Lead Item Pricing & Clearing Price Cara Bachenheimer, Brown & Fortunato Kim Brummett, AAHomecare October 15, 2018

Chronology – What Next? July 19, 2018 CMS published proposed rule November 1, 2018 – deadline for Final Rule January 1, 2019 Bid program suspended for up to 2 years Early 2019 CMS to start education on reformed NCB January 2021

Proposed Payment January 1, 2019 Former CBAs: SPAs plus CPI Non-Rural non-CBAs: current rates Rural/non-contiguous non-CBAs: higher rates in effect June 1, 2018

This Session Focus on Two Key Proposed NCB improvements Maximum winning bid Lead Item pricing

“Maximum Winning Bid” CMS proposes to change the method to calculate the SPAs 42 CFR §414.416 Current method: median price Proposed method: maximum winning bid Same as “clearing price” Market Pricing Program bills included clearing price to determine SPA Supported by auction economists The SPA for the lead item in each product category and CBA would be based on the highest amount bid for the item by suppliers in the winning range CMS: it simplifies the bidding process and better ensures long term sustainability of bid program

SPAs based on Median method versus Maximum Winning Bid Bidders Bid for Lead Item SPA based on Median Bid SPA based on Maximum Bid /Clearing Price Supplier 1 $10 Supplier 2 $12 Supplier 3 $14 Supplier 4 $16 Supplier 5 $20

Lead Item Pricing Would replace the current bid process where bidders submit a price for each HCPCS code in the product categories Lead item is the single HCPCS code in a grouping of similar items Bidders bid on one “lead item” in a grouping of similar items Lead item has highest total national allowed charges (paid) during the base period The 2015 unadjusted fee schedules better reflect relative costs of items than bid program SPAs Hospital beds with side rails had a higher fee schedule than beds without side rails

Lead Item Pricing (cont’d) CMS to revise the definition of “composite bid” to be “the bid submitted by the supplier for the lead item in the product category” The bid on the lead item = the composite bid The current/earlier “composite bid” method would no longer exist 2015 fee schedules will be the bid ceiling for lead item price Lead item drives the expected beneficiary demand in a CBA Lead item drives total supplier capacity in the product category

SPAs based on Lead Item MWB The lead item SPA is used to establish the SPAs for the lead item and all other items in the product category Non-lead items’ SPAs based on the relative difference in the fee schedule amounts for the lead and non-lead items in the 2015 fee schedule Item 2015 Fee Schedule Ratio SPA based on Lead Item MWB Lead item: Group 2, Captains Chair power wheelchair $578.51 100% MWB: $433.88 Non-lead item: battery $107.25 18% $80.44

Pros of Lead Item Pricing Eliminates current “price inversions” “Price inversions” are caused by bid methodology which rewards bidders who are most aggressive on items with highest allowed services “Price inversion” results in lower SPAs for items with more features, etc. than other items, or per CMS “when a more complicated item is cheaper than a simple version” “Price inversion” occurred with standard power wheelchairs, walkers, hospital beds, enteral infusion pumps, TENS, support surface mattresses and overlays, and seat lift mechanisms Simplifies the bid process for bidders and for CMS Bidders no longer have to submit bids for all HCPCS codes in product categories Is supported by auction economists

Challenges with Lead Item Pricing Product categories must be discreet to include “like” products CMS agrees: “it is likely that some of the larger, conglomerate product categories established to promote ’one stop shopping’ for beneficiaries and referral agents would need to be split into multiple product categories so that lead item pricing is not implemented for categories that include different types of base equipment” Bidder education! The bid amount for the lead item must include costs for furnishing all items in the product category

Lead Item Pricing Issues Surety bond Bond will be forfeited: If supplier is offered a contract for any product category for a CBA, and its composite bid rate is at or below the median composite bid rate for all bidding suppliers included in the calculation of the SPAs for the product category/CBA, The median of the winning bids for the lead item in the product category would be calculated and used to implement the bid surety bond requirement Focuses the surety bond penalty on the lowest bidding bidders

Bona Fide Bids with Lead Items Suppliers required to respond to bona fide bid requests to ensure their bid price is reasonable based on ability to provide Historically supplier provided a manufacturer invoice to prove the cost is less than bid amount What about other indirect costs that affect ability to provide? AAH recommendation: suppliers sign attestation that they have contracts with manufacturers in place to provide products in the category What about bona fide bid with lead item? Only on the lead item? If CMS “auto populates” other items in the category based on relationship of 2015 fee schedule, is supplier accountable to be able to prove a bona fide bid on a bid amount they did not enter?

Product Category Proposals Current Proposed Respiratory  CPAP Oxygen General HME Beds Support Surfaces Commode Chairs Patient Lifts Seat Lifts  Standard Mobility Equipment Walkers Standard Manual Chairs & Accessories Standard Power Chairs and Accessories Scooters

Challenges with Product Categories Smaller categories = more different suppliers Beneficiary Confusion Difficult for referral sources Supplier coordination What happens with accessories that are part of more than one category? OR If categories stay as they are, does lead item make sense?

Standard Power Mobility Category/Sub-Category and Lead Item

Standard Power Mobility Category/Sub-Category and Weighting Subcategory Weighting Table - EXAMPLE Subcategory 2016 ALLOWED $ 2016 Allowed Pymt % of 2016 Total Allowed $ % of Total 2016 Payments WHEELCHAIRS, MOTORIZED $72,051,713 $55,148,611 43% WC OPTIONS/ACCES, POWER ONLY $18,782,967 $14,459,001 11% WC OPTIONS/ACCES, POWER OR MANUAL $44,117,838 $33,907,839 26% WHEELCHAIR SEATING $32,609,838 $25,324,908 19% 20% CATEGORY TOTAL $167,578,926 $128,840,359 100%

Standard Manual Mobility Category/Sub-Category and Lead Item PRODUCT SUB-CATEGORIES HCPCS Code HCPCS Code Description 2016 ALLOWED $ 2016 Allowed Pymt Wheelchairs, Manual K0001 Standard Wheelchair $33,323,031 $23,730,039 WC Options/Acces, Power or Manual E1028 Wheelchair Accessory, Manual Swingaway, Retractable Or Removable Mounting Hardware For Joystick, Other Control Interface Or Positioning Accessory $9,928,593 $7,710,570 Wheelchair Seating E2611 General Use Wheelchair Back Cushion, Width Less Than 22 Inches, Any Height, Including Any Type Mounting Hardware $10,499,907 $8,165,461

Standard Manual Mobility Category/Sub-Category and Weighting Subcategory Weighting Table - EXAMPLE Subcategory 2016 ALLOWED $ 2016 Allowed Pymt % of 2016 Total Allowed $ % of Total 2016 Payments WHEELCHAIRS, MANUAL $77,840,102 $56,057,607 50% 48% WC OPTIONS/ACCES, POWER OR MANUAL $45,262,650 $34,788,996 29% 30% WHEELCHAIR SEATING $32,609,838 $25,324,908 21% 22% CATEGORY TOTAL $154,584,348 $116,171,511 100%

Respiratory – Sleep SLEEP HCPCS Code HCPCS Code Description 2016 ALLOWED $ 2016 ALLOWED UNITS CPAP E0601 Continuous Positive Airway Pressure (CPAP) Device $ 165,912,485.22 3,624,222 A7030 Full Face Mask Used With Positive Airway Pressure Device, Each $ 136,627,106.54 1,202,328 A7034 Nasal Interface (Mask Or Cannula Type) Used With Positive Airway Pressure Device, With Or Without Head Strap $ 112,609,034.30 1,616,683 A7031 Face Mask Interface, Replacement For Full Face Mask, Each $ 91,570,059.67 1,132,461 A7032 Cushion For Use On Nasal Mask Interface, Replacement Only, Each $ 79,180,147.17 841,362 RAD E0470 Respiratory Assist Device, Bi-Level Pressure Capability, Without Backup Rate Feature, Used With Noninvasive Interface, E.G., Nasal Or Facial Mask (Intermittent Assist Device With Continuous Positive Airway Pressure Device) $ 70,452,174.20 618,049 E0562 Humidifier, Heated, Used With Positive Airway Pressure Device $ 65,773,347.84 1,380,402 A7033 Pillow For Use On Nasal Cannula Type Interface, Replacement Only, Pair $ 50,022,877.37 689,561 E0471 Respiratory Assist Device, Bi-Level Pressure Capability, With Back-Up Rate Feature, Used With Noninvasive Interface, E.G., Nasal Or Facial Mask (Intermittent Assist Device With Continuous Positive Airway Pressure Device) $ 46,001,016.68 163,065 A7035 Headgear Used With Positive Airway Pressure Device $ 41,805,461.65 1,838,710 Lead Item by $$ or Units? For sleep, E0601 is lead item either way!

Subcategory Weighting Table - EXAMPLE Respiratory Equipment Oxygen Respiratory – Oxygen Subcategory Weighting Table - EXAMPLE Respiratory Equipment Oxygen 2016 Payments % of Total 2016 Payments STATIONARY GAS $ 180,645.94 0.02% STATIONARY CONCENTRATOR $ 852,422,097.75 85.95% PORTABLE $ 72,253,530.86 7.29% PORTABLE NEW TECHNOLOGY $ 66,886,829.85 6.74% CATEGORY TOTAL $ 991,743,104.40 100.00% Clearly E1390 Outweighs all other combined!

General Home Equipment – Sub-Category? GENERAL EQUIPMENT CATEGORY 2016 Payments % of Total 2016 Payments HOSPITAL BEDS $ 78,397,449 40% HEAVY DUTY HOSPITAL BEDS $ 6,259,079 3% HOSPITAL BED ADDITIONS $ 2,531,014 1% PATIENT LIFTS $ 18,511,490 9% SEAT LIFTS $ 2,747,899 COMMODES $ 17,915,045 SUPPORT SURFACES GROUP 2 $ 14,079,973 7% SUPPORT SURFACES GROUP 1 $ 10,604,983 5% WALKERS $ 44,665,894 23% CATEGORY TOTAL $ 195,712,826 100% Are there subcategories or are each of these categories truly separate product categories?

General Home Equipment – Sub-Category? HCPCS Code HCPCS Code Description 2016 ALLOWED $ Hospital Bed E0260 Hospital Bed, Semi-Electric (Head And Foot Adjustment), With Any Type Side Rails, With Mattress $ 67,070,458.00 Heavy Duty Hospital Bed E0303 Hospital Bed, Heavy Duty, Extra Wide, With Weight Capacity Greater Than 350 Pounds, But Less Than Or Equal To 600 Pounds, With Any Type Side Rails, With Mattress $ 4,445,907.86 Hospital Bed Accessories E0271 Mattress, Innerspring $ 874,563.68 Seat Lift E0627 Seat Lift Mechanism Incorporated Into A Combination Lift-Chair Mechanism $ 2,711,178.68 Commodes E0163 Commode Chair, Mobile Or Stationary, With Fixed Arms $ 16,014,394.26 Group 2 E0277 Powered Pressure-Reducing Air Mattress $ 12,051,531.60 Group 1 E0185 Gel Or Gel-Like Pressure Pad For Mattress, Standard Mattress Length And Width $ 7,187,187.11 Walkers E0143 Walker, Folding, Wheeled, Adjustable Or Fixed Height $ 37,109,224.77 Move walkers to general home equipment? Or, is E0260 the lead item for all? Or, are all of these separate product categories?

NPWT – Lead Item? By $$ Allowed or # Allowed HCPCS Code HCPCS Code Description 2016 ALLOWED $ E2402 Negative Pressure Wound Therapy Electrical Pump, Stationary Or Portable $ 81,482,100.33 91,649 A6550 Wound Care Set, For Negative Pressure Wound Therapy Electrical Pump, Includes All Supplies And Accessories $ 25,782,822.82 95,771 A7000 Canister, Disposable, Used With Suction Pump, Each $ 6,356,163.41 133,165 Lead Item by $ or Units or No Lead Item when few HCPCS in Category?