Bid reform: Options, opportunities

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Monday, April 24, 2017

The DMEPOS competitive bidding program has a long and controversial history; at this point, however, the program appears to be well-cemented into the fabric of the industry. Reports of abuse of the bidding process continue to rise with each new bid submission, including, among others, suppliers with little to no experience in certain product categories winning large competitive bid territories—territories that they have never served previously. The Trump Administration and Health and Human Services’ new leadership is determined to engage in substantial regulatory reform, which leaves many suppliers in the industry asking, “Will the program be continued, modified, or scrapped?”

Potential legislative changes

If either HHS or the White House pursues a legislative solution, it is widely predicted that the administration would most likely ask Congress to adopt a bill similar to the one HHS Secretary Tom Price proposed as a congressman in 2013—the Medicare DMEPOS Market Pricing Program Act of 2013 (MPPA). Although that bill never passed, the MPPA provides insight into Secretary Price’s views about the program and, possibly, the administration’s views.

In short, the MPP was intended to be a budget-neutral replacement to the program. The MPP establishes supplier reimbursement rates by using a “lead bidding clearing price” methodology. The previously expressed goal of the MPP is to collect data from a limited number of suppliers, in a limited number of areas, and on a limited number of products to ensure that the government prices DME at market rates and in the least disruptive manner to suppliers. Moreover, the MPP requires transparency at all levels and stakeholder contribution in the design and implementation. For example, here is a rough example of how the MPP’s program administrator would price a hospital bed:

• Step 1: A “lead item” would be selected from the hospital bed category. CMS would identify the lead item in each product group by selecting the item within the group that had the highest number of allowed services nationwide for a particular calendar year. For the hospital bed grouping, a semi-electric hospital bed with mattress and side rails (HCPCS E0260) has the highest number of allowed services; therefore, E0260 would be the lead item in this grouping.

• Step 2: The other hospital beds in the grouping would be given a relative ratio to E0260. A semi-electric hospital bed without a mattress (HCPCS E0261), for example, would be included in the hospital bed grouping. E0261 would be given a relative ratio to E0260 based on the 2015 reimbursement rates. In 2015, E0260 was reimbursed at an average of $134.38 and E0261 at $124.20. Therefore, the relative ratio for E0261 would be 0.92—the non-lead item’s 2015 average fee schedule ($124.20) divided by the lead item’s 2015 average fee schedule ($134.38).

• Step 3: In 20% of bidding areas (10% of bidding areas in subsequent bid years), each supplier interested in supplying hospital beds would be required to declare how many beneficiaries it can service within the bidding area and participate in the bidding auction. The auctioneer would start the auction in descending order with high bids first and work the price of the hospital bed (E0260) down to the point at which the number of remaining suppliers’ capacity meets the Medicare Program’s utilization demands. This is the “clearing price.”

• Step 4: All bidders at or below the “clearing price” are required to accept a contract at the “clearing price” rate.

• Step 5: The secretary and auctioneer would use an economic model that takes into consideration both geographic and socio-economic factors to determine the market price for hospital beds in all bidding areas that were not required to submit a bid. The reimbursement rates for supplies in those bidding areas would be set by multiplying the clearing price established in Step 3 by the relative ratios established in Step 2 while making adjustments for both geographic and socio-economic considerations.

Currently, the program requires all suppliers to submit bids if they wish to participate; MPP only requires that a fraction of suppliers submit bids. The program sets reimbursement rates based on the median price of the bid winners; the MPP sets rates at the “clearing price.” The program requires bids in all product categories in each CBA; the MPP limits bids in CBAs to two product categories to be auctioned—the remaining product categories will be priced using Step 5 above. As a result, if the administration pursues changes similar to those previously proposed by Secretary Price, this new legislation would have a substantial impact on the program. However, CMS would need to move quickly to implement a new program by 2019.

Potential regulatory changes

While waiting for Congress to act, Secretary Price might also consider regulatory alterations to the program within the bounds of the current statutory scheme. Program alterations could focus on addressing some of the key criticisms addressed above—non-binding bid submissions, low bid submissions, median pricing reimbursement methodology, and lack of transparency. These issues could be addressed, at least partially, through regulatory reforms to the program and could include the following:

• Require that bid submissions are binding upon the supplier. CMS’s proposal for Round 2019 required suppliers to have a surety bond of at least $50,000.00 in each CBA in which the supplier submits a bid. Although this will help alleviate some of the pressures from bad-actor-suppliers, HHS could require that selected bidders fulfill the obligations of their bids and/or that, if they fail to do so, the company and its owners (e.g., 5% or more) would be prohibited from seeking any future bids for a period of time.

• Require that the Program move away from the median bid reimbursement methodology to the clearing price reimbursement methodology. As stated above, many believe adopting the clearing price methodology will remove the incentives for bad-actor-suppliers to submit unreasonably low bids. Moreover, the clearing price methodology would represent the actual price of DME on the market.

• Provide exemptions for rural areas from competitive bidding or establish an enhanced payment that contemplates different delivery costs associated with serving rural markets.

• Require that CMS adopt the lead item billing methodology. The lead item billing methodology, if modeled after the MPPA, could increase stakeholder involvement in the pricing of items. Moreover, lead item billing is touted by the industry as a process that reduces supplier bidding obligations and simplifies the bidding process. In point of fact, CMS appears to have already heard the writing on the wall. For Round 2019, CMS had proposed that hospital beds, seat lifts, support surface mattresses, transcutaneous electrical nerve stimulation (TENS) devices, walkers, and standard power wheelchair product categories’ reimbursement rates be determined by using the lead item billing methodology.1 But, with the current bidding process placed on hold, HHS could consider expanding the lead item billing methodology to all applicable product categories for Round 2019.

• HHS could establish an enhanced quality metrics framework that: (1) considers bids on the basis of supplier experience and quality (e.g., suppliers with only a certain period of experience or owners and operators with that experience); and (2) evaluates bidding suppliers’ Medicare compliance programs and other quality metrics (e.g., patient satisfaction). While Medicare Part A reimbursement rules have adopted some quality monitoring metrics as a basis for payment or enhanced payment, CMS has yet to propose standards that would differentiate payments to suppliers based on quality. To date, for example, there are no differentiating factors between suppliers (e.g., the speed by which a supplier can fulfill a product, repair a product, or provide alternative options in the event of an emergency—such as back-up oxygen systems). Medicare could also evaluate credit worthiness in the same way that banks or other financial institutions evaluate borrowers. Instead, under the current approach, the CBIC assumes that if a bidder (1) meets the supplier standards, (2) meets financial requirements, (3) is not under investigation for overpayment, (4) is accredited AND has the ‘right price’—the company can be a winning supplier. Critics say that this approach has allowed several market entrants, with limited experience outside their market, to serve nationwide markets.

• HHS could eliminate the ability to enter into subcontracts at all or limit the subcontracting to a specified % of total sales (e.g., no more than 15%). Under the current approach, there are no limits on how much subcontracting a winning supplier may engage in. This permits winning suppliers to establish vast networks with other suppliers where the winning supplier has no market presence. In addition, HHS could establish express regulations on subcontracts, financial or other solvency requirements on subcontractors, quality standards for subcontractors, or express approval of subcontractors (as opposed to the informal notification process that exists currently).

• HHS could consider halting the inclusion of any additional product categories into Round 2019, and even consider removing certain products altogether. This approach could enable CMS to keep the current program operable before expansion into new product areas while the administration evaluates reform options.

Conclusion

While CMS’s implementation of the program was based upon statutory requirements, there are many rulemaking and implementation options to consider. As with any unwinding or a modification of a program well down the tracks, HHS will need to evaluate whether to fix the train while barreling down the track or pull the rip cord entirely while looking at the fork in the tracks ahead. There appears to be little doubt that some level of changes will be proposed. The when, how much, and how deep remain to be determined. Stay tuned. hme

Barry Alexander, Matthew Agnew and Emily Shaw are healthcare attorneys at Polsinelli, PC. Reach them at barry.alexander@polsinelli.com, magnew@polsinelli.com, or eshaw@polsinelli.com.