CMS DMEPOS Competitive Acquisition Program (CAP) Rule Summary

1. Program Purpose

• Assure beneficiary access to quality DMEPOS
• Reduce Medicare and beneficiary payments
• Reflect a competitive market
• Contract with suppliers favorable to the program and beneficiaries

2. Major Points

3. Section Highlights - Selection of the Ten Largest MSAs for 2007 and Beyond

• Not more than two MSAs from one state
• First round excludes top three (3) MSAs NY,LA,CH
• Second round the same except includes NY,LA,CH
• Until 2009 CMS will exclude any MSA that is geographically located in an area served by two DMERCS
• Key steps in MSA selection and phase-in
• a) Identify top 50 MSAs in terms of general population
• b) Score MSAs based on greatest number of suppliers and allowed charges per beneficiary
• c) +++ MSAs may include:
  • Miami-Ft.Lauderdale-Miami Beach, FL
  • Houston-Baytown-Sugar Land, TX
  • Dallas-Fort Worth-Arlington, TX
  • Riverside-San Bernardino-Ontario, CA
  • Charlotte-Gastonia-Concord, NC
  • Orlando, FL
  • San Juan, PR.
  • Atlanta-Sandy Springs-Marietta, GA
  • Pittsburgh, PA
  • Cincinnati-Middletown, OH-KY-IN (if Kentucky moves in time from DMERC Region C to Region B, as proposed) or Cleveland-Elyria-Mentor, OH (which is entirely DMERC Region B now)

+++Note – The rankings are based on 2003 data not 2004 as proposed by CMS, involves DMERCS that cross state lines and is further complicated by pending changes to the DMERC boundaries.

4. Section Highlights - Rural Area Exemptions

• CMS proposes exemption for populations < 250,000
• AND urban areas based on:
• limited DMEPOS utilization
• limited number of suppliers
• limited number of FFS beneficiaries
• The statute does not preclude extending MSA bid area where significant savings can be achieved

5. Section Highlights - Regional and National Mail Order CAP Proposed

• CMS is requesting comments on a regional and national mail order phase in plan beginning in 2010
• Targets beneficiaries that elect to receive certain DMEPOS (i.e. diabetic supplies) from a regional or national mail order supplier
• Until 2010, mail order suppliers can CB by MSA regionally or supply one price nationally
• Prior to national or regional CB in 2010, mail order suppliers will be allowed to submit bids in one or more CBAs that are NOT included in the competitive bid program. Non-mail order suppliers can continue to furnish items in areas subject to CB IF the supplier has been selected as a contract supplier.
• Of concern is CMS additional request for comment on a mandatory mail order program in 2010 for replacement strips like diabetic strips and lancets. They would like further comment on what replacement items would be best suited for mail order

6. Section Highlights - Criteria for Item Section

• DMEPOS eligible for CB include
• Covered items as defined by section 1834(a)(13) including DME, items used in infusion and drugs (other than inhalation) and supplies used in conjunction with DME, excluding class III devices, are included
• Enteral nutrition equipment and supplies
• Off the shelf (OTS) orthotics requiring minimal adjustment. CMS would like comments identifying these products
• Of note is that CMS uses the proposed rule to solicit comments on the appropriate Medicare fee schedule percentage change for Class III DME for 2007 and 2008 and will consider theses comments in conjunction with the recommendations made in a March 2006 GAO report
• Pharmacists billing only for Part B drugs or vaccinations will not have to obtain accreditation to maintain their supplier billing numbers. These services are not part of the CAP
• Suppliers currently providing rental DME or Oxygen will be grandfathered to continue proving the products to beneficiaries until rental agreements ends
• CMS has authority to exclude items with little savings potential, utilization or supplier availability
• Payments will be updated by percentage increase in the CPI-U. Suppliers do not have to account for inflation in their bids
• CB would be by product categories utilizing 2003 DMEPOS allowed charges by policy group to serve as a starting point for further grouping
• Potential program savings will be calculated using the following variables
  • Annual Medicare DMEPOS Allowed Charges
  • Annual Growth in Expenditures
  • Number of Suppliers
  • Savings in the DMEPOS demonstrations
  • Other Reports and Studies (i.e. GAO mail order report)
• The top five DMEPOS allowed Charges by policy group/Percent (%) DMEPOS
  • Oxygen Supplies/Equipment - 21.3%
  • Wheelchairs/POV - 16.9%
  • Diabetic Supplies & equipment - 9.7%
  • Enteral Nutrition - 5.9%
  • Hospital Beds - 3.3%
• Top 5 account for 57.1% of purchases and are likely targets for the DMEPOS CAP

7. Section Highlights - Submission of Bids

• Suppliers outside of the MSA can bid in any MSA
• Suppliers must provide specific financial information to demonstrate solvency including:
• Bank references
• Credit history
• Insurance documentation
• Line of credit
• Ability to accept 20% more in increased capacity to serve
beneficiaries as suggested by PAOC
• Each supplier will bid on each item in a product category creating a composite bid which is weighted by volume share based on specific utilization or dollar payout
• The pivotal bid is reached when bidding suppliers are able to meet MSA capacity
• CMS estimates 50% of all bidders likely to be selected as contract suppliers
• The contract term is three years
• Rebate Program - CMS proposes allowing suppliers that submit bids below the single payment amount to voluntarily provide beneficiaries with a rebate. The rebate would be equal to the difference between he supplier's actual bid and the established single payment amount.

8. Section Highlights – Opportunity for Small Supplier Bidding and Networks

• Regulations state small suppliers must have an "opportunity to bid"
• Small suppliers defined by SBA as < $ 6 million in sales. Using this definition, 90% of providers are "small"
• CMS rejected allowing small suppliers to define geographic service areas within an MSA(CMS is seeking comments on further defining "smallness" and service areas)
• CMS rejected the idea of allowing non bidding small suppliers to be offered the opportunity to accept the pivotal bid payment amount because the statute clearly states suppliers must bid to be a contract supplier
• Based on Polk and San Antonio demonstrations, bid completion time will take 70 hours including $2,187 of auditor and accountant time to prepare the bid
• CMS will allow the formation of small supplier networks. Requirements include:
  • Executed participation agreements by supplier with network administrator prior to submitting bid.
  • Each network member must have the ability to bid independently however if choosing to bid through a network cannot bid independently in addition nor can they join multiple networks
  • Each member must meet accreditation and quality standards however CMS may begin CB prior to accreditation and quality standards being finalized. AOs will accredit bidders before non-bidders. CMS is seeking comments on an appropriate grace period from AOs to realistically accommodate suppliers
  • Networks can't be anticompetitive defined by not exceeding 20% of the Medicare market for a product category

9. Section Highlights – Regulatory Impact

• CMS estimates first round of CB will occur in the fall of 2006 with pricing effective in October of 2007
• MSAs will be added based on this schedule:
• 2006 – 10 MSAs
• 2008 – 70 MSAs
• 2009 – 10 MSAs
• 2010 - 10 MSAs
• In the 100 MSAs, CMS estimates 30,000 suppliers reside and supply at least one product eligible for CB
• CMS estimates 10-20% savings per product group
• CMS assumes 90% of the 30,000 suppliers just to maintain market share will bid and 50% or 18,383 will win.

10. Quality Standards