Medicare Proposes to Raise Bid Ceiling

When CMS released its proposed regulation in late June with additional changes to the durable medical equipment (DME) competitive bidding program, it was a pleasant surprise to see at least one significant positive proposal to improve the program. The proposed rule was included in CMS’s larger End Stage Renal Disease (ESRD) annual payment proposed rule and also includes other modifications that DME suppliers will need to know (81 Federal Register 42802, June 30, 2016). Comments are due August 23, and a final rule will be published around November 1, with a likely effective date of January 1, 2017. There are a lot of details in this proposed rule—including a revision to state that a contract will not be awarded to a bidding entity unless the entity meets state licensure requirements—and it does not make for light reading. Following is a summary of key DME items.

Future Bid Ceilings

CMS is proposing to abandon its current policy of continually lowering future bid ceilings to the current single payment amounts (SPA). Instead, CMS proposes to establish future bid ceilings at the higher 2015 fee schedule amounts. “This would 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 would help to enhance the long term viability of the program and would allow suppliers to take into account both decreases and increases in costs when determining their bids,” said CMS in its announcement. This is an issue industry advocates have been trying to get Congress to address through new legislation and is a welcome change.

Surety Bonds

The proposed rule implements a provision of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA)—designed to ensure that bidders honor their bids and to punish unscrupulous bidding. Bidders would have to obtain a bid surety bond from an authorized surety on the Department of the Treasury’s Listing of Certified Companies for each competitive bid area (CBA) associated with their bid. CMS proposes that the bid surety bond, set at $100,000, indicate the CBA specific to that bond. In the event that a bidding entity does not accept a contract offer when its composite bid is at or below the median composite bid rate for suppliers used in the calculation of the SPA, the bid surety bond for the applicable CBA would be forfeited and CMS would collect on the bid surety bond. In instances where the bidding entity does not meet the bid surety bond forfeiture conditions specified in the rule, the bid bond 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 would be prohibited from participation in the DME bidding program for the current round of competition in which they submitted a bid, as well as from the next round of competition.

The proposed 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 bidding.

Price Inversion

This is a new term that Medicare is defining as a situation where, before bid program pricing, the fee schedule amount for an item with more features and functionality was higher than a similar item with fewer features and less functionality. The bid program has resulted in lower reimbursement for the item with more functionality.

For example, some Group 2 power wheelchairs now have a lower SPA than certain Group 1 power wheelchairs. (This inversion resulted from the bid program’s structure that gave the less-functional item greater weight during the bid price process due to its greater utilization.) CMS has proposed two possible methodologies to adjust the SPA for the items to ensure that the item with greater functionality is not reimbursed for less than the item with less functionality. CMS proposes to adjust reimbursement for the following product groups: hospital beds, mattresses and overlays; certain power wheelchairs; walkers; enteral infusion pumps; and TENS devices.

Price Inversion in Bid Areas

To address the price inversion issue in CBAs, CMS is proposing to add a lead item bidding methodology where all of the HCPCS codes for similar items with different features would be grouped together and would be priced relative to the bid for the lead item.

Under this method, a supplier would submit one bid for a combination of HCPCS codes for similar items with different features. The bid for this combination of HCPCS codes would be based on the lead item, that is, the item with the highest utilization among the similar items. The payment rate for the lead item would be based on the median of the bids, while the payment rate for the other codes with different features would be based on a percentage of the rate set for the lead code based on the percentage difference in payment for the codes under the historic fee schedule rates.

Changes to Appeals

This rule proposes to provide suppliers an appeals process for all breach of contract actions that CMS may take under the competitive bidding program, not just for those currently allowed, which is just for contract termination actions. If the rule were finalized as proposed, CMS would no longer be issuing a notice of termination, but rather a notice of breach of contract, which would include any breach of contract action CMS intends to take.

Coming in 2019

The current Round 2 and upcoming 2017 Round 1 contracts will both end on December 31, 2016; CMS is planning to eliminate the distinction between the two groups of bid areas. Starting in 2019, the country will be divided between bid areas and non-bid areas.

CMS is also asking for public comments on a series of additional items related to the bid program, including possible legislative or regulatory changes to address DME program “misalignments” including: state Medicaid program policies that promote coordination of benefits and afford beneficiaries full access to benefits; strategies to promote access to timely, effective repairs, including from suppliers that did not originally furnish the equipment; policies to address challenges faced when beneficiaries transition from Medicaid-only to dual eligible status; and “other ways to promote timely DME access for dual eligible beneficiaries, without introducing new program integrity risks or increasing total expenditures in either Medicare or Medicaid.”