Pivotal Bid Results for Round 2021 of the DMEPOS Competitive Bidding Program: Analysis & Commentary

Published in Government Relations on January 20, 2021

By Mark J. Higley, Vice-President, Regulatory Affairs, VGM & Associates, Inc.

On January 15, CMS publicly shared the pivotal bid (“clearing price”) amounts for the 13 product categories that were withheld from the Round 2021 program.

As most are aware, 16 product categories were originally included in the program. Non-invasive ventilation was dropped from the competition earlier due to concerns relative to the public health emergency. Two categories – off the shelf knee and back braces – were included, and remain contracted in 127 CBAs for both categories (three CBAs have none) and in about a dozen CBAs only one of the two categories are contracted. The reason: “insufficient savings,” an authority the agency maintains in this (and all previous) bidding rounds to remove contracting procedures if administration costs are at a level where contracting savings to the entitlement program are insufficient.

To which brings me to the purpose of this document: the remaining 13 categories were removed from competition in all of the 130 CBAs for the identical justification. Industry stakeholders were generally pleased with the removal (though not all…) due to the effects of the COVID-19 pandemic on a plethora of operational and financial metrics including patient access and delivery restrictions, product and freight acquisition costs, wide swings in demand (e.g., many elective procedures were effectively halted, while requirements for respiratory therapies surged), and so on. Essentially the industry opined that the assumptions and “expected demand” by category by CBA were no longer valid/appropriate due to the pandemic.

However, stakeholders were interested in “what the results would have been” and, accordingly, requested information regarding the pivotal bid results of the round. Perhaps somewhat surprisingly – and on a rather timely basis - CMS released the prospective single payment amounts (SPAs) for the lead item of the 13 categories in all 130 CBAs.

Allow me to present a summary “visual”:

VGM Gov Chart

What must be glaring even to the eyes of those who do not follow the bidding program closely is the extreme variance noted among the 130 bidding areas. (Details by category may be found here).

In previous rounds, results generally included a variance of plus or minus 10% points for each category among all the CBAs. And, due to a January 1, 2016 rule, CMS has been required to use payment rates established under the competitive bidding program to adjust payment rates for the same products in non-competitive bidding areas (non-CBAs). CMS established a regional price (regional single payment amount, or RSPA) equal to the un-weighted average of the SPAs for an item established for CBAs that are located in the same region that contains the state/District. The RSPAs are limited by a national ceiling, equal to 110 percent of the average of the national average price (the un-weighted average of the regional prices), and a national floor, equal to 90 percent of the national average price. More simply stated…reimbursement to DME suppliers in CBAs and non-CBAs generally did not vary more than 10%, regardless of the area of the country.

To be clear: this would NOT be the case should have these 13 product categories been subject to program contracting. The summary chart above makes this most evident. By way of example, the same month of E1390 oxygen would allow $72.36 in Akron, OH, compared to $189.00 in Chicago/Naperville. (Note: $189 is pennies off the top bid limit (!); $72.36 is LESS than the previous rate in Akron.)

Why did this occur?

Round 2021 incorporated a new feature compared to prior rounds of the program, namely a “maximum winning bid“ methodology instead of a “median winning bid” (the middle bid of all acceptable bids) approach. Acceptable bids (that is those that passed the scrutiny of various financial and other tests from the agency contractor) were arrayed from low to high. As each bidding entity was required to submit an annual “capacity” (in units of product), a “clearing price” was established when the summation of the capacities equaled or exceeded the estimated annual demand of the item. In somewhat simple terms, each supplier was paid at that highest “clearing price” – versus the previous rounds where the “middle supplier” set the price.

Industry stakeholders – including this writer – generally expected the resulting SPAs to be higher than in previous programs. Coupled with the clearing price/maximum winning bid feature, suppliers could now offer bids HIGHER than current reimbursement amounts. Many “bid limits” (the highest amount a supplier could bid) were more than double the previous amounts.

Hence, and is evident by noting the potential SPAs on the high end of the summary above, the mathematical outcome of the new methodology is based on one major factor: the capacity offered. If 5 suppliers offer a maximum (the capacity determination is limited to 20% of the expected total annual demand) amount of units, then the 5^th supplier sets the price. If that price was near (or below) the former SPA, there would be no increase in reimbursement. This occurred frequently in several CBAs (see chart and also the detailed analysis file). (Note: CMS did implement various tests and limits to prevent over-stating capacity, especially for those suppliers with less than optimal credit-worthiness and/or bidding in an area of which they had no prior experience; however, larger suppliers were not limited in bidding up to the maximum if they satisfied the requisite tests.)

Conversely, suppliers who recognized this mathematical factor and/or had a history of offering relatively few items in the category could generally bid at a much higher amount. If that bid approached the bid limit, and there was “room” for the relatively low capacity offering within the auction, and they then set the clearing price/maximum winning bid.

And this happened frequently. Which, ostensibly, is why CMS did not achieve the expected savings and, accordingly, used its authority to not continue on with contracting.

Some final thoughts.

Kudos to the hundreds of VGM members and all suppliers who monitored our continuing education throughout the past two years relative to this program. We offered dozens of state/regional on-site programs, as well as a series of “hands-on” Webinars, lead-item contracting calculators (*), assistance with forms and formats, and more. I’m proud of the entire VGM team that assisted me with creating these educational tools.

I cannot leave out the industry consortium of VGM, AAHomecare, CQRC, and the Healthcare Nutrition Council who created and developed the DME Competitive Bidding Program Education website, toolkit, and a series of on-site and Webinar instructional programs. Together, we were successful in educating our industry and I thank each trade association, the state leaders who promoted the education, and the hundreds of DME suppliers who attended one or more of the events.

Lastly, there will likely be a Round 2024. If so, it is also likely the agency and its contractor will follow a similar timeline of roll out events…which means sometime next year we will again begin the preparatory processes. I urge all DME suppliers to again monitor the educational offerings…and to those who might not have in Round 2021, to give us consideration. Overall, the industry will be in a much healthier environment if we all “pay attention.”

Questions or comments? Email me at mark.higley@vgm.com or call/text 319-503-9515.

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(*) Our lead-item calculators remain available!! If you would like to determine “what you would have received” in reimbursement for all the items in your CBA for a specific product category, select the potential lead-item SPA from the master file and then link to the VGM Bid Calculators (we offer one for Medicare and one for other third party payers). Once you are on the page, scroll down until you see the heading titled “Competitive Bidding Calculators.” Select the product category that you want to analyze. Take the potential lead-item SPA for that product from the master file, choose your CBA from the dropdown, and enter the potential lead item SPA price into the yellow-shaded cell (B5 – Enter Your Bid)*. Once you enter that one rate, the calculator will show you what the new rates would have been for ALL of the products in the category. If you want to take it a step further to see what the overall revenue impact would have been on your entire book of business for that category, enter your billed quantities into the column titled “2018 QTY Billed To CMS” (the quantities can be for any time period).

*Note – when you pull the potential lead item SPA from the master file, for items like CPAP that are capped rentals, the master file will give you the SPA as a rental rate. However, when you entered your bid for Round 2021, you entered it as a purchase price, so you will need to convert to the purchase price before you enter it into the calculator. For example, if your potential lead item SPA from the master file for a CPAP was $50, you would convert that to a purchase price of $500 and enter the $500 rate into cell B5 on the calculator. The calculator will then show both the $500 purchase price as well as the $50 rental price, as well as what the SPAs would have been for all of the other items.

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