DMEPOS: What New Lead Item Pricing Looks Like

By Liz Carey

In its July 11, 2018, proposed rule, the Centers for Medicare & Medicaid Services (CMS) pitched new lead item pricing as a measure to improve the competitive bidding program, saying the change would greatly reduce the complexity of the bidding process and the burden on suppliers since they would no longer have to submit bids for numerous items in a product category.

According to CMS, lead item pricing would address the problem of price inversions (the price of an item is inverted when a more complicated item is cheaper than a simple version). Under the competitive bidding program, in all rounds since 2011, CMS found price inversions for groupings of similar items within the following categories: standard power wheelchairs, walkers, hospital beds, enteral infusion pumps, TENS devices, support surface mattresses and overlays and seat lift mechanisms.

Lead item pricing would also eliminate the need for item weights and calculation of composite bids based on item weights; and would use “allowed charges” rather than “allowed services” to identify the lead item in a product category because the item with the highest allowed charges is the item that generates the most revenue for the suppliers of the items in the product category, the rule makers stated.

For example, there are far more allowed services for negative pressure wound therapy (NPWT) dressings than NPWT pump rentals, but the revenue that is generated by the pump rentals is more than double the revenue generated by the dressings.

The proposed rule (CMS-1691-P) presents the following areas for discussion with regard to lead item pricing:

• Applies to all items in each product category, including all codes for base equipment (for example, power wheelchairs) and all codes for accessories for base equipment (for example, wheelchair batteries).
• The likelihood of larger, conglomerate product categories established to promote “one-stop shopping” for beneficiaries and referral agents would need to be split into multiple product categories so that lead item pricing is not implemented for categories that include different types of base equipment. Such categories include general home equipment (hospital beds, support surfaces, commode chairs, patient lifts and seat lifts), respiratory equipment (oxygen and oxygen equipment, continuous positive airway pressure devices and respiratory assist devices), and standard mobility equipment (walkers, standard manual wheelchairs, standard power wheelchairs and scooters).
• A new definition under §414.402 for lead item and revising the current definitions for bid and composite bid under §414.402.

“Lead item” would be defined as the item in a product category with multiple items with the highest total nationwide Medicare allowed charges of any item in the product category prior to each competition. Total nationwide Medicare allowed charges means the total sum of charges allowed for an item furnished in all states, territories, and D.C. where Medicare beneficiaries reside and can receive covered DMEPOS items and services.”

“Bid” would be defined as an offer to furnish an item or items for a particular price and time period that includes, where appropriate, any services that are directly related to the furnishing of the item or items.” The change was proposed, according to the rule, because under lead item pricing, the bid for a lead item includes the supplier’s bid for furnishing all the items in the product category, not just the lead item.

“Composite bid” would be the bid submitted by the supplier for the lead item in the product category. Of note here: Bid bond forfeiture is tied to composite bids under the DMEPOS competitive bidding program, and this rule proposes to change how composite bids are defined and to implement lead item pricing. A supplier’s bid for the lead item would also be treated as the “composite bid” for the purpose of implementing the statutory and regulatory bid surety bond requirement, the proposed rule states.

Currently under §414.412(d)(2), the lead item in the product category is described as “the code with the highest total nationwide allowed services for calendar year 2012,” and total nationwide allowed services is defined in § 414.402 as meaning the total number of services allowed for an item furnished in all states, territories and D.C. where Medicare beneficiaries reside and can receive covered DMEPOS items and services. The proposal is to delete the lead item bidding provision that currently appears in §414.412(d)(2), and replace it with the proposed lead item pricing provision.

Skip to page 175 in the proposed rule to read more about lead item pricing for all product categories under the DMEPOS CBP.