." 
Department of Health and Human Servces 
OFFICE OF 
INSPECTOR GENERAL 
PAYMENTS FOR ENTERAL NUTRITION: 
MEDICARE AND OTHER PAYERS 
, SERVICE..  JU 
GilBS BROWN 
Inspector General 
MAY 1996 
b'd3Q  OEI-03-94-0021  OFFCE OF INSPECfOR GENERA 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452
, as 
amended, is to protect the integrity of the Department of Health and Human Servces' (HHS) 
programs as well as the health and welfare of beneficiaries served by those programs. This 
statutory mission is carried out through a nationwide network of audits, investigations , and 
inspections conducted by three OIG operating components: the Offce of Audit Servces, the 
Offce of Investigations, and the Office of Evaluation and Inspections. The OIG also informs 
the Secretary of HHS of program and management problems and recommends courses to 
correct them.

OFFCE OF AUDIT SERVICE 
The OIG's Offce of Audit Servces (OAS) provides all auditing servces for HHS, either by 
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors in 
carryng out their respective responsibilties and are intended to provide independent 
assessments of HHS programs and operations in order to reduce waste, abuse, and 
mismanagement and to promote economy and efficiency throughout the Department. 
OFFCE OF INTIGATIONS 
The OIG's Office of Investigations (01) conducts crimnal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of 
unjust enrichment by providers. The investigative efforts of 01 lead to criminal convictions 
admiistrative sanctions, or civil money penalties. The 01 also oversees State Medicaid fraud 
control units which investigate and prosecute fraud and patient abuse in the Medicaid program. 
AN 
OFFICE OF EVALUATION  INSPECfONS 
The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management and 
program evaluations (called inspections) that focus on issues of concern to the Department 
the Congress, and the public. The findings and recommendations contained in these inspection 
reports generate rapid, accurate, and up-to-date information on the effciency, vulnerability, 
and effectiveness of departmental programs. This report was prepared in the Philadelphia 
Regional Office under the direction of Robert A Vito, Regional Inspector General. 
PHIELIl 
REGIONAL STAF  HEQUARTES STAF 
Linda M. Ragone Project Leader  Mary Beth Clarke Program Specialist 
Program Assistant 
Cythia Hansford 
To obta copies of th report pleas ca the Phiadelphia Regional Offce at (80) 531-9562  ~"'
Department of Health and Human Servces 
OFFICE OF 
INSPECTOR GENERAL 
PAYMENTS FOR ENTERAL NUTRITION: 
MEDICARE AND OTHER PAYERS 
, SERVJC'l" 
JU 
GilBS BROWN 
Inspector General 
MAY 1996 
lod.  OEI-03-94-0021  EXECUTIVE  SUMMAR Y

PUROSE 
To assess the appropriateness of Medicare s reimbursement methodology for enteral 
nutrition products. 
BACKGROUN 
Enteral nutrition products are usually liquid formulas that provide nourishment 
directly to the digestive tract of patients who cannot ingest an appropriate amount of 
calories to maintain the weight and strength commensurate with their overall health 
status. In 1994, the Medicare total allowed amount for enteral nutrition products and 
supplies was over $680 milion. For enteral nutrition products alone, the Medicare 
program allowed over $330 milion. 
To assist in their evaluation and application of Medicare coverage and pricing policy, 
the Health Care Financing Administration (HCFA) requested the Offce of Inspector 
General (OIG) to survey other payers about their enteral nutrition coverage and 
reimbursement policies. We previously reported on coverage policies in a separate 
Coverage of Enteral Nutrtion Therapy: Medicare 
report entitled  and Other Payers 
(OEI-03-94-00020) . 
For the purposes of comparing pricing information, we surveyed other payers (health 
care insurers, Medicaid agencies, and the Department of Veterans Afairs) and retail 
pharmacies. 
FIINGS 
For three enteral nutin prodcts, payers usg competitie acquisn strateg
reibursed less than Medicare fee-far-servce. Three tradnal 
fee-for-service payers 
fared no better than Medicare in obtaining the best prices avaiIble. 
Six out of nine payers who provided detailed pricing information in our survey 
reimbursed less than Medicare fee-for -servce for three enteral nutrition products: 
Ensure, Osmolite, and Glucerna. These payers reimbursed on average 48, 23 , and 17 
percent less than Medicare fee-for-servce for these three respective products. Five of 
these payers negotiated contract prices with suppliers, taking advantage of discounts 
that can be achieved through competitive acquisition. 
Unlike Medicare fee-for-servce, most other payers we surveyed used competitive 
bidding or limited the number of contracted suppliers that could provide servces to 
their members. The three payers who fared no better than Medicare in obtaining the 
best prices--a Blue CrosslBlue Shield plan using Medicare s fee schedule, and two 
State Medicaid agencies--did not utilize competitive acquisition.  Retail pharmcie charge less than Medicare allws for two enteral nuttin prodts. 
Almost all of the retail pharmacies surveyed charged less than Medicare fee-for
servce allowances for Ensure and Ensure Plus. Ninety-three percent of the retail 
pharmacies charged less than Medicare reimburses for Ensure. Ninety-eight percent 
of retail pharmacies in our survey charged less for Ensure Plus than Medicare allows. 
We surveyed pharmacies about their prices for these two products because they are 
the enteral nutrition products most commonly stocked in retail stores. 
RECOMMNDATION 
We believe that information from this report and a previous OIG report entitled 
Payment for Enteral Nutrtion Therapy Services Billed During Nursing Home Stays (OEI-
06-92- raise concerns about the appropriate payment for enteral nutrition under 
00861) 
Part B of the Medicare program. 
Recommendations from our previous enteral nutrition report focused on Medicare 
reimbursement for beneficiaries living in nursing homes. However, we are also 
concerned that Medicare reimbursement for beneficiaries receivig enteral nutrition at 
home may not be appropriate. In light of the savings that could be achieved if 
Medicare re-evaluated its fee-for-servce reimbursement policy for enteral nutrition 
we recommend that HCFA consider one of the following. 
Reduce payments for enteral nutrtion, either across the board or for certain 
categories of enteral nutrition products.

Use enteral nutrtion as one of the fist product 
tyes to acquie under new
competitie acquiition strtegies. We understand that HCFA is planning a 
demonstration project involving competitive bidding for durable medical 
equipment, prosthetics, orthotics, and supplies in Southern Florida, and has 
long sought the legislative authority to use such strategies for certain medical 
equipment and supplies. Through demonstrations or expanded legislative 
authority from the Congress, we suggest that HCFA use opportunities as they 
become available to acquire enteral nutrition products through competitive 
acquisition strategies. 
AGENCY COMMNT 
Both HCFA and the Assistance Secretary for 
Planning and Evaluation concurred with 
our recommendation. The HCF A stated that currently the calculation for determinng 
Medicare s payments for enteral nutrition products is mandated by legislation. 
However, HCFA reported that the President's Balanced Budget proposal includes 
provisions to freeze parental and enteral nutrition prices at 1993 levels until the year 
2002. The proposal would also require the Secretary to competitively contract for 
certain servces and supplies including enteral nutrients.  . . . . ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  . . . . 
TABLE OF CONTENTS

PAGE

EJCU 
.......................................... i

INODUCTON .  . . . . . . . . . . . . . 1

FININGS. .  . . . . . . . . . . . . . . . . . 5

. Medicare s fee-for-servce allowance compared to other payers. . . . . . . . . . . . . 5

. Most other payers use competitive acquisition or limit suppliers  . . . . . . . . . . . . 6

. Retail pharmacies charge less than Medicare  . . . . . . . . . . . . . . . . . . . . . . . . . . 7

RECOMMNDJ\TION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

APPENDIX A .......................................... ........ A-
 INTRODUCTION
PUROSE 
To assess the appropriateness of Medicare s reimbursement methodology for enteral 
nutrition products.

BACKGROUN 
nutrn prodts unr  bent. 
Medicare covers enteral  the Part B prosthetic deice 
Medicare Part B guidelines classif enteral nutrition under the prosthetic device 
benefit because coverage is limited to patients with a functioning gastrointestinal tract 
who have a permanent non-function or disease of the structures that normally permit 
food to reach the tract. Enteral nutrition products are usually liquid formulas that 
provide nourishment directly to the digestive tract of patients who cannot ingest an 
appropriate amount of calories to maintain the weight and strength commensurate 
with their overall health status. The three most common methods of adminstration 
for enteral nutrition products are: nasogastric tube inserted through the nostri 
gastrostomy tube inserted through a surgical incision leading to the stomach, and 
jejunostomy tube inserted through a surgical incision leading to the small intestine. 
min 
Medicare allwed over $680  nutin reiburemet 
dollrs in enteral  in 1994. 
In 1994, the Medicare total allowed amount for enteral nutrition products and supplies 
was over $680 milion. For enteral nutrition products alone, the Medicare program 
allowed over $330 milion. Medicare s allowed amount includes the 80 percent that 
the Medicare program pays directly to the supplier and the 20 percent copayment for 
which the beneficiary is responsible. 
The Health Care Financing Administration (HCFA) administers the Medicare Part B 
program. In October 1993, HCFA designated four Durable Medical Equipment 
Regional Carriers (DMERCs) to process claims for durable medical equipment 
prosthetics, orthotics, and supplies, including enteral nutrition. Each DMERC is 
responsible for a specifc region of the country and processes claims for Medicare 
beneficiaries residing in the region. The DMERCs are also responsible for issuing 
medical coverage policies that outline coverage and payment guidelines for covered 
servces. The DMERCs have recently updated their enteral nutrition policies effective 
July 1, 1995.

To assist in their evaluation and application of Medicare coverage and pricing policy, 
HCFA requested the Offce of Inspector General (OIG) to survey other payers about 
their enteral nutrition coverage and payment policies. An earlier OIG report 
Coverage of Enteral Nutrtion Therapy: Medicare and Other Payers (OEI-03-94-00020), 
provided a comparison of Medicare coverage policies to those of other payers.  clasi 
nutrn prodts 
Medicare  enteral  into diferent categories and reiburses 
based on those categori. 
Medicare classifies enteral nutrition products into six categories based on the 
composition and source of ingredients in each product. According to the DMERCs 
policies, Category I semi-synthetic protein products are appropriate for the majority of 
patients requiring enteral nutrition. The guidelines state that if a 
physician prescribes 
a product from Categories II through VI, the medical necessity of these special 
product must be justified through documentation. If the request for a higher category 
product cannot be substantiated, payment is based on the allowance for the least 
costly alternative. For Categories I, II, III, and VI there is a single reimbursement 
amount for all the products that fall within each of the categories. In Categories IV 
and V, a specific price for each individual brand of product has been established. 
Medicare reimburses based on the units of enteral nutrition product used and defines 
a unit as 100 calories of enteral nutrition product. The categories of products, their 
composition, and Medicare reimbursement amounts are listed in Table 1. 
Category I 
Semi -synthetic intact 
protein/protein isolates 
Natural intact protein/protein isolate  1.43 
Category II  Intact protein/protein isolates 
(calorically dense) 
Category II  Hydrolyzed protein/amino acids  1.74 
Category IV  Defined formulae for special  varies by product 
metabolic need 
Category V  Modular components  varies by product 
(protein, carbohydrates, fat) 
Category VI  Standardized Nutrients  1.24 
METHODOLOGY 
For the purposes of comparig pricing information, we surveyed both Medicare and 
non-Medicare payers and retail pharmacies. We used Medicare s allowed amount for 
this comparison. The allowed amount includes the 80 percent the Medicare program 
pays directly to the supplier and the 20 percent copayment for which the beneficiary is 
responsible.  Survey of Payers 
Using a standardized data collection instrument, we obtained information on each 
payer s coverage and payment policies. We also asked respondents to provide specific 
prices for four enteral products. The four products were selected based on discussions 
with the DMERCs concerning the most frequently used enteral nutrition products by 
Medicare beneficiaries. Three of these products, Ensure, levity, and Osmolite are 
classified as Category I products by Medicare. The fourth, Glucerna, is considered a 
Category IV product. The information from payers was collected between September 
of 1994 and August of 1995.

We surveyed Medicare contractors to assess payment policies for beneficiaries under 
fee-for-servce and managed care arrangements. The four DMERCs were surveyed as 
representatives of Medicare fee-for-servce and five of the largest Medicare risk-
contracted health maintenance organizations (HMOs) were selected as examples of 
Medicare managed care programs. 
For our non-Medicare payers, we selected both fee-for-servce and managed care 
payers. These payers were broken down into five groups. We selected the five largest 
payers from four of the five groups based on enrollment population. These four 
groups were: State Medicaid Agencies, Blue CrosslBlue Shield Associations (BCIBS), 
private HMOs, and private co=ercialjindemnity insurers. For the fifth group, we 
randomly selected five Department of Veterans Afairs (VA) facilities located in the 
same States as the Medicaid agencies in our sample. 
We surveyed a total of 34 payers and received responses from 26. However, only nine 
respondents (other than the DMERCs) provided actual pricing information. Our 
analysis is based on the information from the payers listed in Table 2. 
Table 2 
State Medicaid Agencies 
Department of Veterans Affairs (VA) Facilities 
Blue Cross/Blue Shield Associations 
Private HMOs 
Private Indemnity/Commercial Insurers  Surey of Retail Pharmcie 
Using a standardized data collection instrument, we contacted retail pharmacy stores 
in four States to determine their prices for two enteral products, Ensure and Ensure 
Plus. These two enteral nutrition products are the ones most commonly stocked by 
larger retail pharmacy chain stores. We purposefully selected four 
States (California 
Florida, Montana, and Delaware) for which statewide information on pharmacies was 
available through our Offce of Audit Servces. For each State, we randomly selected 
35 pharmacies. Ninety-six percent of the pharmacies in our survey (134 of 140) 
provided pricing information to us. The responding pharmacies were in a mix of both 
rural and urban areas with 27 percent located in rural areas. The survey information 
was collected in March of 1995. 
This inspection was conducted as part of Operation Restore Trust (ORT). The 
initiative, focused in five States, involves multi-disciplinary teams of State and Federal 
personnel seeking to reduce fraud, waste, and abuse in nursing homes, hospices, home 
, and by durable medical equipment suppliers. 
health agencies
This inspection was performed in accordance with the  Quality Standards for Inspections
issued by the President's Council on Integrity and Effciency.  FINDINGS
nun prots
usg 
For three enteral 
, payers  competitie acquistion strategi 
reimured les than 
Medicare fee-for-serce. Three traditnal fee-for-serve payers 
fared no better than Medicare in obtaining the best pries avaiIble 
Six out of nine payers who provided detailed pricing information reimbursed less than 
Medicare fee-for-servce for three enteral nutrition products: Ensure, Osmolite, and 
Glucerna. These payers reimbursed on average 48, 23, and 17 percent less than 
Medicare fee-far-servce for these three respective products. For a fourth product 
levity, six payers paid mare than Medicare fee-far-servce, one paid the same, and two 
paid less. The amount that each payer reimbursed for all four products is outlined in 
the table below. Ensure, levity, and Osmolite are Category I products for which the 
Medicare fee-for-servce reimbursement rate is $0.61 per 100 calories. Medicare 
allowances totalled $244 milion far Category I products in 1994. Glucerna is a 
Category IV product for which Medicare fee-for-servce allows $1.09 per 100 calories. 
Medicare allowed almost $27 milon for Glucerna 
in 1994. 
Table 3

Type of Payer  Cost of Enteral Product Per 100 Caories
$0.32 - 0.45 $0.42 - 0.47 $0. 38 - 0.43
 $0.68 - 0.
Medicare Risk
$0. $0. $0. $0.
Contract HMOs 
$0. 51 - 0.54
 $0.66 - 0. $0.59 - 0. $1.08 - 1.4
$0. $0. $0. $1.
Medicaid States 
$0. $0. $0. N/A
$0. $0. $0. $1.52
Veteran Afairs
 $0. $0. $0.13 - 0. $0.
Acquisition Center 
Blue CrosslBlue
 $0.  $0.  $0.  $1.09 
Shield 
Private HMO  $0.  $0.  $0.  $0. 
This amount does not include the 5 to 10 percent manufacturer 
s drug rebate that this State receives.
2 Paid based on the lesser of the biled amount
, the Medicare fee schedule, or the expendable medical 
supplies acquisition fee.  Payers that negotiated contract prices with suppliers reimbursed less than Medicare 
fee-for-servce. All five of the payers that negotiated contracts with suppliers had 
lower reimbursements for enteral nutrition products than Medicare fee-far-servce. 
These payers took advantage of discounts that can be achieved through using a 
competitive acquisition strategy. 
While the DMERCS provide reimbursement for Medicare fee-for-servce based on an 
amount calculated using customary and prevailing charges, the Medicare risk-
contracted HMOs differed considerably in their payment methodologies from 
Medicare fee-for-servce. All three negotiated prices with suppliers or directly with 
the manufacturer. Two of the Medicare HMOs based this contracted price on an 
industry standard price such as A WP (average wholesale price) less a percentage of 
AWP (e.  , AWP - 10 percent). The AWP is a standard industry price that is usually 
the published suggested wholesale price obtained from the manufacturer of the 
product. 
The Department of Veteran Afairs and the private HMO that reported 
reimbursement rates lower than Medicare fee-for-servce also used contracted rates to 
reimburse for enteral nutrition products. Both the VA Acquisition Center and the 
HMO negotiate directly with manufacturers or suppliers to achieve the best price for 
these products. 
Only one of the four fee-for-servce payers, a Medicaid agency, reimbursed at a rate 
lower than Medicare fee-far-servce. Another fee-far-servce payer (a Blue CrosslBlue 
Shield plan) paid the same as Medicare fee-for-servce since its reimbursement is 
based on the Medicare fee schedule. The remaining fee-for-servce payers (two 
Medicaid agencies) reimbursed more than Medicare far enteral nutrition products. 
The Medicaid payers used a number of payment strategies. Far two Medicaid payers 
they reimbursed the lesser of 1) the provider s usual and customary charge or 2) the 
wholesale acquisition cost (WAC) plus a standard percentage (7 or 50 percent). The 
acquisition cost represents the cost that the pharmacy or other tye of supplier was 
charged when purchasing the product. In addition, one of these Medicaid States adds 
a pharmacist dispensing fee to this amount. This same State receives a drug rebate 
amount of 5 to 10 percent from the manufacturers of enteral nutrition products. The 
third Medicaid payer reimburses the lower of either A WP minus 5 percent or direct 
price and then adds a 50 percent mark-up.

competie acquisn to
Unlik Medicare fee-for-servce, most other payer used 
purhae 
enteral nutin prodts or limited the number of suppli wJw provided 
nutrn 
enteral  produts. 
Although only nie of the 22 non-Medicare fee-far-servce payers provided dollar 
amounts for enteral nutrition reimbursement, other payers did provide their payment 
methodologies and delivery systems for enteral nutrition products. While we cannot 
assess whether their payment methodologies resulted in lower reimbursement prices  for enteral nutrition products, we did find many of these payers placed some kind of 
control on the purchasing or supplying of enteral nutrition products. 
While both the DMERCs and Medicare risk-contracted HMOs provide 
reimbursement to suppliers under the Medicare program, all four risk-contracted 
HMOs limit whom they will reimburse as part of their managed care programs. The 
DMERCs allow the Medicare beneficiary to choose their own supplier, as long as the 
supplier is registered with the National Supplier Clearinghouse to provide servce for 
Medicare reimbursement. In contrast, the Medicare risk-contracted HMOs limit their 
reimbursement to a smaller number of contracted suppliers or in-house pharmacies. 
Except for Medicaid, most of the non-Medicare payers also limit their plan members 
to a few contracted suppliers. All four of the private HMOs contract with specific 
suppliers. One of these HMOs contracts with manufacturers and then provides 
enteral nutrition products through their in-house pharmacy and dietary servce. Two 
of the commercial/indemnity payers use only contracted suppliers; the third will 
reimburse any supplier the plan member chooses under its indemnity .plan. Local VA 
facilities provide enteral nutrition only through contracted suppliers or manufacturers. 
Both BCIBS payers have multiple contracted suppliers but one wil also reimburse any 
supplier the plan member chooses. Unless recipients are enrolled in managed care 
plans, all but one of the Medicaid payers will reimburse any enrolled Medicaid 
provider for enteral nutrition products. The remaining Medicaid payer reimburses 
both contracted suppliers and any enrolled provider. 
pharmci  nutrn 
Retail  charge less than Medcare allws for two enteral  proucts. 
Almost all of the retail pharmacies surveyed charged less than Medicare fee-for 
servce reimbursement for 
Ensure and Ensure Plus. We 
surveyed pharmacies about their  Most Pharmacies' Prices Are Less Than 
prices for these two products  Medicare Reimbursement for Ensure 
because they are the enteral  Medicare Reimburses at $0. 
nutrition products that would  Percent of PharmacIes 
_mm_mm.mmmm....mm""'''''''''''''''''''''''''''''''''''''mmmnnmnuunmm..n.",. 
most likely be found in retail  60.. 
62" 
stores.  60..  hnmmunonm..mm..  ""'''''''''''''''''''''''''''..mnmnmmmmmn 
nmmunonmmm------ ""''''''''''''''''''''''''''''''--mmnmmmmn 
40.. 
Ninety-three percent of the 
....m......................  mmmonmm.m,.m,_,",............................ 
retail pharmacies charged less  30'1 
than Medicare reimburses for  u............................ 
Ensure. The prices that 
1010 ... 
pharmacies charged for Ensure 
are aggregated in the chart on 
Lea. than $0.60 $0.60 - $0.66 $0.68 - $0.  $0.61 or Mora 
the right. Ensure is a Category
 Price Per 100 Calorle8 of Ensure 
I product for which Medicare  80UfOlI 1;;6 Rllan Pharm8G) Survey

fee-for-servce allows $0.61 per 
100 calories. Seventeen percent  "''''''''''''''''''''''''''''''''''''',  .".".'.''.''.''."''.'"'.'"'.'.'"'.'"'.''."".",.,"., ."."."..".-.-.-.."''.'",.,'.,".,' .''.'.'-.-..-.-.-.'.''.''.'.'......-.......
of pharmacies charged at least 20 percent less than the $0.61 that Medicare allows.
More than half of all pharmacies (52 percent) charged between 10 and 20 percent less 
than Medicare reimburses. 
Ninety-eight percent of retail pharmacies in our survey charged less for Ensure Plus 
than Medicare fee-for-servce allows. Ensure Plus is classified by Medicare as a 
Category II enteral nutrition product and is reimbursed at $0.51 per 100 calories. The 
chart on the left summarizes the 
prices charged by retail
Most Pharmacies' Prices Are Less Than 
pharmacies for Ensure Plus. 
Medicare Reimbursement for Ensure Plus  Five percent of pharmacies 
Medicare Reimburses at $0.  charged at least 30 percent less 
for Ensure Plus than Medicare 
Percent 01 Pharmao!08 
'''''''''''..u  Uumnnunmmmnmmmmnmmmmnm	
aD'l  fee-for-servce. Nearly 40 
percent of pharmacies charged 
40% ..  ''''....mm..m....  at least 20 percent below 
Medicare allowances. Almost
30% on  half of the pharmacies surveyed 
20% ..  "...n  (47 percent) charged between 
10 and 20 percent less than 
10% n 
Medicare reimburses. 
0.. 
Lese than $0.42 $0.42 - $0.46 $O.U - $0.60 $0.61 or More 
Prloe Per 100 Calorlell of Ensure Plue 
In addition to these prices for 
Source. '9145 Retail Pharmaoy 8urvey single units of Ensure and 
Ensure Plus, 7 percent of
pharmacies charge even less 
when customers purchase in large volume such as cases of products. Also, 3 percent 
of pharmacies offered an additional discount to senior citizens.  RECOMMENDA TION
We believe the payment practices detailed in this report fulfill HCFA's request for 
information on other payers' payment methodologies. In addition, we believe that 
Payment for Enteral 
information from this report and a previous OIG report entitled 
Nutrtion Therapy Services Billed During Nursing Home Stays (OEI-06-92- raise 
00861) 
concerns about the appropriate payment for enteral nutrition under Part B of the 
Medicare program. Our fidings, in this report, show that a consumer can walk into a 
retail pharmacy and purchase at least two enteral products at lower rates than 
Medicare fee-for-servce allows for these products. We also found that other payers 
including Medicare-contracted HMOs, reimburse less for enteral products than 
Medicare fee-for-servce and that these lower payments are usually the result of 
negotiated contracts with suppliers of enteral nutrition products. 
Recommendations from our previous enteral nutrition report focused on Medicare 
reimbursement for beneficiaries livig in nursing homes. However, we are also 
concerned that Medicare reimbursement for beneficiaries receiving enteral nutrition at 
home may not be appropriate. In light of the savings that could be achieved if 
Medicare re-evaluated its fee-for-servce reimbursement policy for enteral nutrition 
we recommend that HCFA consider one of the following. 
Reduce payments for enteral nutrtion, either across the board or for certain 
categories of enteral nutrition products.

Use enteral nutrtion as one of the fit product tyes to acquie under new 
competitie acquiition strtegies. We understand that HCFA is planning a 
demonstration project involving competitive bidding for durable medical 
equipment, prosthetics, orthotics, and supplies in Southern Florida, and has 
long sought the legislative authority to use such strategies for certain medical 
equipment and supplies. Through demonstrations or expanded legislative 
authority from the Congress, we suggest that HCFA use opportunities as they 
become available to acquire enteral nutrition products through competitive 
acquisition strategies. 
AGENCY COMMNT 
Both HCFA and the Assistance Secretary for Plannng and Evaluation concurred with 
our recommendation. The HCFA stated that currently the calculation for determining 
Medicare s payments for enteral nutrition products is mandated by legislation. 
However, HCFA reported that the President s Balanced Budget proposal includes 
provisions to freeze parental and enteral nutrition prices at 1993 levels until the year 
2002. The proposal would also require the Secretary to competitively contract for 
certain servces and supplies including enteral nutrients. The full text of HCFA' 
comments are provided in Appendix A.  APPENDIX A 
AGENCY COMMNTS  ,,,, 

DEPARTMENT OF HEALTH &. HUMAN SERVICES  Health Care Financing Administration

The Administrator 
Washington. D.C. 20201

FE 2 a 
DATE: 
TO:  June Gibbs Brown 
Inpector General 1, 
if V 

FROM:	 Bruce C. VIade 
Admstrator  'l V
SUBJECT: Offce of Inspector General (OIG) Draf Report: "Payment for Entera 
Nutrtion: Medicare and Other Payers " (OEI-03-94-00021) 
conta 
We reviewed the subject report which  inormation on Medicare pricing policies 
relative to enteral nutrtion products. Ths report is supportve of the policy diection the 
Health Care Financing Admstration has 
been pursuig. 
Our detaed comments on the report fidigs and recommendations are attched for your 
consideration. Than you for the opportty to review and comment on ths report. 
Please contact us if you would lie to discuss our comments. 
Attachment 
A- 2
 OIG Recommendation

certai 
, either across the board or for 
HCF A should reduce payments for enteral nutrtion
categories of enteral nutrtion products. 
HCF A Response

We concur. As mandated by legislation, reimbtuhrse ment for enteral products is based on 
reasonable chage pricing methodology rather  competitive acquisition strategies. 
, the 
Ths mandated price calculation does not permt such flexibilty in pricing. However
President's Balanced Budget proposal includes provisions to freeze parenteral and enteral 
enacted, Medicare 
nutrtion prices at 1993 levels unti the year 2002. If ths legislation is 
payments will declie relative to pharacy prices. 
OIG Recomrendation

new competitive 
Use enteral nutrtion as one of the fist product tyes to acquie under 
acquisition strategies. 
HCF A Response

biddig 
We concur. RCF A has long sought legislative authority to use competitive 
cert  s Balance Budget 
medical equipment and supplies. The President 
strategies for 
use competitive acquisition 
proposal includes provisions that would alow HCF A to 
described in section 11464 of the Bil, the Secreta would 
strategies for these items. As .
a geographic 
be requied to competitively contract for certai servces and supplies in 
area. Intial items would include enteral and parenteral nutrents, supplies and equipment, 
and MRs and CAT scan. The Secreta could add other items in the futue as 
not result in a reduction of at least 15 
appropriate. If the competitive biddig system did 
, the Secreta 
percent in prices of selected servces compared to calendar year 1997 levels
would reduce fee schedule amounts sufciently to achieve the 15 percent price discount. 
A - 3