Three Good Changes to the Competitive Bidding Program

Home Blog Three Good Changes to the Competitive Bidding Program

by Jeffrey S. Baird, JD, and Todd Moody, JD

AMARILLO, TX - Between unsuccessful challenges to aspects of the Competitive Bidding Program (“Program”), nonsensical bid awards, and constant downward pressure on already low reimbursement rates, it feels like all news related to Competitive Bidding is bad news.

Last week, however, we encountered the rare competitive bidding development that is not negative. On November 4th, CMS published a Final Rule implementing requirements imposed by statute, which, if the Program is to stay, should be viewed positively by the supplier community.

Three of the key changes implemented by the rule are:
1) requirements for bid surety bonds;
2) expansion of supplier appeal rights in the event of a breach of contract action; and
3) changing the methodology for establishing bid limits.

What follows is a summary of each of these changes and what they mean for suppliers.
Requirements for Bid Surety Bonds
Under the Final Rule, a bidding entity must obtain a $50,000 bid surety bond for each CBA in which the supplier is submitting a bid and submit proof of it by the deadline for bid submission. Then, if (i) the bidding entity is offered a contract for any product category in a CBA, (ii) the bidding entity’s composite bid is at or below the median composite bid rate for all bidding entities included in the calculation of the SPA, and (iii) the bidding entity does not accept the contract offered, the entity’s bid surety bond for the applicable CBA will be forfeited and CMS will collect on the bid surety bond.

If the forfeiture conditions are not met, the bond liability will be returned to the bidding entity. Bidding entities that provide a falsified bid surety bond will be prohibited from participation in the Competitive Bidding Program for the current and next round of bidding. Bidding entities that provide a falsified bid surety bond will also be referred to the Office of Inspector General and Department of Justice for further investigation.

Suppliers are accustomed to the surety bond concept due to CMS's supplier standard requiring all suppliers to have a $50,000 surety bond in order to enroll in the Medicare Program. The surety bonds required for enrollment purposes serve to protect CMS's interest in the event of unfulfilled repayment obligations. The bid surety bonds, on the other hand serve to protect the interests of bidding suppliers that are interested in maintaining (holding our nose) sustainable reimbursement rates and that take seriously the obligation not to submit loss leader bids. Now, a supplier looking to carelessly throw around low-ball bids, especially in CBAs the supplier does not traditionally serve, will be discouraged from doing so in a meaningful way.

Binding bids are one hallmark of a healthy, reliable auction system, and, while not creating truly binding bids, the bidding bond requirement makes it unlikely a bidding supplier will decline a contract offer. While some have voiced concerns that the cost of obtaining a surety bond for each CBA in which a supplier bids could present a barrier to bidding, presenting barriers to lowball, rejectable bids that drive down SPAs is important. The new rule is found at 42 C.F.R. 414.412(h) and is applicable to suppliers submitting bids starting with the Round 1 2019 competition.

Expansion of supplier appeal rights in the event of a breach of contract action
The Final Rule revises 42 C.F.R. § 414.423 to expand the appeals process for suppliers that have been sent a notice of a breach of contract stating that CMS intends to take one or more of the actions described in § 414.422(g)(2) as a result of the breach. The current appeals process is available only for contract termination, so the revised  rule expands this to provide suppliers appeal rights whenever CMS takes any one of the actions specified in § 414.422(g)(2) following an alleged breach of contract. If a supplier’s notice of breach of contract includes more than one breach of contract action CMS would take, and the supplier chooses to appeal more than one action, CMS would make separate decisions for each breach of contract action after reviewing the hearing officer’s recommendation.

Hopefully, no one reading this is ever faced with a breach of contract enforcement action from CMS or the CBIC, but, if you are, this expansion of supplier appeal rights is a positive development. We know it has been frustrating for suppliers seeking answers or appeal rights when contracts are not awarded, and the mysterious financial standards. And while this change does not grant appeal rights in those instances, the fact that any additional appeal rights are being granted is noteworthy.

1) Changing the methodology for establishing bid limits.
Current regulations require that suppliers submit bids that are lower than the amount that would otherwise apply—in other words, bids that are lower than the fee schedule amount. CMS imposes this requirement to ensure that the total payments it expects to make to contract suppliers are less than the total amounts that would otherwise be paid. Beginning in 2016, the fee schedule amounts were adjusted based on information from, and prices set through, the Competitive Bidding Program.  CMS indicated in another Final Rule published in the Federal Register on November 6, 2014 (79 FR 66232) that the adjusted fee schedule amounts would become the bid limits for future competitions.

In response to concerns that suppliers will not be able to bid below the adjusted fee schedule amounts as those amounts continue to decline, CMS revised 42 C.F.R. § 414.412(b) to set the bid limit for future competitions at the fee schedule amounts that would apply if the Competitive Bidding Program had not been implemented and that existed before making adjustments to the fee schedule amounts using information from Program. This will allow suppliers to take into account both decreases and increases in costs in determining their bids, while ensuring that payments do not exceed the amounts that would otherwise be paid had the Competitive Bidding Program not been implemented.

While we may not all be jumping for joy, the three changes above are, as far as the Competitive Bidding Program goes, good news.



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