Medicare: CMS Should Evaluate Providing Coverage for Disposable Medical Devices That Could Substitute for Durable Medical Equipment
Published: 2017-07-17T00:00:00

Fast Facts:
Medicare spent $6.7 billion on durable medical equipment (generally, equipment that lasts at least 3 years) in 2015. Companies have developed disposable versions of some of these medical devices, such as insulin pumps, that could act as potential substitutes. We found that some of these disposable devices could potentially save money or result in better health outcomes compared to the durable versions in some cases, but they are not covered by Medicare.
We recommended that the Centers for Medicare & Medicaid Services evaluate the potential costs and savings of using disposable devices as substitutes for durable ones.

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2015, Medicare spent $6.7 billion for DME. CMS's definition of DME generally precludes potential disposable DME substitutes from coverage. Congress included a provision in law for GAO to review the potential role of disposable medical devices as substitutes for DME.
This report examines (1) potential disposable DME substitutes and their possible benefits and limitations; (2) the incentives and disincentives stakeholders identified for developing these substitutes, including the possible influence of health insurance coverage; and (3) issues related to benefit category designation—including legal authority and potential payment methodologies—if Medicare coverage were expanded to include disposable DME substitutes. GAO reviewed agency documents and literature on disposable DME substitutes and Medicare payment policy; interviewed CMS officials; and interviewed various stakeholders, including representatives of device manufacturers, beneficiary advocates, health care providers, and insurers, for their perspectives.
section_title: What GAO Found
paragraphs: While disposable medical devices are generally not covered by Medicare, GAO identified eight that could potentially substitute for durable medical equipment (DME) items that are covered. These disposable DME substitutes fall into existing Medicare DME categories—infusion pumps, including insulin pumps; blood glucose monitors; sleep apnea devices; and nebulizers. Stakeholders GAO interviewed identified multiple benefits of using disposable substitutes, such as better health outcomes and potential cost-savings. However, they also cited factors that limit their use, including that these substitutes may not lead to cost-savings in all cases.
Stakeholders identified several market incentives, such as a growing demand, as reasons to develop disposable DME substitutes, but mostly cited lack of coverage by Medicare as a disincentive to development. Disposable DME substitutes are generally precluded from Medicare coverage under the DME benefit because they do not meet the Centers for Medicare & Medicaid Services' (CMS) regulatory definition of “durable”—able to withstand repeated use, with an expected lifetime of at least 3 years. Stakeholders noted this also decreases their chances of obtaining coverage from other insurers, which may follow Medicare payment policy. Some stakeholders noted that CMS's DME definition is a disincentive to technological innovation, and the agency has already faced challenges making coverage decisions with some devices. According to federal internal control standards, management should anticipate and plan for significant changes using a forward-looking process, but CMS officials said the agency has not considered the possibility of reexamining its definition. As a result, the agency may not be taking advantage of the potential benefits of these devices.
If Medicare coverage were expanded to include disposable DME substitutes, CMS would need to consider issues related to benefit category designation. GAO identified three possible options for covering disposable DME substitutes: an expansion of the current DME benefit, an expansion of the current home health benefit, or establishment of a new benefit category. The table lists the options GAO identified, which are not exhaustive. CMS would also need to consider its authority to provide for expanded coverage and evaluate potential reimbursement options.
section_title: What GAO Recommends
paragraphs: GAO recommends that CMS, within the Department of Health and Human Services (HHS), evaluate the possible costs and savings of using disposable devices as substitutes for DME, and, if appropriate, seek legislative authority to cover them. HHS stated that such an evaluation was premature. However, GAO continues to believe an evaluation is needed to help HHS anticipate and plan for significant changes using a forward-looking process.

section_title: Letter
paragraphs: Medicare, the federal health insurance program administered by the  Centers for Medicare & Medicaid Services (CMS), within the Department  of Health and Human Services (HHS), spent $6.7 billion in 2015 for  durable medical equipment (DME). DME includes items such as hospital  beds, wheelchairs, and blood glucose monitors. Medicare covers DME  that serves a medical purpose, can be used in the home, and has an  expected lifetime of at least 3 years, among other things. According to  industry stakeholders, some new medical technology that is disposable  may have the potential to substitute for DME and achieve better results  and give better value to Medicare. Because these disposable DME  substitutes do not meet the definition of DME, they cannot be covered by  Medicare under the DME benefit.
The Consolidated Appropriations Act, 2016, included a provision for GAO  to report to Congress on the role of disposable devices as substitutes for  DME. This report examines  1.  potential disposable DME substitutes and the possible benefits and  limitations of their use;  2.  incentives and disincentives stakeholders have identified regarding  the development of disposable DME substitutes, including the  possible influence of health insurance coverage; and  3.  issues related to benefit category designation—including legal  authority and potential payment methodologies—if Medicare coverage  were expanded to include disposable DME substitutes.
To examine our objectives, we interviewed representatives from various  stakeholder groups, including the medical device industry, health care  providers, Medicare beneficiary advocates, a state Medicaid directors  group, and health insurers. We also interviewed manufacturers and  developers of the disposable DME substitutes we identified during the  course of our work, and we reviewed related documentation, such as  journal articles about the devices and user manuals for these substitutes.  (See app. I for a complete list of stakeholders we interviewed.) To  supplement our interviews, we conducted a literature search to identify  disposable DME substitutes. Additionally, we reviewed CMS  documentation and interviewed CMS officials and representatives of the  two DME Medicare administrative contractors (MAC) regarding  disposable DME substitutes and Medicare coverage of DME. We  compared CMS’s approach to coverage determinations regarding  disposable DME substitutes to federal internal control standards for risk  assessment. In addition, to describe issues related to benefit category  designation if Medicare coverage were expanded to include disposable  DME substitutes, we reviewed reports on DME and Medicare payment  policy that we identified through a targeted literature search and reviewed  relevant statutes and regulations. Additionally, we reviewed our past  work on Medicare payment policy.
We conducted this performance audit from August 2016 to July 2017 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Medicare Payment for DME
paragraphs: Medicare covers items such as hospital beds, wheelchairs, and blood  glucose monitors under its DME benefit because they are specifically  included in the Medicare statute’s definition of DME. Other items are  covered under the Medicare DME benefit based on CMS’s interpretation  of the statute, which does not elaborate on the meaning of “durable.” By  regulation, CMS has defined DME as equipment that (1) can withstand  repeated use; (2) has an expected lifetime of at least 3 years; (3) is used  primarily to serve a medical purpose; (4) is not generally useful in the  absence of an illness or injury; and (5) is appropriate for use in the  home. Most Medicare beneficiaries enroll in Medicare Part B, which  provides coverage for DME if the devices are medically necessary and  prescribed by a physician. Medicare beneficiaries typically obtain DME  from suppliers, who then submit claims for payment to Medicare on behalf  of beneficiaries. CMS contracts with DME MACs to process these claims  and ensure proper administration of the DME benefit.
Medicare uses three different processes to set the amount it pays for  DME. First, the payment amounts for some types of DME are set in a  fee schedule that is based on the average charges Medicare allowed  during a 12-month period ending June 30, 1987, subject to national floors  and ceilings. These historical fee schedule amounts have been updated  in some years by a measure of price inflation and a measure of economy- wide productivity. Second, the payments for some DME are set through  a competitive bidding program. In that program, qualified DME suppliers  with the lowest bids are competitively selected to furnish certain DME  product categories to Medicare beneficiaries in designated competitive  bidding areas. Third, when CMS classifies a new device on the market  as DME, CMS may set the price using the price of a comparable item. If  there is no comparable item, then CMS may set the price using the gap- fill methodology. This method takes supplier price lists for the new item  and applies a deflation factor to calculate the base-year price—the price  for the 12-month period ending June 30, 1987, on which the original fee  schedule was based. To then calculate the payment amount, CMS takes  the median deflated price and increases it to the current date using the  update factors that were applied to the original fee schedule. Similar to  the fee schedule, the final price is subject to floors and ceilings.
section_title: Disposable Negative Pressure Wound Therapy and Home Health Payments
paragraphs: Typically, when a Medicare beneficiary receives DME in conjunction with  home health care, the devices are covered, and payments are made,  under the DME benefit. However, prior to January 2017, the home  health benefit covered disposable negative pressure wound therapy that  may substitute for DME as part of the bundled rate CMS pays home  health agencies—a single rate for providing treatment and certain related  items or services during a 60-day care episode. Beginning in January  2017, the Consolidated Appropriations Act, 2016, unbundled certain  disposable negative pressure wound therapy devices that may substitute  for DME under the Medicare home health benefit. The act provides for a  separate payment for disposable negative pressure wound therapy— meaning it is not part of the bundled payment amount—and sets the  reimbursement rate for disposable negative pressure wound therapy  equal to the rate used in an outpatient setting, where the device is  covered. Furthermore, the act provides separate payment for the  disposable negative pressure wound therapy only to beneficiaries who  are receiving home health services.
section_title: Some Potential Disposable Substitutes for DME Exist, and These Substitutes May Have Benefits in Some Cases Some Potential Examples of Disposable Substitutes for DME Exist, according to Industry Stakeholders
paragraphs: We identified a limited number of disposable medical devices that could  potentially substitute for DME, based on our literature review and  interviews with industry stakeholders. These devices do not necessarily  represent a complete list of available disposable devices. Specifically, we  identified eight devices that could potentially substitute for DME. These  devices fall into existing DME categories used by Medicare—infusion  pumps, including insulin pumps; blood glucose monitors; sleep apnea  devices; and nebulizers. These disposable DME substitutes vary in life  expectancy. For example, some of the substitutes are intended to last a  day, while others a year or two. A few of the disposable DME substitutes  we identified have been on the market for more than a decade; a couple  have become available more recently, in the past 3 to 5 years. We also  identified a disposable DME substitute that is currently in development.
Infusion pumps. These devices deliver fluids, including medication,  into a patient’s body in a controlled manner. In general, a trained  technician programs this device, using built-in software, to deliver  fluids at specific rates through disposable tubing connected from the  device to the patient via a needle. We identified two examples of  disposable devices that could potentially substitute for DME—the  ambulatory infusion pump and the elastomeric pump. The disposable  ambulatory infusion pump has the same characteristics as the DME  version, such as being able to deliver fluid at a controlled rate and  using a disposable infusion set that is discarded after a single use.  However, unlike the durable infusion pump, the ambulatory infusion  pump has a life expectancy of 1 year. The disposable elastomeric  pump is a single-use device that utilizes a stretchable balloon  reservoir that relies on the pressure from the elastic walls of the  balloon to deliver a single dose of medication before being discarded.  (See fig. 1.)
Insulin pumps. These devices are infusion pumps specifically used  to deliver insulin to patients with diabetes. The DME version of an  insulin pump consists of an insulin reservoir and a pumping  mechanism that controls the release of insulin to the patient via a  disposable infusion set. We identified two potential disposable  substitutes—a completely disposable insulin pump and an insulin  pump with both disposable and durable components. The completely  disposable insulin pump consists of an adhesive patch containing an  insulin reservoir and needle. This patch is attached to the patient’s  skin, and a needle is inserted into the skin when a button is pressed,  allowing insulin to be delivered throughout the day. This type of insulin  pump is intended to last for 24 hours and then be discarded. The  other device we identified has both disposable and durable  components. This device’s disposable component contains the insulin  reservoir, pumping mechanism, and a transmitter sensor in an  adhesive patch that is intended to last for 3 days. Its durable  component, which is expected to last for 4 years, includes a remote  controller that transmits instructions programmed by the patient to the  sensor in the patch, which in turn controls the release of insulin via the  pumping mechanism. (See fig. 2.)
Blood glucose monitor. These devices measure the blood glucose  levels in patients. For patients with diabetes, this device provides  them with information indicating when an insulin injection is needed.
For the DME version of this device, a patient pricks his or her finger,  touches the test strip to the blood, and waits for the durable monitor to  display a reading on the patient’s blood glucose level. We identified  one type of DME substitute. This disposable substitute includes a vial  of 50 test strips with a small monitor on the lid. The entire unit is  discarded when all of the test strips have been used. (See fig. 3.)
Sleep apnea devices. Called continuous positive airway pressure  (CPAP) machines, these devices use mild air pressure to keep a  patient’s breathing airways open. The DME version of this machine  includes a mask or other device that fits over the patient’s nose, and  sometimes over the mouth. Straps hold the mask in position and a  tube is connected to the machine’s motor, which blows air into the  tube. We identified one potential disposable DME substitute on the  market and another in development. The first is a disposable valve  that fits into a patient’s nose with no mask or associated machine. It  is intended to last for one night and then be discarded. The second  device is a disposable micro-CPAP still under development. It  involves a device that fits into a patient’s nostrils and is intended to  last 8 hours and then be discarded. According to the manufacturer,  the time limit of 8 hours is linked to the battery life of the device. (See  fig. 4.)
Nebulizers. These devices allow a patient to receive a drug via  inhalation. Nebulizers change liquid medicine into fine droplets (in  aerosol or mist form) that are inhaled through a mouthpiece or mask  and used to treat conditions, such as asthma. Disposable nebulizers  are generally smaller than the DME versions and may last for a year.  (See fig. 5.)
subsections: section_title: Stakeholders Identified Multiple Benefits of Using Disposable DME Substitutes, but Also Cited Limitations to Their Use
paragraphs: Over half of the 21 stakeholders we spoke with—including  representatives from device manufacturers discussing their specific  devices, Medicare beneficiary advocate groups, providers, and insurers— commented on the multiple benefits of substituting DME with disposable  devices. The benefits can be categorized into three areas: (1) patient  preference and/or improved quality of life, (2) better health outcomes, and  (3) potential cost-savings. Specifically, 12 of the 21 stakeholders  mentioned patient preference and/or improved quality of life as a benefit  of using disposable substitutes. They said that disposable devices are, for  example, often lighter and quieter than durable devices. Thus, in some  cases, the substitutes may allow patients more freedom of movement and  be more discreet. For example, the disposable insulin pumps do not  require users to take additional supplies if they leave the house. Further,  several stakeholders said that disposable devices are easier to use, such  as the elastomeric pump, which one stakeholder explained had fewer  opportunities for error.
Additionally, 9 of the 21 stakeholders we spoke with said these devices  can result in better health outcomes due, in part, to better compliance.  For example, one stakeholder for a company that manufactures a  disposable DME substitute to treat sleep apnea said the company  specifically targeted its device to non-compliant users of the durable  CPAP machine. This stakeholder said that while the durable CPAP  machine is still considered the “gold standard” for treating obstructive  sleep apnea, a significant proportion of patients do not comply with  treatment over time. In addition, a representative for a company that  manufactures a disposable insulin pump said that some patients are able  to reduce the amount of insulin they need after using this device because  of increased compliance. This representative explained that because the  insulin is being delivered at a more continuous, consistent rate due to  better compliance, users are making more efficient use of their insulin  injections.
Twelve of the 21 stakeholders we spoke with noted different ways that  disposable devices may result in potential cost-savings for the Medicare  program and beneficiaries than their DME counterparts in some cases.  For example, for patients that have acute conditions, such as those  needing a course of antibiotics, it could be more financially prudent for  Medicare and the beneficiary to use multiple elastomeric pumps for  several days to administer the medication rather than pay for a durable  pump, which is usually paid for on a monthly basis under Medicare. Also,  four stakeholders said that disposable DME substitutes may generate  potential savings because they do not have the cleaning and  maintenance costs associated with DME, which can be reused. Further,  one study we reviewed noted that nurses using elastomeric pumps  reported a reduced workload for maintenance and education. Table 1  shows examples of the potential cost-savings associated with using  disposable DME substitutes compared to their DME counterparts, as  noted by manufacturers of disposable DME substitutes.
Despite the potential benefits of disposable substitutes, stakeholders also  noted limitations to using these devices regarding health outcomes and  potential cost-savings. For example, stakeholders and officials from both  DME MACs said there are few studies comparing the effectiveness of disposable substitutes with their DME counterpart. Additionally,  stakeholders noted that DME might be more appropriate than disposable  DME substitutes in some cases, such as when dosing of medication  needs to be precise. For example, two stakeholders said that the  elastomeric infusion pump might not be appropriate when the rate of  medication delivery needs to be specific, such as with some  chemotherapy treatments or for patients with chronic conditions that  require long-term treatment. Regarding potential cost-savings, four  stakeholders noted that potential cost-savings might not be obtained for  all disposable DME substitutes. For example, for patients with chronic  conditions that require use of DME for extended periods, it might be more  cost-effective to use a durable device rather than disposable substitutes  that would need to be replaced regularly.
section_title: Stakeholders Identified Market Incentives for Developing Potential Disposable DME Substitutes, but Cited Medicare Payment Policy as a Disincentive
paragraphs: Stakeholders we spoke with—including representatives from device  manufacturers, Medicare beneficiary advocate groups, providers, and  insurers—cited several market incentives for developing potential  disposable DME substitutes. For example, 12 of the 21 stakeholders  noted that there is an international market for disposable devices, an  increasing demand for some types of devices resulting from a growing  patient population, a general movement resulting from advancing  technology, and that some disposable devices can be sold as a “cash  product”: that is, the product could be sold at relatively low cost without  insurance coverage.
However, over half of the stakeholders we interviewed said lack of  insurance coverage for disposable DME substitutes—particularly  Medicare—was a disincentive to developing such products. Specifically,  13 of the 21 stakeholders cited lack of insurance coverage as a  disincentive to developing disposable DME substitutes, including  representatives from all of the manufacturer organizations and two-thirds  of the manufacturers we interviewed. Further, 9 of these 13  stakeholders—including 4 out of 9 manufacturers—specifically cited lack  of Medicare benefit coverage as a barrier, with 2 of these 4  manufacturers noting that disposable substitutes do not meet CMS’s 3- year minimum lifetime requirement to be categorized as DME. Eight of  the 13 stakeholders also said that lack of Medicare coverage decreased  their chances for obtaining benefit coverage from Medicaid and insurers,  which often follow Medicare payment policy.
Based on our analysis of interviews with these stakeholders, we found  limited coverage for the potential disposable substitutes we identified.  Specifically, according to the manufacturers we spoke with,  the disposable elastomeric infusion pump is covered by Medicaid in  some states and is covered by some health insurance plans;  the completely disposable insulin pump is covered by Medicare under  Part D by some plans, some Medicaid, and other insurance programs,  including TRICARE;  the insulin pump with disposable and durable components has  Medicaid coverage in some states and extensive insurance  coverage;and  the disposable sleep apnea device has some coverage via insurance  and other programs, including the Department of Veterans Affairs.
In addition, manufacturers noted that neither the disposable ambulatory  infusion pump nor the completely disposable blood glucose monitor is  covered by Medicare, Medicaid, or other insurance programs.
Stakeholders also raised concerns about how CMS determines whether a  device with disposable components meets the definition of DME. As  technology has advanced, manufacturers have developed potential  substitutes for DME with both durable and disposable components.  However, according to CMS officials, in order for a device to be covered  by Medicare, the agency must determine that the medically necessary  function of the device is performed by a durable component, not a disposable one. Two of the stakeholders we spoke with expressed  concerns about CMS’s approach to making durability determinations— and thus benefit coverage determinations—based on whether the durable  or disposable component performs the medically necessary function.  They said CMS should make such decisions based on the whole device  and not its individual parts. If the durable component is essential to the  device, then that should be sufficient.
CMS has made benefit coverage determinations for at least two devices  with disposable and durable components. The first device is a specific  continuous glucose monitor, which CMS classified as DME. This device  includes an adhesive patch containing a disposable sensor and a  wireless transmitter that sends information to a durable electronic receiver  that displays a patient’s blood glucose level accurately enough for a  patient to make treatment decisions. CMS determined that for this  device, the medically necessary function performed is the displaying of  the blood glucose level, and therefore this particular continuous glucose  monitor could be classified as DME. The second device involves one of  the disposable insulin pumps we identified. This particular device includes  an adhesive patch containing an insulin reservoir, pumping mechanism,  and a transmitter sensor that delivers insulin after receiving instructions  transmitted from a programmable durable electronic device. According to  the manufacturer of this device, although the durable component meets  CMS’s 3-year minimum lifetime requirement, CMS determined that for  this device, the medically necessary function is the pumping mechanism  that delivers insulin. Therefore, because the pumping mechanism is  disposable, CMS determined that this insulin pump is not considered  DME.
Furthermore, 6 of the 21 stakeholders we spoke with noted that  technology is advancing in the area of medical device development. Five  of these stakeholders specifically cited CMS’s definition of DME as a  disincentive to technological innovation, such as the development of  disposable substitutes. As advancing technology results in changes to the  functionality of devices, including the development of disposable  substitutes, CMS will likely have to consider how its benefit coverage policies will apply to them. CMS has already faced issues accommodating  new technology related to smartphone applications; for example, the  continuous glucose monitor we described above, which CMS classified as  DME, sends information to a durable electronic receiver that displays a  patient’s blood glucose level. Alternatively, this information can be  displayed using a smartphone application; however, officials from one  DME MAC that we spoke with said the receiver would not be covered by  Medicare if information was obtained from the smartphone. CMS officials  explained that the smartphone application is not considered DME  because the smartphone itself is not primarily and customarily used to  serve a medical purpose and is useful to an individual in the absence of  illness or injury and therefore is not considered a medical device,  although it may be used to track medical information.
As technology advances, manufacturers may continue to incorporate  these advances into devices that have the potential to substitute for DME,  and more disposable devices may be developed in the future. Federal  internal control standards state that management should identify, analyze,  and respond to change, including anticipating and planning for significant  changes using a forward-looking process. CMS has already begun  facing issues related to advancing technology, such as making policy  determinations for devices with both durable and disposable components  based on the functionality of different parts of the device. However,  Medicare currently does not cover most potential disposable DME  substitutes because they do not meet Medicare’s definition of “durable,”  which CMS has interpreted to mean withstanding repeated use and  having an expected minimum lifetime of 3 years, among other things.  Further, CMS officials told us that the agency continues to regard this  interpretation of the Medicare statute as appropriate and has not  considered the possibility of reexamining it in order to accommodate  disposable substitutes. Without such consideration for Medicare  coverage, CMS and other insurers that follow Medicare payment policy  may not be taking advantage of the possible benefits of these devices.
section_title: CMS Would Need to Consider Issues Related to Benefit Categorization, Including Legal Authority and Potential Payment Methodologies, If Medicare Coverage Were Expanded to Disposable DME Substitutes
paragraphs: If Medicare coverage were expanded to include disposable DME  substitutes, CMS would need to consider issues related to benefit  category designation. We identified three possible options that CMS could  consider as benefit categories for expanding coverage: (1) using the DME  benefit, (2) using the home health benefit, or (3) establishing a new  benefit. (See table 2.) Under each scenario, CMS would need to consider  its authority to provide for such expanded coverage. In addition, CMS  would need to evaluate potential payment methodologies for  reimbursement, taking into consideration its responsibility to be a prudent  purchaser of medical care. Although we identify several possibilities in  this report, this is not intended to be an exhaustive list of potential benefit  categories and payment methodologies to be considered if Medicare  coverage were expanded to disposable DME substitutes.
subsections: section_title: DME Benefit Category
paragraphs: Because the disposable DME substitutes we identified generally treat the  same conditions as some DME items, consideration could be given to  expanding eligibility for the DME benefit to cover similar disposable  items. Although the CMS regulation interpreting the statutory definition  of DME includes a requirement that such equipment can withstand  repeated use and have a life expectancy of at least 3 years, CMS officials  acknowledged their authority to promulgate rules amending the regulation  to potentially shorten the minimum lifetime expectancy. However, it is  uncertain whether CMS could reasonably interpret “durable” in such a  way that allows for coverage of all of the disposable DME substitutes we  identified—many of which are intended for single or short-term use.  Thus, providing Medicare coverage to all of these disposable DME  substitutes would likely require congressional action.
Some stakeholders also noted that using the DME benefit would require  several coverage decisions to be made, either through CMS’s national  coverage determination process or through the local process conducted  by the DME MACs. For example, one decision point three stakeholders  noted is whether Medicare would cover a disposable DME substitute as a  potential replacement for its durable counterpart in all cases or only under  certain circumstances. Another consideration mentioned by another three  stakeholders is whether there would be limits to the benefit, such as  whether Medicare would cover a disposable DME substitute only for a  certain number of months. Limiting coverage in such a way could  encourage the use of disposable DME substitutes for acute conditions  over chronic conditions. Three stakeholders suggested that some  disposable DME substitutes, such as in the case of elastomeric infusion  pumps, are more likely to result in cost-savings as compared to their  durable counterparts when used to treat acute conditions. However,  limiting coverage of disposable DME substitutes to a certain length of  time could impede beneficiary access to their preferred medical  equipment.
We identified two approaches CMS could consider within the DME benefit  for setting reimbursement rates for disposable DME substitutes.  Specifically, payments for disposable DME substitutes could be based on  the payment rates of their DME counterparts, or they could be treated  separately, making use of the typical procedures for establishing payment  rates for new DME. For the first approach, CMS could set the  reimbursement rate for a disposable DME substitute at the same price as  the DME counterpart, or—recognizing that disposable devices may be  less costly than DME—at a reduced percentage of the rate for the DME  counterpart. However, we have previously reported that the historical  charges on which the fee schedule rates are based are outdated and do  not reflect current costs. As a result, the reimbursement rates increase  costs to both the federal government and Medicare beneficiaries. In  addition, four stakeholders raised concerns about this type of “one-size- fits-all” approach to disposable DME substitutes. For example, one  stakeholder noted that disposable DME substitutes could vary widely in  cost, quality, and the length of time a beneficiary requires the device. The  cost of certain disposable DME substitutes may not be similar to the cost  of their DME counterparts. Therefore, basing the rates for all disposable  devices on the DME rates might result in significant over- or  underpayments.
Using the second approach, separate payment rates could be established  for disposable DME substitutes using one of the two existing DME  payment methodologies: the fee schedule based on historical charges or  the competitive bidding program.
Setting payment rates via the historical fee schedule would likely  entail using the gap-fill method because the disposable DME  substitutes we identified did not exist at the time the historical charges  for most DME were set. In this case, the gap-fill method would rely on  taking current supplier prices and resetting them to the 12-month  period ending June 30, 1987, used in the original fee schedule by a  deflation factor based on the consumer price index for all urban  consumers, followed by re-inflating the price using an inflation factor  limited to the years in which a DME inflation update was provided.  One stakeholder expressed concern regarding the gap-fill method,  though, stating that the process results in pricing that does not  accurately represent market prices. In addition, as with the fee  schedule amounts for DME, the payments for disposable DME  substitutes could become outdated over time and increase costs to  both the federal government and Medicare beneficiaries.
A competitive bidding program that would reflect market prices could  be established for disposable DME substitutes, as CMS has done for  certain DME items. We previously found that, among other things, the  competitive bidding method has generally led to reduced payments for  those DME included in the program. We have also previously  reported that CMS’s monitoring of the competitive bidding program  indicated that beneficiary DME access and satisfaction had not been  affected, but noted some stakeholders’ concerns, such as difficulty  locating a contract supplier.
section_title: Home Health Benefit Category
paragraphs: Disposable DME substitutes could potentially be covered under  Medicare’s home health benefit. There is precedent for such coverage:  disposable negative pressure wound therapy devices are covered under  the home health benefit. Previously, they were covered as part of the  bundled rate, but the Consolidated Appropriations Act, 2016, required  certain disposable negative pressure wound therapy devices to be paid  separately under Medicare home health services. Coverage under the  home health benefit could potentially be expanded to include other types  of disposable DME substitutes that we identified. However, coverage  under this benefit would only be applicable in cases where a beneficiary  is receiving Medicare home health services, which excludes beneficiaries  who are not homebound and do not have a need for skilled care.  Furthermore, because disposable DME substitutes are not among the  existing covered services for home health, covering these disposable  devices under this benefit would likely require legislation. We identified  two options for setting payment rates within the home health benefit: as a  separate payment or as part of bundled payments.
Under the home health benefit, a separate payment amount could be  set for disposable DME substitutes. For the disposable negative  pressure wound therapy device, Congress established a separate  payment amount equal to the amount paid under the outpatient  payment system. However, according to manufacturers we spoke  with, the disposable DME substitutes we identified are not currently  covered under the outpatient benefit, and therefore no such rates  exist for Congress to do the same for these devices. Additionally, we  have previously found that generous separate payments can  incentivize a specific medical practice even if it is not always entirely  warranted. For example, we found that the separate payments for  injectable drugs used in treating end-stage renal disease exceeded  the costs of acquiring them and provided an incentive to use more of  the drugs than necessary.
Alternatively, disposable DME substitutes could be included in the  home health bundle. CMS sets the bundled payment’s national  average base amount as the amount that would be paid for a typical  home health patient residing in an average market. Including  disposable DME substitutes in the bundle might subsequently mean  recalculating the base rate. However, as one stakeholder noted,  including disposable DME substitutes in the bundle would mean they  are treated differently than their DME counterparts, which are paid for  as separate payments under the DME benefit for beneficiaries  receiving home health services. Literature and two of our stakeholder  interviews noted that bundled payment can incentivize using the  device that the provider has determined to be more cost-effective, but  if DME and disposable DME substitutes were paid differently,  providers might not have an incentive to choose the more cost- effective device.
section_title: New Benefit Category
paragraphs: A new benefit category could be established to specifically cover the  disposable DME substitutes we identified, or—more broadly—to cover a  category of disposable devices that could potentially substitute for DME,  including those not yet on the market. Only Congress has the authority to  create new Medicare benefit categories. If Congress created such a  benefit, it could establish a new payment methodology, use one of the  payment methodologies discussed in this report, or use an existing  payment methodology we have not discussed here. For example, one  stakeholder suggested emulating a payment mechanism established  under the Protecting Access to Medicare Act of 2014 for clinical  laboratory tests: beginning in 2018, the Medicare rate would reflect  private payer rates for these tests. Regardless of the methodology  established, the rate would ideally be set to account for the costs of  relatively efficient providers of the devices, and provide sufficient access  to the devices for beneficiaries.
section_title: Conclusions
paragraphs: Some disposable medical devices may have the potential to substitute for  DME and may offer advantages in some cases, such as cost-savings and  better health outcomes. While a few of these disposable DME substitutes  have been on the market for several years, a couple we identified are  more recent. As technology advances, more manufacturers could develop  new disposable devices, and stakeholders we interviewed identified  incentives to do so, such as a growing patient population. However,  Medicare currently does not cover most disposable DME substitutes  because they do not meet Medicare’s definition of durability. CMS officials  stated that they continue to regard this definition as appropriate and have  not considered the possibility of extending DME coverage to these  substitutes. As we noted, there may be ways to cover disposable DME  substitutes other than with the DME benefit and its associated payment  methodologies, such as the home health benefit. According to federal  internal control standards, management should anticipate and plan for  significant changes using a forward-looking process. Without considering  whether disposable DME substitutes should be covered by Medicare,  CMS and other insurers that follow Medicare payment policy may not  recognize advances in technology that may provide potential cost-savings  and better health outcomes.
section_title: Recommendation for Executive Action
paragraphs: We recommend that the Administrator of CMS evaluate the possible  costs and savings of using disposable devices that could potentially  substitute for DME, including options for benefit categories and payment  methodologies that could be used to cover these substitutes, and, if  appropriate, seek legislative authority to cover these devices.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to HHS for comment. HHS’s written  comments are reproduced in appendix II. HHS also provided technical  comments, which we incorporated as appropriate.
In its written comments, although HHS did not state whether it agreed or  disagreed with the recommendation, the agency stated that it is  premature to conduct the study we recommended of the possible costs  and savings of using disposable devices that could potentially substitute  for DME. HHS emphasized that only Congress has the authority to create  new benefit categories and payment systems for potential disposable  DME substitutes and that additional information is needed on whether  disposable devices are appropriate clinical substitutes before conducting  an analysis of possible costs and savings. We agree, and our report  states, that CMS may lack the authority to interpret “durable” in a way that  allows for coverage of all the disposable DME substitutes we identified  and that congressional action may be required for Medicare to cover  some of these devices. However, without conducting a study to identify  the potential costs and benefits of covering such devices, CMS will lack  the necessary clinical and cost information to determine if it would be  beneficial to reassess current statutory and regulatory coverage rules. In  other instances, CMS has used the national and local coverage  determination processes to establish clinically based policies related to  DME. Moreover, CMS—which oversees the implementation of complex  Medicare payment rules—is uniquely positioned to consider the extent to  which coverage of any clinically appropriate substitutes would benefit the  federal government and beneficiaries.
For these reasons, we disagree with HHS that an evaluation of potential  disposable DME substitutes is premature. As we state in the report,  management should anticipate and plan for significant changes using a  forward-looking process, according to federal internal control standards.  The study we recommended is such a forward-looking process. Unless it  is undertaken, neither HHS nor Congress will have the information it  needs to reassess whether the current statutory and regulatory  framework makes good clinical and fiscal sense.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Health and Human Services, and other  interested parties. In addition, the report is available at no charge on the  GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page   of this report. GAO staff who made key contributions to this report are  listed in appendix III.
section_title: Appendix I: List of Stakeholders Interviewed
subsections: section_title: Medical Device Manufacturer Groups
section_title: Medicare Beneficiary Advocate Groups
section_title: Health Care Provider Groups
section_title: State Medicaid Directors Group
section_title: Insurers and Insurer Groups
section_title: Manufacturers and Developers of Specific Disposable Medical Devices
section_title: Appendix II: Comments from the Department of Health and Human Services
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Martin T. Gahart, Assistant  Director; Hannah Marston Minter, Analyst-in-Charge; George Bogart;  Ricky Harrison; Gay Hee Lee; Elizabeth T. Morrison; and Alison Smith  made key contributions to this report.