No More 'Downcoding'

While Hays v. Sebelius may sound like a script from the popular TV show "Law and Order," in reality it is a federal court case that has implications about how Medicare now reduces payments for covered items or services.

Effective Feb. 4, the changes were implemented following direction from CMS to the DME MACs that they may no longer make partial payment for claims based on "least costly alternative" (LCA) methodology. All local coverage determinations have hence been updated to remove the LCA language.

Medicare has historically used three methods to reduce payment for covered items or services. As a review they are:

1. Inherent Reasonableness. While not used recently, this is used when CMS determines that the statutorily determined payment amount for a covered item or service is "grossly excessive or deficient" and, therefore, not "inherently reasonable." The limitation for reduction is 15 percent.

2. Comparison of average sales price (ASP), widely available market price and average manufacturer price (AMP). If HHS' Office of Inspector General discovers the ASP exceeds the widely available market price or AMP by ~5 percent, then HHS can disregard the ASP when determining reimbursement rates. This practice is related primarily to pharmaceuticals.

3. Least Costly Alternative. Until now, this has probably been the most used methodology for reducing payment for DME. It allowed the DME MACs to determine that two or more covered items or services were clinically indistinguishable and, through the LCD, the MACs announced they would only pay for the least costly of the items.

It was under this provision that Ilene Hays, a Medicare beneficiary with COPD, entered the picture. Her physician had ordered Duoneb, a combination drug, as opposed to taking the two drugs albuterol and ipratropium bromide separately. All these medications were used through a nebulizer. Under the LCA methodology, all four DME MACs had determined that reimbursement for Duoneb would be based on allowance for the least costly alternative, which was separate doses of the two drugs. The case was heard in U.S. District Court (Hays v. Leavitt) in 2008, and the LCA as a payment determination was rejected.