will resume once the individual ages into Medicare or if the individual qualifies for Medicare under another disability.Source of payment methodology: Section 1861(s)(2)(J)Examples of products covered: Both oral and injectable immunosuppressive drugs are covered.

Payment for Preventive Vaccines

Payment methodology: 95% of the average wholesale price (AWP)Source of payment methodology: Section 1842(o)(1)(A)(iv)Products covered: Influenza, pneumococcal, and for individuals at medium and high risk Hepatitis B vaccines

Payment for Home Infusion using External Infusion Pump

Payment methodology: 95% of AWP in effect on October 1, 2003, until the Medicare competitive bidding Source of payment methodology: Section 1842(o)(1)(D): Examples of Products Covered: deferoxamine, chemotherapy, morphine and subcutaneous immune globulin

Limitations on coverage: Coverage predicated on reasonable and necessary us of a DME pump to furnish home infusion in the home

Payment for Blood Products

Payment methodology: 95% of AWPSource of payment methodology: 1842(o)(1)(F), 1842(o)(1)(A)(i)Examples of products covered: albumin, plasma protein fractionLimitations: By statute, clotting factor and intravenous immune globulin are not paid based on AWP, but instead ASP.

Supplying fee for Part B covered oral anticancer, oral-anti-emetic, and immunosuppressive drugs

Payment methodology

Supplying fee payment amounts in 2006 and 2007 $24 per prescription for the first prescription in 30-day period$16 per prescription for all subsequent prescriptions in a 30-day period$50 fee for the first immunosuppressive prescription after a transplant

Supplying fee payment amounts in 2005$24 per prescription, except for a $50 fee for the first immunosuppressive prescription after a transplant

Source of payment methodology: Section 1842(o)(6):

Examples of products that are eligible to receive the supplying fee: Part B covered oral anti-cancer drug, oral anti-emetic drugs, and immunosuppressives (e.g., tacrolimus, mycophenolate mofetil).

Dispensing fee for inhalation drugs

Payment methodology:

Dispensing fee payment amounts for 2006 and 2007

$57 for the 1st 30-day supply of inhalation drugs an individual receives as a Medicare beneficiary$33 per 30-day supply of inhalation drugs $66 per 90-day supply of inhalation drugs

2005 dispensing fee payment amounts$57 per 30-day supply of inhalation drugs $80 per 90-day supply of inhalation drugsPrior to 2005Monthly $5 dispensing fee for each covered inhalation drug or combination of drugs used in a nebulizer

Source of payment methodology: Section 1842(o)(2): Examples of products for which suppliers are eligible to receive the dispensing fee: drugs used in nebulizers such as albuterol, ipratropium bromide, budesonide, etc.

Clotting Factor Furnishing FeePayment methodology

Furnishing fee:

$0.152 per unit of clotting factor in 2007$0.146 per unit of clotting factor in 2006$0.140 per unit of clotting factor in 2005

Source of payment methodology: Section 1842(o)(5):

2007 Oncology Demonstration

Further refinement of 2006 demonstrationDesigned to gather information regarding the quality of careAttempt to measure outcomes

2007 Oncology Demonstration

Available to Office based hematologists and oncologistsMust have provided a level 2 through 5 office visitPatient diagnosis must be including in list of 13 “approved” diagnoses only

2007 Oncology Demonstration

Physician bills one or more G codes with office visitMedicare pays an additional $23

Oncology drugs

Findings from MEDPACMedicare obtained savings from ASPVolume of services increaseBeneficiary access affected minimallyPhysician adapted to ASP methodology

Oncology drugs

Findings from OIG September 2005 report Physicians can generally acquire drugs at or below 106% ASPSome drugs may have an ASP higher than available market price

Difficult to determine causation of discrepancy

Next Steps

Continue to monitor drug pricingLooking at quarterly variances

Keep in mind findings of our oversight groupsLook for ways to continue to ensure access to all Part B drugs