Remember IR? CMS sharpens price-cutting tool

BALTIMORE - CMS isn't stopping at competitive bidding to slash payments for diabetes supplies.

CMS announced June 22 that it will hold a public meeting July 23 to discuss using inherent reasonableness (IR) to adjust prices for non-mail order supplies.

"There is significant spending in that area and they believe that, based on the mail order competitive bid pricing, that this is something they need to take a closer look at," said Walt Gorski, vice president of government affairs for AAHomecare.

Through IR, CMS may adjust fee schedule amounts up to 15% per year to create what it believes to be more equitable pricing.

Round 1 of competitive bidding has already reduced reimbursement for mail order supplies by an average of 56%, and Round 2 is expected to produce similar results. Non-mail order supplies obtained at retail locations were not included in bidding.

"Think about it," said Denise Fletcher, an attorney with Brown & Fortunato. "Why would CMS pay more for somebody to have the convenience of going and picking up their stuff?"

If CMS tries to bring pricing for non-mail order supplies in line with mail order supplies in bid areas, which are lower than average wholesale costs, it's going to be much harder for beneficiaries to obtain name brand products, stakeholders say.

"Retail stores are going to have to get better prices from manufacturers, sell product at a loss to Medicare bennies, or stop carrying major brands," said Seth Lundy, a partner with King & Spalding. "That's a problem for Medicare because, in Round 1, they've redirected beneficiaries from mail order back into retail when they are unable to obtain their preferred products."

To avoid that in Round 2, CMS required providers to base their bids on products that have at least 50% of the market and will prohibit contract providers from switching beneficiaries to lower-priced products. IR offers no such protection, stakeholders point out.

"It will make access to certain supplies not possible, including the most frequently used ones that physicians are comfortable with and have integrated into their practice," said Tom Milam, an industry consultant. "I could see providers just looking at it and saying, 'It's not even worth it to carry diabetes supplies.'"