Medicare Payments

In 1998, Medicare paid at least $5.9 billion for medical equipment and supplies on behalf of beneficiaries who live at home or in long-term-care facilities. The Health Care Financing Administration (HCFA) is authorized to use a revised inherent reasonableness process to adjust Medicare payments by up to 15 percent a year for medical equipment and supplies. GAO found that HCFA acted properly in issuing an interim final rule to implement the inherent reasonableness provision. GAO also found that using retail surveys as a basis for adjusting Medicare payments is a sound concept for pricing products that can be bought in retail outlets. Survey data clearly showed that Medicare payments are much higher than the median surveyed retail prices for five of the products reviewed: lancets, eyeglass frames, urinary catheters, and two types of catheter insertion trays. As a result, payment reductions of up to 15 percent are justified for these items. Retail surveys may not be the best way to set payments for items not generally sold at retail prices, such as enteral formulas. For such products, using wholesale prices plus a reasonable markup may be a better approach. Fewer suppliers may be willing to provide these items to beneficiaries at the lower payment rates. However, because retail prices, which include retailers' costs for both acquisition and service, were used to establish the proposed reductions, GAO believes that access to these products is not likely to be significantly affected.

GAO noted that: (1) HCFA acted properly in issuing an interim final rule to implement the inherent reasonableness provision of the Balanced Budget Act (BBA) because these regulations did not substantially change the factors to be considered in making inherent reasonableness determinations, and thus the criteria were met for bypassing the general requirement for issuing a notice of proposed rulemaking; (2) under the revised regulations, HCFA and the DMERCs would conduct payment reviews under the same circumstances and consider essentially the same information as in the past; (3) as provided by the BBA, they would be able to adjust payment amounts by up to 15 percent a year without using lengthier public notice and comment procedures; (4) GAO feels it is clearly within HCFA's authority to delegate partial responsibility for adjusting payment rates to the DMERCs; (5) HCFA has long delegated similar types of responsibilities to the DMERCs and other claims processing contractors, and the BBA, which amended Medicare law to enable use of the revised process, did not preclude such delegation; (6) survey data clearly showed that Medicare payments are much higher than the median surveyed retail prices for five of the products the DMERCs reviewed--lancets, eyeglass frames, urinary catheters, and two types of catheter insertion trays; (7) as a result, sufficient information supports proposed payment reductions of up to 15 percent for these items; (8) however, the DMERCs did not follow a rigorous survey process, and this led GAO to question the proposed smaller payment reductions for glucose test strips and albuterol sulfate; (9) for the eighth surveyed product--enteral formulas--more pricing information is needed before the payment amount can be adjusted because the DMERCs did not price products specifically packaged and used for tube feeding and instead priced products that are generally used as oral supplements; (10) retail surveys may not be the best strategy for setting payment amounts for items not generally sold at retail prices, such as enteral formulas; (11) for such products, using wholesale prices plus a reasonable markup may represent a better payment-setting mechanism; (12) it is difficult to predict whether the proposed payment reductions will limit patient access because Medicare has implemented few comparable reductions in recent years; and (13) because retail prices--which include retailers' costs for both acquisition and service--were used to establish the proposed reductions, GAO believes that access to these products is not likely to be significantly affected.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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