WASHINGTON--After months of speculation and if-then scenarios, the waiting for HME industry stakeholders continues. In its Notice of Proposed Rulemaking on Medicare competitive bidding, published in this morning's Federal Register, CMS did answer some questions on how it intends to implement the DME bidding program, set to begin in 2007.

But the 203-page document still does not identify exactly which products will be included in the bid or name the 10 cities where it will be phased in next year.

The Medicare Modernization Act of 2003 mandates DME competitive bidding to begin in 10 of the nation's largest metropolitan statistical areas in 2007 and expand to 80 MSAs in 2009, after which the government has the authority to expand the program nationwide.

Though the 10 initial cities were not named, CMS did publish a formula detailing how they will be selected. Factors include the total population in an area, total Medicare DMEPOS spending in the area, per beneficiary spending and the number of suppliers per beneficiary. The rule also proposes excluding New York, Los Angeles and Chicago--the three largest MSAs in the country--to allow the agency more time to gain experience with the bidding program, and selecting no more than two cities from each state.

"After we have gained experience operating competitive bidding programs in [areas] that encompass smaller MSAs in 2007 and 2008, we would propose to implement programs that include" the three cities, the rule said. CMS conducted competitive bidding demonstrations in Polk County, Fla., and San Antonio, Texas, from 1999 to 2002.

Based on CMS' proposed formula, the cities that would be up for bid using 2003 data would be Miami; Riverside, Calif.; Pittsburgh; Cincinnati; Houston; Dallas; Charlotte, N.C.; Orlando, Fla.; San Juan, Puerto Rico; and Atlanta. Other top MSAs based on CMS' formula include San Antonio, Texas; Tampa, Fla.; Kansas City, Mo.; Virginia Beach, Va.; St. Louis; San Francisco; Cleveland; Detroit; Baltimore; Philadelphia; Washington, D.C.; and Boston.

However, CMS said, the actual cities will be selected using 2005 data--which has yet to be published.

CMS also does not say what products would be put up for bid, although the rule does propose selecting products based on potential savings. It also proposes grouping similar items into product categories, such as hospital beds and accessories, so that beneficiaries would be able to get all related items in that category from one supplier. The agency will identify the top 20 product categories in terms of total Medicare spending from which to choose items for the first phase of the program. The bid items also may vary by competitive bidding areas, CMS said.

The proposed rule includes a complex formula for evaluating supplier bids based on the total capacity needed to meet Medicare demand in the area, with winners chosen based on the weighted median of the bids that are submitted. CMS would use the bids submitted to set Medicare payment amounts, which would be the median of the winning suppliers' bids. According to the proposal, suppliers whose bids are lower than the payment amount set under the bidding program could offer a rebate to beneficiaries.

To participate in the Medicare bidding program, suppliers must be accredited by a CMS-approved accreditation organization to ensure they meet applicable quality standards. CMS is expected to issue those standards this spring and, at some point after that, to name approved accreditors.

The proposed rule also provides what CMS calls "an opportunity to develop a network to collectively bid to furnish items included in a product category ... [that] would provide important assistance to small suppliers." And the agency proposes a grandfather provision to allow suppliers that are not bid winners to continue to serve their existing customers.

The agency contends that, within five years, its DMEPOS competitive bidding program will save $1 billion annually. Because prices would be lower under competition, the agency says, the program also would reduce co-payments and cut beneficiaries' out-of-pocket costs.

"We intend to implement these DME competitive reforms to get savings for beneficiaries and taxpayers, while maintaining and improving quality," said CMS Administrator Mark McClellan. "This is another way in which Medicare is now using competition to bring lower-cost, up-to-date care to our beneficiaries."

CMS said it is seeking comments on a number of key elements of the competitive bidding program, including:

• the proposed methodology for selecting the 10 MSAs for 2007;
• alternatives to defining competitive bidding areas;
• the proposed methodologies for determining whether an area within an urban area that has a low population density is not competitive;
• standards for exempting particular rural areas from competitive bidding;
• methodologies for setting the single payment amount;
• the proposed approach for calculating market demand and estimating supplier capacity;
• best method of weighting individual items within a product category to determine the composite bid;
• financial standards evaluation criteria and required documentation;
• additional options to ensure that small suppliers have opportunities to be considered for participation in the program;
• a process to determine items and/or HCPCS codes for identifying off-the-shelf orthotics subject to competitive bidding;
• the proposed rebate process outlined and how to handle those cases in which the rebates would exceed the co-payment amount.

Comments will be accepted until June 30, 2006, and a final rule will be published later this year.

To view the rule, click here.

For a summary of key provisions in the proposed rule, visit www.aahomecare.org.