Medicare overpays for certain orthotic devices, OIG finds

Dive Brief:

Medicare and beneficiaries paid $341.7 million more than other payers for certain orthotic devices from 2012 to 2015, the HHS Office of Inspector General said last week.
OIG found CMS’ use of an economic update factor to adjust prices every year, rather than evaluating pricing trends, is causing Medicare to overpay for many devices.
In light of the findings, OIG wants CMS to review the allowable amounts for orthotic devices and routinely review them thereafter to ensure its fees stay in line with pricing trends.

Dive Insight:

OIG looked into the topic after spotting an uptick in Medicare allowable amounts for certain orthotic devices. From 2012 to 2015, the allowable amounts for certain back, knee, elbow and wrist orthotic devices rose almost 30% to $815.5 million. OIG expressed concern about the link between the rise in allowable amounts and device prices.

To assess whether prices drove the increased allowable amounts, OIG reviewed 7.9 million medical devices billed under 161 codes. The review compared the allowable amounts to how much certain non-Medicare payers paid for the devices.

OIG found that Medicare paid more than its private counterparts for devices covered by 142 of the billing codes. From 2012 to 2015, Medicare and beneficiaries paid $341.7 million more than other payers for devices covered by those billing codes.

Medicare and beneficiaries paid less for devices covered by 19 codes but these savings were far too small to offset the overspending in other areas. The savings amounted to $4.2 million, resulting in a net overspend of $337.5 million. OIG estimates Medicare paid $270 million of that amount, with beneficiaries covering the other $67.5 million.

In an effort to curb the overspending, OIG asked CMS to review the allowable amounts for the 161 devices covered in its report. If CMS lacks the legislative authority to align the amount it pays with the rates of non-Medicare payers, OIG expects the agency to seek Congress' help to make the required changes.

CMS concurred with the recommendations but is unable to act on all of them immediately. Certain knee and back braces are part of CMS’ 2021 competitive bidding program. CMS will consider adding other orthotic devices to the program.

However, CMS lacks the power to use the competitive bidding program to set payments for custom orthotics. CMS is also unable to base what it pays for orthotics on non-Medicare rates and pricing trends, although the agency said it will consider seeking that power in the next President’s budget.