The Value and Importance of Bid Calculators for Round 2021 Competitive Bidding

Published in Billing, Reimbursement, Audits and Compliance on August 07, 2019

By Craig Douglas, VP of Payer and Member Relations, VGM & Associates

If someone would have told me a year ago that for the next round of Competitive Bidding (CB) a Durable Medical Equipment (DME) supplier could lose $100,000, $250,000, $500,000, or even $1,000,000 or more in revenue by bidding rates that were equal to the rates that are in place today, I would have said you were crazy. But, that is exactly what can happen.

Bidding today’s rates will not keep rates the same for every item included in Round 2021 of CB. In fact, it will likely only keep one or two items in the entire category either at or above today’s reimbursement rates. How can this be, you ask? The answer lies in how the new program is structured and how the concept of lead item pricing impacts reimbursement rates for non-lead items.

For Round 2021, the Centers for Medicare and Medicaid Services (CMS) have divided up all the items of Healthcare Common Procedure Coding System (HCPCS) codes that are included in this round of CB into 16 product categories. For each category, they’ve assigned a “lead item,” which is the item that is responsible for the most Medicare dollars spent of all the products in that category. This lead item is the only item that DME suppliers are assigning a bid price to. For the rest of the products in the category, CMS has assigned individual ratios to each code. Once the bid price for the lead item is entered, the new payment amounts for each non-lead item is calculated based on the ratio that was assigned to that item.

There are three calculators that exist to help illustrate how the bid you place on your lead item will impact the reimbursement rates for the rest of the category. The first calculator can be found at DMEPOS Competitive Bidding Program.

To use this calculator, select your product category, enter a bid price for the lead item, and click calculate to see the new payment amounts for all the non-lead items in the category. It will also show the ratios that CMS has assigned to each lead item. Unfortunately, that is the extent of what can be calculated using this tool.

Having seen the shortcomings of the first calculator, several DME industry stakeholders pooled their knowledge and resources to develop an enhanced and much more functional calculator, which can be found at DME CBP Education.

Using this calculator, providers are able to:

Choose a CBA

  • See the bid ceiling for each lead item
  • See the current payment amounts for all items
  • Compare the new rates to the old rates from a dollar and a percentage standpoint
  • Enter their direct and indirect costs
  • See which items went up or down in reimbursement and by how much

The third version of the calculator was created by VGM and can be found at VGM D.C. Link.

It offers additional functionality by showing the actual impact on the bottom-line revenue of a company at whatever bid price has been entered. Suppliers can enter the quantities they have billed to Medicare in the past or quantities that they project to bill to Medicare in the future.

When a bid price for a lead item is entered, it will calculate the revenue on that book of business at today’s reimbursement rates. It will also show what the total revenue will be on that same book of business based on the payment amounts derived from the bid price that they entered.

Rather than seeing only that reimbursement may have gone up for some items and down for others, a supplier can now see the full actual impact on the entire book of Medicare business at the bid price they entered. Using this information, they can make a much more educated decision about what bid price they should ultimately submit.

These calculators are imperative tools as they show that it’s possible for providers to submit bids that were equal to or slightly above today’s rates and end up seeing a decrease in revenue totaling hundreds of thousands of dollars.

Case in point: I recently spoke to a supplier who was preparing bids for multiple product categories in multiple CBAs. They hadn’t participated with Medicare in the past due to reimbursement rates being too low. They were, however, going to participate in Round 2021 because of the bid ceilings being raised to levels higher than today’s rates.

The supplier performed an internal analysis on their own and came up with bid prices they thought were fair for each lead item. Their bid prices for lead items were higher than today’s Medicare rates. However, when conducting their analysis, they overlooked the ratios that were assigned to the non-lead items. They were only looking at the bid price for the lead item.

When they plugged their bid prices into the calculator for each category in each CBA, they ended up seeing a decrease in revenue of over $650,000! If they had not utilized the calculators and simply relied on their own analysis to determine bid prices for lead items, their bid price – assuming it was accepted by CMS and set the new payment amounts for the CBA – would have put them out of business in a matter of months.

It is absolutely imperative that DME suppliers familiarize themselves with the structure of Round 2021 and fully understand the impact their bid prices will ultimately have on their respective businesses.

For more information about the Round 2021 Competitive Bidding Program, visit Round 2021 Details Just Announced—Timeline Included.

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