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. 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. 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.) 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.

Summary: 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. 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. 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.