IR 101

The Centers for Medicare and Medicaid Services Dec. 13, 2002, issued a long-awaited interim final rule concerning the application of “inherent reasonableness” to certain Medicare Part B items and services. This expedited IR authority could have an immediate and potentially devastating impact on home medical equipment providers, because the durable medical equipment regional carriers now have the ability to reduce payments for durable medical equipment, prosthetics and orthotics at a faster pace.

Effective Feb. 11, 2003, the regulations explain the process whereby CMS and Medicare carriers — including the DMERCs — will reduce or increase payment amounts when the federal government believes the existing payment amounts are either grossly excessive or grossly deficient.

CMS issued the rule as an “interim final rule,” because the agency is soliciting comments on two issues: the definitions of “grossly excessive” and “grossly deficient,” and the criteria for compiling valid and reliable data.

The IR rule applies to all services paid for under Part B except physician services and services paid under a prospective payment system, such as home health services. Therefore, the rule applies to DME; drugs covered under Medicare Part B, such as inhalation and infusion drugs; laboratory services; and ambulance services.

However, the rule does not announce specific payment reductions. Rather, it defines the process whereby CMS and the DMERCs may use IR to adjust payments. Consequently, it is difficult to predict which items CMS or the carriers may target. Likewise, it is difficult to predict how long CMS or the carriers will take to identify items and services in need of adjustments.

Nonetheless, hinting at possible reductions, the rule refers to “numerous” reports from the U.S. Office of Inspector General, the U.S. General Accounting Office and newspapers, which contend Medicare pays too much for medical equipment and other items.

Such reports have targeted respiratory medications, enteral nutrition, home oxygen and hospital beds. However, in light of the IR rule's strict procedural requirements for collecting pricing data, it likely will take CMS or a carrier at least four to six months to issue any proposed payment reductions.

When can CMS and the carriers use IR?

Payment adjustments of more than 15 percent during a given year must be published in the Federal Register. For all other adjustments, no such announcement is necessary, according to the new IR rule.