If we assign a new Healthcare Common Procedure Coding System (HCPCS) Level II code to a DMEPOS item or service, it doesn’t necessarily mean that Medicare payment on a fee schedule basis has never been made for the item or service described by the new code. Therefore, the first step CMS takes in making a payment determination is to decide if continuity of pricing applies. “Continuity of Pricing” means that if Medicare paid for a DMEPOS item or service in the past under an existing HCPCS Level II code, then to maintain pricing continuity in the Medicare Program, we’ll use the fee schedule amounts for that existing code when making a payment determination for the new HCPCS Level II code.

If there is a pricing history, we’ll crosswalk, or map, the previous payment amounts for the previous code(s) to the new code(s). Since there are different kinds of coding changes, there are various ways pricing is cross walked from old HCPCS Level II codes to new HCPCS Level II codes. These are described in section 60.3.1 of chapter 23 of the Medicare Claims Processing Manual (CMS Pub. 100-4) and illustrated by example below:

• One to One Crosswalk: A new HCPCS Level II code LXXX1 is added for an item or service previously classified under HCPCS Level II code LXXX2. The fee schedule amounts for HCPCS Level II code LXXX2 are crosswalked to new HCPCS Level II code LXXX1.
• A Code for One Item is Divided into Codes for the Components of the Item: The fee schedule amounts established for the HCPCS Level II codes for the components can’t exceed the fee schedule amounts for the previous single HCPCS Level II code.
• One Code Describing Two or More Distinct Complete Items (e.g., two or more different but related or similar items) is Divided into Separate Codes for Each Item: The fee schedule amounts for the previous single HCPCS Level II code are crosswalked to each of the new HCPCS Level II codes.
• Codes for the Components of an Item are Combined into One Code: The sum of the fee schedule amounts for the HCPCS Level II codes for the components of the item is used to establish the fee schedule amounts for the new single HCPCS Level II code for the item.
• Codes for Two or More Similar but Different Items are Combined into One Code: The fee schedule amounts for the new single HCPCS Level II code are based on the weighted average of the fee schedule amounts for the HCPCS Level II codes for the separate similar items.

When making a payment determination for a DMEPOS item or service, if we determine that continuity of pricing doesn’t apply, then the next step is for us to determine if the item or service is comparable to another DMEPOS item or service with an established DMEPOS fee schedule. If it is, then we’ll establish payment for the new item or service based on the fee schedule for the existing item or service.

As stated in federal regulations at 42 CFR 414.238(b), items are compared based on physical, mechanical, and electrical components, function and intended use, and additional attributes and features. As described by in section 60.3 of chapter 23 of the Medicare Claims Processing Manual (Pub. 100-4), there’s no prioritization among these categories, and this analysis may be based on the item as a whole, subcomponents, or a combination of items. A new item need not be comparable within each category. For example:

• New HCPCS Level II code A4438 was established to describe an adhesive clip. This item was found to be comparable to HCPCS Level II code A5126, so the fee schedule amount for HCPCS Level II code A4438 was established based on HCPCS Level II code A5126.
• New HCPCS Level II code L2006 was established to describe a knee ankle foot orthosis (KAFO). This KAFO was found to be comparable to a combination of the items described by HCPCS Level II codes L2036, L5856, L5828, L5848, L5845, L2755, L2385, and L2220. As such, the fee schedule amount for HCPCS Level II code L2006 was established based on the sum of the fee schedule amounts for these eight existing codes (doubling the fee schedule amount of HCPCS Level II code L2220 for the two joints).

Question:

If we believe our device or service is comparable to an existing HCPCS Level II code, should we provide that information to CMS?

Answer:

Yes, in your HCPCS Level II application, you can include that information in the “Billing Information” section of the application and we’ll take that information into consideration when making a payment determination. For more information on how to fill out a HCPCS Level II application, see HCPCS Level II Coding Procedures.

When making a payment determination for a DMEPOS item or service, if we determined that neither continuity of pricing nor comparability apply, fee schedule amounts may be established using supplier price lists, including catalogs and other retail price lists (such as internet retail prices) that provide information on commercial pricing for the item. Potential appropriate sources for such commercial pricing information can also include payments made by Medicare Advantage plans, as well as verifiable information from supplier invoices and non-Medicare payer data, such as payments made for the item or service by the Department of Veterans Affairs.

If the only available price information is from a period other than the fee schedule base period, deflation factors are applied against current pricing to approximate the base period price. The deflated amounts are then increased by the update factors specified in the Social Security Act for the relevant category. The annual deflation and update factors are located in the Medicare Claims Processing Manual, Chapter 23, Section 60.3 (Pub. 100-4).

It's very important to note that Manufacture Suggested Retail Prices (MSRPs) are not acceptable prices for gap-filling purposes. As we explain in 84 FR 60730, MSRPs are often inflated and are not necessarily indicative of the true price that is paid to a supplier. Only verifiable supplier or commercial pricing may be used for gap-filling purposes.

Question:

If we believe the payment determination that CMS makes for our device or service should be based on the gap-fill process, can we provide information to CMS to demonstrate current commercial pricing?

Answer:

Yes. But first, it’s important to clearly state in your HCPCPS Level II application why you believe your device or service is not comparable to an existing HCPCS Level II code. You can include that information in the “Billing Information” section of the application and CMS will take that information into consideration when making a payment determination. For more information on how to fill out a HCPCS Level II application see HCPCS Level II Coding Procedures.

The best source of commercial pricing are paid claims that clearly indicate the amount that was paid for the item. Since some payers may pay more and some less, we would like to see all paid claims. For new items, there may only be a handful of paid claims. For items that have been available for many years, there may be hundreds or thousands of paid claims; these could be summarized in a spreadsheet with example claims to verify various prices.

In cases where the item is sold through suppliers and the manufacturer does not have easy access to claims, you can provide us with supplier price lists or screenshots of supplier websites showing prices. Since there may be “discount” suppliers or “full-service” suppliers, you should help us to understand the market for your item and how much may be sold through different channels.

Question:

Do we have to provide pricing examples to CMS to help in making a payment determination?

Answer:

No. While we’ll do everything we’re legally able to do to protect any commercial-confidential data that an applicant may provide, we understand that applicants may not wish to share detailed pricing information. There is no obligation to provide us with pricing data. As part of our payment determination process, we’ll research any available pricing that we can find from various sources, including prices from internet suppliers, the Veterans Health Administration, Medicaid, etc. However, while we attempt to obtain pricing from a variety of sources, the data that we find may not be fully reflective of the market.

Question:

Why does CMS apply deflation factors to current pricing?

Answer:

The statute mandates payment using fee schedule amounts based on average Medicare payments made for DMEPOS items and services from a past period such as 1986 and 1987 for DME, prosthetics and orthotics, and most prosthetic devices. To meet this requirement for new items, current pricing is first deflated to the base period (such as1986/87) based on the percentage change in the Consumer Price Index for all Urban Consumers (CPI-U) from the mid-point of the base period to the mid-point of the year the pricing is in effect. Once the prices have been deflated to the base year, the annual covered item update factors provided in the statute are used to update the base year pricing to calculate the fee schedule amounts in accordance with the rules of the statute. For instance, if CMS determines that an inexpensive DME item’s gap-filled price is $100.00 in 2023 for a product introduced to the market in 2023, the fee schedule amount would be $53.40 using the annual deflation and update factors located in the Medicare Claims Processing Manual, Chapter 23, Section 60.3 (Pub. 100-4).

Question:

What do we do if we have no sales and do not have any invoices for CMS to consider?

Answer:

Manufacturer Suggested Retail Prices are not acceptable for gap-filling purposes. If the item is sufficiently new such that there are no sales to serve as pricing examples, we may defer a final payment determination until such time as there are non-Medicare payment examples. In the absence of a final payment determination, local pricing would be established by the Medicaid Administrative Contractors (MACs).

Question:

When does CMS need pricing information to establish a Medicare payment amount using the gap-fill methodology?

Answer:

Regulations at 42 CFR 414.240 require that a preliminary determination be posted 2 weeks before a public meeting (currently in May and November). Ideally, any available pricing information should be submitted with the application, within the deadlines established for each public meeting cycle. To allow adequate time to validate data and calculate a preliminary payment amount, we need to receive such data at least 6 weeks prior to posting (8 weeks prior to a public meeting). To inform a final determination, we can only guarantee that we’ll review information that’s submitted by the posted deadline for written comments for the preliminary determination. For more information about public meeting deadlines and timeframes, see Requesting DMEPOS Benefit Category Determinations.

Question:

We have changed our prices and have new claims data after CMS established a final payment amount. How can we get this updated?

Answer:

Once a final payment determination has been made, changes to that determination may only be made for errors that are discovered based on the pricing examples used to make that determination. From that point forward, the regular annual fee schedule updates would apply. If the price for an item decreases by less than 15% within five years of establishing a final payment amount, a one-time adjustment to the fee schedule amount shall be made in accordance with 42 CFR 414.238(c)(2). If we determine that a payment amount isn’t inherently reasonable by reason of its grossly excessive or grossly deficient amount, we may implement a special payment adjustment in accordance with the procedures established in 42 CFR 405.502(h).

Question:

How does CMS approach commercial confidential information?

Answer:

We’re sensitive to protecting commercial confidential information to the fullest extent required by law. To minimize any risk of ambiguity in regard to the information that a manufacturer, applicant, or commenter considers to be commercial confidential, we recommend clearly noting in MEARIS or when submitting information by email any information you consider to be commercial confidential. Please note that any presentations provided at the Public Meeting aren’t commercial confidential. We’ll also need to characterize the information that we’ve received in developing our preliminary and final payment determinations.

The MACs establish interim local fee schedule amounts for use in paying claims for new items and services billed using codes for miscellaneous items and services and for use in paying claims on an interim basis until the national fee schedule amounts are established by CMS. (Medicare Claims Processing Manual, Chapter 23, Section 60.3)