[Federal Register: December 13, 2005 (Volume 70, Number 238)]
[Rules and Regulations]
[Page 73623-73634]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13de05-16]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 405
[CMS-1908-F]
RIN 0938-AN81
Medicare Program; Application of Inherent Reasonableness Payment
Policy to Medicare Part B Services (Other Than Physician Services)
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule finalizes the process that was set forth in an
interim final rule published on December 13, 2002, for establishing a
realistic and equitable payment amount for Medicare Part B services
(other than physicians' services) when the existing payment amounts are
inherently unreasonable because they are either grossly excessive or
grossly deficient. This process does not apply to services paid under a
prospective payment system, such as outpatient hospital services or
home health services. The December 2002 interim final rule also
described the factors we (or our carriers) will consider and the
procedures we will follow in establishing realistic and equitable
payment amounts for Medicare Part B services.
In addition, this final rule responds to public comments we
received on two provisions in the December 13, 2002 interim final rule
relating to how we define grossly excessive or deficient payment
amounts and to the criteria for using valid and reliable data in
applying the inherent reasonableness authority.
EFFECTIVE DATE: This final rule is effective on February 13, 2006.
FOR FURTHER INFORMATION CONTACT: William Long, (410) 786-5655.
SUPPLEMENTARY INFORMATION:
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I. Background: Legislative and Regulatory Authority
Title XVIII of the Social Security Act (the Act) contains various
methodologies for making payment under Part B of the Medicare program.
These payment methodologies vary among the different categories of
items and services covered under Medicare Part B.
A. The Consolidated Omnibus Budget Reconciliation Act of 1985
Section 9304(a) of the Consolidated Omnibus Budget Reconciliation
Act of 1985 (COBRA of 1985), Public Law 99-272, effective September 10,
1986, added section 1842(b)(8) to the Act, which expressly authorizes
the Secretary to deviate from the payment methodologies prescribed in
the Act if their application results in a payment amount for a
particular service or group of services that is determined to be
grossly excessive or deficient and, therefore, is not inherently
reasonable. The statute also requires the Secretary to describe in
regulations the factors to be considered in determining an amount that
is realistic and equitable. The Secretary has always taken the position
that the authority to regulate unreasonable payment amounts is inherent
in his or her authority to determine reasonable charges according
[[Page 73624]]
to section 1842 of the Act, and, since January 1, 1991, has taken the
position that this authority applies to other Part B payment
methodologies, not just those payment methodologies under section 1842
of the Act.
On August 11, 1986, we published a final rule with comment period
in the Federal Register (51 FR 28710) to implement the provisions of
section 1842(b)(8) of the Act, as added by section 9304(a) of the COBRA
of 1985, under regulations at 42 CFR 405.502(g) and (h). These
regulations described the factors to be used in determining if the
application of the reasonable charge methodology results in a charge
that is grossly excessive or grossly deficient. The regulations also
described the factors to be considered in establishing a reasonable
charge that is realistic and equitable. When we implemented section
1842(b)(8) of the Act, as added by section 9304(a) of the COBRA of
1985, we interpreted the statute as applying not only to the
Secretary's authority to establish national reasonable charge limits,
but also to the Medicare carriers' authority to establish carrier-level
reasonable charge limits on grossly excessive or deficient charges.
B. The Omnibus Budget Reconciliation Act of 1986
Section 9333 of the Omnibus Budget Reconciliation Act of 1986
(OBRA)(Pub. L. 99-509) amended section 1842(b)(8) of the Act and added
new paragraphs (b)(9) and (b)(10). These amendments specified the
distinct procedures under which the Secretary may establish special
reasonable charge limits for physicians' services and provided for a
limitation on the amount that nonparticipating physicians may charge
for a service if a special reasonable charge limit is established for
that physician service.
On July 11, 1988, we issued a final rule in the Federal Register
(53 FR 26067) that conformed the regulations to the provisions of
section 1842(b)(8) of the Act, as amended by the OBRA, and sections
1842(b)(9) and (b)(10) of the Act, as added by the OBRA. That final
rule also responded to comments received on the August 11, 1986 final
rule with comment period that implemented section 9304(a) of the COBRA
of 1985.
C. The Balanced Budget Act of 1997
Section 4316 of the Balanced Budget Act of 1997 (BBA), Public Law
105-33, enacted on August 5, 1997, amended sections 1842(b)(8) and
(b)(9) of the Act, which permit the Secretary to deviate from the
payment methodologies prescribed in title XVIII of the Act if their
application results in a payment amount that, because it is determined
to be grossly excessive or deficient, is not inherently reasonable.
Sections 1842(b)(8) and (b)(9) of the Act, as amended, also require the
Secretary to describe the factors to be considered in determining an
amount that is realistic and equitable. Specifically, section 4316 of
the BBA amended section 1842(b)(8) of the Act to--
Exclude physicians' services from application of the
inherent reasonableness payment policy;
Extend the authority to establish special payment limits
to Medicare carriers, regardless of the methodology for determining
payment;
Simplify the inherent reasonableness process for
adjustments to payment amounts that are 15 percent or less.
Specifically, section 4316 of the BBA amended section 1842(b)(8) by
adding provisions that apply if a reduction or increase would vary the
payment amount by 15 percent or less ``during any year.'' (Other
provisions apply to larger increases and decreases.) Under this
authority, we (or a carrier) may determine that more than a 15-percent
adjustment is warranted, but we may choose to apply only a 15-percent
adjustment in any given year and use the ``15-percent'' methodology.
For example, we (or a carrier) may determine that a 25-percent
reduction is warranted. However, the adjustment could be accomplished
over 2 years--15 percent applied the first year, and 10 percent applied
the following year.
Require the Secretary to consider the following factors in
making inherent reasonableness determinations concerning payment for
Part B services (other than physicians' services) and permit the
Secretary to consider any additional factors determined to be
appropriate:
(1) Medicare and Medicaid are the sole or primary sources of
payment for a category of items or services.
(2) The payment amount for a category of items or services does not
reflect changing technology, increased facility with that technology,
or changes in acquisition, production, or supplier costs.
(3) The payment amounts for a category of items or services are
grossly higher or lower than the payments made for the same category of
items or services by other purchasers in the same locality.
Section 4316 of the BBA also made minor changes to section
1842(b)(9) of the Act relating to the process for formally notifying
the public of, and obtaining public comment on, a proposed inherent
reasonableness determination and a proposed payment adjustment and for
announcing the final payment adjustment determination.
On January 7, 1998, we published in the Federal Register (63 FR
687) an interim final rule that implemented sections 1842(b)(8) and
(b)(9) of the Act, as amended by section 4316 of the BBA. In the
January 7, 1998 interim final rule, we revised Sec. 405.502(g) and (h)
to exclude references to physicians' services from the application of
the inherent reasonableness policy. We also deleted specific references
to the reasonable charge payment methodology because the inherent
reasonableness provisions apply to all Part B services, except
physicians' services, irrespective of the payment methodology. However,
we specified that the rule did not apply to services paid under a
prospective payment system, such as outpatient hospital services or
home health services. We also reflected the change in the statute that
permitted us to simplify the process for making adjustments to payment
amounts for a category of items or services when the increase or
decrease in the payment amount is no more than 15 percent per year.
(For purposes of Sec. 405.502(g) and (h), a ``category of items or
services'' may consist of a single item or service or any number of
items or services.)
Although the BBA gave the Secretary discretion to reduce the number
of factors that are used to make inherent reasonableness
determinations, in the January 1998 interim final rule, we retained
four of the five factors that appeared in Sec. 405.502(g)(1) because
they remain as appropriate factors for determining deficient or
excessive payment amounts. We removed the factor related to the use of
new technology for which an extensive charge history does not exist
because there was already in place an alternative process for
establishing payment amounts for new items or services for which an
extensive charge history does not exist. (We note that we reinserted
this example of a factor in the December 13, 2002 interim final rule
discussed in section I.D. of this final rule because we had received
requests that this example factor not be deleted.) We included the
following additional factors we may (but we are not limited to)
consider:
The market place is not competitive.
The payment amounts in a particular locality grossly
exceed amounts paid in other localities for the category of items or
services.
The payment amounts grossly exceed acquisition or
production costs for the category of items or services.
[[Page 73625]]
There have been increases in payment amounts that cannot
be explained by inflation or technology.
We interpreted the provisions of section 4316 of the BBA relating
to the Secretary's authority and a Medicare carrier's authority in the
same manner that we had done for the COBRA of 1985. That is, we
interpreted the statute as codifying both our authority and a carrier's
authority to establish realistic and equitable payment amounts. Thus,
in the January 7, 1998 interim final rule, we described the
circumstances and factors our carriers and we would use in setting
realistic and equitable payment amounts if the existing payment amounts
are grossly excessive or deficient.
D. The Balanced Budget Refinement Act of 1999
Section 223 of the Balanced Budget Refinement Act (BBRA) of 1999,
Public Law 106-113, enacted on November 29, 1999, prohibited the use of
the inherent reasonableness authority under section 1842(b) of the Act
until the following events had occurred:
Event 1: The Comptroller General had released a report regarding
the impact of the Secretary's fiscal intermediaries' and carriers' use
of the authority. (This report, entitled ``Medicare Payments-Use of
Revised `Inherent Reasonableness' Generally Appropriate (GAO/HEHS-OO-
79),'' was released by the General Accounting Office (GAO) (now the
Government Accountability Office) in July 2000.)
Event 2: The Secretary had published a notice of final rulemaking
in the Federal Register that related to the authority and that
responded to the GAO report and to comments received in response to the
Secretary's interim final regulation relating to the authority that was
published on January 7, 1998. (The notice of final rulemaking was
published in the Federal Register on December 13, 2002 (67 FR 76684),
and is discussed below in this section I.D. of this final rule. That
notice also responded to the GAO report.)
Event 3: In publishing the final regulation, the Secretary had
reevaluated the appropriateness of the criteria included in the interim
final regulation for identifying payments that are excessive or
deficient. (The December 13, 2002 interim final rule, discussed below
in this section I.D. of this final rule, provided greater specificity
of the criteria for identifying grossly excessive or deficient payments
and provided opportunity for further public comment because of that
specificity. We are responding to the public comments received on these
more specific criteria under section II. of this final rule.)
Event 4: The Secretary had taken appropriate steps to ensure the
use of valid and reliable data when exercising the authority. (The
December 13, 2002 interim final rule, discussed below in this section
I.D. of this final rule, addressed the use of valid and reliable data
and provided opportunity for further public comment on this area. We
are responding to the public comments received on the use of data under
section II. of this final rule.)
As we indicated earlier, section 223 of the BBRA directed us to
respond to the July 2000 GAO report. In its report, the GAO found that
CMS' use of the revised inherent reasonableness process was generally
appropriate and made four specific recommendations.
Recommendation: In publishing the final rule on the inherent
reasonableness process, CMS should define with sufficient clarity the
terms ``grossly excessive'' and ``grossly deficient.''
Recommendation: For future inherent reasonableness reviews based on
survey data, CMS or the carriers should develop and implement a more
structured survey design, including sample selection, survey
instrumentation, and data collection methods, and ensure that the
design is consistently used by all entities conducting the survey.
Recommendation: CMS and the carriers should collect and analyze
additional information to more precisely estimate any payment
reductions for glucose test strips, albuterol sulfate, and enteral
formulas, as well as for additional payment reductions in subsequent
years for lancets, eyeglass frames, latex Foley catheters, and catheter
insertion trays without drainage bags.
Recommendation: CMS should monitor indicators that could signal
potential problems with patient access to the product groups for which
it is reducing maximum payments and act quickly to rectify any problems
that arise.
On December 13, 2002, we published in the Federal Register (67 FR
76684) an interim final rule that constituted a notice of final
rulemaking relating to the inherent reasonableness authority provisions
as required by section 223 of the BBRA. In the December 13, 2002
interim final rule, we responded to the recommendations of the GAO
report and responded to the public comments received on the January 7,
1998 interim final rule that implemented section 4316 of the BBA.
We note that we issued the December 13, 2002 document as an interim
final rule so that the public would have an additional opportunity to
comment particularly on two provisions that contained further
specificity than that found in the January 7, 1998 interim final rule.
These provisions, discussed below, related to (1) defining grossly
excessive and deficient payment amounts (Sec. 405.502(g)(1)(ii) of the
regulations); and (2) taking appropriate steps to ensure the use of
valid and reliable data when exercising the inherent reasonableness
authority (Sec. 405.502(g)(4) of the regulations). We are responding
to the public comments received on these two provisions in section II.
of this final rule. We had already received public comments on the
other BBRA provisions that were implemented when we published the
January 7, 1998 interim final rule; these comments were addressed in
section V. of the December 13, 2002 interim final rule. We also refer
the readers to section IV. of the December 13, 2002 interim final rule
(67 FR 76686) for a full discussion of CMS' responses to the GAO report
recommendations.
We note that the statute applies inherent reasonableness to Part B
items and services, except for physicians' services as defined and paid
for under section 1848 of the Act. Hospital outpatient services are not
excluded from the inherent reasonableness provisions of the law. In
addition, the inherent reasonableness authority can be used in cases
for which the standard rules for determining payment amounts for drugs
paid under section 1842(o) of the Act or laboratory services paid under
section 1842 of the Act result in grossly deficient or excessive
payment amounts. However, we decided that we would not apply the
inherent reasonableness provisions to services paid under a prospective
payment system such as outpatient hospital services or home health
services. In 2002, we excluded those payment methodologies from the
application of inherent reasonableness because we believe they have
other mechanisms to address the concerns otherwise appropriately
addressed through an inherent reasonableness mechanism. In addition, as
discussed under section II. of this preamble, because of the new
pricing methodology for Part B drugs established by section 303 of the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(Pub. L. 108-173), we do not anticipate the need to apply the inherent
reasonableness provisions to these drugs at this time; however, we
[[Page 73626]]
are retaining our authority to apply inherent reasonableness to these
drugs if the need arises.
II. Provisions of This Final Rule
As discussed in section I.D. of this preamble, in the interim final
rule published in the Federal Register on December 13, 2002, we
provided an additional opportunity for public comment on two provisions
of that interim final rule because the two provisions contained further
specificity than that found in the January 7, 1998 interim final rule:
(1) the definition of grossly excessive and deficient payment amounts;
and (2) criteria for the use of valid and reliable data when exercising
the inherent reasonableness authority.
We received 189 timely pieces of correspondence in response to the
December 13, 2002 interim final rule. A large number of these comments
concerned issues (other than the two provisions on which we
particularly invited additional public comments) that we had received
public comments on and responded to in the December 13, 2002 interim
final rule (67 FR 76684). The comments and our responses follow, along
with a cross reference to the page in which they appeared in the
December 13, 2002 Federal Register. These included comments on the use
of an inherent reasonableness appeals process (page 76688); carriers'
use of the inherent reasonableness authority (page 76691); the
application of inherent reasonableness authority to laboratory services
(page 76690); delaying application of the inherent reasonableness
authority to laboratory services pending CMS' response to the Institute
of Medicine's study on Medicare Part B laboratory services (page
76688); the definition and clarification of factors used to determine
grossly excessive or deficient payment amounts (the factors are the
examples mentioned in Sec. 405.502(g)(1)(vii) and do not relate to the
definition of grossly excessive and deficient payment amounts) (page
76689); the use of cost and charges as factors for determining grossly
excessive or deficient payment amounts (page 76690); the use of an all-
inclusive rather than a nonexclusive list of inherent reasonableness
factors (page 76689); the use of the terms ``floor'' and ``ceiling''
rather than ``payment limit'' when referring to inherent reasonableness
adjustments (page 76690); establishing a fair and open inherent
reasonableness process (page 76688); delaying implementation of the
inherent reasonableness authority rule (page 76687); establishing a
petition process for inherent reasonableness determinations (page
76692); detection of grossly deficient payment amounts (page 76688);
and the reaction of other payors to Medicare payment limits established
using inherent reasonableness authority (page 76688). Because we
addressed these issues in promulgating the December 13, 2002 interim
final rule, we refer the readers to that document; we will not repeat
our responses in this final rule except for the effect on beneficiary
access. As stated in our December 13, 2002 interim final rule, we will
monitor patient access to items for which payment amounts are adjusted
using the inherent reasonableness process by periodically checking the
rate at which suppliers are accepting assignment for these items and by
monitoring any beneficiary complaints regarding access (page 76687).
A discussion of the two provisions on which we solicited additional
public comments, summaries of the public comments that we received in
response to them, and the Departmental responses follow.
A. Definition of Grossly Excessive and Deficient Payment Amounts
In the December 13, 2002 interim final rule, in response to the GAO
recommendation and in response to public comments received on the
January 1998 interim final rule, we clarified when a payment amount is
considered grossly excessive or deficient for purposes of applying the
inherent reasonableness authority. We specified in Sec.
405.502(g)(1)(ii) that a payment amount will not be considered grossly
excessive or grossly deficient if the overall payment adjustment is
less than 15 percent. This definition does not preclude adjustments of
less than 15 percent in a given year once it is determined that an
overall adjustment of 15 percent or more is justified.
The statute provides two different processes once a determination
is made that a payment amount is grossly excessive or deficient. That
is, the statute specifies a process for adjustments of 15 percent or
more in a given year and a simplified process for adjustments of less
than 15 percent in a given year. However, the statute did not define
what constitutes a grossly excessive or deficient payment amount.
Nevertheless, the statute placed significant importance on a 15-percent
criterion. For this reason, we have decided that differences between
current and proposed payment amounts of less than 15 percent will not
be considered grossly excessive or grossly deficient and, therefore,
will not provide a sufficient basis for using inherent reasonableness
authority. This definition does not preclude adjustments of less than
15 percent in a given year once it is determined that an overall
adjustment of 15 percent or more is justified.
As directed by the statute, in the December 13, 2002 interim final
rule, we reviewed the criteria for identifying payments that are
excessive or deficient set forth in the January 7, 1998 interim final
rule and codified in Sec. 405.502(g)(1)(vii) of the regulations. While
amended section 1842(b)(8)(C) of the Act does not specifically require
that we include all the factors for making inherent reasonableness
determinations for a category of items or services in regulations, it
permits the Secretary to consider any additional factors determined to
be appropriate. The examples listed in Sec. 405.502(g)(1)(vii) are
merely examples, and the regulation explicitly states that the list of
examples is not all-inclusive. When making an inherent reasonableness
determination, we can use one or more of the examples listed in the
regulation or an example that is not listed in the regulation. This
approach allows us to adapt the methodology we use to address the
various specific issues that may pertain to any particular case
regarding the use and availability of data as well as other factors
relevant to making an inherent reasonableness determination in that
case.
In the December 13, 2002 interim final rule, we pointed out that
the criteria in Sec. 405.502(g)(1)(vii) were never intended to include
every set of circumstances where inherent reasonableness would be
considered appropriate. These same criteria had also been included in
the August 11, 1986 final regulation and, therefore, were not new; they
had been in effect for over 10 years. These criteria were originally
established by the Congress and were contained in section 1842(b)(8) of
the Act until it was revised by section 4316 of the BBA. We also
indicated that the criteria remain as appropriate at the time of
issuance of the interim final rule as they were when the Congress
established them. Further, we indicated that we would need compelling
reasons for determining that any of the criteria were inappropriate.
These criteria are furnished as examples of situations of possible
grossly excessive or deficient payment amounts, and we believe they are
realistic and continue to be relevant.
Comment: Five commenters agreed with CMS' definition of grossly
excessive and grossly deficient. Seven commenters stated that the
regulations failed to provide a complete or adequate
[[Page 73627]]
definition of the terms. The commenters were concerned that the
definition set forth in the regulations did not comply with the
statutory requirement to fully describe all the factors that CMS or its
carriers will use to determine whether a payment is grossly excessive
or deficient. While some of the commenters indicated their support for
using a quantitative value of 15 percent to define a grossly excessive
payment amount, they argued that the definition should also incorporate
the use of objective criteria for consistency in determining grossly
excessive payment amounts. The commenters indicated that, in the
absence of a clear and precise definition, CMS or its carriers could
arbitrarily establish new factors or criteria for determining grossly
excessive payment amounts.
One commenter stated that CMS has rebuffed industry assistance in
developing a definition that incorporates objective benchmarks. This
commenter indicated that without a more precise definition, providers,
suppliers, and beneficiaries would not receive adequate notice of
program policies.
Response: We appreciate the commenters' support for CMS' definition
of grossly excessive and grossly deficient. The statute does not
specifically require us to fully describe or include all the factors
that may be used in making inherent reasonableness determinations.
Section 1842(b)(8)(C) of the Act provides examples of factors that can
result in payment amounts that are grossly excessive or grossly
deficient. The Act also provides methods that can be used to establish
reasonable payment amounts. We do not believe it is practical or
necessary to further describe these lists of examples or to make them
the only methods we can use. Rather, we believe it is more appropriate
to establish general factors that allow us flexibility in adapting
inherent reasonableness applications to a wide array of items of
services encompassed under Medicare Part B, under different marketing
conditions, and considering the availability of data. In addition, we
believe that the proposed use of the 15-percent threshold to define a
grossly excessive or deficient payment amount is appropriate and is an
objective criterion.
We note that no item or service is subject to a change in payment
under the inherent reasonableness authority until the proposed change
is published by either CMS in the Federal Register or its carriers in
their own publication and after public comments received in response to
the proposed notice are considered.
Comment: One commenter stated that CMS' decision to set the
percentage threshold definition for a grossly excessive or deficient
payment amount at 15 percent did not appear to be consistent with
section 1842(b)(8) of the Act and the GAO report. The commenter stated
that section 1842(b)(8) of the Act appeared to anticipate the need for
grossly excessive or deficient payment adjustments at percentages less
than 15 percent. The commenter argued that the GAO report clearly
stated that an adjustment of less than 15 percent could qualify as a
grossly excessive or deficient payment amount. For these reasons, the
commenter urged CMS to lower the 15-percent threshold to be consistent
with section 1842(b)(8) of the Act and the GAO report and suggested
setting the threshold at 7.5 percent.
Response: While the commenter is correct regarding the statement
included in the GAO report concerning the use of a 15-percent
threshold, we explained in section IV. of the December 13, 2002 interim
final rule in response to a GAO recommendation our reason for not
setting the threshold at less than 15 percent. As stated in that rule,
the statute does not define what constitutes a grossly excessive or
deficient payment amount. Rather, the statute provides two different
processes once a determination is made that a payment amount is grossly
excessive or deficient. That is, the statute specifies a process for
adjustments of 15 percent or more in a given year and a simplified
process for adjustments of less than 15 percent in a given year. In so
doing, the statute places significant importance on a 15-percent
criterion. For these reasons, we determined that differences between
current and proposed payment amounts of less than 15 percent will not
be considered grossly excessive or grossly deficient and, therefore, do
not provide a basis for using the inherent reasonableness authority.
Our definition of grossly excessive or deficient does not preclude
adjustments of less than 15 percent in a given year once it is
determined that an overall adjustment of 15 percent or more is
justified.
Comment: Four commenters believed that CMS' interpretation and
definition of grossly excessive in relation to overpayment for Medicare
Part B drugs is incorrect and without a factual basis. The commenters
indicated that the statute does not define what constitutes a grossly
excessive payment amount. Some of the commenters urged CMS to adopt a
more realistic understanding of the implications of its stated policy
on the delivery of health care to patients with cancer in this country.
Response: The commenters are correct in stating that the statute
does not define what constitutes a grossly excessive payment amount.
The statute applies inherent reasonableness to Part B items and
services other than physicians' services as defined and paid for under
section 1848 of the Act. Drugs are paid under section 1842(o) of the
Act and not section 1848 of the Act. The inherent reasonableness
authority can and should be used in cases for which the standard rules
for determining payment amounts for drugs result in grossly deficient
or excessive payment amounts. Effective January 1, 2004, section 303 of
Public Law 108-173, enacted on December 8, 2003, established a new
pricing methodology for Part B drugs, including those furnished by
oncologists to their cancer patients, that are not paid on a cost or
prospective payment basis. Because of this new pricing methodology, we
do not anticipate the need to apply the inherent reasonableness
authority to Part B drugs at this time, although we retain our
authority to do so. Public Law 108-173 did not amend section 1848 of
the Act to explicitly exclude Part B drugs from the inherent
reasonableness authority. Therefore, although we believe we have the
authority to do so, we will not exclude Part B drugs from the group of
services for which we would consider using the inherent reasonableness
authority.
Comment: One commenter stated that CMS and the carriers must
consider the service components (for example, transportation, set-up,
patient education, and servicing) of all Part B therapies and items
when defining the grossly excessive payment amounts.
Response: We agree with the commenter. The regulations require that
when using wholesale costs, the cost of services necessary to furnish a
product will be taken into account in making an inherent reasonableness
determination. However, we believe that for other types of comparison,
for example, using a retail price, that price generally includes the
service component. Should the retail price not include recognition of a
service component, the service component will, of course, be considered
in making an inherent reasonableness determination.
Comment: Three commenters urged CMS to revise its definition of
grossly excessive or grossly deficient to provide sufficient notice
about the specific payment allowances that would be subject to the
inherent reasonableness authority. The commenters believed that
[[Page 73628]]
the 15-percent threshold should be based on objective criteria that
would measure market reality rather than basing it on a nonexclusive
list of factors. The commenters recommended that CMS revise the
definition of grossly excessive or grossly deficient to state that a
Medicare payment amount for a category of items or services will be
considered grossly excessive or deficient ``only if the average amount
paid by all non-Medicare payers for the same category of items or
services is at least 15 percent greater or less than such Medicare
amount.''
Response: We do not believe it is necessary to revise our
definition of grossly excessive or grossly deficient to provide notice
about the specific payment allowances. The statute applies inherent
reasonableness to Part B items and services other than physicians'
services as defined and paid for under section 1848 of the Act.
However, we decided not to apply this rule to services paid under a
prospective payment system such as hospital outpatient services or home
health services. As previously stated, no item or service is subject to
a change in payment under the inherent reasonableness authority until
the proposed change is published by either CMS in the Federal Register
or its carriers in their own publications after public comments are
received in response to the proposed notice and are considered. In
addition, we believe that our definition is appropriate and does
include an objective criterion, that is, 15 percent.
Comment: Three commenters suggested that the definition of grossly
excessive or grossly deficient clearly indicate that all available data
sources will be evaluated before we make an inherent reasonableness
determination and that a single non-Medicare payor's payment amounts
for an item would not be used to establish a Medicare payment amount
using inherent reasonableness authority. The commenters indicated that
the wide variation among the various sources available for price data
warrants the evaluation of all sources before making any inherent
reasonableness determination.
Response: We do not believe that it is necessary to modify our
definition of grossly excessive and grossly deficient as the commenters
suggested. Section 1842(b)(8) of the Act provides that comparing
Medicare payments made by other purchasers is an appropriate way to
determine whether or not Medicare payment amounts are reasonable.
Section 405.502(g)(4) of the regulations was added in response to a GAO
recommendation to ensure the use of valid and reliable data in making
an inherent reasonableness determination. Under this regulation, CMS
and its carriers must meet 11 criteria, to the extent they are
applicable, in determining whether a payment amount is grossly
excessive or deficient. For these reasons, the use of prices from a
single payor would not be used to determine Medicare's payment amounts.
Comment: Three commenters stated that the definition of grossly
excessive or grossly deficient must ensure that Medicare's policy of
affording beneficiaries choices among a wide selection of services,
products, and brands is retained.
Response: We do not believe that using the inherent reasonableness
authority will limit beneficiaries' choices of Medicare items and
services because the purpose of the authority is to ensure that
Medicare makes payments that are realistic and equitable, and better
reflect market prices. 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 beneficiaries. If the payment amount is adjusted
downward, 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. We believe that a realistic
and equitable payment amount would ensure continued availability of
items and services. Thus, we believe that the application of an
adjustment 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.
Moreover, we will monitor all complaints from beneficiaries, suppliers,
providers, and others regarding patient access to items and services
for which payment amounts may be adjusted using the inherent
reasonableness process.
Comment: One commenter believed it was inappropriate to set the
threshold at 15 percent to define a grossly excessive or deficient
payment amount for certain orthotics and prosthetics. The commenter
stated that these items are highly customized, vary in complexity based
on the patient, are priced differently by manufacturers based on
various factors, and require extensive labor and skill to manufacturer
them. The commenter suggested that CMS increase the threshold from 15
percent to 20 percent for orthotics and prosthetics.
Response: While the statute does not define what constitutes a
grossly excessive or deficient payment amount, it nevertheless places
significant importance on a 15-percent criterion. For this reason, we
believe that it is appropriate to adopt and apply a 15-percent
criterion consistently to all Medicare Part B items and services,
including orthotics and prosthetics.
Comment: Fifteen commenters were concerned that applying the
definition of grossly excessive to payment amounts for Medicare Part B
chemotherapy drugs administered in physicians' offices will greatly
impede beneficiaries' access to care, force physicians to abandon their
oncology practices, and completely undermine the efficacy of cancer
care in this country.
Response: We are aware that oncologists and cancer patients
continue to raise concerns about access to chemotherapy. Effective
January 1, 2004, section 303 of Public Law 108-173 established a new
pricing methodology for drugs and biologicals that are not paid on a
cost or prospective payment system basis. It also increased the
physician fee schedule amounts for chemotherapy drug administration
services. In addition, for 2005 CMS initiated a demonstration in which
providers were reimbursed for measuring and providing data on patient
outcomes in three areas of concern often cited by patients undergoing
chemotherapy: Controlling pain, minimizing nausea and vomiting, and
reducing fatigue. Following extensive discussions with various groups
representing the interests of oncologists and advocates for patient
care, we decided to retain the demonstration project for 2006, but we
will revise the codes for reporting in order to take a further step
toward encouraging quality care and promoting best clinical practices
that should lead to improved patient outcomes. We will eliminate the CY
2005 codes specific to the assessment of patient symptoms, while
maintaining our focus on quality cancer care, including the management
of debilitating symptoms, to assure the best possible quality of life
for cancer patients. At this time, we do not have evidence to suggest
that access problems have occurred as a result of the payment policy
changes enacted by Public Law 108-173. Office-based chemotherapy care
appears to be continuing at historical levels. We will continue to
monitor patient access closely.
[[Page 73629]]
As we stated previously, we have decided not to subject Part B
drugs paid under a prospective payment system such as the hospital
outpatient prospective payment system to the inherent reasonableness
provisions. In addition, because of the recent legislative changes in
payment for Part B covered drugs, including chemotherapy drugs, we do
not anticipate an immediate need to apply the inherent reasonableness
authority to Part B drugs, but we are retaining our authority for these
drugs in the future should the need arise.
B. Use of Valid and Reliable Data
In the December 2002 interim final rule, we revised the regulation
to include a new section that provided a methodology taken from the GAO
report to ensure the use of valid and reliable data in making an
inherent reasonableness determination (Sec. 405.502(g)(4)). Because
the GAO found that the carriers did not use consistent methods to
collect and analyze pricing data and did not develop written guidelines
for data collection and analysis, in the December 13, 2002 interim
final rule, we included in the regulations at Sec. 405.502(g)(4) the
following 11 steps to be completed:
Developing written guidelines for data collection and
analysis.
Ensuring consistency in any survey to collect and analyze
pricing data.
Developing a consistent set of survey questions to use
when requesting retail prices.
Ensuring that sampled prices fully represent the range of
prices nationally.
Considering the geographic distribution of Medicare
beneficiaries.
Considering relative prices in the various localities to
ensure that an appropriate mix of areas with high, medium, and low
consumer prices was included.
Considering criteria to define populous State, less
populous State, urban area, and rural area.
Considering a consistent approach in selecting retail
outlets within selected cities.
Considering whether the distribution of sampled prices
from localities surveyed is fully representative of the distribution of
the U.S. population.
Considering the products generally used by beneficiaries
and collecting prices of these products.
When using wholesale costs, considering the cost of the
services necessary to furnish a product to beneficiaries.
In addition, based on the GAO concerns about the carriers' price
survey, the durable medical equipment regional carriers (DMERCs) did
not finalize their September 1998 proposed adjustments because the
methodology used by the carriers' for making the proposed adjustments
did not reflect our revised regulatory criteria, based on
recommendations by GAO, for making inherent reasonableness
determinations. Likewise, we did not finalize the CMS inherent
reasonableness proposals that were published in August 1999 because the
methodology used for making the proposed adjustments also did not
reflect the revised criteria recommended by GAO and adopted in the
December 13, 2002 interim final rule.
We indicated that, in some instances, it may be appropriate to use
cost rather than retail or wholesale prices in determining whether a
payment amount is grossly excessive or deficient. In those instances in
which we use cost data, we consider all costs of the supplier, that is,
both direct and indirect costs, as well as any service component costs.
As mentioned previously, section 223(b) of the BBRA required that,
in publishing a final regulation on inherent reasonableness, the
Secretary take appropriate steps to ensure the use of valid and
reliable data when exercising inherent reasonableness authority. The 11
criteria specified above in the December 13, 2002 interim final rule
define the steps we will take to ensure the use of valid and reliable
data. We specifically solicited public comments on these criteria. The
comments we received and our responses appear below.
Comment: One commenter, representing family physicians, family
practice residents, and medical students, supported CMS' data
collection methods for obtaining valid and reliable data for making
inherent reasonableness determinations. However, another commenter
believed that implementation of the inherent reasonableness regulation
should be delayed until further research data are produced that depict
the full range of socioeconomic and medical effects of payment
adjustments. The commenter believed that a full research study that
includes the results of these effects would have a better outcome on
CMS' implemented decisions for reimbursement of oncology services.
Response: We appreciate the commenter's support. In response to the
suggestion that we delay implementation of the inherent reasonableness
authority until research study results are available that assess the
impact of payment adjustments made using the inherent reasonableness
process on payment for oncology services, we do not believe that such a
delay is warranted and would be beneficial. As previously mentioned,
because of the recent legislative changes under Public Law 108-173 in
payment for Part B drugs not subject to a prospective payment system,
we do not now anticipate needing to apply the inherent reasonableness
authority to these drugs, although we are retaining this authority
should the need arise. Public Law 108-173 also increased the physician
fee schedule amounts for chemotherapy drug administration services.
Comment: Some commenters commended CMS for implementing the GAO
recommendations. Other commenters suggested that CMS withdraw the
inherent reasonableness rule until CMS sets forth valid and reliable
data to assess reasonableness in the establishment of Medicare payment
amounts. One commenter believed that the provision of Sec.
405.502(g)(2)(i) that grants CMS or its carriers the authority to
identify a ``price markup'' in the absence of verifiable data does not
coincide with the GAO intent and contradicts the GAO recommendation
that CMS'' decisions should be based on valid and reliable data.
Response: The regulations themselves do not make an inherent
reasonableness determination, nor do they contain data upon which such
a determination would be based. Rather, the regulations provide a
methodology to ensure the use of valid and reliable data in making an
inherent reasonableness determination. With regard to the use of the
valid and reliable data criteria, these criteria were adopted in their
entirety from the GAO report and, thus, properly reflect the GAO's
intent and recommendations.
Comment: Several commenters stated that the regulation text
containing the guidelines for data collection concerning retail and
wholesale pricing surveys is vague; the text lacks specific criteria
(for example, parameters for data collection and analysis) that link
the data collection to the determination of the payment adjustments.
The commenters believed that the criterion set forth for the data
sample will not appropriately depict a ``valid and reliable'' data set.
Two commenters pointed out that, although the inherent reasonableness
rule clearly identifies geographic distribution in its data analysis,
CMS failed to identify and define the measurable criteria for
consideration of the involved geographic areas. The commenters
suggested that CMS consider another survey methodology that includes
[[Page 73630]]
clearer and statistically sound techniques for collecting the data.
Response: We believe that Sec. 405.502(g)(4) of the regulations
appropriately sets forth the steps that we will take to ensure the use
of valid and reliable data when exercising inherent reasonableness
authority. We believe that it is impractical to adopt in regulations
the level of specificity for data suggested by the commenters because
the inherent reasonableness authority is applied to a wide array of
Medicare Part B items and services and under an array of different
marketing conditions.
Comment: Several commenters stated that drug ``acquisition cost''
is not the true estimated measurement for the inflation of chemotherapy
drug cost. The commenters believed that there are additional factors
that CMS should take into account, such as facility overhead,
procurement, and production cost. One commenter recommended that CMS
use data that reflect technological advances. The commenter pointed out
that as its company discovers new technological advances for cancer
treatment, it alters the total cost of a drug therapy and that under
the current policy CMS would not be able to capture these most current
data set that would correlate with drug therapy technological advances
and the most current drug therapy costs.
Response: As previously stated in section II.A. of this final rule,
we have decided not to subject Part B drugs paid under a prospective
payment system such as the hospital outpatient prospective payment
system to the inherent reasonableness provisions. In addition, because
of the recent legislative changes under Public Law 108-173 in payment
for Part B drugs not subject to a prospective payment system, we do not
now anticipate needing to apply the inherent reasonableness authority
to these drugs, although we are retaining our authority should the need
arise.
We recognize that there are costs associated with procuring drugs
beyond the actual ingredient cost such as shipping. In the event that
the inherent reasonableness authority were applied to Part B drugs, we
would consider these costs to the extent that they are not already
reimbursed through our drug administration payments.
Comment: Several commenters stated that major differences exist
between the various health care payment programs and the Medicare
program and suggested that CMS assure that the proposed use of payment
data from the Veterans Administration (VA), the Medicaid program, and
volume discounted programs in making inherent reasonableness
determinations does not result in unreliable, flawed data.
The commenters believed that the VA payment data are not valid or
reliable for inherent reasonableness determinations under Medicare
because the VA payment system requires VA to act as a provider and a
distributor, while the Medicare payment system provides payments to
individual providers and suppliers for the provision of services.
Therefore, the commenter believed that the VA pricing is not an
appropriate comparison for data analysis to determine payment for drug
rates. One commenter stated that the Medicaid payment system has fixed
rates and percentages for certain States and that these prearranged
payment amounts would cause the data set to be skewed for purposes of
inherent reasonableness determinations. The commenters disagreed with
CMS' decision to include small businesses with small purchases in the
data set for volume discounts with large businesses with large purchase
volumes without CMS considering the difference in volume purchase
commitments. The commenters believed that this is just one of the many
fundamental differences between the VA and Medicare that would result
in drastic differences in the cost of items and services. One commenter
submitted data that compared the prices of motorized wheelchairs for
Medicare Part B claims to the same products purchased by the VA and the
results of its research study which, the commenter believed, prove that
the CMS methodology is unreliable.
Several commenters suggested that, because the purchasers'
administrative costs are atypical of Medicare claims, CMS should either
use the volume discounted data for specific categories or use the
pricing data for analyses after carefully examining the data for
validity and eliminating invalid data.
Response: While the statute generally does not give CMS the
authority to negotiate volume discounts with suppliers, it also does
not permit CMS to subsidize the discounts that suppliers grant to other
purchasers. CMS' charge is to calculate a fair and equitable payment
amount, not to underwrite suppliers' profitability. Medicare is the
largest volume purchaser for many medical items and services. As a
payer, Medicare expenditures represent 17.6 percent of total national
health expenditures by all payers. Expenditures for Part B, excluding
physicians' services, are approximately $60 billion per year. Although
Medicare does not give specific volume guarantees to suppliers and does
not ask for volume discounts, there is a predictable volume of Medicare
business, and suppliers have the opportunity to profit from this. To
suggest that Medicare's payment be higher than other purchasers'
payment in light of the large Medicare volume is unwarranted.
Logically, it does not follow that a large purchaser such as Medicare
should be expected to pay more than other smaller purchasers.
Comment: Several commenters who supported the 11 criteria that CMS
or its contractors will use to make grossly excessive and grossly
deficient inherent reasonableness determinations suggested that
``median retail pricing data'' should also be a part of the evaluating
criteria; and that CMS define ``retail'' as the term relates to the 11
criteria. The commenters recommended that CMS consider the frequency by
which patients utilize various products. The commenters pointed out
that products used more frequently are generally lower in price than
products that are not used frequently and further added that the use of
the reduced retail prices of products used by most beneficiaries would
not conform to the valid and reliable data criterion. The commenters
also suggested that CMS expand the survey to include products used by
non-Medicare patients in an effort to eliminate a biased data set.
Response: We do not believe that median pricing data must be used
to ensure that data are valid and reliable. The selection of a median
may be used as a measure of the reasonableness of a price and, if it
were used, would be discussed in further detail in the public notice
when CMS or its carriers elect to make an inherent reasonableness
determination. ``Retail'' has the standard dictionary meaning, and we
see no reason to further define it in regulation. With regard to the
rates at which products are consumed, regulations already provide that
we consider the rate at which the product is generally used by
beneficiaries.
Further, products used less frequently are also considered in the
regulations, which provide that prices must represent the range of
prices nationally and that prices must consider an appropriate mix of
prices. In order to make like comparisons, we do not believe we should
compare products used by Medicare beneficiaries to the types of
products used by non-Medicare patients.
Comment: One commenter opposed CMS' and its contractors' use of
research data from outside of the United States
[[Page 73631]]
because of the difference in pricing systems.
Response: At the present time, we do not anticipate using data from
outside the United States but, if we do, we would take into account
legitimate pricing differences.
Comment: One commenter recommended that CMS provide and make
available, possibly on the Internet, the full research study that
entails the criteria, surveys, and resulting data utilized by CMS and
its contractors in making inherent reasonableness determinations.
Response: The regulations provide great specificity regarding the
criteria and data that are to be used in making inherent reasonableness
determinations and great specificity regarding public notice of such
determinations. It is our intention to publish all data used in making
determinations in any proposed notice. In the future, we also
anticipate publishing data on the Internet.
C. Other Provisions Addressed in the December 13, 2002 Interim Final
Rule
In the December 13, 2002 interim final rule, we addressed the
public comments that we had received on the January 7, 1998 interim
final rule. In response to comments on the January 7, 1998 interim
final rule, we made the following other changes in the December 13,
2002 interim final rule:
We clarified the difference between a national
determination and a carrier determination (Sec. 405.502(g)(1)(iii)).
We also revised Sec. 405.502(g)(3) to provide further clarification on
the terms we use to distinguish between inherent reasonableness
activities conducted by CMS and inherent reasonableness activities
conducted by the carriers.
We included an example of new technology that exists and
is not reflected in the existing payment allowance (Sec.
405.502(g)(2)(vii)(H)).
We clarified language to provide suppliers the opportunity
to comment on a carrier's proposed inherent reasonableness payment
allowances as well as the factors a carrier considered; and added a
requirement that a carrier notify us in writing of any final limits it
proposes to establish (Sec. 405.502(g)(3)(ii)).
We added language to provide that, when payment
adjustments of more than 15 percent are spread out over multiple years,
subsequent adjustments will be reviewed for their appropriateness
(Sec. 405.502(g)(5)). As recommended in the GAO report, when
adjustments of more than 15 percent are spread out over multiple years,
we will review market prices in the years subsequent to the year that
the initial 15-percent reduction is effective. The purpose of this
review is to ensure that further reductions continue to be appropriate.
We revised Sec. 405.502(g)(3)(ii) to clarify the
procedures and the sequence of steps a carrier will follow in making an
inherent reasonableness determination.
In this Federal Register document, we are finalizing, with minor
editorial changes, the above revisions that were included in the
December 13, 2002 interim final rule.
D. Other Issues Addressed in the Public Comments Received
Some of the timely correspondence received in response to the
December 13, 2002 interim final rule included public comments on issues
other than the two provisions on which we particularly invited
additional public comments. These included comments on application of
inherent reasonableness authority to ambulance services paid on a fee
schedule basis; application of inherent reasonableness authority to
oncology drugs administered in physicians' offices; use of current
profit margins from oncology drugs administered in physicians' offices
to subsidize certain oncology services; impact of inherent
reasonableness policy on community oncologists; impact of inherent
reasonableness policy on cancer patients' access to care; use of
acquisition cost as a factor in determining inherently unreasonable
oncology drug costs; application of inherent reasonableness policy to
nonpass-through drugs and biologicals paid under the hospital
outpatient prospective payment system; use of a comprehensive rather
than isolated approach to implementing inherent reasonableness policy
changes for oncology drugs administered in physicians' offices;
consideration of a Congressionally-driven balanced solution for
implementing inherent reasonableness policy changes; seeking the advice
of key industry associations prior to implementing inherent
reasonableness policy changes for oncology drugs administered in
physicians' offices; and reaction to the quality of analysis included
in the GAO report. Because these comments pertain to issues on which we
had previously received and considered public comment, we consider them
outside the scope of the solicitation of public comments on the interim
final rule. Therefore, we are not addressing them in this final rule.
We will consider them in development of future policy changes. We also
refer the readers to the related public comments we addressed in the
December 13, 2002 interim final rule.
E. Adoption of December 13, 2002 Interim Final Rule as Final
After analysis of the public comments received, we have determined
that no further changes, other than minor editorial and drafting
changes, are necessary to the regulations under Sec. 405.502(g) and
(h) relating to inherent reasonableness determinations. These changes
are editorial in nature or involve coding and language changes to
conform to established CFR drafting rules. The provisions of the
December 13, 2002 interim final rule are finalized, effective 60 days
after the publication date of this document in the Federal Register.
III. Collection of Information Requirements
This document does not impose information collection and
recordkeeping requirements. Consequently, it does not need to be
reviewed by the Office of Management and Budget under the authority of
the Paperwork Reduction Act of 1995.
IV. Regulatory Impact Statement
We have examined the impacts of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
A. Executive Order 12866
Executive Order 12866 (as amended by Executive Order 13258, which
merely reassigns responsibility of duties) directs agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). A
regulatory impact analysis (RIA) must be prepared for major rules with
economically significant effects ($100 million or more in any 1 year).
This regulation has no immediate economic effect on current Medicare
payments. However, it establishes a process that could be used in the
future to set reasonable and equitable payment amounts. Because this
rule does not include any actual inherent reasonableness
determinations, it has no immediate impact on Medicare payment amounts.
However, we believe that the
[[Page 73632]]
future application of the inherent reasonableness authority has the
potential to have significant impact on Medicare payment amounts.
Therefore, this final rule is considered to be economically significant
and is a major rule. We base our belief on the June 2002 OIG report
that indicated that Medicare may be overpaying between $130 million and
$958 million per year for 16 items of medical equipment. In addition,
the GAO indicated that Medicare may be overpaying for medical equipment
by more than 20 percent. However, these reports were not done to the
specifications we are finalizing in this rule and, therefore, they may
not be an accurate estimate of the specific dollar impact that could
result from the future application of inherent reasonableness under
these requirements. Because we recognize the potential for future
payment adjustments, either upward or downward, when CMS makes
adjustments we will publish in the Federal Register regulatory impact
statements that will comply with Executive Order 12866 and the
Regulatory Flexibility Act whenever the dollar impact of inherent
reasonableness determinations exceed $100 million in any 1 year.
At this time, we lack sufficient data to conduct a quantitative
analysis of the impact of this rule. We lack such data because, until
we are able to conduct an inherent reasonableness study using the
published criteria, we are unable to determine whether Medicare is
overpaying or underpaying for items or services and to what degree. We
do not know if, or when, or for which services, we would make payment
adjustments, or the percentage adjustment we would make, or even the
particular industry that would be affected. In addition, we do not know
if these adjustments would increase or decrease Medicare payment
amounts. As a result, we cannot anticipate the specific dollar effect
or impact on suppliers and beneficiaries.
B. Regulatory Flexibility Analysis
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and government agencies.
Most hospitals and most other providers and suppliers are small
entities either by nonprofit status or by having revenues of $6 million
to $29 million or less in any 1 year (see 65 FR 69432 for details). For
purposes of the RFA, all suppliers of Medicare Part B services are
considered to be small entities. Individuals and States are not
included in the definition of a small entity. Because this final rule
does not include any actual inherent reasonableness determinations, it
will not have an impact on small businesses. However, it finalizes the
establishment of a process that could be used in the future to
establish reasonable and equitable payment amounts.
We do not expect suppliers of Part B services to be immediately
affected by this rule because the rule will have no immediate impact on
Medicare payment amounts. However, we do believe that use of inherent
reasonableness has the potential to significantly impact small
businesses in the future. This belief is based on a June 2002 OIG
report cited earlier which indicated that Medicare may be overpaying
between $130 million and $958 million per year for 16 items of medical
equipment. In addition, the GAO indicated that Medicare may be
overpaying for medical equipment by more than 20 percent. However, we
are still unable to predict the specific dollar impact on the future
application of inherent reasonableness. Because we recognize the
potential for future payment adjustments, either upward or downward,
when CMS makes adjustments, we will publish in the Federal Register
impact statements that will comply with Executive Order 12866 and the
Regulatory Flexibility Act whenever the dollar impact of inherent
reasonableness determinations exceed $100 million in any 1 year, or
when the adjustments will have a significant impact on a substantial
number of small entities.
We do not have sufficient data to predict exactly the nature of the
future impact of this rule or the magnitude of the impact. Below, we
discuss likely outcomes. Should the provisions of these regulations be
applied, the resultant payment amounts will no longer be grossly
excessive or deficient. 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 beneficiaries. If the payment amount is adjusted
downward, a 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 and would better reflect market
prices for the given item or service. We believe that a realistic and
equitable payment amount would ensure continued availability of items
and services. This adjustment would benefit the Medicare program by
reducing costs, thereby protecting the Medicare Trust Fund, and benefit
beneficiaries by reducing coinsurance payments. In addition, this
regulation only specifies the criteria and methodology for determining
when payment for a service or item is inherently unreasonable and does
not result in any adjustments.
If CMS initiates an inherent reasonableness determination that
results in payment adjustments in excess of $100 million in any 1 year,
we will publish in the Federal Register an analysis in compliance with
Executive Order 12866. If the CMS adjustment will have a significant
impact on a substantial number of small entities, we will also conduct
an analysis in accordance with the Regulatory Flexibility Act. In cases
where one or more of our carriers undertake an adjustment using this
inherent reasonableness authority that either has an impact of $100
million or more in any 1 year or has a significant effect on a
substantial number of small entities, the carrier(s) will notify
providers of the planned adjustment and the analysis on which it is
based. In this way, affected parties would be able to comment on the
planned adjustment.
C. Impact on Rural Areas
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis if a rule may have a significant impact on the
operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 603 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds. We are not preparing a
rural impact analysis because we have determined that this final rule
will not have a significant economic impact on the operation of a
substantial number of small rural hospitals.
D. Unfunded Mandates
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule that may result in expenditure in any 1 year by State,
local, or tribal government, in the aggregate, or by the private sector
of $110 million. This final rule does not mandate expenditures by
State, local, or tribal governments, or by the private sector.
Therefore, the requirements of section 202 do not apply.
E. Executive Order 13132
Executive Order 13132 establishes certain requirements that an
agency must meet when it publishes a proposed
[[Page 73633]]
rule (and subsequent final rule) that imposes substantial direct
requirement costs on State and local governments, preempts State law,
or otherwise has Federalism implications. Because this regulation does
not impose any costs on State or local governments, the requirements of
Executive Order 13132 are not applicable.
F. Executive Order 12866
In accordance with the provisions of Executive Order 12866, this
final rule was reviewed by the Office of Management and Budget.
List of Subjects in 42 CFR Part 405
Administrative practice and procedure, Health facilities, Health
professions, Kidney diseases, Medicare, Reporting and recordkeeping
requirements, Rural areas, X-rays.
0
For the reasons set forth in the preamble, 42 CFR chapter IV, part 405
is amended as follows:
PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED
Subpart E--Criteria for Determining Reasonable Charges
0
1. The authority citation for part 405, subpart E, continues to read as
follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
0
2. Section 405.502 is amended by revising paragraphs (g) and (h) to
read as follows:
Sec. 405.502 Criteria for determining reasonable charges.
* * * * *
(g) Determination of payment amounts in special circumstances.--(1)
General.
(i) For purposes of this paragraph (g), a ``category of items or
services'' may consist of a single item or service or any number of
items or services.
(ii) CMS or a carrier may determine that the standard rules for
calculating payment amounts set forth in this subpart for a category of
items or services identified in section 1861(s) of the Act (other than
physicians' services paid under section 1848 of the Act and those items
and services for which payment is made under a prospective payment
system, such as outpatient hospital services or home health services)
will result in grossly deficient or excessive amounts. A payment amount
will not be considered grossly excessive or deficient if it is
determined that an overall payment adjustment of less than 15 percent
is necessary to produce a realistic and equitable payment amount. For
CMS-initiated adjustments, CMS will publish in the Federal Register an
analysis of payment adjustments that exceed $100 million per year in
compliance with Executive Order 12866. If CMS makes adjustments that
have a significant effect on a substantial number of small entities, it
will publish an analysis in compliance with the Regulatory Flexibility
Act.
(iii) If CMS or the carrier determines that the standard rules for
calculating payment amounts for a category of items or services will
result in grossly deficient or excessive amounts, CMS, or the carrier,
may establish special payment limits that are realistic and equitable
for a category of items or services. If CMS makes a determination, it
is considered a national determination. A carrier determination is one
made by a carrier or intermediary or groups of carriers or
intermediaries even if the determination applies to payment in all
States.
(iv) The limit on the payment amount is either an upper limit to
correct a grossly excessive payment amount or a lower limit to correct
a grossly deficient payment amount.
(v) The limit is either a specific dollar amount or is based on a
special method to be used in determining the payment amount.
(vi) Except as provided in paragraph (h) of this section, a payment
limit for a given year may not vary by more than 15 percent from the
payment amount established for the preceding year.
(vii) Examples of excessive or deficient payment amounts. Examples
of the factors that may result in grossly deficient or excessive
payment amounts include, but are not limited to, the following:
(A) The marketplace is not competitive. This includes circumstances
in which the marketplace for a category of items or services is not
truly competitive because a limited number of suppliers furnish the
item or service.
(B) Medicare and Medicaid are the sole or primary sources of
payment for a category of items or services.
(C) The payment amounts for a category of items or services do not
reflect changing technology, increased facility with that technology,
or changes in acquisition, production, or supplier costs.
(D) The payment amounts for a category of items or services in a
particular locality are grossly higher or lower than payment amounts in
other comparable localities for the category of items or services,
taking into account the relative costs of furnishing the category of
items or services in the different localities.
(E) Payment amounts for a category of items or services are grossly
higher or lower than acquisition or production costs for the category
of items or services.
(F) There have been increases in payment amounts for a category of
items or services that cannot be explained by inflation or technology.
(G) The payment amounts for a category of items or services are
grossly higher or lower than the payments made for the same category of
items or services by other purchasers in the same locality.
(H) A new technology exists which is not reflected in the existing
payment allowances.
(2) Establishing a limit. In establishing a payment limit for a
category of items or services, CMS or a carrier considers the available
information that is relevant to the category of items or services and
establishes a payment amount that is realistic and equitable. The
factors CMS or a carrier considers in establishing a specific dollar
amount or special payment method for a category of items or services
may include, but are not limited to, the following:
(i) Price markup. Price markup is the relationship between the
retail and wholesale prices or manufacturer's costs of a category of
items or services. If information on a particular category of items or
services is not available, CMS or a carrier may consider the price
markup on a similar category of items or services and information on
general industry pricing trends.
(ii) Differences in charges. CMS or a carrier may consider the
differences in charges for a category of items or services made to non-
Medicare and Medicare patients or to institutions and other large
volume purchasers.
(iii) Costs. CMS or a carrier may consider resources (for example,
overhead, time, acquisition costs, production costs, and complexity)
required to produce a category of items or services.
(iv) Use. CMS or a carrier may impute a reasonable rate of use for
a category of items or services and consider unit costs based on
efficient use.
(v) Payment amounts in other localities. CMS or a carrier may
consider payment amounts for a category of items or services furnished
in another locality.
(3) Notification of limits.--(i) National limits. CMS publishes in
the Federal Register proposed and final notices announcing a special
payment limit described in paragraph (g) of this section before it
adopts the limit. The notices set forth the criteria and
[[Page 73634]]
circumstances, if any, under which a carrier may grant an exception to
a payment limit for a category of items or services.
(ii) Carrier-level limits. (A) A carrier proposing to establish a
special payment limit for a category of items or services must inform
the affected suppliers and Medicaid agencies of the proposed payment
amounts and the factors it considered in proposing the particular
limit, as described in paragraphs (g)(1) through (g)(4) of this section
and must solicit comments. The notice must also consider the following:
(1) The effects on the Medicare program, including costs, savings,
assignment rates, beneficiary liability, and quality of care.
(2) What entities would be affected, such as classes of providers
or suppliers and beneficiaries.
(3) How significantly would these entities be affected.
(4) How would the adjustment affect beneficiary access to items or
services.
(B) Before publication of a final notice, the carrier must--
(1) Evaluate the comments it receives on the proposed notice.
(2) Notify CMS in writing of any final limits it plans to
establish. CMS will acknowledge in writing to the carrier that it
received the carrier's notification.
(3) After receipt of CMS' acknowledgement, inform the affected
suppliers and State Medicaid agencies of any final limits it
establishes.
(C) The effective date for a final payment limit may apply to
services furnished at least 60 days after the date that the carrier
notifies affected suppliers and State Medicaid agencies of the final
limit.
(4) Use of valid and reliable data. In determining whether a
payment amount is grossly excessive or deficient and in establishing an
appropriate payment amount, valid and reliable data are used. To ensure
the use of valid and reliable data, CMS or the carrier must meet the
following criteria to the extent applicable:
(i) Develop written guidelines for data collection and analysis.
(ii) Ensure consistency in any survey to collect and analyze
pricing data.
(iii) Develop a consistent set of survey questions to use when
requesting retail prices.
(iv) Ensure that sampled prices fully represent the range of prices
nationally.
(v) Consider the geographic distribution of Medicare beneficiaries.
(vi) Consider relative prices in the various localities to ensure
that an appropriate mix of areas with high, medium, and low consumer
prices was included.
(vii) Consider criteria to define populous State, less populous
State, urban area, and rural area.
(viii) Consider a consistent approach in selecting retail outlets
within selected cities.
(ix) Consider whether the distribution of sampled prices from
localities surveyed is fully representative of the distribution of the
U.S. population.
(x) Consider the products generally used by beneficiaries and
collect prices of these products.
(xi) When using wholesale costs, consider the cost of the services
necessary to furnish a product to beneficiaries.
(5) Review of market prices. If CMS or a carrier makes a payment
adjustment of more than 15 percent under this paragraph (g), CMS or the
carrier will review market prices in the years subsequent to the year
that the initial reduction is effective in order to ensure that further
reductions continue to be appropriate.
(h) Special payment limit adjustments greater than 15 percent of
the payment amount. In addition to applying the general rules under
paragraphs (g)(1) through (g)(5) of this section, CMS applies the
following rules in establishing a payment adjustment greater than 15
percent of the payment amount for a category of items or services
within a year:
(1) Potential impact of special limit. CMS considers the potential
impact on quality, access, beneficiary liability, assignment rates, and
participation of suppliers.
(2) Supplier consultation. Before making a determination that a
payment amount for a category of items or services is not inherently
reasonable by reason of its grossly excessive or deficient amount, CMS
consults with representatives of the supplier industry likely to be
affected by the change in the payment amount.
(3) Publication of national limits. If CMS determines under this
paragraph (h) to establish a special payment limit for a category of
items or services, it publishes in the Federal Register the proposed
and final notices of a special payment limit before it adopts the
limit. The notices set forth the criteria and circumstances, if any,
under which a carrier may grant an exception to the limit for the
category of items or services.
(i) Proposed notice. The proposed notice--
(A) Explains the factors and data that CMS considered in
determining that the payment amount for a category of items or services
is grossly excessive or deficient;
(B) Specifies the proposed payment amount or methodology to be
established for a category of items or services;
(C) Explains the factors and data that CMS considered in
determining the payment amount or methodology, including the economic
justification for a uniform fee or payment limit if it is proposed;
(D) Explains the potential impacts of a limit on a category of
items or services as described in paragraph (h)(1) of this section; and
(E) Allows no less than 60 days for public comment on the proposed
payment limit for the category of items or services.
(ii) Final notice. The final notice--
(A) Explains the factors and data that CMS considered, including
the economic justification for any uniform fee or payment limit
established; and
(B) Responds to the public comments.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.774,
Medicare--Supplementary Medical Insurance Program).
Dated: June 13, 2005.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Dated: December 1, 2005.
Michael O. Leavitt,
Secretary.
[FR Doc. 05-24020 Filed 12-12-05; 8:45 am]
BILLING CODE 4120-01-P