Durable Medical Equipment, Prosthetics, Orthotics, and Supplies

Medicare payment for most durable medical equipment (DME), prosthetics, orthotics, and supplies (DMEPOS), as well as surgical dressings, therapeutic shoes, and parenteral and enteral nutrition, is based on a fee schedule amount. For more information, visit §1834(a) of the Act. The law also sets various ceiling and floor limits on the fee schedule for different DMEPOS categories.

For newly covered items of DMEPOS paid on a fee schedule basis where a Medicare fee does not exist, CMS establishes a fee schedule in accordance with regulations in 42 CFR § 414.238. In particular, when there is no fee schedule pricing history for the DMPOS item, CMS uses the existing fee schedule amounts for comparable items when these items are determined to be comparable to the new DMEPOS item. If there are no items with existing fee schedule amounts that are comparable to the new DMEPOS item, then CMS establishes the fee schedule using supplier or commercial price lists (this process is called “gap-filling”). This allows Medicare to establish a price that aligns with the statutory requirements for the DMEPOS fee schedule. Sections 1834(a), (h), and (i) of the Social Security Act mandate that payment for DME, prosthetic devices, prosthetics and orthotics, and surgical dressings be calculated based on the lesser of the supplier’s actual charge or a fee schedule amount. In accordance with the statute, the fee schedule amounts are based on the average reasonable charge in the state for the rental of the item or device for the 12-month period ending with June 1987.

Under gap-filling, Medicare establishes a new fee schedule amount based on (1) the fee schedule amount for a comparable item in the DMEPOS fee schedule, or (2) supplier price lists or retail price lists, such as mail order catalogs, with prices in effect during the base year. In establishing fees for newly covered DMEPOS, Medicare first looks to identify a comparable DMEPOS item for which a fee schedule amount already exists, as existing fee schedule amounts are based on average reasonable charges for items paid during the base year. CMS determines whether a comparable item exists based on the purpose and features of the device, nature of the technology, and other factors, and then applies that fee to the new item. If the item is determined to not be comparable, CMS turns to supplier price lists, including catalogues 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 verifiable information from supplier invoices and non-Medicare payer data (e.g., fee schedule amounts comprised of the median of the commercial pricing information adjusted as described below).

If the only available commercial pricing is from a period other than the base year, CMS first deflates pricing data to the mid-point of the base year (e.g., December 1986) using the percentage change in the Consumer Price Index for All Urban Consumers from the mid-point of the pricing year to the mid-point of the base year (see Publication 100-04, Chapter 23, Section 60.3 for deflation factors). CMS then inflates that amount to the payment year using the update factors required by law. This allows Medicare to establish a fee for the newly covered item consistent with the law.

Beginning in 2022, generally, Medicare benefit category and payment determinations for new DMEPOS items and services are made twice a year, after receiving public comment, alongside HCPCS Level II coding decisions.

For more information about DME gap-filling, refer to Medicare Claims Processing Manual (Chapter 23, Section 60.3), CMS-1691-F, 42 CFR 414.238(c), and 42 CFR 414.112.

DMEPOS Competitive Bidding Program

The DMEPOS Competitive Bidding Program was mandated by Congress through the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). The statute requires that Medicare replace the current fee schedule payment methodology for selected DMEPOS items with a competitive bid process. Section 1847 of the Act requires that “single payment amounts” replace the Medicare DMEPOS fee schedule payment amounts for competitively bid DMEPOS items in certain areas of the country. The single payment amounts are determined by using bids submitted to CMS by DMEPOS suppliers. The program is intended to set more appropriate DMEPOS payment amounts, which will reduce beneficiary out-of-pocket expenses and save the Medicare program money while ensuring beneficiary access to quality items and services.

For more information, including an up-to-date list of items and services that are covered by the program, refer to:

• DMEPOS Competitive Bidding (cms.gov)
• Competitive Bidding Implementation Contractor (CBIC)