Comprehending the New 2019-2021 Bidding Program Rules

1. Comprehending the New 2019-2021 Bidding Program Rules

2. Introduction • From Day 1 of competitive bidding, the DME industry sounded the alarm that the program would be unworkable. • “Low ball bidders” would submit bids in multiple CBAs...with no ability to take care of patients in those CBAs . • “Low ball bidders” wanted to “scoop up as many contracts as possible” in order to have something to sell to losing bidders. • Because of the “low ball bidders,” many legitimate bidders would not be awarded contracts.

3. Introduction • Sounding the alarm (continued).... • “Low ball bidders” would drive down reimbursement to a point that contract suppliers (competitive bid “winners”) may not be able to keep their doors open. • Because CMS would not disclose the standards it used to evaluate the financial condition of bidding suppliers, many otherwise qualified suppliers would be disqualified...without the disqualified suppliers knowing the basis of their disqualification. • Calculation of the Single Payment Amount (“SPA”) would be flawed for a number of reasons, one of which is half of the winning bidders would be required to accept reimbursement less than what they bid.

4. Introduction • Sounding the alarm (continued).... • As suppliers shut their doors, access to DME would decrease. • As a result of lack of access to DME, (i) patients would end up at the ER and (ii) hospitals would be unable to discharge patients because there would be no supplier to take care of the patients upon discharge. 

5. Introduction • And then when the SPAs were extended to rural America and other non-CBAs, the DME industry warned that closure of businesses and lack of access would become even more pronounced. • Rural suppliers had challenges that their urban counterparts did not have, such as having to drive long distances to serve patients.  • One of the premises of competitive bidding is that because there will be fewer suppliers in CBAs, then the contract suppliers would be able to compensate for the low reimbursement with higher volume. However, this logic does not hold true in non-CBAs. 

6. Introduction • Unfortunately, as the government is always inclined to do, it implemented competitive bidding and then “let the carnage begin.” • Until 2018, CMS preached to anyone who would listen that competitive bidding was a resounding success and Medicare beneficiaries incurred no problems because of the program.  • But as is often the case, “the real world intervened.” DME suppliers closed their doors, patients did not have access to DME, and physicians and hospital discharge planners were not happy.

7. Introduction • Finally, in 2018 CMS acknowledged problems with the competitive bidding program. In particular, CMS acknowledged that beneficiaries were having problems accessing DME.  • As such, in the late spring, CMS published a Proposed Rule that substantively changes the competitive bidding program. These are “substantive” changes...not window dressing. • The Final Rule was published November 1. CMS-1691-F https://s3.amazonaws.com/public-inspection.federalregister.gov/2018-24238.pdf • The Final Rule looks substantially like the Proposed Rule.

8. Quick Summary… • Extends the 50/50 blended reimbursement rates for rural and non-contiguous areas (i.e., Alaska & Hawaii) through December 31, 2020. • Establishes a new method for determining SPAs under the bidding program using maximum winning bids. • Implements lead item pricing for future competitive bidding rounds. • Beginning January 1, 2019 beneficiaries may receive DMEPOS items from any Medicare enrolled DMEPOS supplier until new contracts are awarded under the next round of the bidding program. CMS expects that this gap period will run through Dec. 31, 2020.

9. Quick Summary… • CBA pricing will be subject to annual CPI adjustments until the next bidding round takes place. • CMS will create a new class for portable liquid oxygen equipment by splitting the existing class of portable gaseous and portable liquid oxygen. CMS would increase the payment amount for the new portable liquid oxygen class so that it is the same as the OGPE (oxygen generating portable equipment) rate. • CMS will change the way that it calculates budget neutrality. Under the new methodology, CMS would apply the offset to all oxygen and oxygen equipment classes and HCPCS codes beginning on January 1, 2019. CMS provided an example of the impact of the new budget neutrality method and additional oxygen payment, which will follow in the upcoming detailed slides.

10. But first, and as you are likely aware… • On May 9 CMS released information pertaining to an “interim final rule” (CMS-1687-IFC) that the industry had been anxiously awaiting for since last August. • It increased the fee schedule rates from June 1, 2018, through December 31, 2018 for DME and enteral nutrition to the “blended” 50/50 formula. • However, it only applied to rural and non-contiguous areas (Alaska, Hawaii, and U.S. territories) of the country. • About 50 percent of non-CBAs

11. (You can check the rural ZIPs at https://www.dmepdac.com/dmecsapp/RuralZipCode/Search

12. Chronology – • July 19, 2018 CMS published proposed rule • November 1, 2018 –Final Rule published • January 1, 2019 • Bid program suspended for up to 2 years • Early 2019 • CMS to start education on reformed NCB • January 2021

13. CMS CMS-1691-F Rule • Competitive Bidding Improvements • Payment in rural and non-contiguous areas January 1, 2019 • Payment in Former CBAs during Gap period • Oxygen Policy Changes

14. Most notably, this Rule puts $1 billion back into the HME Industry… The Administration recognized the shortcomings of the current program and need for reform as well as relief for rural areas throughout the country.

15. CMS did appear to recognize some issues supported by the industry… • “Today’s action aims to protect access to needed durable medical equipment in rural and non-contiguous areas that are not subject to the DMEPOS CBP, helping beneficiaries to maintain their health, mobility, and overall quality of life. • Stakeholders have raised concerns about significant financial challenges the current adjusted DME fee schedule rates pose for suppliers, including many small businesses, and that the number of suppliers in certain areas continues to decline.”

16. These represent NPI numbers (locations) These represent NPI numbers (locations)

18. CMS 1691-F– July 19, 2018 Competitive Bidding Improvements • Suspend the CBP starting January 1, 2019 • Maximum Winning Bid • SPA at “last man in” instead of median • Lead item pricing • Refine product categories

19. “Lead Item Pricing” • Replaces the current bid process where bidders submit a price for each HCPCS code in the product categories • Lead item is the single HCPCS code in a grouping of similar items • Bidders bid on one “lead item” in a grouping of similar items • Lead item has highest total national allowed services (paid) during the base period • 2015 fee schedules will be the bid ceiling for lead item price • Lead item drives the expected beneficiary demand in a CBA • Lead item drives total supplier capacity in the product category

20. Lead Item Pricing – Example

21. Maximum Winning Bid

22. Maximum Winning Bid • DME stakeholders supported CMS’s proposal to change the methodology for calculating the SPA. Under the change, the SPA for the lead item in each product category or subcategory would be based on the maximum or highest amount bid for the item by suppliers in the winning range.  • Stakeholders recommend that nebulizers be removed from the competitive bidding program.  They were not.

23. Small supplier issue… • CMS proposes that bids from small suppliers that are “only awarded [a] contract in order to help meet the small supplier target would not be used to determine the maximum winning bid because these contracts are awarded after the SPAs are established.” • DME stakeholders disagree. The CMS proposal results in the same problem as the median pricing method. In establishing SPAs, all bids (including those from small suppliers) should be considered. Additionally, CMS should recalculate the SPAs after additional suppliers are awarded competitive bid contracts. This is consistent with the premise that no supplier be paid less than its bid. • This was not effected.

24. “Bona-fide Bid” Issue… • Less information will be provided under the lead pricing methodology. Therefore, stakeholders recommend that measures be implemented to ensure that bidders submit bona fide bids. • Bidders need to be educated that the price for the lead items must translate into sustainable prices for non-lead items in the product category.  • CMS should assess all non-lead items to ensure that prices for non-lead items result in bona fide prices. 

25. Capacity Determination and Calculating Expected Beneficiary Demand

26. Capacity Determination and Calculating Expected Beneficiary Demand • Instead of evaluating bids submitted for items within a product category and calculating expected beneficiary demand for items in a product category, CMS will calculate expected beneficiary demand and supplier capacity based on the lead items in the product category when evaluating bids. • Stakeholders recommend that the actual historical capacity of a supplier be used in evaluating supplier capacity. The historical capacity should not be adjusted by CMS.

27. Stakeholders recommend that CMS should not include capacity associated with inexperienced bidders, both in terms of product category and geography. • It is recommended that CMS use historical utilization of items making up at least 120% of total expenditures for lead items. This will provide better assurance of beneficiary access.

28. CMS 1691-F – Payment rates starting January 1, 2019 • In rural and on-contiguous areas, CMS will pay at current 50-50 blended rates provided in May 11, 2018 IFR • In remaining non-bid areas, CMS will pay at current rates (that will likely be adjusted per the “regional” methodology) • In former bid areas, CMS will pay at current rates plus CPI/U less a “productivity adjustment”

29. Comments: Payments in Former CBAs During Gap Period • Competitive bidding will not be in force for approximately 24 months beginning 1/1/19. This approximate 24 month period will be known as the “gap period.” • During the gap period, stakeholders urge CMS to increase payment levels in former CBAs beyond the SPA + inflation increase.  • “Any willing supplier” will prevail during the gap period. This will result in a large number of suppliers serving beneficiaries. As such, the fundamental tenet of competitive bidding - fewer suppliers resulting in increased volume - will not exist. • As such, it is suggested that payment levels be set at the SPA plus CPI-U increases from 2013 to 2018. • This was not effected

30. Mail-order Payments in Former CBAs During Gap Period • CMS will pay for mail-order diabetic supplies at the SPA plus the inflation increase for the preceding 12 months...with an additional increase at the end of each 12 months thereafter.  • CMS will pay for non-mail order at the current SPA. Stakeholders disagree. Stakeholders recommend an inflation adjustment for non-mail order diabetic supplies.  • This was not effected.

31. CMS 1691-F– Oxygen Policy/Payment Changes • CMS will offer a new class for portable liquid oxygen equipment by splitting the existing class of portable gas and portable liquid oxygen • CMS will increase the payment amount for the new portable liquid oxygen class of it is the same as as OGPE rate • CMS maintains budget neutrality policy must be changed by Congress

32. CMS Final Rule–

33. CMS Final Rule – July 19, 2018 • 2015 fee schedule will be bid ceiling • Surety Bonds • RFI: Gap Fill Replacement Process • Payment for Multi-functioning ventilators

34. Rural/Non-Rural/CBAs http://www.vgmdclink.com/resource-center/dmepos-geographic-classifications

36. The “5%” Issue… • A number of DME suppliers have entered into common ownership arrangements that allow a non-CB contract supplier to be added to the CB contract of a CB contract supplier. • If such a common ownership arrangement terminates on Dec 31, 2018, then when the next bidding round begins the former commonly-owned suppliers can submit bids on their own.

37. Additional Recommendations • A permanent Auction Expert and Auction Monitor should be appointed. • There should be permanent stakeholder input (DME suppliers, manufacturers, physicians, beneficiaries, etc.).  • There should be uniform payment rules for transitioning competitive bid beneficiaries. • Different rules apply for contract suppliers that accept beneficiaries from other contract suppliers...as opposed to accepting beneficiaries from non-contract suppliers. • Stakeholders recommend that contract suppliers that accept beneficiaries (who change suppliers) receive additional rental payments, regardless of whether the beneficiary is switching from a contract or non-contract supplier.

38. Additional Recommendations • There needs to be an improvement in transparency. CMS should articulate the standards and criteria used to select winning bidders. • Stakeholders recommend that bidders have a state Medicaid provider number. This will ensure that the winning bidders can take care of dual eligible beneficiaries. This also shows that the bidder meets state licensure requirements.  • CMS’s authority to move forward with CPAP and standard power mobility devices bundled payments should be removed.  • CMS proposes to require a supplier to forfeit its bid bond if the supplier’s bid for the lead item is at or below the median of all bids in the product category and the supplier does not accept the competitive bid contract. Stakeholders support this proposal. Setting the point at the median rather than the maximum bid amount will target “low ball bidders.”

39. 2016 Regulatory Changes… • Bid Bond - A bidding supplier must obtain a $50,000 bid surety bond for each CBA in which the supplier is submitting a bid. The bidder must submit proof of the bond by the deadline for the bid submission.

40. 2016 Regulatory Changes • If (i) the bidding supplier is offered a contract for any product category in a CBA, (ii) the bidding entity’s composite bid is at or below the median composite bid rate for all bidding entities included in the calculation of the SPA, and (iii) the bidding supplier does not accept the contract offered, the supplier’s bid bond for the applicable CBA will be forfeited and CMS will collect on the bid bond. • If the forfeiture conditions are not met, the bond liability will be returned to the bidding entity. • Bidding suppliers that provide a falsified bid bond will be prohibited from participation in the competitive bid program for the current and next round of bidding. Bidding suppliers that provide a falsified bid surety bond will also be referred to the Office of Inspector General and Department of Justice.

41. 2016 Regulatory Changes • Establishing Bid Limits - Prior regulations required that suppliers submit bids that are lower than the amount that would otherwise apply...in other words, bids that are lower than the fee schedule amount.  • Beginning in 2016, the fee schedule amounts were adjusted based on information from, and prices set through, the competitive bidding program. CMS indicated in a previous rule that the adjusted fee schedule amounts would become the bid limits for future competition.

42. In response to concerns that suppliers would not be able to bid below the adjusted fee schedule amounts as those amounts continue to decline, CMS revised its prior rule to set the bid limit for future competitions at the fee schedule amounts that would apply if the competitive bidding program had not been implemented and that existed before making adjustments to the fee schedule amounts using information from the competitive bidding program.

43. Some observations/predictions/auction issues relative to the next CPB (likely to begin w/initial education spring 2019) • Fewer participants in auction (less suppliers + restrictive bid bond) = less downward pressure • Clearing price vs. median = higher SPA even if bidding entities continue to discount at previous program levels • Industry education as to bid ceiling (“it reverts to 2015 fee schedule you do not have to bid below the previous SPA/2018 fee schedule”) and to mathematical effect of capacity offerings • Lead item feature likely to reduce input errors/disqualifications

44. Contact me! Mark Higley VGM & Associates mark.higley@vgm.com 319-504-9515