Dive Brief:
- A government watchdog recommends Medicare reduce payments for continuous glucose monitors and supplies.
- A report issued Tuesday by the Department of Health and Human Services’ Office of Inspector General found that Medicare payments for the diabetes devices and supplies exceed supplier costs and retail prices.
- The OIG recommended the CMS use its competitive bidding program or “inherent reasonableness” authority to reduce payments for CGMs. The CMS earlier this year issued a proposed rule seeking to include insulin pumps and CGMs in a competitive bidding program, and to change payments to a monthly rental schedule instead of an upfront contract.
Dive Insight:
Medicare first started covering CGMs under Part B in 2017. Payments for the diabetes devices have grown over time as coverage has expanded to more people. Part B payments for CGMs and supplies increased from $109 million in 2018 to $1.3 billion in 2023, according to the report.
The OIG report defines CGMs as a receiver or smartphone application that can display and save information about a users’ glucose levels. The report defines supplies as disposable components, including glucose sensors and transmitters.
In total, the watchdog found that Medicare paid $377 million, or 69%, more than suppliers’ acquisition costs for CGMs and supplies between July 2022 and June 2023. For CGM supplies in particular, the OIG sees the biggest potential for cost savings. The report found that Medicare payments for supplies exceeded retail prices by $290 million in one year.
The OIG also identified 27 cases where suppliers overbilled Medicare, receiving payments for higher-risk, Class 3 devices when they actually provided lower-risk, Class 2 CGMs.
The watchdog recommended the CMS use its existing authorities to adjust payment rates and take action to prevent overpayments caused by suppliers’ improper use of billing codes. The CMS concurred with the report’s recommendations.
In July, the agency issued a proposed rule that would combine CGMs and supplies into one monthly rental payment. The CMS plans to reduce payments for Class 2 CGMs and supplies through its competitive bidding program, and for Class 3 CGMs and supplies through its inherent reasonableness authority.
In the CMS’ competitive bidding program, suppliers compete for contracts to provide equipment at lower prices. Inherent reasonableness gives the CMS authority to correct payments that it determines are “grossly deficient or excessive.”
Earlier this month, medical device lobbyists and the co-chairs of the House and Senate Diabetes Caucuses urged the CMS not to finalize the proposed payment changes, saying they would reduce and complicate access to CGMs and insulin pumps.
J.P. Morgan analyst Robbie Marcus wrote in a research note on Tuesday that the report signals potential future competitive bidding in the diabetes space.
“While this does not explicitly mean that CGM competitive bidding is coming, in our view, it does raise the likelihood,” Marcus wrote.
For Dexcom, one of the leading makers of CGMs, investors are already factoring in a high likelihood of competitive bidding into the company’s stock price, Marcus added. For Abbott, the other main competitor in the space, Marcus expects less of an impact due to lower pricing across the board and specifically in the CMS’ durable medical equipment channel.
