Medicare Market Pricing Program Frequently Asked Questions October 2012

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1 Medicare Market Pricing Program Frequently Asked Questions What is the Medicare Market Pricing Program for DMEPOS Act of 2012 (MPP)? Introduced in September 2012, H.R is proposed legislation that would replace Medicare s current competitive bidding program for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) with an auction system that would establish market based prices for DMEPOS items and services. AUCTION PROCESS How and where would the market based auctions operate? (pgs. 3 4; pgs ) Instead of auctioning all product categories in a particular bid area, no more than two lead product categories would be auctioned for exclusive contracts in a single area. MPP would auction a representative 20 percent of the market with two year contracts beginning July 1, The remaining market areas eligible for the program would be served by any willing provider furnishing products at the reimbursement rates determined by the auction. The reimbursement rates established through the auction would apply to similar geographic areas (i.e., urban to urban, suburban to suburban) and be adjusted for regional characteristics. Beginning July 1, 2015, and each year thereafter, MPP would auction a representative 10 percent of the counties eligible for bidding with two year contracts until market pricing programs are occurring in 100 percent of eligible market areas throughout the United States. The process would continue and the Secretary of the Department of Health and Human Services (HHS), in consultation with the auction expert, would continue to select additional eligible market areas on an ongoing and rotating basis. When would the Market Priced Auction be conducted? (pg. 12) The auctions will be conducted on March 1 of each year. Depending on if and when the H.R passes, the initial auction would convene March 30, When would the auction pricing under MPP be effective? (pgs. 3 4) Pricing under the MPP would be effective July 1, 2013, and July 1 of succeeding years for all areas not under the two year exclusive contracts. How long will exclusive contracts be in place in eligible market areas for lead products? Exclusive contracts for lead products would be in place in eligible market areas for two years. Prices for all areas not under the two year exclusive contracts would be adjusted/updated annually. How will eligible market areas be determined and/or defined? (pgs. 4 5) Eligible market areas will be established by the Secretary and will be chosen from among cities and counties (or aggregation of counties in less populated areas) that form an economically interdependent area. Market areas

2 Page 2 will not cross over state lines. Market pricing gleaned from homogenous cities or counties would be implemented nationwide and adjusted by a geographic adjustment factor. What is the role of the auction expert? (pg. 9) The auction expert will be responsible for: Developing a draft auction design for all eligible areas and all market prices items and services; and Developing standards for eligible bidders What is the role of the market monitor? (pg. 2) The market monitor provides oversight and would evaluate the design, implementation and functioning of the MPP to identify weaknesses or problems. The monitor would report to the HHS Secretary and recommend adjustments and changes. The monitor would have access to confidential information. How is the auction designed? (pgs. 9 13) The auction expert will develop a draft auction design for all eligible areas and all market priced items and services. The Secretary and auction expert will convene a design conference to include all stakeholders (CMS, DMEPOS suppliers, beneficiaries and the most recent Program Advisory and Oversight Committee). The auction expert will chair the conference. The design conference shall provide a demonstration of the preliminary auction design; a mock auction will be conducted and the auction expert will establish working committees to address major issues. Within three months following the design conference, the Secretary and auction expert will publish the final MPP design which will include: o all financial and other qualifications for bidders; o the eligible market areas and product categories to be auctioned; o the protocols and timing for the conduct of the auction; o the methodology by which prices will be set for the non lead products within a product category; o the methodology by which an auction price will be transferred to the same product in an economically similar eligible market area; and o an appeals process to protect suppliers. PRODUCTS AND PRICES What product categories would be impacted by the MPP? (pgs. 6 7) For the purposes of achieving budget neutrality, the MPP includes the same product categories as the current competitive bidding program. The HHS Secretary has the authority to expand the current product list to include additional DMEPOS items and services.

3 Page 3 What product categories would be excluded from the MPP? (pg. 7) Adjustable skin protection cushions used in connection with a wheelchair Complex rehabilitative power wheelchairs and related accessories Manual wheelchairs billed using current HCPCS Codes K0005 or E1161, and related accessories What products will each market area bid on? In each eligible market area in which a market priced auction is conducted, the Secretary will select two lead products for bid in the auction. The Secretary will determine which two lead products will be bid for exclusive contracts based upon cost and utilization in the eligible market area. How are the lead products for the market priced auctions selected? (pgs ) Lead products are selected based upon cost and utilization in the eligible market area. The lead product sets the pricing for the category and the pricing of all other products in the product category is set relative to the lead product. A lead product will be identified for every product category subject to MPP and subject to auction among all eligible market areas. The lead product is auctioned until supply (providers capacity) equals demand (expected utilization).at this point, this clearing price is determined and all remaining bidders are offered, and must accept, a contract at this price. How are the non lead product categories (that are not being auctioned for exclusive contracts) and products supplied in non auction market areas supplied? All non auctioned product categories would be provided by any willing provider at clearing prices determined from auctions conducted in other economically similar areas. How are the clearing prices established for the non lead products in a product category? (pgs ) Lead products will be assigned a weight of 100 percent. Non lead products in a product category will be proportionately referenced (in terms of price) to the lead product price through a process designed by the auction expert with input from stakeholders. SUPPLIERS & BIDDERS Who is eligible to bid and participate in the MPP? (pgs ) Current Medicare requirements apply. Suppliers must meet Medicare's quality standards for DMEPOS suppliers, be accredited, and bonded. Does the MPP include an Any Willing Provider provision? (pg. 25) Yes. Any supplier may provide non auctioned product categories in eligible market areas at the clearing price as determined from auctions in other economically similar eligible market areas.

4 Page 4 How is bidder capacity determined? (pgs ) The capacity of each bidder would be based upon historical utilization (i.e., how much business your company conducted in a zip code the prior year for the product(s) in question). Suppliers new to the market or without a history would be assigned a standard base capacity of 1 percent market share. How does the MPP assure bidder transparency? To assure transparency, the following information would be publicly available: All financial and other qualification requirements necessary for bidders; Eligible market areas and categories to be auctioned; Protocols and timing for the auction; and Methodology for setting prices or transferring those prices to other areas outside the auction. How would the MPP ensure that only serious bidders participate in the auction? (pgs ) Each bidder would be required to deposit cash or an irrevocable letter of credit. These deposits would be returned to unsuccessful bidders and retained for the successful bidders as a guarantee of performance. How would the MPP prevent low ball bids? Under the MPP bids are binding and cash deposits are required to ensure that only serious bidders participate. The bid price is based on the clearing price (the lowest cost bid that achieves capacity targets in the market area for such item and service) rather than the median price. The clearing price of the lead product would be based upon expected utilization of a product and the number of low bids needed to reach that demand. OTHER PROVISIONS What items and services does the 4.8 percent fee schedule reduction apply to? (pg. 33) The 4.8 percent reduction helps offset the cost of the legislation. It would be applied to all items and services currently subject to competitive bidding for the first six months of CY 2013, or until the MPP goes into effect. What features of the current competitive bidding program would the MPP retain or improve upon? There is no specific requirement for grandfathering in H.R. 6490; however, a product specific grandfathering period could be recommended by the auction expert with oversight of the market monitor.

5 Page 5 Provider capacity for the purposes of the auction is limited to historical utilization. If a provider accepts a contract for an item, there is no minimum or maximum amount of that item which can be supplied by that provider, unless the Market Monitor determines that it negatively affects patient quality. There is no bid ceiling in H.R To find the true market cost, bid prices need to fluctuate. The same rural areas that are exempt under the current competitive bidding program would be exempt under MPP; however, the areas will get reimbursement prices set at auction. What will happen to the contracts currently in place in Round One? (pgs ) Round One contracts and prices would continue through June 30, 2013, and terminate six months early with MPP pricing. In the nine Round One bid areas, Medicare would offer contracts to DMEPOS suppliers that submitted bids for product categories but had rejected them solely because of price considerations. Bidders accepting these contracts would also have to accept prices established through MPP. Medicare would stop implementing the Round One Recompete and Round Two of the competitive bidding program.