DMEPOS Proposed Rule Expands O&P Prior Authorization, Underscores Need for Legislation to Separate O&P From DME

Home > Articles > DMEPOS Proposed Rule Expands O&P Prior Authorization, Underscores Need for Legislation to Separate O&P From DME
By Peter W. Thomas, JD, and Joseph Nahra

On July 29, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule containing updates to durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) regulations. This annual process does not typically impact O&P care to a major extent, but this year is different. The rule includes a number of provisions that impact O&P. The most significant proposals include:

  •  Changes to the pricing methodology when Healthcare Common Procedure Coding System (HCPCS) codes are consolidated or modified
  •  A process for calculating payment amounts for new technologies that are assigned a new HCPCS code (i.e., gap-filling)
  •  A dramatic expansion of the number of O&P HCPCS L-codes that will be eligible for prior authorization
  •  A new consolidated list of DMEPOS items that are eligible for prior authorization or require face-to-face encounters with a healthcare professional, and written orders
  •  A standardized list of items required in written orders that applies to DME items and O&P services.

This year's proposed rule advises that CMS would regulate O&P the same way it regulates DME, continuing to highlight the need to clearly distinguish O&P from DME through legislation. The National Association for the Advancement of Orthotics and Prosthetics (NAAOP) will work with its O&P Alliance partners to develop extensive comments on the proposed rule for submission by the September 27 comments deadline. (Comments can be submitted electronically by the public by visiting and searching CMS-1713-P.) 

New Methodologies for Determining Pricing for DMEPOS Subject to Coding Changes
CMS is proposing to add a provision to the regulations that addresses the continuity of pricing when items are redesignated from one HCPCS code to another. CMS suggests that if a new code is added, CMS or its contractors would determine whether the item and service has a fee schedule pricing history. If there is a fee schedule pricing history, the previous fee schedule amounts for the old code(s) would be associated with, or crosswalked to the new code(s) to ensure continuity of pricing.

CMS provides the following examples:

  • When the code for an item is divided into several codes for the components of that item, the total of the separate fee schedule amounts established for the components would not be higher than the fee schedule amount for the original item.
  • When there is a single code that describes two or more distinct complete items (for example, two different but related or ­similar items), and separate codes are subsequently established for each item, the fee schedule amounts for the new code would be established by adding the fee schedule amounts used for the components.
  • When the codes for several different items are combined into a single code, the fee schedule amounts for the new code would be established using the average (arithmetic mean), weighted by allowed services, of the fee schedule amounts for the formerly separate code.

Continuity in reimbursement levels is a reasonable goal for CMS to pursue, but these examples suggest that historical levels of reimbursement may be locked in for years to come. Further examination of these regulatory changes is needed, but there is real concern that this methodology may create additional barriers to return on investment, further discouraging innovators and researchers to invest in the O&P field.

Gap-filling for New DMEPOS
The O&P Alliance commented extensively on last year's DMEPOS proposed rule with respect to changes related to gap-filling, a pricing methodology used by CMS for new HCPCS codes when the new items or services described by these new codes cannot be easily priced by comparing them to existing items or services. Last year's DMEPOS rule also addressed regulatory changes focused on a process known as inherent reasonableness (IR). IR is an extensive regulatory process that CMS can use to adjust prices downward or upward if the reimbursement level for a particular DMEPOS item or service is found to be either grossly excessive or grossly deficient, and therefore not inherently reasonable. CMS can use the IR process to increase or decrease fee schedule amounts by 15 percent or more.

When determining the reimbursement levels for new HCPCS codes, CMS looks to compare new technologies with existing ones and crosswalks the values to establish the payment level for the new code. To address confusion about how CMS determines whether items and services are "comparable" for purposes of deciding whether to crosswalk the code or apply the gap-filling pricing methodology, this year's proposed rule establishes in regulation a set framework and basis for identifying comparable items. In the proposed rule, CMS identifies five main categories upon which new DMEPOS items can be compared to older DMEPOS items: physical components; mechanical components; electrical components (if applicable); function and intended use; and additional attributes and features (Table 1).

This evaluation will be applied to new DMEPOS items without a pricing history. If it is determined that the new item is comparable to older existing item(s), CMS proposes to use the fee schedule amounts for the older existing item(s) to establish the fee schedule amounts for the new item. If it is determined that there are no comparable items to use for establishment of a payment level, the gap-filling methodology would be used. This methodology would, among other things, examine other sources of commercial pricing data to establish Medicare payments, such as internet retail prices or information from supplier invoices.

The commercial prices would then be deflated to the fee schedule base period (i.e., 1987) and updated by the covered item annual inflation factors (i.e., CPI-U). Finally, when commercial pricing data is not available, unverifiable, or insufficient to determine fee schedule amounts, CMS proposes to utilize technology assessments (either internally or by contracting with outside companies) analyzing samples of the product(s) as well as older items to determine relative supplier costs of furnishing the item or service.

CMS specifically notes that the gap-filling method may result in excessively high fee schedule amounts when a competitive market for a given new item has not yet developed. The rule thus proposes that CMS perform a one-time adjustment by conducting gap-filling a second time if prices drop notably. CMS offers no rationale for this assertion and, in fact, it is completely plausible that this new process will result in chronically and unrealistically low reimbursement levels.

Specifically, if supplier or commercial prices used to establish fee schedule amounts for a new item decrease by any amount below 15 percent within five years of establishing the initial fee schedule amounts, and the amounts calculated using the new prices would be no more than 15 percent lower than the initial amounts, CMS would conduct a second round of gap-filling. In other words, if the IR process is not triggered by supplier and commercial prices dropping more than 15 percent for a particular item or service, CMS is empowering itself to use a second gap-filling process to reduce prices, as long as the decrease is less than 15 percent.

The rationale for this adjustment is that new, lower prices would likely represent a more stable and competitive market and should serve as the basis for the fee schedule amounts for the item or service. But essentially, the proposal is just another way that CMS can reduce reimbursement levels for new technologies once they enter the marketplace and supplier or commercial prices decrease even a few percentage points within a five-year period.

Combining the Master List of Items Eligible for Certain Requirements
Since 2012, CMS has required various categories of DMEPOS items to include face-to-face encounters with practi­tioners and written orders before furnishing the items, such as power mobility devices, to beneficiaries. No O&P L-codes are currently required (or even eligible to be required) to have a face-to-face encounter. Additionally, certain DMEPOS items are eligible to be made subject to prior authorization requirements, currently listed on a Master List of Items Frequently Subject to Unnecessary Utilization. There are currently 84 L-codes eligible for prior authorization, but CMS has not yet imposed prior authorization on any O&P codes.

The proposed rule would adopt a new, singular Master List of items potentially subject to prior authorization and/or the face-to-face encounter and written order requirement (Table 2). The expanded Master List would dramatically increase the number of DMEPOS items potentially eligible to be selected for prior authorization, but CMS states in the rule that there are no plans to "exponentially increase the number of items subject to required prior authorization in the near future."

CMS puts forth that the Master List would self-update according to a set of specified eligibility criteria at least annually, with the option to update the list more frequently on an as-needed basis. The criteria to be used to impose prior authorization on DMEPOS codes listed on the Master List include geographic location, item utilization or cost, system capabilities, emerging trends, vulnerabilities identified in official agency reports, or other analysis in selecting items for national or local implementation.

Astoundingly, there are 145 new L-codes added to the Master List, yet there is little evidence to support or justify this dramatic expansion of prior authorization eligibility. In addition, such a Master List suggests that in future years, CMS may feel emboldened to extend face-to-face encounter requirements to certain O&P codes, a concern created by the consolidation of the currently separate prior authorization, face-to-face encounter, and written order lists.

Competitive Bidding Program (CBP) Amendments
The proposed rule includes minor changes to the existing DMEPOS CBP regulations on change of ownership (CHOW) of recipients of competitive bidding contracts. Currently, regulations require contract suppliers to notify CMS 60 days in advance when negotiating a CHOW. The new regulations would apply to all entities, regardless of whether a "new" entity is formed as a result of a CHOW and require the successor entity to submit its signed novation agreement to CMS no later than ten days after the effective date of the CHOW. The only rationale for this proposed change is regulatory burden reduction on DMEPOS suppliers.

Standardized Elements for DMEPOS Written Orders/Prescriptions
The proposed rule would create one standardized set of required elements for all DMEPOS orders, including O&P. CMS' rationale for this is to reduce confusion and ease the burden on electronic medical record vendors, as well as DMEPOS suppliers who provide items and services across the DME and O&P benefit continuum. Specifically, CMS proposes the following elements to be included in all DMEPOS orders/prescriptions:

1.       Beneficiary name or Medicare beneficiary identifier (MBI)

2.       General description of the item

3.       Quantity to be dispensed, if applicable

4.       Date

5.       Practitioner name or National Provider Identifier

6.       Practitioner signature

The proposed rule acknowledges that these required standardized order elements are typically written on a prescription/order, but that some of these required elements may be found in the beneficiary's medical record. Therefore, CMS proposes to amend its regulations to state that the DME Medicare Administrative Contractors (MACs) shall consider the totality of the medical records when reviewing for compliance with standardized order/prescription elements, which are considered conditions of payment.

Preliminary Analysis
There are several alarming propositions in this year's DMEPOS proposed rule that impact O&P and will require further analysis and comments from the O&P profession. The most disturbing aspect of the rule is how CMS proposes to regulate O&P in the exact same manner it regulates the very different field of DME. This can be seen in virtually every proposal in this year's rule. It is incumbent upon the O&P profession to continue to make policy arguments to distinguish DME from O&P clinical care and seek separate, and more tailored, regulatory treatment for the O&P profession. This rule also underscores the importance of passing federal legislation to definitively separate DME from O&P through statutory language. This provision will be included in the soon-to-be-introduced Medicare Orthotic and Prosthetic Patient-Centered Care Act, the successor to the Medicare O&P Improvement Act from the 115th Congress.

Peter W. Thomas, JD, is a principal with the Powers Law Firm, Washington DC, general counsel for National Association for the Advancement of Orthotics & Prosthetics (NAAOP), and counsel to the Orthotic and Prosthetic Alliance.

Joseph Nahra is manager of government relations with Powers Pyles Sutter & Verville, PC.