Medicare Payments: Use of Revised 'Inherent Reasonableness' Process Generally Appropriate

This recommendation was addressed in the interim final rule on Inherent Reasonableness that was published December 13, 2002, effective February 11, 2003.

CMS published an interim final rule on inherent reasonableness on December 13, 2002, to set forth its process and respond to GAO's report and other comments on its previous rulemaking effort. In the December 2002 rule, which became effective on February 11, 2003, CMS indicated that the information used to estimate payment reductions for products discussed in GAO's report had not been collected following the revised regulatory criteria recommended by GAO. As a result, the agency's carriers would not finalize the 1998 proposed adjustments for glucose test strips, albuterol sulfate, enteral formulas, lancets, eyeglass frames, latex Foley catheters, and catheter insertion trays without drainage bags, using the information they had collected. For future reviews, they indicated that they would collect information using a structured approach, as recommended by GAO.

CMS published an interim final rule on inherent reasonableness on December 13, 2002, to set forth its process and respond to GAO's report and other comments on its previous rulemaking effort. In the December 2002 rule, which became effective on February 11, 2003, CMS indicated that the information used to estimate payment reductions for products discussed in GAO's report had not been collected following the revised regulatory criteria recommended by GAO. As a result, the agency's carriers would not finalize the 1998 proposed adjustments for glucose test strips, albuterol sulfate, enteral formulas, lancets, eyeglass frames, latex Foley catheters, and catheter insertion trays without drainage bags, using the information they had collected. For future reviews, they indicated that they would collect information using a structured approach, as recommended by GAO.

An interim final rule on Inherent Reasonableness was published on December 13, 2002, which became effective on February 11, 2003, and responded to this recommendation. In that rule, CMS indicated that when CMS or the carriers are using the inherent reasonableness process, they will (1) develop written guidelines for data collection and analysis, (2) ensure consistency in any survey used to collect and analyze pricing data, (3) develop a consistent set of survey questions to use when requesting retail prices, (4) ensure that sampled prices fully represent the range of prices nationally, (5) consider the geographic distribution of Medicare beneficiaries, (6) consider the relative prices in various localities to ensure that an appropriate mix of areas with high, medium, and low consumer prices was included, (7) consider criteria to define populous State, less populous State, urban area, and rural area, (8) consider a consistent approach in selecting retail outlets within selected cities, (9) consider whether the distribution of sampled prices from localities surveyed is fully representative of the distribution of the U.S. population, (10) consider the products generally used by beneficiaries and collect prices for these products, and (11) when using wholesale costs, consider the cost of the services necessary to furnish a product to beneficiaries. In addition, if CMS or a carrier makes a payment adjustment of more than 15 percent spread over multiple years, CMS or the carrier will review market prices in the years subsequent to the year of the initial reduction, to ensure that further reductions continue to be appropriate.

An interim final rule on Inherent Reasonableness was published on December 13, 2002, which became effective on February 11, 2003, and responded to this recommendation. In that rule, CMS indicated that when CMS or the carriers are using the inherent reasonableness process, they will (1) develop written guidelines for data collection and analysis, (2) ensure consistency in any survey used to collect and analyze pricing data, (3) develop a consistent set of survey questions to use when requesting retail prices, (4) ensure that sampled prices fully represent the range of prices nationally, (5) consider the geographic distribution of Medicare beneficiaries, (6) consider the relative prices in various localities to ensure that an appropriate mix of areas with high, medium, and low consumer prices was included, (7) consider criteria to define populous State, less populous State, urban area, and rural area, (8) consider a consistent approach in selecting retail outlets within selected cities, (9) consider whether the distribution of sampled prices from localities surveyed is fully representative of the distribution of the U.S. population, (10) consider the products generally used by beneficiaries and collect prices for these products, and (11) when using wholesale costs, consider the cost of the services necessary to furnish a product to beneficiaries. In addition, if CMS or a carrier makes a payment adjustment of more than 15 percent spread over multiple years, CMS or the carrier will review market prices in the years subsequent to the year of the initial reduction, to ensure that further reductions continue to be appropriate.

In an interim final rule on Inherent Reasonableness, published on December 13, 2002, and effective February 11, 2003, CMS indicated that it will monitor patient access to items for which payment amounts had been adjusted by periodically checking the rate at which suppliers are accepting assignment for these items (which is accepting the Medicare payment amount as payment in full), and by monitoring any beneficiary complaints regarding these items.