Dive Brief:

• CMS late Thursday finalized changes to the Durable Medical Equipment Prosthetics, Orthotics, and Supplies (DMEPOS) program, including its plan to overhaul a competitive bidding program. Industry had lobbied in favor of the changes.
• The final rule lays out a process to move to lead item bidding, meaning that durable medical equipment suppliers will only have to submit one bid for a product category. It also increases fee schedule rates in rural areas not subject to the competitive bidding program.
• New contract negotiations are not yet underway, meaning that current DMEPOS contracts will expire at the end of the year. CMS says that a temporary two-year gap period will ensue until the end of 2020, wherein any Medicare-enrolled DMEPOS supplier can provide supplies and services to Medicare beneficiaries. 

Dive Insight:

Industry largely praised the changes to the competitive bidding program, and one market analyst called them a net positive for DME manufacturers. But a government watchdog report has called into question if the changes are truly necessary.

CMS administrator Seema Verma said the final rule's changes to the competitive bidding system will help ensure patient access to durable medical equipment.

"Based on many comments we received on our DME proposal from suppliers, manufacturers and their associations — all of whom supported our proposals — we are implementing market-oriented reforms to Medicare's DMEPOS Competitive Bidding Program that also reduce burden on suppliers by simplifying the bidding process," Verma said in a statement.

Even so, an August U.S. Government Accountability Office report cast doubt on the need for the changes. GAO said that despite industry concern that the previous competitive bidding system was reducing reimbursement to a point where patient access would be negatively impacted, utilization in non-bid areas barely budged.

"GAO interviewed several stakeholder groups that reported anecdotal examples of specific beneficiary access concerns they attributed to the rate adjustments, but stakeholders could not provide evidence to substantiate that the access issues were widespread," the GAO report states. "GAO's findings are consistent with CMS's monitoring results, which indicate that there were no widespread effects on beneficiary access in the year after the adjusted rates went into effect."

American Association for Homecare CEO Tom Ryan said the changes "provide welcome relief for suppliers serving Medicare beneficiaries in rural America," but criticized the agency for what he characterized as "rates that provide razor-thin or even negative profit margins" during the gap period.

"Thanks to the dedicated efforts of suppliers of every size, our state and regional association partners, and other leading HME stakeholders, we’ve strengthened our capacity get Capitol Hill educated and engaged on our policy priorities, which has been critical in convincing regulators to take a close look at the bidding program," Ryan said in statement.

Still, a Cowen Washington Research Group research note predicts the two-year gap period will be "a modest positive for DME manufacturers such as ResMED, Philips Respironics, Invacare, Inogen, Fisher & Paykel, Smith and Nephew, Apex Medical, and Baxter."

Adjustments to the DMEPOS fee schedule amounts are expected to cost "$1.05 billion in Medicare benefit payments and $260 million in Medicare beneficiary cost sharing for the 2-year period beginning January 1, 2019, and ending December 31, 2020," according to the final rule.

"In other words, the average per Medicare beneficiary increase in cost-sharing is about $65.00 dollars," CMS states. CMS also said the change to the DMEPOS competitive bidding program to institute lead item bidding is expected to cost $10 million in Medicare benefit payments and $3 million in Medicare beneficiary cost sharing over a five-year period.