On December 27, CMS issued a State Medicaid Director letter to explain new limitations on federal financial participation for durable medical equipment (DME) in Medicaid. Beginning on January 1, 2018  (as required by Section 5002  of the 21st Century Cures Act), federal reimbursement to states for DME expenditures in Medicaid will be limited to the amount that Medicare would have paid for those items.

In 2018, states will be required to prove that the amount that they spent, in the aggregate, on durable medical equipment is the same or less than would have been spent using the Medicare fee schedule (including any competitive bidding in the Medicare program). Any amount spent in excess of Medicare’s pricing is not eligible for federal reimbursement to states. This limitation applies only to DME that is covered under the Medicare fee schedule, and does not include prosthetics, orthotics, or supplies. In addition, only those items paid for by fee-for-service Medicaid are subject to the limitation.

States will have 3 options to prove their compliance, and therefore to receive federal reimbursement in 2018:

• Revise their Medicaid fee schedule to the same or less than the Medicare fee schedule for those DME HCPCS codes which appear on both schedules. This will result in automatic compliance with the requirements;
• Compile a list of every item of Medicaid-covered DME purchased for beneficiaries and compare the amount paid versus the Medicare fee schedule rates, and complete an annual reporting to CMS; or
• Develop an alternative agreement with CMS in order to establish compliance.

It seems likely that, as the first option results in significantly lower reporting burden, it will be the choice of many of the states that have not already based their fee schedule on the Medicare fee schedule or a fraction thereof. DME manufacturers and suppliers should therefore expect further cuts to Medicaid reimbursement from states complying with these requirements in the new year.

Applied Policy works closely with DME manufacturers and suppliers to help them understand the constantly-changing state and federal reimbursement landscape. If we can answer more questions about this or any other healthcare policy challenge, contact us at gpugh@appliedpolicy.com or 202-558-5272.