Medicare Overpayments for CGMs and Supplies Highlighted in OIG Report

Medicare Payment Recommendations for Continuous Glucose Monitors

Overview of Recommendations

A recent report from the Department of Health and Human Services’ Office of Inspector General (OIG) suggests that Medicare should decrease payments for continuous glucose monitors (CGMs) and related supplies. The findings indicate that current Medicare payments surpass both supplier costs and retail prices.

Proposed Actions by CMS

The OIG has advised the Centers for Medicare & Medicaid Services (CMS) to utilize its competitive bidding program or the “inherent reasonableness” authority to lower payments for CGMs. Earlier this year, the CMS proposed a rule to include insulin pumps and CGMs in a competitive bidding program and to transition payments to a monthly rental model rather than an upfront contract.

Growth in Medicare Payments for CGMs

Historical Context

Medicare began covering CGMs under Part B in 2017, and as coverage expanded, payments for these diabetes devices have significantly increased. According to the OIG report, Part B payments for CGMs and their supplies rose from $109 million in 2018 to approximately $1.3 billion in 2023.

Details on CGMs and Supplies

The report characterizes CGMs as devices or smartphone applications that provide and store user glucose level data. Supplies include essential disposable components such as glucose sensors and transmitters. The OIG discovered that between July 2022 and June 2023, Medicare paid $377 million—69% more than the acquisition costs for CGMs and supplies.

Potential for Cost Savings

Findings on Overpayments

The OIG highlighted substantial potential savings, particularly in CGM supplies, where Medicare payments exceeded retail prices by $290 million in just one year. Additionally, the report identified 27 instances of suppliers overbilling Medicare, receiving payments for higher-risk, Class 3 devices while supplying lower-risk, Class 2 CGMs.

Recommendations to Prevent Overpayments

The OIG urged the CMS to leverage its existing powers to revise payment rates and mitigate overpayments stemming from suppliers’ misuse of billing codes. The CMS has agreed with the report’s recommendations and has proposed changes to consolidate CGMs and supplies into a single monthly rental payment.

Future Implications for Competitive Bidding

CMS Plans and Industry Reactions

The CMS intends to reduce payments for Class 2 CGMs and supplies through its competitive bidding program while addressing Class 3 items via its inherent reasonableness authority. Under the competitive bidding program, suppliers compete to secure contracts by offering lower prices, while inherent reasonableness allows the CMS to amend payments deemed excessively high or low.

Industry Concerns and Analyst Insights

Medical device lobbyists, along with the co-chairs of the House and Senate Diabetes Caucuses, have urged the CMS to reconsider the proposed payment alterations, arguing that these changes could hinder access to CGMs and insulin pumps. J.P. Morgan analyst Robbie Marcus noted that the report suggests a likelihood of future competitive bidding in the diabetes sector, which could impact companies like Dexcom and Abbott. Investors are adjusting their expectations based on these developments, particularly in relation to competitive bidding’s potential effects on stock prices.