Dive Brief:

• CMS this week awarded contracts to just two of the 15 types of durable medical equipment (DME) covered by its latest competitive bidding process.

• The agency opted against awarding contracts to the 13 DME categories that had previously been through the process as "the payment amounts did not achieve expected savings." Only off-the-shelf back and knee braces received contracts, which CMS expects to save Medicare $600 million over three years.

• Analysts were split over the impact of the actions. While analysts at Needham said the lack of new contracts spares companies such as ResMed from feared "significant reimbursement declines," others at Jefferies saw the news as a "major negative" in the longer term.

Dive Insight:

Round 2021 of the competitive bidding program took place against a backdrop of speculation CMS may delay or cancel it due to the pandemic. In the end, Cowen analysts said CMS effectively delayed the process for most DME categories as products will continue to be covered by the current deals, with the only change being an adjustment for inflation.

The two exceptions are off-the-shelf back and knee braces, neither of which had previously been through the competitive bidding process. By subjecting the devices to the process for the first time, CMS expects to save $600 million over the three-year duration of the contract.

CMS had expected to enter into contracts covering 13 other categories of DME devices, including continuous positive airway pressure products. Devices in those 13 categories were the focus of an earlier round of competitive bidding, although that took place before CMS moved to a new model that ties the price for an entire category to a single central item.

In the near term, CMS’ inability to generate savings through the new model could be a positive for companies including Inogen, Invacare and ResMed. The Needham analysts said CMS’ lack of action "removes an overhang" for those three companies as Round 2021 could have triggered significant reimbursement declines and thereby put pressure on pricing. 

However, a proposed rule released by CMS suggests it remains keen to drive down costs. In the document, CMS discusses an array of models it considered and calls for feedback on the different methodologies. Analysts at Jefferies took the comments as evidence that, while the lead item pricing model failed to have the desired effect, CMS will return with a new approach. 

"CMS seems determined to further lower rates. Taken collectively, the DMEPOS proposal reads negative considering that CMS is clearly aiming to further lower payment amounts over the next five years. Evidence of this is clear in the proposal as CMS is seeking comments on three alternative models that would save an incremental $1.9-$2.6bn over 5-years against baselines laid out in President Trump's F2021 budget," the analysts wrote in a note to investors.

CMS Administrator Seema Verma has a different take. In a statement to disclose the proposed rule, Verma said the changes will shorten time to market by enabling manufacturers to "get a Medicare payment amount and billing code right off the bat."