.

Department of Health and Human Servces 

OFFICE OF 

INSPECTOR GENERAL 

PAYMENTS FOR ENTERAL NUTRITION: 

MEDICARE AND OTHER PAYERS 

, SERVICE.. 

b'd3Q 

JU GilBS BROWN 

Inspector General 

MAY 1996 

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. 

OFFICE OF EVALUATION AN 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 

Cythia Hansford Program Assistant 

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" 

lod. 

JU GilBS BROWN 

Inspector General 

MAY 1996 

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 

report entitled Coverage of Enteral Nutrtion Therapy: Medicare 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-forservce 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 (OEI06-92- 00861) raise concerns about the appropriate payment for enteral nutrition under 

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 

Medicare covers enteral nutrn prodts unr the Part B prosthetic deice bent. 

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. 

Medicare allwed over $680 min dollrs in enteral nutin reiburemet 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. 
Medicare clasi enteral nutrn prodts 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 

Category II 

Category II 

Category IV 

Category V 

Category VI 

METHODOLOGY 

Semi -synthetic intact 

protein/protein isolates 

Natural intact protein/protein isolate 

Intact protein/protein isolates 

(calorically dense) 

Hydrolyzed protein/amino acids 

Defined formulae for special 

metabolic need 

Modular components 

(protein, carbohydrates, fat) 

Standardized Nutrients 

1.43 

1.74 

varies by product 

varies by product 

1.24 

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 riskcontracted 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 

health agencies, and by durable medical equipment suppliers. 

This inspection was performed in accordance with the Quality Standards for Inspections issued by the President's Council on Integrity and Effciency. 
FINDINGS€

For three enteral nun prots, payers usg 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€

Medicare Risk€

Contract HMOs 

Medicaid States 

Veteran Afairs


Acquisition Center 

Blue CrosslBlue


Shield 

Private HMO 

$0.32 - 0.45€

$0.€

$0. 51 - 0.54


$0.€

$0.€

$0.€

$0.€

$0. 

$0. 

$0.42 - 0.47€

$0.€

$0.66 - 0.€

$0.€

$0.€

$0.€

$0.€

$0. 

$0. 

$0. 38 - 0.43


$0.€

$0.59 - 0.€

$0.€

$0.€

$0.€

$0. 13 - 0.€

$0. 

$0. 

$0.68 - 0.€

$0.€

$1.08 - 1.4€

$1.€

N/A€

$1.52€

$0.€

$1.09 

$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 riskcontracted 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.


Unlik Medicare fee-for-servce, most other payer used competie acquisn to purhae enteral nutin prodts or limited the number of suppli wJw provided 

enteral nutrn 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. 

Retail pharmci charge less than Medcare allws for two enteral nutrn proucts. 

Almost all of the retail pharmacies surveyed charged less than Medicare fee-forservce reimbursement for 

Ensure and Ensure Plus. We 

surveyed pharmacies about their 

prices for these two products 

because they are the enteral 

nutrition products that would 

most likely be found in retail 

stores. 

Ninety-three percent of the 

retail pharmacies charged less 

than Medicare reimburses for 

Ensure. The prices that 

pharmacies charged for Ensure 

are aggregated in the chart on 

the right. Ensure is a Category


I product for which Medicare 

fee-for-servce allows $0.61 per 

100 calories. Seventeen percent 

Most Pharmacies' Prices Are Less Than 

Medicare Reimbursement for Ensure 

Medicare Reimburses at $0. 

Percent of PharmacIes 60.. _mm_mm.mmmm....mm""'''''''''''''''''''''''''''''''''''''mmmnnmnuunmm..n.",. 

62" 

60.. hnmmunonm..mm.. ""'''''''''''''''''''''''''''..mnmnmmmmmn 

40.. nmmunonmmm------ ""''''''''''''''''''''''''''''''--mmnmmmmn 

30'1 ....m...................... mmmonmm.m,.m,_,",............................ 

u............................ 

1010 ... 

Lea. than $0.60 $0.60 - $0.66 $0.68 - $0. $0.61 or Mora 

Price Per 100 Calorle8 of Ensure 

80UfOlI 1;;6 Rllan Pharm8G) Survey

, ...................................................... ,,, ...,,,, 

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 

aD'l 

Percent 01 Pharmao!08 '''''''''''..u Uumnnunmmmnmmmmnmmmmnm	 for Ensure Plus than Medicare 

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% n 10 and 20 percent less than 

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 

information from this report and a previous OIG report entitled Payment for Enteral 

Nutrtion Therapy Services Billed During Nursing Home Stays (OEI-06-92- 00861) raise 

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


DATE: FE 2 a 

TO: June Gibbs Brown 

Inpector General 1, if V 


FROM:	 Bruce C. VIade 

Admstrator 'l VSUBJECT: Offce of Inspector General (OIG) Draf Report: "Payment for Entera 

Nutrtion: Medicare and Other Payers " (OEI-03-94-00021) 

We reviewed the subject report which conta 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


HCF A should reduce payments for enteral nutrtion, either across the board or for certai 

categories of enteral nutrtion products. 

HCF A Response


We concur. As mandated by legislation, reimbursement for enteral products is based on 

reasonable chage pricing methodology rather th competitive acquisition strategies. 

Ths mandated price calculation does not permt such flexibilty in pricing. However, the 

President's Balanced Budget proposal includes provisions to freeze parenteral and enteral 

nutrtion prices at 1993 levels unti the year 2002. If ths legislation is enacted, Medicare 

payments will declie relative to pharacy prices. 

OIG Recomrendation


Use enteral nutrtion as one of the fist product tyes to acquie under new competitive 

acquisition strategies. 

HCF A Response


We concur. RCF A has long sought legislative authority to use competitive biddig 

strategies for cert medical equipment and supplies. The President s Balance Budget 

proposal includes provisions that would alow HCF A to use competitive acquisition 

strategies for these items. As .described in section 11464 of the Bil, the Secreta would 

be requied to competitively contract for certai servces and supplies in a geographic 

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 

appropriate. If the competitive biddig system did not result in a reduction of at least 15 

percent in prices of selected servces compared to calendar year 1997 levels, the Secreta 

would reduce fee schedule amounts sufciently to achieve the 15 percent price discount. 

A - 3€