Health Law Daily Allowable amounts for certain orthotic devices found incomparable with non-Medicare payments
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Thursday, November 14, 2019

Allowable amounts for certain orthotic devices found incomparable with non-Medicare payments

By Kathleen Kennedy-Luczak, J.D.

OIG estimated that Medicare and beneficiaries paid $341.7 million more than select non-Medicare payers on 142 billing codes.

The HHS Office of Inspector General (OIG) released a report finding a lack of comparability in the allowable amounts for certain orthotic devices and payments made by select non-Medicare payers. Noting concern about the relationship of increased costs to prices per device, the OIG’s report identified 95 billing codes for which the Medicare allowable amounts could be adjusted using existing legislative authority to increase comparability (OIG Report, No. A-05-17-00033, November 14, 2019).

Scope. In its audit, the OIG reviewed Medicare allowable amounts for over 7 million orthotic devices billed under 161 Healthcare Common Procedure Coding System (HCPCS) codes during calendar years 2012 through 2015 to assess whether the amounts were comparable with payments made by select non-Medicare payers. Given concerns about the relationship of increased costs to prices of certain back, knee, elbow, and wrist devices, the OIG sought clarity on whether comparability exists between the Medicare allowable amounts and payments made by select non-Medicare payers. For each HCPCS code and calendar year, the OIG calculated a nonstatistical estimate of payment differences.

Findings. The OIG estimated that Medicare and beneficiaries paid $341.7 million more than select non-Medicare payers on 142 orthotic device codes and $4.2 million less than select non-Medicare payers on 19 orthotic device codes. Of the net $337.5 million payment difference, the OIG estimated that Medicare paid $270 million and beneficiaries paid $67.5 million.

Fee schedule. The OIG reasoned that Medicare and beneficiaries paid more than select non-Medicare payers for certain orthotic devices because CMS does not routinely evaluate pricing trends for orthotic devices or payments. Furthermore, CMS uses mandated fee schedule amounts that are adjusted using a general economic update factor that is applied annually in accordance with the Social Security Act. However, the general economic factors in the Act are not specific to any type of durable medical equipment, including orthotic devices, or orthotic-device pricing trends by select non-Medicare payers. Consequently, over time, Medicare payment amounts may not be comparable with payments made by select non-Medicare payers or pricing trends. CMS, under its existing authority, can adjust Medicare allowable amounts for orthotic devices using its inherent reasonableness and competitive bidding processes.

Potential savings identified. Of the 161 codes reviewed, the OIG identified 95 codes for which the Medicare allowable amounts could be adjusted using existing legislative authority and 66 codes that would require CMS to seek new legislative authority to establish allowable amounts that are comparable to payments made by select non-Medicare payers. Using existing legislative authority to achieve greater comparability, the OIG determined that approximately two-thirds of the net $337.5 million in estimated payment difference for calendar years 2012 through 2015 could have been avoided.

Recommendations. Due to the findings of incomparability between the Medicare allowable amounts and payments made by select non-Medicare payers, the OIG recommended that CMS:

  • review Medicare allowable amounts for 161 orthotic device codes for which Medicare paid an estimated $337.5 million more that select non-Medicare payers and:
    • adjust the allowable amounts, as appropriate, using regulations promulgated under existing legislative authority, or
    • if the allowable amounts cannot be adjusted using regulations promulgated under existing legislative authority, seek legislative authority to align Medicare allowable amounts for these items with payments made by select non-Medicare payers; and
  • routinely review Medicare allowable amounts for new and preexisting orthotic devices to ensure that Medicare allowable amounts are in alignment with payments made by select non-Medicare payers or pricing trends.

CMS response. CMS concurred with the OIG’s recommendations and described its planned payment changes for certain orthotic devices.

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