Reimbursement Page

Competitive Bidding Payment Rules
By Kathy Dodson

Competitive bidding is becoming a reality for some orthotic devices, assuming the rules proposed by Medicare on May 1, 2006 are adopted.

With competitive bidding, only the facilities that win bids are allowed to provide these bid services to Medicare patients. Those that do not win bids are not allowed to provide the service.

If you do not win the bid, even if you are willing to accept the competitive bidding payment amount, Medicare will not allow you to provide the bid services to its beneficiaries.

While the proposed rules cover a number of topics under competitive bidding, one of the most pertinent is how payment amounts will be set. Here is what the proposed rule states.

General payment guidelines
Initially, there will be 10 specific areas of the country that will come under competitive bidding. A “single payment amount” for each geographic area will be established for each off-the-shelf orthotic L code included in the bidding.

Each area will have its own rate for each of the L codes bid in its area. There is a possibility that the set of L codes to be bid upon may vary by geographic region. The actual codes to be included will not be known until the bidding process has begun.

In calculating the payment amounts, the Centers for Medicare and Medicaid Services (CMS) will use the specific bids for the region. Therefore, your payment amount will be based strictly on your own geographic area. Other geographic areas will not influence the outcome of what you are paid.

The areas being considered by CMS, called Metropolitan Statistical Areas or MSAs, frequently include major urban areas as well as a wide swath of outlying areas economically tied to the urban area. So, being outside an actual urban area is not a guarantee that you will escape this process.

As of this writing, CMS had not yet announced which specific areas will be included.

There will be an annual payment increase equal to the Consumer Price Index-Urban. This is the same annual increase frequently received by O&P until 2003 (we had a three-year freeze in increases from 2004 through 2006). Barring legislative changes, the payment increase will again be given to the field in 2007.

Setting the “single payment amount”
As already mentioned, each L code for a geographic area will have a set single payment amount based upon the bids received. This amount will be the actual allowable for that code under competitive bidding.

For all devices under competitive bidding, the single payment amount must be less than what would have been paid under Medicare. So no bids higher than the fee schedule will be eligible to win the bid.

The proposed process for determining the single payment amount is lengthy and complex. Here are the steps.

1. The composite bid
In the first step, CMS will look at what each specific facility in the area bid for each specific code and determine a composite bid for each facility.

This is determined by considering what the facility would accept as payment for each code, weighted by the estimate of how many of these items are expected to be supplied by all bidders in the geographic area. Therefore, what you bid on a high-volume device will have more impact on your composite bid than what you bid on a low-volume device.

The facility’s weighted bids for all codes in the competitive bidding program are then added together to give each facility one composite bid. At this point, Medicare is only trying to determine if your facility is eligible to be included in the running to win the bid.

2. The pivotal bid
In this next step, CMS will determine the cut-off point in bids, above which a facility will be eliminated from the running. To do this, CMS will first determine the service capacity it estimates will be needed to adequately cover the beneficiaries in the bid area. The “pivotal bid” will be the bid at which the expected combined capacity of the bidders at or below this bid amount will meet expected patient demand.

The chart on the previous page, “An Example of Determination of the Pivotal Bid” will make this clearer. First, bidders are arrayed from lowest to highest composite bid.

If Medicare has estimated that the number of items needed for the first year of the program is 1,000 in this geographic area, bidders A through D would be considered bid winners. Facility F would not, since the 475 units that it could provide would not, in Medicare’s estimate, be needed.

This means that the composite bid of $135 (Facility D) would be considered the pivotal bid and any facility with a composite bid at or below this amount would win the bid. But there’s one more step to determine what would be paid.

3. Calculating the single payment amount

Once the universe of winning bidders is selected, what will actually be paid for each code must be determined. Remember that the pivotal bid was really a composite of all the bids for each provider, so it cannot be used as the actual payment for any one particular item.

To calculate actual single payment amounts, Medicare will make use of only the bids of the winning bidders. So if a facility’s bid amount exceeded the pivotal bid cut-off, its actual bid will not be used to set the single payment amount, that is, the competitive bidding allowable for that code.

So, using only winning bidder’s data, CMS will unbundle the composite bid and calculate the median of all of the bids for each item. This will result in a payment amount that will meet or exceed the bid of 50 percent of the bidders. Of course, this also means that it will be below what the remaining 50 percent of the bidders submitted.

For example, let’s say that you have facilities 1 though 5 that won the bid. For one particular item, their bids were $10.00, $15.00, $16.00, $20.00 and $22.00, respectively. Since CMS will select the bid where at least 50 percent, or in this case three, of the bidders are covered, the actual payment amount would be set at $16.00.

Therefore, all facilities which won the bid would be paid $16.00 for that item. This would meet or exceed the bids for facilities 1, 2 and 3, but would not meet the bid for facilities 4 and 5. However, since 4 and 5 won the bid, they must accept the $16.00 allowable as payment in full. For all bid winners, Medicare would then pay the normal 80 percent of $16.00 and the patient would be expected to pay the remaining 20 percent.

AOPA’s comments

AOPA has submitted comments on all of the proposed rules for competitive bidding, including this process of setting the payments. One of our concerns with this process is that the median of winning bids, rather than the actual bid of each provider, will become the “single payment amount.”

While it would certainly be nice to be paid more than you bid for an item, this approach is full of problems. For example, what would prevent a provider from billing unreasonably low, just to make sure it won the bid, since it knows that it would be paid the single payment amount? This would also pull the final payment amount down.

And why should a winning bidder have his payment set below his bid, particularly if Medicare has already determined that it needs all winning bidders to provide adequate coverage for an area? Setting the payment below a bid will likely cause providers to drop out of the program, negatively affecting patients’ access to care.

What can you do?

So how can you prepare for competitive bidding? One of the best ways is to start determining now what level of payment you can accept for some of your most common OTS orthotic devices. That way, when the actual list of codes is announced, you may have much of the work already done. If you don’t do this for specific devices, you will have no way of knowing at what level to set your bid and if you can afford to accept what Medicare is willing to pay.

One way to accomplish this analysis is by using the AOPA Cost Accounting Manual, which lays out a methodology for calculating fees.

AOPA’s comments on the proposed rules were combined with other comments from O&P Alliance members and were submitted to Medicare at the end of June. You can find the complete text of the O&P Alliance comments on AOPA’s Web site at www.AOPAnet.org.

At this writing, the final regulations have not been published, but CMS expects the competitive bidding program to be up and running by October 2007. AOPA will be following up with much more information when the rules are finalized.

Kathy Dodson is the senior director of government affairs for the American Orthotic & Prosthetic Association (AOPA). Questions? Call (571) 431-0810 or visit www.AOPAnet.org.