Can CMS freeze SPAs without contracts?

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10/29/2018
By Andrea Stark
reimbursement consultant, MiraVista, LLC

In the recent ESRD Proposed Rule, CMS conveyed their intent to freeze reimbursement in Competitive Bid Areas (CBAs) using the single payment amounts (SPAs) when the program ends on Dec. 31/2018.* CBAs encompass the most populous areas of the country and have the greatest impact on Medicare spend dollars.** In recent conversations with industry legal experts, MiraVista put forth three central questions:

  • Does CMS have the authority to freeze SPAs without contracts?
  • If not SPAs, then what is the reimbursement rate?
  • Is the CMS proposal good or bad for suppliers?


Does CMS have the authority to freeze SPAs without contracts?

CMS sets SPAs by ranking bonafide bids, determining a minimum number of suppliers to meet capacity for an area, and identifying the median bid price from this narrowed list. After CMS calculates the SPA, they offer contracts to suppliers. Upon receipt of the contract, suppliers have the right to accept or refuse the contracts, which become binding to both parties upon acceptance.

Per existing regulations, if CMS allows these contracts to expire, then no supplier can furnish competitive bid products. 42 CFR 414.408 establishes payment rules for competitive bid programs. §414.408(e)(1) states “Except as provided in paragraph (e)(2) of this section, all items that are included in a competitive bidding program must be furnished by a contract supplier for that program.” The four exceptions in (e)(2) relate to grandfathering, Medicare as a secondary payer, beneficiaries outside a CBA, and physician/hospital type exemptions, which do not apply to CMS’s proposal. Furthermore, §414.408(e)(3)(i) states unless an approved exception applies, “Medicare will not make payment for an item furnished in violation of paragraph (e)(1) of this section.” Together, these two citations put CMS in violation of the regulation if they make payment to non-contracted suppliers.

The regulations do not have a specific section dedicated to routine contract expiration. 42 CFR 414.423, however, addresses the appeals process for breach of a DMEPOS competitive bidding program contract, and it contains an applicable section “effect of contract termination.” If contracts expire, we believe the provisions of the termination clause apply in §414.423(l)(2)(i), “All locations included in the contract can no longer furnish competitive bid items to beneficiaries within a CBA and the supplier cannot be reimbursed by Medicare for these items after the effective date of the termination.”

Based on the above regulations, if a competitive bidding program cannot be administered without contracts, then CMS has two choices:

  • Extend contracts, or
  • Acknowledge the competitive bidding program is no longer in effect.


CMS did not even suggest contract extensions in the proposed rule. Without contracts, however, the regulations do not permit CMS to make payments to any supplier for competitively bid products in a competitive bidding area.

If CMS chooses to negotiate an extension with contracted suppliers, they could maintain compliance with the regulations.

Alternatively, if CMS acknowledges a lapse in the competitive bid programs in these areas, then CMS cannot use the payment rules for competitive bid programs located at 42 CFR 414.408. 42 CFR 414.408(b) states, “The single payment amount calculated for each item under each competitive bidding program is paid for the duration of the competitive bidding program and will not be adjusted by any update factor.” §414.408 only governs payment rules under a competitive bidding program.

If not SPAs, then what is the reimbursement rate?

§414.408 does not apply if the competitive bid program is not in effect. Instead, the general payment rules (using traditional fee schedules for rural and non-rural areas) at 42 CFR 414.210 must govern. There is already precedent for reinstatement of general payment rules during gaps between competitive bid programs. In July 2008, CMS awarded Round 1 contracts and then terminated them two weeks later. The CBIC website summarizes the timeline as follows:

“The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) required the competition for the first phase of the Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program to occur in 10 areas in 2007. Round 1 of the program was implemented in 2008 for two weeks until the contracts were terminated by subsequent law. The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) temporarily delayed the original Round program, terminated the contracts that were in effect, and made other limited changes. As required by MIPPA, the Centers for Medicare & Medicaid Services (CMS) conducted the supplier competition again in 2009, referring to it as the Round 1 Rebid.”

MIPPA created a gap between competitions from July 15, 2008, until January 1, 2011, when the Round 1 Rebid SPAs took effect. During the two-and-a-half-year period, the general payment rules and prevailing DME fee schedule reasserted itself over the briefly contracted SPAs. If CMS does not perpetuate the contracting process beyond Dec. 31, 2018, contract expiration should invoke another gap.

Based on our preliminary research, current regulations do not permit CMS to administer competitions without contracted suppliers. If the programs end and the general payment rules take precedent, CMS will have to recalculate rates for the traditional fee schedule because of the lapse in competitions.

The Patient Protection and Affordable Care Act incorporated new pricing methodology to 42 CFR 414.210 that averages SPAs across eight geographical regions. This methodology is referred to as national pricing. Specifically, §414.210(g)(4) requires payment adjustments for items and services included in competitive bidding programs that are no longer in effect:

“In the case where adjustments to fee schedule amounts are made using any of the methodologies described, if the adjustments are based solely on single payment amounts from competitive bidding programs that are no longer in effect, the single payment amounts are updated before being used to adjust the fee schedule amounts. The single payment amounts are updated based on the percentage change in the Consumer Price Index for all Urban Consumers (CPI-U) from the mid-point of the last year the single payment amounts were in effect to the month ending 6 months prior to the date the initial fee schedule reductions go into effect. Following the initial adjustments to the fee schedule amounts, if the adjustments continue to be based solely on single payment amounts from competitive bidding programs that are no longer in effect, the single payment amounts used to reduce the fee schedule amounts are updated every 12 months using the percentage change in the CPI-U for the 12-month period ending 6 months prior to the date the updated payment adjustments would go into effect.”

The above provision requires CMS to periodically readjust and increase the national fee schedule after adding in a CPI increase to historical SPAs. This process continues until a new competition takes effect.

National pricing created a bifurcated DMEPOS fee schedule with one set of rates for rural and non-contiguous areas, and another set of rates for urban (aka non-rural) areas. The national rates in rural and non-contiguous areas are presently enjoying a 50/50 blended rate increase through Dec. 31, 2018, due to the Interim Final Rule (CMS-1687-IFC) advanced by CMS. The ESRD Proposed Rule suggested a 24-month extension of this reprieve through Dec. 31, 2020.

The ESRD Proposed Rule is also soliciting comments on whether CMS should extend similar rate reprieve to urban areas. CMS’s proposal to create a new SPA-based fee schedule for former bid areas would exclude these areas from potential rate adjustments.

Is the CMS proposal good or bad for suppliers?

This is a great question with no easy answer.

On the surface, many beleaguered suppliers are simply relieved at the prospect of CMS advancing much needed reform. Nonetheless, freezing the SPAs not only ignores existing regulations but also the mounting effects of a flawed bidding program.

Proceeding without contracts is likely to exacerbate access problems in bid areas. The industry warned CMS of an excessive number of contracted offers to companies without a local presence. When contracts expire, so does the obligation to service bid areas under penalty of contract breach. If rates do not support profitable service in these most populous areas, CMS will unwittingly escalate access deterioration. There will be nothing to hold non-contracted suppliers, or draw new suppliers, to these dense and unprofitable markets.

On the other hand, if CMS temporarily ends the bid program and engages the general payment rules it will be a mixed bag for many suppliers. There are 130 bid areas and thousands of HCPCS-SPA combinations impacted by this alternative. National pricing averages these thousands of individual SPAs across 8 regional geographic areas. This process results in both net increases and decreases to individual SPAs. SPAs for stationary oxygen, however, are most negatively impacted due the budget neutrality reductions (aka double-dip cuts) imposed after the regional averages are calculated. In all but two bid areas (Honolulu, HI and Chester, SC), suppliers would see a rate decrease for stationary oxygen pricing compared to current SPAs.***

We expect CMS to publish a final ESRD rule in the coming weeks, but at the time of print, CMS had not posted the document. With the final rule, we expect CMS to finalize significant contracting reform that will apply pivotal bids over median bids. This single change should deliver sustainable rates in future competitions and to the national fee schedule. Until these changes take effect, current reimbursement rates remain flawed and unsustainable.

Andrea Stark is a reimbursement consultant for MiraVista. Reach her at andrea@miravistallc.com.

Article Footnotes:
* CMS also suggested an immaterial, single-year consumer price index (CPI) increase for inflation in these bid areas. To put the CPI increase into perspective, the 2018 inflation factor increased fees by about 1.1%. This is a very small increase. As such, at each reference to the CMS proposal to freeze the SPAs, we do not specifically call out the CPI increase proposal due to the immateriality of the increase.
** CBAs cover the 110 largest metropolitan statistical areas within the country. According to census data, approximately two-thirds of the US population reside in these areas. MiraVista requested specific Medicare beneficiary and utilization data from the Competitive Bidding and Implementation Contractor, but was advised this data is not publicly available without a Freedom of Information Act (FOIA) request.
*** E1390 SPA averaged $76 across all CBAs with a low of $70 and high of $90. National Pricing averages $70 across the same geographic areas with a low of $65 and high of $121.