RECOMMENDATION

The findings of this report suggest that the supplier community obtains Category I enteral nutrition formula products at prices that are lower than Medicare’s reimbursement amount. If Medicare’s reimbursement amount had been based more closely on these prices, the program and its beneficiaries could have realized savings.

CMS had attempted to reduce Medicare payments for enteral nutrition formulas through the use of its inherent reasonableness authority. However, Congress suspended the use of the inherent reasonableness authority in the 1999 Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act before payment reductions could be implemented. In December 2002, CMS published an interim final rule on the use of inherent reasonableness authority. This rule, which became effective in February 2003, allows CMS contractors to raise or lower Medicare payment amounts for medical equipment and supplies by 15 percent in any given year without a formal rulemaking process.

We believe that continued CMS attention to Medicare Part B payments for Category I enteral nutrition formulas is warranted. Since CMS now has the authority to implement inherent reasonableness reductions, we recommend that CMS:

Consider using its inherent reasonableness authority to reduce the Medicare reimbursement amount for Category I enteral nutrition formulas.

CMS may want to begin an inherent reasonableness review by collecting information from Medicare suppliers to identify the specific Category I enteral nutrition formulas that suppliers provide to Medicare beneficiaries. CMS may also want to collect information from suppliers to determine suppliers’ purchase costs for the specific formulas used by Medicare beneficiaries.

Agency Comments
CMS agreed with our recommendation that it consider using inherent reasonableness authority to reduce the reimbursement amount for Category I formulas. CMS noted that it will not be able to initiate inherent reasonableness reviews until its contractor develops written procedures for conducting these reviews according to the statute and regulation.

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