Nationwide Expansion of Competitive Bidding - Mark Higley’s Background and Commentary

Posted on in HME Government Issues

Over ten years after Congress authorized CMS to use competitive bidding to establish Medicare prices for certain items of DMEPOS, the agency promulgated a Final Rule (CMS 1614-F) establishing the framework to expand this competitive-bid pricing nationwide. Beginning January 1, 2016, CMS will implement the Patient Protection and Affordable Care Act’s directive to adjust payments nationwide based on DMEPOS Competitive Bidding Program (“CBP”) pricing. Unlike prior CBP rounds, which offered suppliers exclusive contracts in large metropolitan areas (competitive bid areas, or CBAs) under this program the reduced rates will apply to suppliers nationwide, without exclusive market share. CMS stated it expects the Final Rule to save Medicare $4.4 billion from January 1, 2016 to December 31, 2020, “without affecting suppliers’ ability to furnish items.” Under the Final Rule, CMS established Regional Single Payment Amounts (“RSPAs”) calculated for each of the eight regions. CMS calculates the RSPA for each region using the unweighted average of the SPAs for a DMEPOS item from all CBAs that are fully or partially located in that region, regardless of population. The unweighted average avoids giving “undue weight” to SPAs in more heavily populated areas. CMS then uses the average of each RSPA, weighted by the number of states in that region, to calculate a national average RSPA. Each RSPA must be within 20 percent of the national average. CMS accomplishes this goal by implementing a national floor of 90 percent of the national average RSPA, and a national ceiling of 110 percent of the national average RSPA. For items and services that have SPAs derived from ten or fewer CBAs (i.e., those items and services included in the nine Round 1 Rebid CBAs that were not included in later rounds), the 2016 adjusted fee schedule amount will be based on 110 percent of the average of those SPAs, and updated using an annual inflation adjustment factor where those adjustments are based solely on SPAs from CBPs that are no longer in effect. The Final Rule also allows these areas at least 110 percent of the national average RSPA to encourage continued access to DMEPOS items in areas where the cost per beneficiary of furnishing DMEPOS items and services is higher. Over the first six months of 2016, CMS will phase-in the new payments by averaging the unadjusted and the CBP-adjusted fee schedule amounts. In addition, the new payment amounts will be updated on an ongoing basis; CMS must update existing SPAs and add new SPAs with each new CBP round. Although CMS recognized the geographic variation in costs and adopted a formula for higher reimbursement for rural areas, the Final Rule makes no adjustment to account for the fact that suppliers will no longer have the advantage of an exclusive contract and increased market share to accompany those prices. Under the prior CBP rounds, CMS only awarded contracts to the lowest “bona fide” bids needed to meet projected beneficiary demand; if a supplier’s bid for an item was not accepted for a specific CBA, the supplier generally could not receive Medicare reimbursement for those items provided to beneficiaries within the CBA. This system suggested an increased market share for those suppliers whose bids were accepted. The Final Rule maintains the pricing established through prior CBP rounds, but by expanding nationwide and not limiting the suppliers authorized to receive reimbursement, no supplier will receive the anticipated market share and volume increase. In comments submitted to the agency, DMEPOS suppliers expressed significant concerns to the then Proposed Rule over their financial ability to provide items to Medicare beneficiaries at the reduced 2016 reimbursement rates without the advantages of scale. In addition, many commenters noted that non-bona fide bids on the CMS rate-setting process in prior rounds of the CBP could artificially depress SPAs. Commenters suggested that CMS use either the highest bid submitted for each item under the competition or the highest bid submitted for the item by the suppliers within the winning range (the “market clearing price” rather than the median used by CMS). Consistent with its past responses to these suggestions, CMS reaffirmed its view that SPAs based on the median bid submitted for an item in a CBA accurately reflect the costs of the items furnished by DMEPOS suppliers. CMS also stated that it will monitor beneficiary access and health outcomes to identify instances or geographic areas in which reduced reimbursement may not be sufficient to support beneficiaries’ continued access to DMEPOS. Suppliers have long-standing concerns that CMS’s CBP bid evaluation methodology -- particularly the use of an SPA (which is equal to the median of the bids submitted for that item by suppliers whose bids are below or equal to the pivotal bid, or the threshold bid) -- artificially lowers reimbursement amounts, as compared to those set through generally accepted bidding practices. By utilizing SPAs to set benchmark nationwide payment amounts, CMS could be seen as compounding stakeholder concerns about excessive price reductions under CBP that currently only impact limited, densely populated areas. Moreover, CMS did not adjust the revised payment amounts to acknowledge that suppliers’ prior bids were submitted with an understanding that they would acquire exclusive rights to distribute items in a certain area, allowing for reduced prices in exchange for increased volume. Some suppliers expressed doubts that these prices are sustainable in areas -- rural or urban -- without the expected increase in market share. Of additional concern, CMS offers in the Final Rule that it would use CBP-adjusted payment levels to set the maximum eligible bid amounts for future rounds of the CBP, potentially resulting in ever-decreasing reimbursement levels after each new round. Additionally, CMS has not presented data demonstrating that its adjustment for rural states, frontier states, and non-contiguous areas of the United States is sufficient to support the increased costs of doing business in those areas. In the Proposed Rule, CMS noted that previous legislation had required studies of the costs of furnishing DME in different geographic regions. After review of the 1996 study of DME supplier product and service costs, CMS concluded that the general consensus among those that participated in the study was that there was “no conclusive evidence that urban and rural costs differed significantly or that the costs of furnishing DME items and services were higher in urban areas versus rural areas or vice versa.” The absence of conclusive evidence supporting significant cost differences is not the same as the presence of conclusive evidence that cost differences do not exist, however. Ultimately, therefore, the reduced pricing has the potential to reduce beneficiary access to DMEPOS in rural, frontier, and non-contiguous areas.