Summary: In 1998, Medicare paid at least $5.9 billion for medical equipment and supplies on behalf of beneficiaries who live at home or in long-term-care facilities. The Health Care Financing Administration (HCFA) is authorized to use a revised inherent reasonableness process to adjust Medicare payments by up to 15 percent a year for medical equipment and supplies. GAO found that HCFA acted properly in issuing an interim final rule to implement the inherent reasonableness provision. GAO also found that using retail surveys as a basis for adjusting Medicare payments is a sound concept for pricing products that can be bought in retail outlets. Survey data clearly showed that Medicare payments are much higher than the median surveyed retail prices for five of the products reviewed: lancets, eyeglass frames, urinary catheters, and two types of catheter insertion trays. As a result, payment reductions of up to 15 percent are justified for these items. Retail surveys may not be the best way to set payments for items not generally sold at retail prices, such as enteral formulas. For such products, using wholesale prices plus a reasonable markup may be a better approach. Fewer suppliers may be willing to provide these items to beneficiaries at the lower payment rates. However, because retail prices, which include retailers' costs for both acquisition and service, were used to establish the proposed reductions, GAO believes that access to these products is not likely to be significantly affected.
