BALTIMORE--In an effort to eliminate excessive profits, CMS announced last week that it would continue to reduce reimbursements for some Medicare Part B services and equipment when payments are excessively high.

The agency finalized its "inherent reasonableness" rule, published in Tuesday's Federal Register, without substantial changes to its interim policy, which was published in December 2002. The rule applies to Medicare Part B services other than physician services or those paid under a prospective payment system. It also applies to orthotics and prosthetics but not Part B drugs, although CMS retained the authority to apply IR to these drug payments in the future.

According to the rule, when the payments for a particular item or service are found to be "grossly excessive or deficient" by 15 percent--and, therefore, not inherently reasonable--the agency has the authority to make payment adjustments.

In the rule, CMS said that such an adjustment to reduce reimbursement "will merely serve as a vehicle for eliminating excessive profits. An adjustment would benefit the Medicare program by reducing costs and benefit beneficiaries by reducing coinsurance payments."

The agency also said it will monitor complaints about adjusted payments from beneficiaries, suppliers, providers and others regarding patient access, and does not believe that using its authority will limit beneficiaries' choice of equipment or services.

"If a payment amount is adjusted upward because it is deficient, it will benefit suppliers and beneficiaries. A more generous payment amount may result in greater availability of items and services to Medicare and beneficiaries," CMS stated. If the payment is adjusted downward, the agency said, "the lower payment amount should not necessarily result in a lack of availability of items and services because the revised payment amount would be realistic and equitable."

CMS also said it will publish impact statements whenever the dollar impact of inherent reasonableness determinations exceeds $100 million in any year or when payment adjustments would have a significant impact on a large number of small businesses.

In response to the final rule, the American Association for Homecare said it is concerned that CMS has "considerable discretion in how it uses its inherent reasonableness authority."

Even though CMS must base the application of IR on "valid and reliable data," the association pointed out that the statute authorizes two procedures for performing IR: a formal procedure requiring notice and comment in the Federal Register for adjustments of 15 percent or more, and an informal procedure for adjustments of less than 15 percent, which can be carried out by Medicare contractors such as the DMERCs.

The rule permits CMS to delegate IR to the DMERCs for overall payment adjustments greater than 15 percent, as long as the payment adjustment does not exceed 15 percent in any one year. "In other words," the association noted, "the DMERCs can implement a 30 percent reduction for an item of DME staggered over two years (15 percent each year)."

In comments to CMS on the interim final rule in 2003, AAHomecare stated: "While we are encouraged by CMS' choice of a quantitative bright-line test for determining what payment adjustments will trigger the IR authority, the regulation remains vague with respect to the factors CMS or the contractors will consider in arriving at that determination."

To view the rule, which takes effect Feb. 13, click here.