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David McGill Blogger

60% of What?

Posted by David McGill | January 30, 2015

​For the first time that we're aware of, one of the Medicare Administrative Contractors has issued explicit guidance regarding what the correct metric is for calculating "the cost of replacement" for prosthetic devices. In this post, we give you (1) the relevant background, (2) the new guidance, and (3) its potential impact.

1. Background

The Medicare Benefit Policy Manual* states that payment may be made for a replacement prosthetic device or part if "the ordering physician determines that the replacement [ ] is necessary because of any of the following:

​1. A chance in the physiological condition of the patient;

2. An irreparable change in the condition of the device [or part]; or

3. The condition of the device [or part] requires repairs and the cost of such repairs would be more than 60 percent of the cost of a replacement device [or part]."

While this rule at first reading seems clear, it has provoked considerable confusion in the field. The reason for this is that Medicare does not clearly identify what number you should be analyzing when talking about replacement cost. 
Is Medicare referring to your cost to purchase a product and bring it into your facility? If yes, then you would calculate the repair costs as a percentage of the manufacturer's invoice. 
Alternatively, is Medicare referring to the allowable charge for the device as the metric for replacement cost? If that were the case, the value of the reimbursement code or codes making up the item at issue would be the benchmark against which you'd conduct the more-than-60% analysis. 


Well, now we have an answer from the DME MAC for Region B. 

2. The New Guidance

We reviewed the slides from a recent National Government Services presentation earlier this week. Of particular note was the following bullet point:

​In making [the determination whether to repair or replace a device], contractors may consider whether the accumulated costs of repairing the item exceed 60 percent of the purchase fee schedule amount for the item. [emphasis added]

This is the first time we've seen clear guidance from a MAC stating that when conducting the more-than-60% analysis, the relevant benchmark is the fee schedule amount.
3. What does this mean for you?
If you have been calculating replacement cost historically based on the Medicare fee schedule, then it's business as usual for you. But if you've been doing the analysis by comparing the repair cost to your cost to replace the device - i.e., the invoice from the manufacturer who made the component at issue - then you need to adjust your analysis. Failing to do so could lead to claim denials on the ground that you've failed to show that the costs of repair exceed the 60% threshold (as measured by the Medicare fee schedule amount for that item).
There's one additional item of note: the NGS presentation quoted above states that "contractors may consider" [emphasis mine] the more-than-60% analysis when considering repair or replacement. This implies that the DME MACs could assert this basis for denying a claim for a replacement prosthesis/part entirely at their own discretion. (Whether they do or not remains to be seen. Hence, the discussion that follows.) 
But look back at the Medicare Benefit Policy Manual Language quoted above: it's clear that any one of the three grounds for replacement provides an independent basis for justifying payment. In other words, if you showed either (a) a change in the patient's physiological condition or (b) an irreparable change in the condition of the device, that alone would satisfy Medicare's replacement criteria. 
Why go through this point in such detail? We strongly recommend that suppliers closely examine any denials they receive from a MAC on the ground that the cost of repair isn't more than 60% of the cost of replacement. Because if your claim justifies the need for replacement on either of the other two criteria (and the doctor's medical record corroborates those facts), then it would be inappropriate for the MAC to deny the claim based on the more-than-60% analysis. 
We can't determine at the time of publication whether the MACs  intend in the future to apply the more-than-60% analysis broadly to claims that may have satisfied one or both of the other bases for replacing a prosthesis or part thereof. But it is something you need to monitor moving forward, as we believe such actions by the MACs would not be compliant with the directives of the Medicare Benefits Policy Manual, and would give you a valid basis for appeal.
As additional information on this topic becomes available, we will update you in the future.
*Medicare Benefits Policy Manual, Chapter 15, Section 120.  


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