Medicare Program; Payment for Durable Medical Equipment and Orthotic and Prosthetic Devices

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 414

[BPD-494-F]

RIN 0938-AD65

Medicare Program; Payment for Durable Medical Equipment and

Orthotic and Prosthetic Devices

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final rule.

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SUMMARY: This final rule addresses comments received on an interim

final rule with comment period published on December 7, 1992. The

interim final rule implemented section 4062(b) of the Omnibus Budget

Reconciliation Act of 1987. It specified that payment under the

Medicare program for durable medical equipment (DME), prosthetics, and

orthotics furnished on or after January 1, 1989 is limited to the lower

of the actual charge for the equipment or the fee schedule amount

established by the carrier. This final rule describes amendments to the

methods for computing fee schedules covering the six classes of DME and

how they are updated in subsequent years in accordance with sections

13542 through 13546 of the Omnibus Budget Reconciliation Act of 1993.

DATES: These final regulations are effective August 9, 1995.

FOR FURTHER INFORMATION CONTACT:

Sharon Hippler--(410) 966-4633 (Coverage Issues)

William Long--(410) 966-5655 (Payment Issues)

SUPPLEMENTARY INFORMATION:

I. Background

The provisions of sections 1833 and 1842 of the Social Security Act

(the Act) set forth the general payment authority for most physician

and other medical and health services furnished under Part B of the

Medicare program. Section 1834 sets forth the 6 classes of DME and

specifies that payment for these items is limited to 80 percent of the

lesser of the actual charge or a fee schedule amount established by

each Medicare carrier.

We published an interim final rule on December 7, 1992 (57 FR

57675) that set forth the methods for computing fee schedules for the

six classes of DME effective for services furnished on or after January

6, 1993. The interim rule also described how the fee schedules are

updated. The December 1992 rule explained in detail the various

legislative changes that led to its publication (57 FR 57676).

On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993

(OBRA 93, Public Law 103-66), revised the statutory provisions upon

which the DME payment rules that appeared in the December 1992 final

rule were based. We are including these provisions in this final rule

since the revisions are not discretionary but follow the explicit

language contained in sections 13542 through 13546.

A summary of the provisions of these sections of OBRA 93 follows :

Section 13542 amends sections 1834(a)(2), (a)(3), (a)(8),

and (a)(9) of the

[[Page 35493]]

Act by providing that for 1994 and subsequent years, the national

limited payment amount for (1) inexpensive or routinely purchased DME,

(2) items requiring frequent and substantial servicing, (3) oxygen, and

(4) other DME (capped rental) is equal to one of the following amounts:

If the local payment amount is not in excess of the

median, nor less than 85 percent of the median, of all local payment

amounts--100 percent of the local payment amount.

If the local payment amount exceeds the median--100

percent of the median of all local payment amounts.

If the local payment amount is less than 85 percent of the

median--85 percent of the median of all local payment amounts.

Section 13543(a) amends section 1834(a)(3)(A) of the Act

by deleting nebulizers and aspirators from the statutory list of items

that require frequent and substantial servicing. It also clarifies that

ventilators that are either continuous airway pressure devices or

intermittent assist devices with continuous airway pressure devices are

excluded from the frequent and substantial servicing class.

Section 13543(b) amends section 1834(a)(2)(A) of the Act

by specifying that accessories used in conjunction with a nebulizer,

aspirator, or ventilator excluded from the frequent and substantial

servicing class are included in the inexpensive or routinely purchased

equipment class.

Section 13544(a) amends section 1834(h)(1) of the Act by

providing that payment for ostomy supplies, tracheostomy supplies, and

urologicals be made using the methodology for inexpensive or routinely

purchased equipment.

Section 13544(b) adds a new paragraph (i) to section 1834

of the Act to provide that payment for surgical dressings must be made

using the methodology for inexpensive or routinely purchased equipment.

It further specifies the national limited payment amount for surgical

dressings must be based on local payment amounts using average

reasonable charges for the 12-month period ending December 31, 1992

increased by the covered item updates for 1993 and 1994.

Section 13545 amends section 1834(a)(1)(D) of the Act by

providing that the reduced payment amount for transcutaneous electrical

nerve stimulator (TENS) devices, furnished on or after January 1, 1994,

be based on the payment amount effective April 1, 1990, reduced by 45

percent.

Section 13546 amends section 1834(h)(4)(A) of the Act by

specifying that the term ``applicable percentage increase'' used for

computing the local purchase price for prosthetic and orthotic devices

is ``0'' percent for 1994 and 1995. It also specifies that for

subsequent years that term means the percentage increase in the

consumer price index for all urban consumers for the 12-month period

ending with June of the previous year.

II. Summary of Public Comments and Responses for the December 1992

Final Rule

We received comments from seven groups representing the industry

and one State agency. We have summarized the comments related to the

fee schedule payment methodology and have presented them below along

with our responses.

Several comments were received that concerned other issues related

to medical equipment (for example, refining the coverage definitions of

medical equipment and updating the HCFA Common Procedure Coding System

(HCPCS)) but did not pertain to the subject matter of the interim final

rule, which dealt only with the six classes of DME and the

corresponding fee schedule methodologies. We are not responding in this

final rule to any comments unrelated to the fee schedule payment

methodologies.

Inexpensive and Routinely Purchased DME (Section 414.220(a))

Comment: One commenter suggested that we not change to a State-by-

State methodology for classifying an item as inexpensive even if the

local submitted purchase price is less than $150. The commenter stated

that changing the status of an item from State to State would be

hopelessly confusing to suppliers and would contribute to increased

claims processing costs.

Response: We agree with the commenter. Classifying items by State

would create inconsistencies among carrier jurisdictions and would be

inconsistent with the thrust of the national limited payment amounts

that went into effect in 1991. For example, a capped rental item in one

jurisdiction could be considered inexpensive in an adjacent

jurisdiction. Therefore, we intend to continue using the national

weighted mean submitted charge for purchase of an item (whose price did

not exceed $150 during the period from July 1, 1986 through June 30,

1987) for classifying the item as inexpensive.

Frequently Serviced DME (Section 414.222(a))

Comment: One commenter agreed that we should add or delete items in

the frequently serviced class by making modifications to this class on

a simplified basis. Another commenter suggested that we not change the

methodology for adding or deleting items in the frequently serviced

class. The commenter argued that, since some items in this class are

mandated by the Act, any attempt by us to administratively restructure

this class would violate congressional intent.

Response: We believe that the second commenter may have

misunderstood our intent in this matter. Section 1834(a)(3) of the Act

specifically mandates that certain DME be included in the class of

items that require frequent and substantial servicing. In

Sec. 414.222(a) of the interim final rule, we announced our intention

to specify other items requiring frequent and substantial servicing. It

was, and continues to be, our intention to delete only those items that

we previously added administratively. Section 414.222(a) permits us and

the carriers to define those items needing frequent and substantial

servicing.

We will not delete any of the statutorily mandated items from this

class of items absent a change in the Act. However, we will add or

delete items we previously added in this class by announcing additions

and deletions in an administrative instruction rather than in the

regulations.

Comment: One commenter suggested that the following items belong in

the frequently serviced class: continuous passive motion machines,

memory monitors, powered air flotation beds, air fluidized beds, and

alternating pressure mattresses. Conversely, the commenter believed

that nebulizers and aspirators do not belong in the frequently serviced

class. Two commenters suggested that infusion pumps should be placed in

the frequently and substantially serviced class. The commenters stated

that few infusion pumps last 5 years without major servicing and that

pumps more than a few years old may not be serviceable because of a

lack of replacement parts. They also stated that infusion pump

manufacturers often stop producing cassettes once the pumps are no

longer in production and the Food and Drug Administration believes that

infusion pumps should be tracked because the risk of failure presents

the potential for serious adverse health consequences.

Response: Continuous passive motion machines currently appear in

the class of items that require frequent and substantial servicing

(Sec. 414.222(a)). We will consider whether memory monitors, powered

air flotation beds, air fluidized beds, alternating pressure

[[Page 35494]]

mattresses, and infusion pumps should also be added. If after our

review, we agree that these items belong in this class, we will add

them through an administrative instruction.

Section 1834(a)(3) of the Act specifically mandated that

aspirators, nebulizers and ventilators be included in the frequent and

substantial servicing class. However, section 13543 of OBRA 93 deleted

aspirators, nebulizers and some ventilators from this class effective

January 1, 1994. Consequently, we have revised Sec. 414.222(a) to

remove aspirators, nebulizers, and certain ventilators from the

frequent and substantial servicing class. (Depending on changes in the

data, items may be moved into any of the other classes, for example,

inexpensive or routinely purchased, or capped rental).

Capped Rental DME (Section 414.229)

Comment: Three commenters suggested that we provide a new 15-month

rental period if a beneficiary moves outside the supplier's service

area or changes suppliers, even though there would be additional cost

and a potential for abuse. One commenter suggested giving the second

supplier a 12-month rental period.

Response: We agree that these proposals would result in additional

program cost and have the potential for abuse. We also believe that we

are precluded by section 1834(a)(7)(A) of the Act from providing a new

rental period beyond the original 15-month rental period. This section

provides that ``* * * payments under this clause may not extend over a

period of continuous use of longer than 15 months * * *.'' Therefore,

if the beneficiary changes suppliers during or after the 15-month

rental period, that change would not result in a new rental period.

In asking for comments regarding this provision, we specifically

requested comments on which supplier would be responsible for

furnishing the capped rental equipment to the beneficiary if the

beneficiary changes suppliers during or after the 15-month rental

period. In the December 1992 rule (57 FR 57683), we indicated our

initial position that the supplier that provided the item in the

fifteenth month of the rental period would be responsible for supplying

the equipment and for maintenance and servicing after the 15-month

period.

We mentioned that, as an alternative position, we considered

requiring the supplier that had furnished the item for the longest

portion of the rental period to be responsible for the period of

continuous use of the equipment after the 15-month period expired.

However, we were concerned about the possible inconveniences to the

beneficiary and the initial supplier; for example, the longest term

supplier may be located some distance from the beneficiary's residence

at the end of the 15-month period. In addition, we did not believe it

was appropriate to require a supplier to service equipment that it did

not furnish and with which it may not be familiar.

We also mentioned that we considered requiring the last supplier of

an item to be responsible for a period of continuous use after the 15-

month period but only if the supplier furnished the item for 3

consecutive months. However, based on advice received from the DME

industry, we rejected this option because of the possible

inconveniences similar to those discussed in the option set forth

above.

Other than the comments suggesting that we provide for an

additional rental period if the beneficiary changes suppliers, which is

precluded by the Act, we received no comments regarding this provision.

Further, since this provision became effective on January 1, 1989, we

received no significant correspondence from Medicare beneficiaries or

the DME industry indicating that this rule presents a problem. This

corroborates what representatives of the DME industry indicated to us

after the passage of section 4062 of the Omnibus Budget Reconciliation

Act of 1987 (Public Law 100-203) (OBRA 1987). At that time, they

indicated that suppliers would be able to accommodate beneficiaries who

change suppliers (for example, because of a change of residence or

dissatisfaction with a supplier). They further indicated that the DME

industry preferred making the supplier that rents the item in the last

(that is, fifteenth) month of the rental period responsible for

supplying the equipment after the last month of rental payments and for

continued maintenance and servicing of the equipment.

Therefore, the rules governing this class of equipment will remain

the same. Responsibility for supplying equipment in the capped-rental

class that has been rented for 15-consecutive months remains with the

supplier that rented the item in the last month of the rental period.

Responsibility for maintenance and service of the item also remains

with that supplier. A move by the Medicare beneficiary does not relieve

the supplier that rented the item in the last rental month of either

responsibility.

Of course, we will not object to the responsible supplier

establishing an arrangement with a supplier located nearer to the

beneficiary's new residence to furnish the actual maintenance and

service of the equipment.

Reasonable Useful Life (Section 414.229(f))

Comment: One commenter suggested that we should establish

reasonable useful lifetime guidelines for equipment but did not offer

specific suggestions for these guidelines. Other commenters suggested

that a 5-year useful life was too long and that the useful life should

be considered to end 12 months after the period identified in the

manufacturer's warranty. Another commenter suggested that we meet with

manufacturers of medical equipment, especially manufacturers of

orthotic devices, to develop specific standards regarding the useful

life of equipment.

Response: While we specifically solicited comments regarding the

useful life of DME, prosthetics, orthotics, and supplies (DMEPOS), we

received only one comment indicating what that useful life should be

(which was 12 months after the date indicated in the manufacturer's

warranty) for any item of medical equipment. We selected a 5-year

useful life because that is the useful life of capped rental DME

established in section 1834(a)(7)(C)(iii) of the Act. We continue to

believe that a minimum useful life of 5 years is reasonable for payment

purposes and should be applied to other items of DME, prosthetics, and

orthotics.

We believe that establishing a useful life of 12 months beyond a

manufacturer's warranty is unsupported and arbitrary. We would welcome

meeting with manufacturers of medical equipment to discuss information

that supports considering an alternative to the 5-year useful lifetime

of equipment. We will maintain the minimum 5-year useful lifetime

provision for payment purposes for all medical equipment unless we

receive evidence that supports some other timeframe.

Implementation of the Fee Schedule Methodology Through Program

Instructions

Comment: One commenter suggested that implementation of the fee

schedule payment methodology has decreased payments and increased

regulatory and paperwork burdens, significantly affecting small

suppliers of medical equipment. The commenter asserted that since we

have implemented the fee schedule methodology through Medicare Carrier

Manual issuances, the industry's opportunity to present its case in the

public forum of rulemaking has been denied.

[[Page 35495]]

Response: We disagree with the commenter. While the December 1992

interim final rule became effective 30 days after it was published, it

provided an opportunity for public comment and potential

reconsideration of the policies it set forth. We usually implement

legislation by following the rulemaking process that affords all

parties an opportunity to comment before we implement the legislation.

The Congress, in mandating the OBRA 87 changes establishing the DME fee

schedule methodology, expressly authorized the Secretary to issue the

implementing regulations on an interim basis. However, because of the

need to implement the fee schedule as soon as possible, it was

necessary that we issue instructions in the Medicare Carriers Manual

while developing the interim rule.

Access to Common Working File

Comment: Two commenters suggested that suppliers need access to our

Common Working File to determine if a beneficiary has previously rented

a piece of equipment and, if so, for what period of time.

Response: There are always privacy considerations concerning the

release of beneficiary information contained in the Common Working File

systems. However, we intend to investigate the effects of disclosing

beneficiary information to DME suppliers. Nevertheless, the option to

furnish equipment rests with the supplier. Since the supplier is able

to communicate with the beneficiary before furnishing medical

equipment, we believe that the supplier should be responsible for

determining whether a beneficiary has ever rented equipment. We are

responsible for ensuring that we do not pay for services furnished to a

patient who is not entitled to Medicare benefits and that we do not pay

for equipment after the appropriate rental period.

Budget Savings Resulting From the DME Fee Schedule Methodology

Comment: Two commenters noted that budget savings associated with

the interim rule continue to remain elusive, noting that while the fee

schedule methodology was estimated to save Medicare more than $2

billion, a study by the General Accounting Office (GAO) issued in July

1992 found that the fee schedule methodology actually cost more than

the reasonable charge system it replaced.

Response: The GAO found that for the first 2 years after

implementation of the fee schedule methodology, Medicare program

expenditures increased by 16 percent compared to what the costs would

have been under the reasonable charge system. The GAO also projected

that when fully implemented in 1993, the Omnibus Budget Reconciliation

Act of 1990 (Public Law 101-508, enacted on November 5, 1990) (OBRA 90)

would offset the program cost increases that occurred when the fee

schedule methodology was implemented. The savings generated would save

the Medicare program more than $2 billion over 5 years beginning in

1992.

Uniform Payment, Coverage, and Utilization Criteria

Comment: One commenter suggested that we adopt national uniform

payment, coverage, and utilization criteria for prosthetic and orthotic

devices. The commenter also suggested that the term ``region'' should

encompass geographic areas as large as possible, preferably dividing

the nation into four areas that comport with the four new regions of

the DMEPOS regional carriers.

Response: The December 1992 interim rule defined ``region'' as

those carrier service areas administered by the ten HCFA regional

offices (57 FR 57689). This was the longstanding definition of

``region'' in use when legislation established a fee schedule

methodology for prosthetic and orthotic devices that was to be

calculated on a regional basis.

We believe it was the intent of the Congress that we recognize

differences in the costs of supplying prosthetic and orthotic devices

among the ten geographic regions then in use. Since this was the

definition of region that we used when the Congress passed the fee

schedule methodology, we will continue to group States together by the

ten HCFA regions for pricing purposes.

Effective October 1, 1993, we contracted with four ``regional''

carriers that process all DMEPOS claims nationally. We expect that

having the four carriers will result in more uniform payment, coverage,

and utilization of Medicare services. However, we continue to believe

that using a ten region structure for pricing of services is

appropriate. We believe that a larger number of regions gives more

recognition to local variations in the cost of providing equipment.

Reducing the number of regions to four rather than the current ten

would give less emphasis to local variation. If we based the pricing of

services on a four region system, each region would cover a greater

number of suppliers, which could produce greater disparity in

suppliers' costs throughout the region. Having a larger supplier pool

could dilute the impact of outlying suppliers whose labor, material,

and overhead costs are significantly higher than the median.

By retaining a pricing system based on ten regions, we expect that,

for any item of DME, the costs of suppliers within each region would be

more similar to each other and the resulting fee schedule more

reflective of costs in the local supplier population.

Comment: One commenter asked if we intend that the regional

purchase price be determined State-by-State.

Response: As described in the interim final rule (57 FR 57691),

regional pricing is based on local prices within a carrier area, which

usually is an entire State. Specifically, our methodology for computing

the regional purchase price is to first calculate a local purchase

price, then calculate a regional purchase price by averaging the local

purchase prices for the region (weighted by the relative volume of all

claims among the carriers in the region).

Use of the Term ``Durable Medical Equipment''

Comment: One commenter suggested using the term ``home'' to define

medical equipment used in the home rather than the term ``durable.''

Another commenter suggested that we expand the definition of DME in

Sec. 414.202 to include coverage of equipment not used in the home and

provide for coverage of additional items of disposable equipment.

Response: Section 1861(n) of the Act defines ``durable medical

equipment.'' We are bound by the definition of DME contained in the

law.

Applicability to Medicaid

Comment: One commenter suggested that the Medicare payment

methodology should also be applicable to State Medicaid programs.

Response: The statute does not authorize us to impose the Medicare

payment methodology on States, therefore, the Congress must pass

legislation to authorize us to do so.

Fraud and Abuse

Comment: One commenter noted that the rules regarding TENS, seat

lift mechanisms, and electric wheelchairs should help eliminate fraud

and abuse.

Response: We agree.

III. Provisions of This Final Rule

To implement the requirements of sections 13542 through 13546 of

OBRA 93, we are revising part 414, subpart D.

We expand the list of inexpensive or routinely purchased items in

Sec. 414.220(a) to include, effective January 1, 1994--

[[Page 35496]]

Accessories used in conjunction with a nebulizer,

aspirator, or ventilator excluded from Sec. 414.222.

Ostomy supplies, tracheostomy supplies, urologicals, and

surgical dressings not furnished as incident to a physician's

professional service or furnished by a home health agency.

We add a new paragraph (f)(4) to Sec. 414.220 to reflect that, for

1994 and subsequent years, the national limited payment amounts are

calculated using the median rather than the weighted average. We make

conforming changes to paragraph (f)(3).

We add a new paragraph (g) to Sec. 414.220 to state that payment

for surgical dressings effective January 1, 1994 is based on the

national limited payment amount increased by the covered item updates

for 1993 and 1994.

We revise Sec. 414.222(a) to delete aspirators, nebulizers, and

certain ventilators from the list of items requiring frequent and

substantial servicing.

We add a new paragraph (e) to Sec. 414.222 to set forth the

following transition rules that apply to rental of DME that was paid

for under the frequent and substantial servicing class but is no longer

paid for under that payment class. For purposes of calculating the 15-

month rental period, beginning January 1, 1994, if payment is

subsequently made under the other DME (capped rental) payment class for

an item that formerly required frequent and substantial servicing, the

period begins with the first month of continuous rental, even if that

rental period began before January 1, 1994.

For example, if the rental period began on July 1, 1993, the

carrier must use this date as beginning the first month of rental.

Section 1834(a)(7)(A)(i) limits total rental payments to 15 months (or

13 months if the beneficiary elects the purchase option). If we

calculated the 15-month period beginning on January 1, 1994 instead of

July 1, 1993 (the first month of rental), rental payments would be made

for an additional 6 months beyond the 15-month limit. We do not believe

that this would be consistent with the law. Thus, under this final

rule, if the beneficiary reached the purchase price limitation on a

rental claim before January 1, 1994, no further rental or purchase

payments would be made.

Likewise, for purposes of calculating the 10-month purchase option,

the rental period also begins with the first month of continuous rental

without regard to when that period started. For example, if the rental

period began in August of 1993, the 10-month purchase option must be

offered to the beneficiary in May of 1994, the 10th month of continuous

rental.

Likewise, for purposes of calculating the purchase ceiling, if an

item that is paid under the frequent and substantial servicing class is

subsequently paid under the inexpensive or routinely purchased payment

class, the rental period begins with the first month of continuous

rental under the frequent and substantial servicing class, even if that

period began before January 1, 1994.

The transition rules for items previously in the frequent and

substantial servicing class are the same as those (Sec. 414.229(f))

that were promulgated for use in computing the 10- and 15-month periods

for capped rental DME. We believe that these transitional requirements

are necessary to carry out the statutory intent, to limit capped rental

equipment payments to 15 months, or 13 months if the beneficiary elects

the purchase option, and to limit rental payments, for inexpensive and

routinely purchased items to the purchase price. For example, if we

were to begin calculating the 15-month period on January 1, 1994

instead of the first month of rental, payments would be incurred for up

to 15 additional months beyond the 15-month limit. For inexpensive or

routinely purchased DME, if we were to begin calculating the purchase

price limitation on January 1, 1994 instead of the first month of

rental, we could pay twice the purchase price. We believe that such a

result would be contrary to the direction of the law.

We revise Sec. 414.228(b)(2) to reflect that the applicable

percentage increase in the purchase price for prosthetic and orthotic

devices is 0 percent for 1994 and 1995.

We revise Sec. 414.232(a) to reflect that the payment amount for

TENS computed under Sec. 414.220 was reduced by 15 percent by OBRA 87,

effective April 1, 1990. The payment amount originally reduced by 15

percent was further reduced by an additional 15 percent, effective

January 1, 1991, by OBRA 90. Effective January 1, 1994, OBRA 93 changed

the percent of reduction mandated by OBRA 90 from 15 percent to 45

percent.

IV. Collection of Information Requirements

This document does not impose information collection and

recordkeeping requirements. Consequently, it need not be reviewed by

the Office of Management and Budget under the authority of the

Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.).

V. Regulatory Impact Statement

A. Introduction

This final rule implements changes required by sections 13542

through 13546 of OBRA 93. Section 13543 removed aspirators and

nebulizers and certain ventilators from the class of DME items

requiring frequent and substantial servicing. These aspirators,

nebulizers, and ventilators are now considered to be either capped

rental or inexpensive/routinely purchased items. Also, section 13545

provides that the payment amount for TENS devices furnished on or after

January 1, 1994 be based on the payment amount effective April 1, 1990,

reduced by 45 percent. The Medicare program had expenditures of

approximately $5.6 million for an estimated 34,000 TENS units furnished

in calendar year (CY) 1993.

Section 13546 provides that there will be no percentage increase in

payment in CYs 1994 and 1995 for orthotics, prosthetics, and prosthetic

devices. The percentage increase in the consumer price index is

expected to resume for payment in subsequent years.

Listed below is a table showing the estimated savings as a result

of the various OBRA 93 changes.

Estimate of Medicare Savings OBRA 93 (In millions)*

------------------------------------------------------------------------

FY 1995 FY 1996 FY 1997 FY 1998 FY 1999

------------------------------------------------------------------------

$45.......... $75 $85 $90 $100

------------------------------------------------------------------------

* Rounded to the nearest $5 million.

B. Regulatory Flexibility Act

Consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601

through 612), we prepare a regulatory flexibility analysis unless the

Secretary certifies that a rule will not have a significant economic

impact on a substantial number of small entities. For purposes of the

RFA, most manufacturers and suppliers of DME and orthotic and

prosthetic devices are considered to be small entities. Some

manufacturers and suppliers, however, clearly have substantial regional

or national sales, and do not, therefore, meet the definition of a

small entity. Individuals and States are not included in the definition

of a small entity.

Also, section 1102(b) of the Act requires the Secretary to prepare

a regulatory impact analysis if a rule may have a significant impact on

the operations of a substantial number of small rural hospitals. This

analysis must conform to the provisions of section 604 of the RFA. For

purposes of section

[[Page 35497]]

1102(b) of the Act, we define a small rural hospital as a hospital that

is located outside of a Metropolitan Statistical Area and has fewer

than 50 beds.

C. General Effects

Since beneficiary copayments are linked to the level of allowed

payments for DME, the reduction in fee schedule amounts will reduce

costs to beneficiaries. The magnitude of savings to beneficiaries will

coincide with the reduction in payment levels for DME. Section 13543 of

OBRA '93 limited payment for aspirators, nebulizers, and certain

ventilators by deleting them from the group for items requiring

frequent and substantial servicing. Beneficiaries who had been renting

these items for an unlimited period will in the future be required to

pay copayment fees on payment up to only the allowed purchase price or

rental cap amount of the device.

Section 13545 reduces the payment amount for TENS devices furnished

on or after January 1, 1994 by 45 percent from the payment amount

effective April 1, 1990. As the payment for the TENS device will be

reduced, the beneficiaries copayment portion will also be reduced.

From the perspective of manufacturers and distributors, the

reductions in Medicare payments for certain DME, nebulizers and

aspirators, TENS devices, and orthotics, prosthetics, and prosthetic

devices will result in some revenue losses. Manufacturers and suppliers

that do not specialize in these items may see minimal reductions in

their revenues. We do not have detailed data that will enable us to

predict the economic impact on individual suppliers and manufacturers.

Considering that the total DME sales in CY 1993 equaled an estimated

$2.4 billion and the limited reductions we are making at this time, we

do not believe the impact on DME manufacturers and suppliers will

significantly affect the quantity or quality of DME available to

Medicare beneficiaries.

The provisions of this rule conform the regulations to legislative

provisions. Therefore, we are not preparing analyses for either the RFA

or section 1102(b) of the Act because we have determined, and the

Secretary certifies, that this rule will not have a significant

economic impact on a substantial number of small entities or a

significant impact on the operations of a substantial number of small

rural hospitals.

In accordance with the provisions of Executive Order 12866, this

rule was not reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 414

Durable medical equipment, Medicare, Prosthetic and orthotic

devices.

42 CFR part 414, subpart D, is amended as set forth below:

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

1. The authority citation for part 414 is revised to read as

follows:

Authority: Secs. 1102, 1833(a), 1834 (a) and (h), 1848, 1871,

and 1881 of the Social Security Act (42 U.S.C. 1302, 1395l(a), 1395m

(a) and (h), 1395w-4, 1395hh, and 1395rr).

2. In Sec. 414.220, the introductory text for paragraph (f) is

republished, paragraphs (a), (b), and (f)(3) introductory text,

(f)(3)(i), and (f)(3)(ii) are revised, and new paragraphs (f)(4) and

(g) are added, to read as follows:

Sec. 414.220 Inexpensive or routinely purchased items.

(a) Definitions--(1) Inexpensive equipment means equipment the

average purchase price of which did not exceed $150 during the period

July 1986 through June 1987.

(2) Routinely purchased equipment means equipment that was acquired

by purchase on a national basis at least 75 percent of the time during

the period July 1986 through June 1987.

(3) Accessories. Effective January 1, 1994, accessories used in

conjunction with a nebulizer, aspirator, or ventilator excluded from

Sec. 414.222 meet the definitions of ``inexpensive equipment'' and

``routinely purchased equipment'' in paragraphs (a)(1) and (a)(2) of

this section, respectively.

(b) Payment rules. (1) Subject to the limitation in paragraph

(b)(3) of this section, payment for inexpensive and routinely purchased

items is made on a rental basis or in a lump sum amount for purchase of

the item based on the applicable fee schedule amount.

(2) Effective January 1, 1994, payment for ostomy supplies,

tracheostomy supplies, urologicals, and surgical dressings not

furnished as incident to a physician's professional service or

furnished by an HHA is made using the methodology for the inexpensive

and routinely purchased class.

(3) The total amount of payments made for an item may not exceed

the fee schedule amount recognized for the purchase of that item.

* * * * *

(f) Calculating the national limited payment amount. The national

limited payment amount is computed as follows:

* * * * *

(3) For 1993, the national limited payment amount is equal to one

of the following:

(i) 100 percent of the local payment amount if the local payment

amount is neither greater than the weighted average nor less than 85

percent of the weighted average of all local payment amounts.

(ii) 100 percent of the weighted average of all local payment

amounts if the local payment amount exceeds the weighted average of all

local payment amounts.

* * * * *

(4) For 1994 and subsequent years, the national limited payment

amount is equal to one of the following:

(i) If the local payment amount is not in excess of the median, nor

less than 85 percent of the median, of all local payment amounts--100

percent of the local payment amount.

(ii) If the local payment amount exceeds the median--100 percent of

the median of all local payment amounts.

(iii) If the local payment amount is less than 85 percent of the

median--85 percent of the median of all local payment amounts.

(g) Payment for surgical dressings. For surgical dressings

furnished after December 31, 1993, the national limited payment amount

is computed based on local payment amounts using average reasonable

charges for the 12-month period ending December 31, 1992, increased by

the covered item updates for 1993 and 1994.

3. In Sec. 414.222, paragraph (a) is revised and paragraph (e) is

added to read as follows:

Sec. 414.222 Items requiring frequent and substantial servicing.

(a) Definition. Items requiring frequent and substantial servicing

in order to avoid risk to the beneficiary's health are the following:

(1) Ventilators (except those that are either continuous airway

pressure devices or intermittent assist devices with continuous airway

pressure devices).

(2) Continuous and intermittent positive pressure breathing

machines.

(3) Continuous passive motion machines.

(4) Other items specified in HCFA program instructions.

(5) Other items identified by the carrier.

* * * * *

(e) Transition to other payment classes. For purposes of

calculating the

[[Page 35498]]

15-month rental period, beginning January 1, 1994, if an item has been

paid for under the frequent and substantial servicing class and is

subsequently paid for under another payment class, the rental period

begins with the first month of continuous rental, even if that period

began before January 1, 1994. For example, if the rental period began

on July 1, 1993, the carrier must use this date as beginning the first

month of rental. Likewise, for purposes of calculating the 10-month

purchase option, the rental period begins with the first month of

continuous rental without regard to when that period started. For

example, if the rental period began in August 1993, the 10-month

purchase option must be offered to the beneficiary in May 1994, the

tenth month of continuous rental.

4. In Sec. 414.228, the introductory text for paragraphs (b) and

(b)(2) are republished, paragraph (b)(2)(ii) is revised, and new

paragraphs (b)(2)(iii) and (b)(2)(iv) are added, to read as follows:

Sec. 414.228 Prosthetic and orthotic devices.

* * * * *

(b) Fee schedule amounts. The fee schedule amount for prosthetic

and orthotic devices is determined as follows:

* * * * *

(2) The carrier determines a local purchase price equal to the

following:

* * * * *

(ii) For 1991 through 1993, the local purchase price for the

preceding year is adjusted by the applicable percentage increase for

the year. The applicable percentage increase is equal to 0 percent for

1991. For 1992 and 1993, the applicable percentage increase is equal to

the percentage increase in the CPI-U for the 12-month period ending

with June of the previous year.

(iii) For 1994 and 1995, the applicable percentage increase is 0

percent.

(iv) For all subsequent years the applicable percentage increase is

equal to the percentage increase in the CPI-U for the 12-month period

ending with June of the previous year.

* * * * *

5. In Sec. 414.229, the section heading is revised, the

introductory text for paragraph (c) is republished and paragraph (c)(3)

is revised, to read as follows:

Sec. 414.229 Other durable medical equipment--capped rental items.

* * * * *

(c) Determination of purchase price. The purchase price of other

covered durable medical equipment is determined as follows:

* * * * *

(3) For years after 1991. The purchase price is determined using

the methodology contained in paragraphs (d) through (f) of

Sec. 414.220.

* * * * *

6. In Sec. 414.232, paragraph (a) is revised to read as follows:

Sec. 414.232 Special payment rules for transcutaneous electrical nerve

stimulators (TENS).

(a) General payment rule. Except as provided in paragraph (b) of

this section, payment for TENS is made on a purchase basis with the

purchase price determined using the methodology for purchase of

inexpensive or routinely purchased items as described in Sec. 414.220.

The payment amount for TENS computed under Sec. 414.220(c)(2) is

reduced according to the following formula:

(1) Effective April 1, 1990--the original payment amount is reduced

by 15 percent.

(2) Effective January 1, 1991--the reduced payment amount in

paragraph (a)(1) is reduced by 15 percent.

(3) Effective January 1, 1994--the reduced payment amount in

paragraph (a)(1) is reduced by 45 percent.

* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.773,

Medicare--Hospital Insurance; and Program No. 93.774, Medicare--

Supplementary Medical Insurance Program)

Dated: June 28, 1995.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

[FR Doc. 95-16805 Filed 7-7-95; 8:45 am]

BILLING CODE 4120-01-P