Published on Oct 23, 2020
On August 4, the Centers for Medicare and Medicaid Services released its annual update to the Physician Fee Schedule (PFS), which establishes reimbursement rates for services covered under the federal health plans.
The proposed 2021 rates include new Category I reimbursement codes for external electrocardiographic (ECG) heart monitoring, setting these rates at $375.83 & $386.16 for 1 week and 2 weeks’ worth of monitoring, respectively.
The proposed rates, if adopted, could provide a windfall to iRhythm Technologies (IRTC), which dominates the ECG monitoring industry with roughly 62% market share, according to a recent investor presentation. Previously, ECG monitoring had been billed as a Category III reimbursement code, which are reserved for emergent or experimental services, technologies, or procedures.
The shift to Category I coding creates a more dependable source of reimbursement for external ECG monitoring, as Category III codes are generally reimbursed on an ad hoc basis with Medicare Administrative Contractors. Medicare currently reimburses the Category III ECG monitoring at about $300 or less and Medicaid, which is run at the state level, generally did not reimburse for ECG monitoring at all.
iRhythm management told investors soon after the publication of the proposal that the Category I rates would have “high single-digit impact year-over-year” to its revenue.
However, in proposing the prices, CMS appears to acknowledge that its methodology may be flawed and specifically requested additional information from public commenters to help it determine a better price for ECG monitoring.
Comments on the docket have criticized several aspects of CMS’ methodology and offered their own proposed prices, which all drastically reduce the reimbursement rate. One commenter submitted a detailed analysis that concluded the reimbursement rate should be $66.25 for 1 week of monitoring and $82.66 for 2 weeks of monitoring, a decrease of roughly 80% for each service.
Additionally, commenters point out that the high rate of reimbursement could result in a spike in claims volume that could drain CMS coffers.
A source knowledgeable of CMS’ rulemaking process who spoke on the condition of anonymity told The Capitol Forum that the agency would likely take these comments into account when issuing a final rule.
CMS is statutorily required to publish its final rule on November 1 with implementation for January 1 2021, but a source at the agency said that it was likely that publication of the final rule may be delayed due to the coronavirus pandemic. The source also stated that the agency was aware of the comments critical of its ECG pricing but declined to comment on an ongoing decision-making process.
Investors have also posed questions to iRhythm regarding the possibility of CMS revising its proposed rates downwards. “Historically, does the reimbursement tend to change from the proposed rule to the final rule?” one investor asked on a conference call to discuss the recently published rates.
In response, company management stated that “As far as on the code structure side, the process was so thorough and so complete, I’m hoping that there’s not much to change. But of course, there’s the comment period. And we’ll see what happens.”
Historically, CMS has rarely revised proposed prices downward, but commenters’ submission of commercial invoices, which manufacturers declined to give the agency, could convince CMS to lower the proposed rates.
iRhythm did not respond to a request for comment for this article.
Lack of commercial invoices leads to substitute pricing. iRhythm has acknowledged that it worked with the American Medical Association to provide CMS with 500,000 invoices to help it determine the new rates for ECG monitoring. However, in the proposed rule, CMS appears unsure of the reliability of that data, which would have priced ECG monitoring anywhere from $416 to $595.
“Although we are appreciative of the data provided by the stakeholder, we require an invoice representative of commercial market pricing to establish a national price for a new supply or equipment item,” CMS wrote in its proposal, concluding that “we cannot establish supply pricing based on an analysis of claims data and in absence of a representative invoice.”
Instead of using the data provided by iRhythm and other stakeholders as the basis for a price, CMS is applying what is known as a “crosswalk,” using the supply price of an existing device on the Physician Fee Schedule to calculate the reimbursement rate for ECG monitoring.
In the case of ECG monitoring, CMS is proposing to use an implantable device that stimulates nerves in order to assist with urinary incontinence, which the fee schedule lists as having a supply cost of $413.24. CMS stated that it intends to use the price for the incontinence device as a proxy price in its calculation until it receives additional commercial invoices.
“Although this kit is not clinically similar to the extended external ECG patch, we believe that it is the closest match from a pricing perspective to employ as a proxy until we are able to arrive at an invoice that is representative of commercial market pricing,” CMS wrote, adding that “We welcome the submission of invoices or other additional information for use in pricing the ‘extended external ECG patch, medical magnetic tape recorder’ supply.”
In its public comments, iRhythm stated that it agreed with the decision to crosswalk to the incontinence device, but declined to provide any commercial invoices as requested by CMS. “iRhythm recognizes the desire of CMS to have an invoice that is representative of commercial market. As we have stated in previous communications with CMS, because the independent diagnostic testing facilities that furnish the extended ECG services are also the manufacturers of the devices, there are no invoices that reflect the sale or purchase of this supply item or the related software required to scan and analyze the extended ECG data recorded on this patch.”
In its comment on the proposed rule, iRhythm also cautioned CMS from using other pricing information it may receive during the comment period.
Commenters criticize CMS methodology, submit commercial invoices. As previously mentioned, commenters criticized several parts of CMS’ methodology, including CMS’ decision to label the ECG monitor as a disposable item rather than a reusable item.
Most of all, however, commenters criticized use of the urinary incontinence device to stand in for the cost of the ECG monitoring equipment.
According to James Muller of Muller Consulting and Data Analytics, a healthcare consultancy that submitted an 84-page report during the comment period, CMS is working backwards, using an existing technology to accomplish the price proposed by iRhythm. Muller declined to comment on who sponsored his report, but said that he had begun his analysis independently.
“The $416 to $595 cost is based on the provider submitting total cost for their product, which includes indirect costs like marketing and executive bonuses, which are already accounted for elsewhere in the PFS, but CMS couldn’t justify that cost without real commercial invoices,” Muller told The Capitol Forum in an interview, “Instead, they found something existing. The incontinence neurostimulator happens to be a direct supply input whose cost per service is the closest to the $416 cost from the provider.”
To Muller, the comparison to the incontinence device is unsound for a number of reasons, from both an accounting and technical perspective. Muller also pointed out several technical and engineering differences between the neurostimulator and external ECG monitors, such as the neurostimulator’s
ability to be wirelessly charged and the electrodes that stimulate nerve endings to help patients urinate, that make the comparison less accurate.
Additionally, the fact that the neurostimulator is implanted in the patient, in contrast to the reusable external ECG monitor, struck Muller as a particularly notable oversight in CMS’ proposal.
“The neurostimulator is a supply item, meaning it’s disposable. It gets implanted in the body and that’s it. ECG monitors are external, so there is obviously less service performed, and they can be used many times on many patients. CMS should take the cost of the ECG monitor and amortize it over its lifespan,” Muller said, “which would significantly cut down its service cost.”
According to Muller, however, the main issue with CMS’ analysis is that the agency has over relied on the submitted information from iRhythm to allow it to arrive at the roughly $400 reimbursement rate to begin with.
After analyzing CMS’ proposed prices for ECG monitoring, Muller found that “there appears to be a lot of double-counting of indirect costs, and CMS is proposing to use the unmitigated costs proposed by dominant provider of these services.”
In submitting its invoices to CMS, Muller found that iRhythm labelled indirect costs such as marketing as direct costs. According to Muller, under the current proposal, CMS takes direct costs and adds an additional 50-63% of payments for indirect costs.
Including indirect costs in the direct cost, Muller concludes, creates a ripple effect that magnifies existing payment imbalances when CMS calculates the additional allotment for indirect costs.
“Essentially, iRhythm has told them that ECG monitoring should be reimbursed in the $400 range, and in the absence of other data, CMS is using a crosswalk to another device to try to make sense of the price for the time being,” Muller added.
According to Muller’s report, removing the double counting of indirect costs as well as other recommendations would cut the reimbursement rate for 7 and 14 days of monitoring from $375.83 and $386.16 to $66.25 and $82.66, respectively.
As part of his analysis, Muller submitted invoices from iRhythm competitors Biotelemetry (BEAT) and Scottcare for purchases of their respective ECG monitors. Amortization of the purchase price of those monitors, combined with the service cost to analyze the recorded data and the cost of disposable items like adhesive patches, yielded reimbursement rates that confirmed Muller’s $66.25 and $82.66 figures.
CMS takes comments into account, according to sources. A source familiar with CMS’ policy making told The Capitol Forum that CMS does take public comments into account when formulating a final rule.
“The answer is a definite yes,” the source told The Capitol Forum, “CMS has a lot of knowledge and information, but they depend on the public comment process to inform them of information they may not know. It not uncommon for CMS to make a change in the final rule when new information is brought to their attention by public commenters.”
The source found CMS’ request for additional invoices interesting, indicating that CMS’ may be more open to revising its proposal. However, the source was not surprised by manufacturers’ reticence to provide commercial invoices.
“CMS often has difficulty getting invoices to price medical equipment and supplies,” the source said, “It is very common that manufacturers don’t provide invoices during the comment period. Manufacturers may not want to reveal contracted prices that they view as confidential proprietary information.”
According to Muller, manufacturers are much more open to sharing commercial invoices when they feel that CMS has undervalued, rather than overvalued, a service.
“They have an incentive to stay quiet,” explained Muller, “They are under no obligation to share any of that information with CMS; it wouldn’t make business sense. It’s awkward because CMS, in proposing such a high price, limits the incentive for people to speak up. CMS’ only other opportunity is to get it from physicians, but they also benefit from this high rate.”
The source familiar with CMS’ processes stated that the independent submission of invoices could prove valuable during the rulemaking process, and questioned CMS’ decision to crosswalk to the neurostimulator incontinence device.
“You would think for ECG monitoring, there are a number of types of these products, and there would be similar product that could be available for a crosswalk” the source said, adding that “I don’t know why they used this for the proposal, but that’s the purpose of the comment period, for people to explain to CMS why there is a better alternative. There may be comments suggesting CMS select a different crosswalk, saying it’s an invasive procedure not external, etcetera, and CMS will have to explain why the crosswalk they selected is better or agree with the comment in the final rule.”
Capitol Forum review of changes between proposed and final rule finds that CMS revises prices, but rarely downward. The Capitol Forum reviewed changes between the proposed and final rules in the 2018, 2019, and 2020 Physician Fee Schedules.
According to the review, CMS often revises its reimbursement rates based off of commenter input. However, almost all revisions were to increase the rate of reimbursement, potentially echoing Muller’s assessment that companies do not generally complain when they receive too much money.
For example, in 2019 CMS increased the proposed reimbursement rate for the same neurostimulator device that is currently proposed as the proxy price for ECG monitoring. CMS had originally proposed a reimbursement rate of $114.52 but revised it to $413.24 after commenters pointed out that “the device that generates the neurostimulation, which is the most expensive component of the test kit, was not included in the proposed pricing for this supply.”
Interestingly, the neurostimulator component, which CMS concluded was the determinant factor in raising the reimbursement rate from $114.52 to $413.24, is not included in the ECG monitoring devices that CMS is proposing to use as an equivalent proxy device.