Regulatory Alert: CMS Releases New Regulations on Competitive Bidding

Posted on in HME Government Issues

CMS has released a final rule that makes improvements to the DMEPOS competitive bidding program, addressing a few key issues, including: bid surety bonds, bid ceilings and a peek into what the agency is doing about fee schedules in non-competitively bid areas. After a brief review, VGM feels that these new changes are a step in the right direction in order for the program to have longevity and security for both providers and beneficiaries alike.

From the release:


Background: Section 1847 of the Act, as amended by section 302(b)(1) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), requires the Secretary to establish and implement the DMEPOS Competitive Bidding Program in areas throughout the United States. Under the program, DMEPOS suppliers compete to become Medicare contract suppliers by submitting bids to furnish certain items in competitive bidding areas (CBAs). Section 522(a) of MACRA amended section 1847 of the Act to require a bid surety bond and applicable state licensure for bidding entities.

Bid Surety Bond: The final rule requires bidding entities to obtain a bid surety bond, from an authorized surety on the Department of the Treasury’s Listing of Certified Companies, for each CBA associated with their bid. The bid surety bond is finalized at $50,000 and must indicate the CBA specific to that bond.

This rule also finalizes forfeiture conditions for these bid surety bonds. In the event that a bidding entity does not accept a contract offer(s) when its composite bid is at or below the median composite bid rate for suppliers used in the calculation of the single payment amount(s), the bid surety bond(s) for the applicable CBA(s) will be forfeited and CMS will collect on the bid surety bond(s). In instances where the bidding entity does not meet the bid surety bond forfeiture conditions specified in the rule, the bid surety bond liability will be returned to the bidding entity within 90 days of the public announcement of the contract suppliers for the CBA.

Bidding entities that provide a falsified bid surety bond may be prohibited from participation in the DMEPOS Competitive Bidding Program for the current round of competition in which they submitted a bid, as well as from the next round of competition. Bidding entities that provide a falsified bid surety bond will also be referred to the Office of Inspector General and the Department of Justice for further investigation. The final rule also specifies that if CMS finds that a bidding entity has accepted a contract offer and then breached the contract in order to avoid bid surety bond forfeiture, the breach will result in termination of the contract and preclusion from participation in the next round of competition in the DMEPOS Competitive Bidding Program.

State Licensure: The final rule aligns the regulation with the requirement of section 1847(b)(2)(A) of the Act, as amended by section 522(b) of MACRA, to state that a contract will not be awarded to a bidding entity unless the entity meets applicable state licensure requirements. This revision does not reflect a change in policy as CMS already has a regulation in place that requires suppliers to meet applicable state licensure requirements.

Appeals Process for a Breach of Contract Action(s): This rule extends the appeals process to all breach of contract actions that CMS may take under the DMEPOS Competitive Bidding Program, rather than just for contract termination actions. As a result, CMS will issue a notice of breach of contract, which will include any breach of contract action(s) CMS intends to take. The final rule also removes from §414.422(g)(2) certain breach of contract actions that CMS may take.

Bid Limits: This final rule establishes that bid limits for individual items for future rounds of competitions under the DMEPOS Competitive Bidding Program will be based on the fee schedule rates for the items before they are adjusted based on competitive bidding information. This will avoid a downward trend where the new, lower bid limits apply to each subsequent round of bidding based on fee schedule rates adjusted using bidding information from the previous round. This will help to enhance the long term viability of the program and allow suppliers to take into account both decreases and increases in costs in determining their bids, while ensuring that payments under the program do not exceed the amounts that would otherwise be paid had the DMEPOS Competitive Bidding Program not been implemented.


CMS is finalizing a policy to address inverted prices for similar items with different features under competitive bidding prior to adjusting fee schedule amounts paid in non-competitive bidding areas. CMS will use the weighted average of the prices for the similar items in a product category as the revised price for the items that will then be used to adjust the fee schedule amounts. 

CMS is also finalizing a policy to address situations where price inversions have occurred in the past under the bidding programs by finalizing an alternative “lead item” bidding methodology for certain items in future rounds of competitions. Under this method, a supplier submits one bid for a combination of HCPCS codes for similar items with different features. The supplier’s bid for the grouping of HCPCS codes is based on the bid for the lead item, which is the item with the most allowed services among the similar items. The payment rate for the lead item is based on the median of the bids, while the payment rate for the other codes with different features is based on a ratio of the average of the payment amounts for each code for all areas nationwide to the average of the payment amounts for the lead item for all areas nationwide.

There is a potential for providers to be concerned about having to purchase a bid bond, but the intent of this is rule is to discourage bidders well outside of the CBA from submitting suicide bids in future rounds of competitive bidding. Also, remember that beginning later next year, Rounds 1 and 2 will be combined, and each CBA that a provider bids will require a bond. If these rules are properly followed by suppliers, single payment amounts -- which now drive the non-bid (regional and rural) fee schedules -- will increase.

To clarify, the bid ceiling has not been removed entirely, but raised to the 2015 Medicare fee schedule amounts. Here are a few examples from a non-rural area:

These new changes to competitive bidding are long overdue, but there is still work to do. These changes reinforce what the industry has been warning CMS and Congress: that the competitive bidding program is unsustainable and will harm Medicare beneficiaries as suppliers are being forced out of the market. Legislation will be key in making continued improvements to the program as Congress reconvenes to address the immediate challenges that suppliers in rural America are facing with reimbursement cuts across the board.

Mark Higley will be briefly discussing this new ruling at the Medtrade Fall Conference this week and at the various locations of the Fall Seminar Series, which will continue through the month of November. Check if the Fall Seminar Series will be coming to a city near you!