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CMS Holds Meeting on Replacement of DMERCs

On July 1, 2006, CMS plans to replace the current Durable Medical Equipment Regional Carriers (“DMERCs”) with new Durable Medical Equipment Medicare Administrative Contractors (“DME MACs”). For some O&P practices, this change may hardly be noticeable. For other O&P practices, the change will represent a significant adjustment to the provider’s Medicare practice. CMS invited a small number of provider organizations, including the National Association for the Advancement of Orthotics and Prosthetics (“NAAOP”), the American Orthotic and Prosthetic Association (“AOPA”), and the American Board of Certification in Orthotics and Prosthetics (“ABC”), to participate in a meeting to discuss the implementation of the DME MAC system and to address the concerns of the O&P provider community.


Currently, the Medicare durable medical equipment, prosthetics, orthotics, and supplies (“DMEPOS”) benefit is administered by four DMERCS: HealthNow; AdminaStar Federal; Palmetto GBA; and CIGNA. CMS awarded these DMERC contracts back in 1992 and the DMERCs and their respective jurisdictions have remained unchanged since then. These DMERCs are reimbursed a fixed amount based on the estimated cost of their services.

Section 911 of the Medicare Modernization Act of 2003 instructs CMS to replace the current system of fiscal intermediaries (for Medicare Part A), carriers, and DMERCs (for Part B) with “Medicare Administrative Contractors” (“MACs”). The most significant change accompanying the creation of the MACs is the awarding of MAC contracts through competitive bidding at least every five years, based on performance, quality, and price. The hope is that such a competitive bidding process will lead to lower costs for CMS and improved performance among contractors due to decreased complacency.

Changes in Contractor Jurisdiction

CMS has awarded DME MAC contracts to National Heritage Insurance Company (replacing HealthNow for Region A), AdminaStar Federal (Region B), Palmetto GBA (Region C), and Noridian (replacing CIGNA for Region D). CIGNA has formally protested the award of the Region D contract to Noridian – the matter is currently being reviewed by the U.S. Government Accountability Office (“GAO”), which is expected to render a recommendation to CMS (such as whether the contracts should be rebid or remain unchanged) in the beginning of May. Until that time, CMS has indicated that it will proceed forward with the expectation that Noridian will be the DME MAC for Region D.

Accordingly, the most noticeable difference will be to O&P providers in Regions A and D since, notwithstanding the CIGNA protest, these providers will work with new Medicare contractors. Additionally, because of changes in contractor jurisdictions, providers in or near four states (plus the District of Columbia) will notice significant changes. Specifically, claims for residents of Maryland and the District of Columbia will now be under the jurisdiction of Region A, rather than Region B. Claims for residents of Virginia and West Virginia will now be under Region C rather than Region B, and claims for residents of Kentucky will now be under Region B rather than Region C. These changes in jurisdiction will occur on July 1, 2006, unless the CIGNA protest delays the process.

Submission of Electronic Claims

Another significant change scheduled for July 1, 2006 is the handling of electronic claims. Currently, O&P providers who conduct electronic transactions (such as submission of electronic claims and receipt of electronic remittances) must be connected to the DMERC that has jurisdiction for the claim. For example, if the beneficiary resides in Region B, then the provider submits the electronic claim to AdminaStar Federal. If the resident resides in Region C, then the provider submits the electronic claim to Palmetto GBA.

Under the new system, all electronic transactions pertaining to DMEPOS services will go through the Medicare Electronic Data Interchange System (“MEDIS”), which will be maintained by Palmetto GBA. Accordingly, O&P providers will no longer have electronic connections to each of the DMERCs to which they submit claims. Rather, as of July 1st (assuming CMS meets its implementation deadlines), all O&P providers that conduct electronic transactions will each have only one connection – to the MEDIS. The MEDIS will then route claims to the appropriate DME MACs for payment. Likewise, O&P providers will receive their electronic remittances from all DME MACs through a single connection to the MEDIS.


In addition to the changes to the DMERCs, CMS also will be implementing changes for the statistical analysis durable medical equipment regional carrier (“SADMERC”) and program integrity safeguard contractors (“PSCs”). The SADMERC will be replaced by the Data Analysis and Coding contractor (“DAC”), although this contract has been awarded to Palmetto GBA, so this change should mostly be in name only.

CMS also stated that, beginning March 1, 2006, all of the DMERCs’ fraud and abuse functions, including all pre- and post-payment reviews, will be performed solely by program safeguard contractors (“PSCs”). Already, these duties are performed by a PSC in Region A (TriCenturion).

The PSCs for the different regions will be TriCenturion for Regions A and B, TrustSolutions for Region C, and Electronic Data Systems (“EDS”), through its subcontractor IntegriGuard, for Region D.

The transition to PSCs may prove to be a welcome relief to Region C, which has experienced significant payment delays due to frequent and onerous audits. According to CMS, Palmetto GBA, as a DME MAC, will no longer have the responsibility for such audits. This is confirmed on Palmetto GBA’s website, which states that “the DME MACs will not take over any pre-pay or post-pay medical review function or benefit integrity function performed by a DMERC. CMS awarded separate payment safeguard contracts for these functions in early December.” While Palmetto GBA will no longer be conducting pre- or post-pay reviews, there is the possibility that one or more of the PSCs will prove equally problematic (although TriCenturion has been operating as the PSC for Region A since 2001, and we are not aware of its audits being as problematic as those that have been occurring in Region C).

Performance Incentives

One of the contracting reforms with the most potential is that the new DME MACs will have performance incentives built into their contract. While CMS will compensate the DME MACs based upon the amounts specified in their bids, CMS will also offer performance incentives of between 4% and 5%. The DME MACs will be eligible for these payments if they meet certain performance measures.

CMS has not yet determined what performance measures will be used. Performance measures could potentially include prompt payment goals and incentives for meeting time deadlines on claim redeterminations. In light of the transition of pre-payment review responsibilities to the PSCs, these DME MAC performance measures may be especially helpful to providers. For example, in Region C, not only will Palmetto GBA no longer retain responsibility for pre-payment reviews, but, in fact, performance incentives may effectively penalize the contractor for pending any claims.

At the meeting, CMS solicited comments regarding what measures should be used for the performance incentives. NAAOP recommended that CMS establish and widely publicize a provider hotline where providers can report problems with the performance of particular DME MACs, and that the results of this complaint hotline should impact the contractors’ incentive payments.


The DME contract reform that will be occurring on July 1st should prove to be a positive development for the O&P community. It may alleviate the audit problems that are currently plaguing Region C. It may significantly improve contractor performance through the use of performance incentives and increased accountability (since poor performance will adversely impact a DME MACs potential for obtaining subsequent contract awards).

The changes will not come, however, without some burdens on O&P providers. All O&P providers that conduct electronic transactions will have to transition their systems to work with the MEDIS. Some O&P providers will change regions or deal with new contractors, which may entail new rules and new local coverage determinations. Additionally, the July 1st implementation may involve confusion surrounding certain claims, such as redetermination requests submitted prior to the change (CMS admitted that it has not yet worked out the details regarding whether appeals will be transferred). Finally, the rebidding of awards in five years means that providers should expect additional changes in the foreseeable future.

CMS intends to hold additional monthly meetings with provider organizations to inform the provider community of the progress of the implementation process and to solicit feedback. NAAOP, AOPA, and ABC are all participating in these meetings. It is imperative for members of these organizations to express their concerns and suggestions regarding the implementation process, so that these organizations can forward the information to CMS. For example, what performance measures would the O&P community like to see as the basis for CMS performance incentives to the new DME MACs (e.g., prompt payment measures, redetermination deadlines, rate of appeal reversals, etc.)? CMS has expressed its sincere desire to obtain the feedback of the provider community, so O&P practices should not pass up this important opportunity to impact their future Medicare experience.

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