United States: Top Reimbursement Developments Of 2006

Article by Lena Robins and R. Michael Scarano, Jr.

A number of Medicare reimbursement developments over the past year will have an impact on the medical device industry for years to come. These include the issuance by the Centers for Medicare & Medicaid Services (CMS) of a guidance document on coverage with evidence development; two new CMS initiatives intended to explore the benefits of gainsharing between hospitals and physicians; a proposed rule issued by CMS containing new coverage and payment policies for certain diagnostic imaging services; and the roll out by CMS of its new competitive acquisition program for durable medical equipment (DME). Each development is summarized briefly below.

Guidance on Coverage With Evidence Development

CMS issues national coverage decisions (NCDs) in response to requests from individuals or entities who believe a new device or other product or service meets CMS’ conditions for coverage. Traditionally, a favorable NCD could result in a decision to provide coverage with or without special conditions.

On July 12, 2006, CMS issued a guidance document on “NCDs with Data Collection as a Condition of Coverage: Coverage with Evidence Development” (CED Guidance). The CED Guidance, which incorporates substantial changes to a draft issued last year, describes two new sub-types of CED. Under the first type of CED, known as “Coverage with Appropriateness Determination,” CMS will condition coverage on the collection and submission of data above and beyond the requirements of a standard Medicare claim form. Under the second type of CED, known as “Coverage with Study Participation,” coverage will be conditioned on care being delivered in settings such as clinical trials, with a pre-specified data collection process and additional protections in place for beneficiaries.

In the CED Guidance, CMS addresses the circumstances under which it plans to issue NCDs requiring each type of CED; the general requirements these NCDs will establish for data collection; how the collection of data will be funded; how the collected data will be used by CMS; access to the data by researchers; when the required conditions will end; and what will occur following such termination. Although the medical device industry was generally pleased with many of the changes made to the draft CED Guidance issued last year, industry stakeholders are still concerned about a number of issues, including the burdens data collection will impose on companies and caregivers, and the potential for gaps in coverage between the termination of CED and the issuance by CMS of a new or revised NCD based upon its results.

Gainsharing Demonstration Projects

Based upon congressional authority provided through two separate pieces of legislation, in September of this year, CMS issued solicitations for two separate gainsharing demonstration projects. “Gainsharing” refers to programs in which hospitals or health systems are permitted to provide financial incentives to physicians to reduce the cost of care provided to Medicare inpatients under the inpatient prospective payment system (PPS). In some gainsharing programs, these savings are achieved in part by encouraging physicians to use less costly medical supplies and devices. Although gainsharing programs are designed to assure that quality is not compromised by such measures, some critics are concerned that gainsharing will inhibit the use of superior technologies based upon cost.

Despite such concerns, Congress authorized two gainsharing demonstration programs in the Medicare Modernization Act of 2003 (MMA) and the Deficit Reduction Act of 2005 (DRA). CMS issued solicitations for both programs in September 2006. In the demonstration program authorized by the MMA, CMS has solicited participation by consortiums of medical groups and up to 12 hospitals. No more than 72 hospitals will be included in all of the projects collectively. In evaluating the success of this program, CMS intends to measure the impact of quality and cost for patients on a long-term basis, including longer-term outcomes such as mortality and re-admissions that may be attributable to changes in practice patterns caused by the gainsharing.

The separate demonstration program authorized by the DRA will involve only six projects, each consisting of one hospital. Two of the projects must be rural. Unlike the MMA program, the projects authorized by the DRA will evaluate only short-term improvements in quality and efficiency that occur during inpatient stays and immediately following discharge.

The MMA and DRA gainsharing demonstration projects are significant because, if successful, they could lead to permanent legislative changes that may provide physicians with incentives to use less costly therapies. If that occurs, it will be important to structure such legislation so that medical innovation does not suffer as physicians focus more on the cost of the treatments they order.

Proposed Physician Fee Schedule Rule

In August 2006, CMS published the proposed Physician Fee Schedule rule for 2007, which contains a number of policies related to coverage and payment for diagnostic imaging services. Of particular note, the rule proposes to close what CMS sees as a “loophole” that lets physicians profit from referring patients for MRI scans and other medical tests. The proposed rule would address the practice of “self-referral,” in which a doctor has a financial interest in tests or other services that he or she orders for a patient. CMS proposes to prohibit physicians, in some cases, from billing Medicare more for a scan than what it cost them to perform the test or what they paid someone else to do it. Under current rules, physicians cannot make referrals to outside scanning centers and testing labs in which they have a financial interest, but the current rules makes some important exceptions for scans done in doctors’ offices or in facilities they own, called the “in-office ancillary services” exception.

The new rules proposed by CMS would address what it sees as a loophole in the in-office ancillary services exception. This exception permits physicians who work in group practices to self-refer for diagnostic tests provided in the group’s offices (or in a separate building leased full-time by the practice for this purpose). In some cases, these testing facilities are set up and run not by the physician practice, but by a separate company that specializes in performing imaging scans. The proposed rule changes would not eliminate the in-office exception; however, the changes would likely preclude certain billing arrangements.

CMS released the final Physician Fee Schedule rule on November 1, 2006 but did not address these proposed imaging changes. Rather, CMS stated that it will issue at a later date a rule finalizing the proposals.

With respect to other imaging changes, the final rule released on November 1 implements a policy that makes full payment for the first of multiple imaging services furnished on contiguous body parts during the same session, and maintain a 25 percent reduction in payment for each additional imaging procedure. Also, the final rule implements a provision in DRA that caps payments for imaging procedures under the Physician Fee Schedule at the amount paid for the same services when performed in hospital outpatient departments.

Durable Medical Equipment Competitive Bidding

In the MMA, Congress mandated that CMS establish a competitive bidding program to pay for DME beginning in 2007. DME is equipment that can be reused and is used primarily for medical purposes, such as infusion pumps and wheelchairs as well as prosthetics devices and orthotics. Currently, Medicare pays for most DME on the basis of a fee schedule. The competitive bidding program will change this payment methodology by utilizing bids submitted by suppliers to establish payment amounts.

In April 2004, CMS issued a proposed rule that would establish a bidding procedure to set Medicare payment amounts for DME. Initially, 10 of the largest metropolitan statistical areas would be included, with some exceptions. CMS would use the bids submitted by suppliers to establish Medicare payment amounts, which would be the median of the winning suppliers’ bids for selected items. One controversial proposal under the rule would allow suppliers whose bids are lower than the Medicare payment amounts set under the competitive program to offer a rebate to beneficiaries. Some have criticized this proposal as potentially inducing fraud and have urged CMS to eliminate it when the final rule is issued.

Most recently, in October 2006, CMS awarded a contract to the entity that will prepare the request for bids, perform bid evaluations, select qualified suppliers, and set payments for all competitive bidding areas. In another important development related to DME suppliers, CMS published in August 2004 a drastically scaled-back version of a rule establishing quality standards for suppliers of DME and prosthetics and orthotics. CMS said it intended to reduce the burden on thousands of DME suppliers subject to the standards by shortening a 2005 draft rule from 80 pages of product-specific requirements to seven. As an example, CMS said that, instead of a requirement in the draft that a supplier be open 40 hours a week, businesses must maintain posted hours.
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