Competitive bidding analysis

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Sunday, June 17, 2007

Many suppliers preparing their bids have been surprised to see that the bid limits used by CMS for capped-rental items are roughly 5% lower than the current fee schedule amount for those items. CMS, through the competitive bidding implementation contractor (CBIC), recently clarified that the bid limits for capped rental items are correct--in other words, the bidding process is designed that way to ensure that the Medicare program saves money. The bidding rules require that bids must be below the current fee schedule amount. In the case of capped-rental items, suppliers will be required to bid more than 5% below the current fee schedule amount for the item.

The capped rental payment methodology is based on the purchase price of an item. Currently, suppliers receive 10% of that amount for the first three months of the rental period and 7.5% for months four through 13 for a total of 105% of the purchase price of the item over the course of the 13-month rental period. CMS will follow the same payment methodology for competitively bid capped rental items. That is, suppliers will submit bids based on the purchase price for items, and contract suppliers will be paid based on the median of the winning bids for the item. As is the case today, suppliers will receive 10% of the median purchase bid during the first three months and 7.5% of the median purchase bid for months four through 13.

However, in order to save money, CMS has adjusted the bid limits for capped-rental items downward. According to CMS, a bid limit equal to 105% of the purchase price for an item could result in payments under competitive bidding that exceed the current fee schedule payment amount for the item. To avoid that outcome, the bid limits are based on the first month's rental payment for the item multiplied by 10, instead of adding the 13 monthly rental payments. This will assure that total payments over 13 months for a capped-rental item under competitive bidding will be less than the current fee schedule amount for the item. The CBIC Web site includes an example of how this new formula works. Suppliers planning on submitting bids for capped rental items may want to review it.

Attorney Asela Cuervo is based in Washington, D.C.

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