Department of Veterans Affairs Office of Inspector General Issues a Report on VA Payments for Prosthetics


As many AOPA Members may already be aware, earlier this week, the Department of Veterans Affairs Office of Inspector General (VA OIG) issued a report regarding VA overpayments for prosthetic devices described by not otherwise classified (NOC) procedure codes. The full report may be accessed here.

The key paragraph in the report addresses purported overpayment by the VA to prosthetic providers of $7.7 million from October 2014 through July 2017. The paragraph reads as follows:

“The VA Office of Inspector General (OIG) substantiated allegations received in January and February 2016 alleging the Veterans Health Administration (VHA) was overpaying for prosthetic items because it incorrectly used Not Otherwise Classified (NOC) codes to classify the items for payment to vendors. Incorrectly using an NOC code can result in an overpayment because the payments are not based on pre-established reimbursement rates. For example, the Touch Bionics I-Limb, when classified with the correct code, costs VHA about $27,000. However, VHA paid vendors as much as $61,702 for the same item when classified using an NOC code. The OIG found that VHA overpaid vendors about $7.7 million from October 2014 through July 2017. The OIG found prosthetists incorrectly used NOC codes to classify prosthetic items when existing codes adequately described the items. Prosthetists incorrectly used NOC codes because they were either unaware of the existing codes or because they allowed vendors to classify the items with NOC codes. The incorrect use of NOC codes to classify some prosthetic items was not detected because the Prosthetic and Sensory Aids Service lacked a process to monitor the use of NOC codes. Because prosthetists incorrectly used NOC codes to classify prosthetic items for reimbursement, VHA paid more for the items. The OIG made five recommendations including determining which codes are appropriate to classify prosthetic items for reimbursement and issuing revised guidance, establishing an oversight and reporting structure that defines the roles and authorities to approve recommendations for the use of codes to classify specific prosthetic components, developing processes to monitor the use of NOC codes, and implementing processes to establish pricing guidance that ensures VA pays a fair price for items classified using an NOC code.”

Fundamentally, The OIG’s critique is based on the errant assumption that the Medicare code/HCPCS process and PDAC coding verifications are working appropriately. If that were true, the OIG conclusions in the report might be at least partially correct, but the assumption is false, and so the OIG criticism is wrong, missing the point. The situation reflected in the VA OIG report represents a clear, but unfortunate choice—will veteran amputees receive the high quality of care to which virtually everyone in America says they deserve or will their access to advanced technology be limited due to an outdated and ineffective coding system. If the VA had followed the limitations of the Medicare-based HCPCS coding system and product verification, it is exceedingly unlikely that amputee veterans would have gained access to, and the benefits of these new technologies. Knowing this, key leaders within the VA prosthetics leadership identified a way to make sure amputee veterans could receive these newer devices—by providers using the Not Otherwise Classified—NOC codes.

Below is a summary of why the CMS-based coding system, also generally used by the VA is broken.

Is the Coding Process/System, and the Related Assignment of Pricing for New Prosthetic and Orthotic Products, in Its Obsession to Reduce Costs, Serving as an Impediment to Investment in Innovative Technologies That Could Benefit Medicare Beneficiaries?

Research and development (R&D) for health care—whether in pharmaceuticals or in devices, represents a substantial capital commitment of resources. Companies commit to R&D based on their expectation that the increased benefits and value of new, improved technologies will be recognized via higher, justified pricing and reimbursement. If pricing is locked regardless of increases in value, companies and their investors will refrain from substantial resource commitments that offer no return on the investment. This is a basic business concept and not hard to understand.

The group with proper authority for overseeing new code requests – Medicare’s HCPCS Workgroup – presents profound challenges that severely discourage the introduction of new orthotic and prosthetic technology to market, and this disincentive is reinforced by an outdated pricing policy currently under examination. In an era of unparalleled technological innovation, where FDA records demonstrate that 98% of the new medical devices applications it processes are approved as to their safety and effectiveness, the number of applications to the HCPCS Coding Workgroup has decreased. Over the last 5 years, O&P manufacturers have submitted only 24 applications for new products, a nearly 50% decline when compared to the preceding 5 years (49 applications).

During the same 5-year period, the HCPCS Coding Workgroup has approved only two new O&P codes, one of which – a powered ankle-foot system for lower-extremity amputees – Medicare’s contractors later designated as non-covered for all Medicare beneficiaries. This tells the story that only 4% of HCPCS code applications submitted over the last five years have resulted in a new device gaining access to Medicare beneficiaries, and less directly, to VA patients. These numbers suggest that the obstacles to both obtaining a code and maintaining coverage for it are stifling prosthetic and orthotic innovation.

Below are a few examples of significant new technologies where both patient access, and manufacturer return on investment have been severely hampered by regulatory actions that short-changed Medicare’s recognition of significant advances because Coding and Pricing authorities were excessively locked into assuring that there be no increase in payment commensurate in any way with either increased value, or manufacturer R&D investment needed to bring the product to market.

1. Ossur Pro-Flex was introduced as a new, highly dynamic foot design. Yet, it was classified according to predicate products that shared its basic design features even though the performance characteristics of the new product were very different from the predicate products it was classified as being similar to.

2. Bionix, powered ankle/foot—a relatively new product, which was issued a new HCPCS code (L5969) but with an unreasonable reimbursement amount. After 4 months the DME MAC contractors indicated that there was “insufficient information to demonstrate that the item meets the Medicare standard to be considered reasonable and necessary” and that claims for L5969 will be denied as not reasonable and necessary. The Medicare fee schedule for this code was subsequently eliminated. A code without any Medicare allowable is not a viable code that anyone will use. After years of effort by the manufacturer, it appears this inequity may be poised to be addressed and rectified.

3. Genium knee (mentioned specifically in the OIG report)—the manufacturer did not seek a new code, planning to await some research and clinical results with the product. The DME MACs took the initiative to assert that the device was NOT experimental and assigned the new device the identical allowable reimbursement as the preceding “C-leg” device, despite significantly advanced product performance largely attributable to advances in software—CMS has locked into hardware only, ignoring the valuable software advances that deliver better performance.

Turning to another dimension of coding and pricing policy for new orthotic and prosthetic technologies, the standards upon which the PDAC evaluates coding verification applications and the rationales underlying its decisions are not publicly available in any format. To the extent that industry experts can assess the reasoning behind the PDAC’s coding decisions, they note that these determinations appear to rest only on the device’s appearance not its performance characteristics, that is, what that same device actually does for the patients who need them[instead of whether it looks like the original ‘predicate product, which may have been on the market for 30 years (does today’s automobile look exactly like cars built 30 years ago, or operate exactly the same way?)]. As a result, prosthetic and orthotic manufacturers almost universally decline to voluntarily submit coding verification requests to the PDAC, a process which itself lacks transparency.

AOPA has tried for the past year to activate discussion, via a Roundtable or Joint Hearing whereby the House VA Health Subcommittee, and the House Ways & Means Health Subcommittee could gain a greater understanding of the many problems with the coding and product verification processes, and the adverse impact these can have on new product development and ultimately the adverse impact this has on both Medicare amputees, as well as amputee Veterans access to technology demonstrated in a recent report by the RAND Corporation to reduce serious falls, and death from falls by 450%.

The HCPCS coding system, and CMS coding verification are at best marginally functional, and at worst dysfunctional. We cannot address whether either the percent of the mark-ups or reimbursements paid that are mentioned in the VA OIG report were appropriate. What we can say, is that VA personnel, the VA Coding committee, and the private sector contractors who serve the amputee veteran community were faced with the dilemma of how to try to keep the care for amputee veterans current with new technology, and assure that veterans who had sacrificed a limb in the service of their country received timely access to improved mobility, despite the profound problems with the coding and product verification systems used by Medicare. Perhaps they could have done a better job, which may have saved the VHA money, but the steps these parties took did undoubtedly improve Veterans access to quality care, and improved mobility.

AOPA has been working, and will continue to work, with others, including the O&P Alliance and the HCPCS Coding Alliance to rectify these shortcomings. We’ will continue to keep AOPA members informed on our progress. The AOPA VA Committee, chaired by Frank Snell, is actively engaged on this report, and will be discussing this further when they meet at the AOPA National Assembly in Vancouver in late September.