Competitive bidding analysis

Sunday, May 27, 2007

Winning bidders in a competitive bidding area (CBA) will be paid a single payment amount for competitively bid items furnished to beneficiaries in the CBA. The single payment amount will be the new Medicare allowable for the bid items, replacing the existing Medicare fee schedule in that CBA. Medicare will pay 80% of the single payment amount and the beneficiary will be responsible for the remaining 20%.

The formula for arriving at the single payment amount and for selecting the winning bidders is spelled out in the final rule. Suppliers will submit bids by product category. Suppliers may choose the product categories they will bid on, but they must submit a bid for every item included in the product category. Items have been identified by HCPCS codes and are available on the Competitive Bidding Implementation Contractor (CBIC) Web site.

To determine which suppliers submitted the lowest bids, a composite bid for each supplier will be established. The composite bid is the sum of the weighted item bids for each product category. Composite bids will be arrayed from lowest to highest to select the pivotal bid. The pivotal bid will be the lowest composite bid that assures a sufficient number of suppliers to meet the projected demand for the items in the CBA. To arrive at this determination, suppliers will be evaluated based on their projected capacity to furnish the items. The pivotal bid represents the lowest bid where the projected demand for the items and suppliers' cumulative capacity are met.

To increase the likelihood that at least five contract suppliers will be selected in each CBA, only 20% of a supplier's estimated capacity will be considered. During the bid submission and evaluation phase, networks will also be limited to 20% of the market. Once selected as a contract supplier, however, a supplier or a network can expand its capacity beyond 20%. All suppliers at or below the pivotal bid amount will be selected as contract suppliers, assuming they meet the eligibility requirements and agree to the contract terms proposed by CMS.

Finally, the single payment amount will be the median of the winning bids for an item. Suppliers whose bids were below the median bid will be paid more than their bid, but suppliers whose bids were higher than the median will be paid less.

Healthcare attorney Asela Cuervo is based in Washington, D.C.