The COVID-19 Effect and Competitive Bidding

This is a big unknown as to accurate forecasting for industry results in 2020. Stakeholders report concern for DMEPOS suppliers (albeit less for those with a large percentage of revenue in respiratory products) who are dependent on certain elective procedures requiring DME. And a recent report/analysis on home health visits from VGM CEO Mike Mallaro suggests many patients, even with referrals, are not following up with their post-acute care—whether it be home health, pharmacy, or acquiring DME—up to 46%. We will closely monitor the data as it becomes available.

Additionally, on Oct. 27, CMS announced an update to the Round 2021 Competitive Bidding Program. The notice revealed that only two of the categories will move forward on schedule: knee and back orthotic braces [noninvasive ventilation (NIV) was already out due to CMS’ decision on COVID-19]. This means that 13 categories will not move forward in Round 2021. In conjunction with this announcement, there was also a CMS release relative to a new proposed rule (CMS-1738-P), which, among other things, potentially affects reimbursement for competitively bid product category items on or after April 1, 2021, or “the date immediately following the duration of the emergency period” or, put more simply, when HHS declares the public health emergency over, whichever is later. CMS competed 16 product categories in 130 competitive bid areas for Round 2021 of DMEPOS, reviewing 49,000 bids. As noted, noninvasive ventilators were removed in April 2020 in response to COVID-19, leaving 15 product categories. Thirteen of the product categories had been bid during previous rounds while off-the-shelf (OTS) back and knee braces were competed for the first time. CMS has decided NOT to award competitive bidding contracts for any of the 13 product categories that were previously competed because “the payment amounts did not achieve expected savings.” Contract offers have been made in 127 competitive bidding areas (CBAs) for the OTS back and knee braces. Winning bidders had to respond to contract offers by Nov. 10, 2020. The memo did not include information on when competitive bidding will go back into effect for the product areas left out of round 2021. However, I believe that unless legislative changes occur, the next competition will have an effectivity date of Jan. 1, 2024. CMS stated it had heard from a range of stakeholders requesting that the agency delay or cancel the Round 2021 program due to the ongoing COVID-19 PHE. Apparently, CMS considered that feedback and, as noted above, is not awarding competitive bidding contracts for the 13 product categories “because the payment amounts did not achieve expected savings.”

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When we consider the past and details of the (then) new auction methods, this “did not achieve expected savings” statement is disturbing. It is well known that the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) requires Medicare to replace the current fee schedule payment methodology for selected DMEPOS items with a competitive bid process. In early March, the CMS announced plans to consolidate the CBAs included in the Round 2 Re-compete and Round 1 2017 DMEPOS CBP into a single round of competition named “Round 2021.”

Key Changes for “Round 2021” • Use of the “clearing price” to set rates:

The single payment amount (SPA) for a lead item will be equal to the maximum bid submitted for that item by bidders whose lead-item bids for the product category are equal to or below the pivotal bid for that product category in a CBA. • Lead-item pricing: To allow for the use of what is essentially a “clearing price” methodology, suppliers will submit a single bid for a lead item in the product category.

The SPA will be calculated for that lead item in the CBA based on the highest amount bid within the winning bids. The SPAs for non-lead items will be based on the relative difference in the fee schedule amounts for the lead and non-lead items.

• Bid surety bonds: Bidders must obtain a $50,000 bid surety bond for each CBA for which they submit a bid. • Use of SPAs to set rates in non-CBAs: CMS also uses the SPAs to set the rates in non-

CBAs that are not rural but will set the rural non-CBA rates at what is essentially the SPA plus 10% in rural areas. This means the bids for CBAs will have a direct impact on the rates in non-CBAs.

• Bid limits substantially raised: Auction experts and economists recognized that a continual reduction in the “bid limit” (the amount of which suppliers must bid below) would eventually lead to unsustainable SPAs as each round of bidding effectively lowered the payments and set the new bid limits for future rounds. Accordingly, Round 2021 bid limits were set at 2015 non-adjusted (before competitive bidding fee schedule) rates, plus an allowance for inflation to the bidding period. By way of example, a month of rental oxygen (E1390) bid limit was increased from approximately $70 to almost $190.

The majority of other categories saw similar increases.

In addition, to help suppliers get up to speed, a group of industry leaders collaborated to launch an online educational resource: www.dmecbpeducation.com. The website—the product of a collaboration between the American Association for Homecare (AAHomecare), the Council for Quality Respiratory Care, the Healthcare Nutrition Council, and VGM Group—served as a complementary resource to the Competitive Bidding Implementation Contractor (CBIC) website. Suppliers and prospective bidders nationwide could use the website’s powerful calculators to estimate how lead item pricing may impact costs and compare them to an approximation of how the SPAs compare to the then current 2019 Medicare rates. The calculator also showed how a bid would affect the rates in non-CBAs if it became the SPA. Moreover, the website served as a platform for webinars and events intended to educate prospective bidders about the CBP in the lead-up to the bidding round.

The COVID-19 Effect and Competitive Bidding

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Taking all of these changes into account—a much higher “starting point,” a maximum bid “clearing price,” and a rather substantial barrier to prevent unqualified bidders from entering the auction via a $50,000 bid bond for each market—industry stakeholders anticipated higher new payment amounts. It is also inconceivable that CMS’ own analysts did not expect an increase, as the new methodologies were designed to prevent patient access issues and ensure quality services from DME suppliers. Hence, the decision to remove the previously bid product categories due to “lack of savings” was perplexing; the new system was designed to ensure sustainable rates.

There was a mixed reaction among industry stakeholders. Some publicly traded companies opined the three-year hiatus from contracting added stability to the overall market (and the respective stock prices reflected that interpretation). Others, anticipating improved SPAs and a more qualified array of supplier contractors, effectively “cried foul” to the actions.

In any case, CMS did move forward with the bracing categories and made offers in 127 (out of 130) CBAs.

The release included that Medicare expects to save $600 million for the program and beneficiaries over the three-year Round 2021 contract performance period. CMS has released the new SPAs and has sent contract offers to bidders for the OTS back braces and OTS knee braces product categories. The number of offers (and locations) by CBA, may be found here.

Contract Offers by Compettiive Bidding Area and Product Category

COMPETITIVE BIDDING AREA

Aiken & Edgefield Counties, SC

Bidders

Locations

PRODUCT CATEGORIES

Off-The-Shelf Back Braces Off-The-Shelf Knee Braces

21 19

24 22

Akron, OH

Bidders

Locations 24

35 21

37

Albany-Schenectady-Troy, NY

Bidders 19 17

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You may find the new SPAs on the CBIC website, dmecompetitivebid.com. Click on Round 2021 and then “Single Payment Amounts.”

One interesting anomaly I noticed was the extremely large variances in the OTS bracing SPAs among the CBAs. As noted above, the “clearing price” methodology allowed all bidders to receive the maximum bid. Somewhat simply stated, the bids are arrayed from the lowest acceptable amount and continue upward, taking into account the estimated demand in units for one year (each supplier was required to submit the number of braces the company was willing to offer) until the supply equaled the expected demand. If there were relatively low amounts of units offered by each supplier, that clearing price could near the bid limit—that is, the current fee schedule and the amount of which suppliers must bid below. Conversely, if suppliers offered a large amount of units, the results could be that only a few suppliers could fulfill the demand, and, depending on the “highest price” offered, result in a very low SPA. This occurred. Here is an interesting graphic:

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Thus, for the same brace, the reimbursement (SPA) differs up to $900. This has never occurred before; in previous rounds for common DME such as oxygen, CPAP, and hospital beds, the variance among the 130 CBAs was frequently only a few percentage points. This is an issue which we will continue to monitor in future rounds.

These new payment amounts and contracts went into effect on Jan. 1, 2021. Winning bidders for the OTS back and knee brace product categories have received Round 2021 contract offers in Connexion, the DMEPOS CBP’s secure portals. Winning bidders had to respond to the contract offers before Nov. 10, 2020. The initial array of contract acceptances will be included for a short period on the CBIC website; when the program begins, current contractors may be monitored by accessing the Medicare supplier directory and entering the permanent ZIP code of the beneficiary (this is the ZIP code to which the social security payment is on file). This search feature is updated frequently; there may be additional contractors serving the CBA as some entities are removed and others are added (e.g., erroneously disqualified but reinstated, small suppliers added after the SPAs have been calculated to allow for certain 30% small supplier participation goals, etc.).