Improving the Medicare DME Bidding Program

In June, Reps. Pat Tiberi, R-Ohio, and John Larson, D-Conn. introduced a bill in the House of Representatives that could make dramatic improvements to the next round of bidding scheduled for early 2015. H.R. 4920, The Medicare DMEPOS Competitive Bidding Improvement Act of 2014, would provide strong financial incentives for bidders to honor their bids, as well as elevate state licensure requirements to statute. Binding bids is a universally accepted standard component to any bidding program in the world, and Congress understands its importance to encourage responsible bids. As an industry, we have a real chance of getting this small fix passed into law—but we need your help in securing as many co-sponsors on the House bill as possible. Ask your representative to sign on to H.R. 4920 today! Also, at press time, the industry was working on a Senate companion bill – stay tuned for news on this front.

Key questions about H.R. 4920:

How would H.R. 4920 encourage bidders to honor bids?

As Rep. Tiberi stated in a press release: “This bill would reduce the number of bad actors participating in the program by imposing a penalty if the supplier does not accept a contract.” The bill would require bidders in the Medicare DME bidding program to obtain a bid bond from an outside bonding firm before submitting a bid. Currently, supplier bids are not binding, meaning that when a DME supplier submits a bid and is offered a contract, the DME supplier can simply walk away. Under the bill, if the bidder does not sign the contract the government collects on the bond, imposing a financial penalty. A major impetus behind this bill was to make it more difficult for new, inexperienced firms to submit bids across the country.

What about bidders whose bid was above the winning bid price—would they be forced to accept a lower price?

No. The penalty would only apply if the bidder who is offered a contract submitted a bid price that was at or below the winning bid price. The bill would not impose a penalty on bidders who are offered a contract but whose bid price was above the winning bid price.

How would the new bid/performance bond requirement work?

Each supplier submitting one or more bids in the Medicare DME bid program would have to obtain a bid bond, also known as a surety bond, for each bidding area in which it would like to submit bids. A private, third-party firm would make a financial assessment of the bidder and charge the bidder for the bond based upon the bidder’s financial performance. If the bidder is offered a contract and their bid is below the bid price set by CMS, the bidder must accept the contract, and the Secretary of Health and Human Services would retain the bid bond as a performance guarantee. When the contract is successfully completed, the Secretary would return the bid bond to the bidder. If the bidder doesn’t accept the contract, the Secretary will collect on the bond. If a bidding entity is not offered a contract or is offered one below their bid rate and chooses not to accept it, their bid bond would be returned.

Would the bid bond be affordable for smaller providers?

Yes. Industry leaders have talked to bond firms. The price of the bid and performance bond would be based upon the level of risk the bond firm determines the bidder to have. Bidders with less experience and no credit would be riskier and therefore would be charged more for the bond. Bidders with an established track record, credit history and other factors such as a physical location proximate to the bid area would be charged less.