Sunday, April 12, 2020

CMS's Bold Unfinished Dream to Up-End DME Gapfill Pricing (2019): Does It Matter for Lab Test Gapfill Pricing?

While this blog mainly tracks the laboratory community, sometimes unrelated areas of CMS policy raise important issues to be aware of.

I propose such a special event happened last year's August proposed rulemaking and November final rulemaking for DME pricing. 

A connection between DME policy and molecular lab policy?  Am I nuts?

I'll argue in this blog that I am not nuts, and explain why.

New DME - although few new codes are created - is priced by essentially a "crosswalk" and a "gapfill" process, just like new lab tests.  CMS issued some 30 pages of policymaking and discussion, plus several paragraphs of new regulations, for DME pricing in CY2019. 

The DME Tech Committee for Pricing.  Most boldly, although they didn't finalize it, CMS proposed a "technology assessment committee" for new DME without a crosswalk price.   The technology assessment committee would assess the cost of new improvements in DME equipment, and assign a slightly high price that reflected the new costs.   CMS raised numerous concerns about "monopoly suppliers" of a new DME equipment item, which would charge excessive rates and saddle CMS with those monopoly rates.    Since the DME policy and lab policy groups sit in the same division of CMS, the thinking in these DME writings may reflect thinking shared by CLFS (lab fee schedule) policymakers as well. 

For more detail, see below.  Let's see what happened in DME pricing after the break.

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Background Documents

I've put the key background documents, extracted to key pages, in the cloud.  See the August 6, 2019 proposed rulemaking (84FR38330) here.   See the November 8 final rulemaking (84FR60648) here.

How DME Works Today

HCPCS codes for DME are created by CMS staff.   You can submit applications in January, they are reviewed in a public meeting in May/June, and CMS finalizes decisions by November.   The barrier to new DME codes is very high.  I haven't tallied this year, but in past year's the failure rate has been in the range of 17 per 20 new codes applied for.

When CMS does create a new DME code, it prices it by what are basically crosswalk or gapfill methods.  Crosswalk means assigning the same price as a similar product.   Gapfill is harder; CMS and MAC staff look at invoices, catalog prices, and other sources of information to set a price.

The weirdest aspect of DME price-setting is after staff set a new price.  Due to bizarre statutes, CMS takes the price set as the correct price for today (say, $100) and deflates it to a 1984 price (say, $43; see 84 FR 38375, left column) and then reinflates it by historical DME price adjustments to a current price "as if" it had been priced in 1984 and from time to time inflation-adjusted by law.   The final price might reinflate the $40 price to $66 or so (ibid, p. 38375).   This $66 is the CMS payment, despite CMS having carefully verified in the earlier steps that the correct price today was $100.

What CMS Proposed for DME Pricing Policy in August

The process generates a lot of complaints, and frankly, it seems to me CMS is making high barriers and burdens that would scare off the introduction of new, clinically important, novel DME.

In August rulemaking, CMS proposed to add a lot of process rules and guidelines to both the crosswalk and gapfill process.  The end results might not be different, but it would be more explicit and public what methods CMS was using "inside the walls."  I'm not going to belabor these; if you want more, read the policymaking at the cloud links providing.

The Scary Technology Assessment Council

CMS Proposed DME Tech Pricing Council (Not Finalized)
CMS proposed some guidance for gapfill pricing, such as how CMS would use catalog and invoice prices (basically, seeking credible price information and rejecting spurious, which is probably what they already tried to do).

What's suddenly new is in the August 6 document at page 38375-6.  Using the subtle method of burying the key news late in a sentence, CMS states that "IN addiction to using information from supplier or commercial price lists [boring], CMS can determine the relative supplier costs of furnishing new DME items compared to other DME items with existing fee schedule amounts by using technology assessments to determine the cost of a new DME item versus older items... the assessment would be made by biomedical engineers, certificated orthotists/prosthetists, and other experts, at CMS or at its contractors."   [In the past] "Payments for new items under the old reasonable charge payment system were sometimes gap-filled by relative (italics added) value scales...the same concept can be used to price new DME items relative to existing DME items under the [modern] fee schedule." 

CMS continues, "For more complex items, it may be necessary to use a separate technology assessment contractor in addition to skilled CMS and contractor personnel such as biomedical engineers to conduct the technology assessment. To clarify, this option is not the same as using fees for comparable items, where existing fee schedule amounts for older items are used for newer items determined to be comparable to the older items. If new items are not comparable to older items with existing fee schedule amounts, the supplier cost of furnishing the new item(s) can be compared to the supplier cost of furnishing an older item(s) with established fee schedule amounts and the relative difference in the cost of the new item versus the older item(s) can be determined using a technology assessment."

CMS proposed to codify the price setting council at 414.110(d) (see 84 FR
38419).  Writing in part:  "A pricing percentage is established based on the results of the technology assessment and is used to establish the fee schedule amounts for the new code(s). The pricing percentages are applied to the fee schedule amounts for HCPCS codes with existing fee schedule amounts to calculate the fee schedule amounts for new HCPCS codes without a fee schedule pricing history. Technology assessments would be used whenever it is necessary to determine the relative cost of a new item compared to items from the fee schedule base period in order to establish fee schedule amounts for the new item when supplier or commercial price lists are not available or verifiable or do not appear to represent a reasonable relative difference in supplier costs of furnishing the new DMEPOS item relative to the supplier costs of furnishing DMEPOS items from the fee schedule base period. "

Basically, they are both using a technology council of uncertain provenance, and decomposing the gapfill process to essentially a crosswalk-plus-multiplier process.  We could gapfill you by prices of your product at real market rates today, but instead, we will use a technology council which determines your price should be 105% of the price of some existing thirty-year-old commodity item.

CMS Scared of Monopoly or Innovator Prices

CMS writes at multiple points that it is scared of over-pricing items, or pricing them above cost, because they are produced by innovators and may be sole-source products for a while and above the cost of producing the item.


This, of course, is the only way to get innovation: You have large up front risky investments, and you have to sell for some period "above cost" or you'll go bankrupt.   (See e.g. In Defense of Monopoly, here).

Nor is it clear to me that "biomedical engineers" can necessarily look at a product at tell the increased cost of investments.  It may even be a supremely hopeless idea.   The case may look the same, the computer board or chip may "look the same."  But there may be large clinical trial investments, FDA PMA product costs, and other costs that you can't impute no matter how long you look at the product.  Imaging looking at a pharmaceutical tablet and trying to impute the cost of its development. 

Relevance to Lab Test Crosswalk/Gapfill Prices.

We noted in a recent blog that the MolDx program had released some helpful guidance to the process it uses to set gapfill prices (here).   And in the molecular pathology industry, lab gapfill pricing is common - half of 90 new PLA codes for 2020 are in the gapfill process this spring.

But lab tests, like pharmaceuticals, require a large amount of upfront R&D even if the costs of good sold (e.g. see Myriad or any R&D oriented lab companies; literal cost of goods is circa 25%) is a small part of the total cost of all clinical and research operations.   Using a tech committee to assign the cost of the benchtop reagents alone will not reflect the real price of innovation and health impact.  CMS floated a bad idea with its DME pricing reasoning; while it dropped these ideas in November 2019, it's not clear they're gone or if they'll be back in a reprise.


Footnote: CMS Press Release

CMS issued a press release about this rule in October 2019.  (Here).  Despite the somewhat excited tone of the press release, DME crosswalk and gapfill pricing didn't really change very much (it's just more codified in print), and the major problem, the price deflation, was unchanged as this is statutory rather than agency-regulated.