CMS announces timeline for the next phase of Competitive Bidding Program for Diabetic Testing Supplies – December 18, 2014

On December 11, the Centers for Medicare and Medicaid Services (CMS) announced the bidding timeline for the next round of the competitive bidding program, including for diabetes testing supplies. [Insulin pumps do not appear in the product category list.] Interested suppliers will again have an opportunity to bid for Medicare’s business– with all parties beginning with a blank slate and no guaranteed carryover from the previous round. The process is beginning this week (December 18, 2014) in order to enable implementation of new prices and contracts by July 1, 2016, which would mark the three-year anniversary of the implementation of the last round of bidding (July 1, 2013). As a reminder, this program reduced the price of a 50-ct box of strips to just over $10 (a 68% drop from ~$32.47 in 2011) and devastated the industry’s profitability, incentives to innovate, and potentially resulted in patient harm.

Broadly, it appears that the competitive bidding process is the same as the first time around, meaning non-binding bids that drive the reimbursed price to ridiculously low levels, many unknown suppliers, and many low-quality, off-shore strips and meters. Medicare has retained the “50% rule,” whereby bids from mail-order diabetic supply companies must cover at least 50%, by volume, of all types of diabetic testing strips on the market. However, Medicare acknowledges that suppliers can still furnish certain brands “on a limited basis” to comply with the rule – in other words, more expensive, quality brand names that make it harder to adhere to a low-ball bid. See Medicare’s diabetes testing supply fact sheet for bidders here.

Based on government data, we also learned just how significantly competitive bidding has changed the Medicare mail-order market landscape. Notably, LifeScan has benefitted the most from the initiation of the program rising from ~9% of market share (in the three-month period of April to June 2013) to ~21% after the program’s initiation (July-September 2013). The mail-order market share leaders in the latter period were the Prodigy AutoCode (24%), LifeScan’s OneTouch Ultra Blue (21%), and Nipro’s TRUEtest (15%). See our complete summary of market share changes below, including why the 50% rule has not worked in practice (it is based on 2009 market shares!).

The big question going forward is whether the price of strips will remain the same, or whether some increase is to be expected as suppliers take stock of profits/losses since July 2013. As a reminder, Dr. James Scott (CEO, Applied Policy, Alexandria, VA) spoke about the unsustainable nature of competitive bidding at DTM 2014. He suggested that the program has required suppliers to sort through unforeseen bureaucratic challenges and red tape, driving costs up and leading to negative margins that they did not anticipate when bidding first began – see our full coverage of Dr. Scott’s talk below. We will be interested to see whether bids go up in this second round, or whether the $10 strip price was still profitable for suppliers.

New CMS Competitive Bidding Program Timeline

• Medicare has released a new bidding Timeline for the DMEPOS Competitive Bidding Program. The schedule for the Round 2 Rebid and national mail-order rebid spans ~18 months. Registration begins this week (December 18, 2014) and the process will conclude on July 1, 2016 with the implementation of new contracts and payment structures.

• New to this round of competition, CMS has launched a competitive bidder education program that is designed to guide suppliers step-by-step through the process of submitting a bid. The program consists of a five-part video series posted online here; two videos have been posted to date with three still to come.
• According to the press release, Medicare has already saved ~$2 billion in the first year of the Competitive Bidding program (all products) and “the implementation is going smoothly with few inquiries or complaints and no changes to beneficiary health outcomes.” Regarding the latter, we would submit that complaints are hard to submit to CMS, since contacting the agency is such a black box. Furthermore, in diabetes, it’s hard to tie negative health outcomes to a specific inaccurate meter result, since there are so many variables that influence blood sugar and there is no reference to compare to at each point in time (an inaccurate result comes up in isolation). In other words, patients can be harmed by bad meters/strips, but it’s hard to know it.
• Although we had hoped that CMS would keep patients’ best interests in mind as it thinks about competitive bidding, we do not believe that it did. In diabetes care, the majority of healthcare costs come from inpatient care and treating diabetes complications, not from the technology and therapies that patients use (that comprises about 20%). Reducing reimbursement for BGM technologies stands to negatively (hugely!) affect R&D, incentives to innovate, support services, and likely the quality of care patients receive. The downstream effects will likely increase costs borne by CMS.

Market Share – Pre/Post Competitive Bidding

• Competitive bidding has significantly changed the Medicare mail-order market landscape, as expected – as noted below (sourced from the US Inspector General), LifeScan’s share doubled from ~9% before competitive bidding (in the three-month period of April to June 2013; see Table 1) to ~21% after its initiation (in the three-month period of July to September 2013; see Table 2). The rapid change makes us wonder whether LifeScan offered the biggest suppliers a great price, similar to what it has done with Kaiser. Notably, the remainder of the Big Four (taken together) come in at under 10% of market share as of the July-September 2013 data.
• It was notable to see that three US-based companies (Prodigy, LifeScan, and Nipro) comprised nearly ~60% of market share as of September 2013. Prodigy has a reputation for questionable quality, most recently with the FDA’s 2013 clearance of the Choice BGM (a strong warning label cautioning that the meter is less accurate than “most other blood glucose meters sold today”). The Post-Competitive bidding market share list also has many lesser known manufacturers: Omnis Health, BioSense Medical, Diabetic Supply of Suncoast.

Table 1: Market Shares – Pre Competitive Bidding, April-June 2013 (Top 10 mail-order test strip types associated with Medicare claims from April-June 2013) – See page 7 from this US Inspector General Report

Table 2: Market Shares – Post Competitive Bidding (Top 10 mail-order test strip types associated with Medicare claims from July-September 2013) – See page 7 from this US Inspector General Report.

• The 50% Rule had laudable intentions to ensure broad supply of popular meters, but it has been hard to measure compliance. For context, the rule was based on 2009 market share data (see below), but the competitive bidding program didn’t begin until 2013. By the time competitive bidding was implemented (July 2013), the base market shares had shifted significantly. In particular, results from the 2009 mail-order audit (see page 8) illustrate that the Big Four held the majority of market share, something that was not the case in 2013 (first table above).

Table 3: Market Shares – Pre Competitive Bidding, October-December 2009 (Top 10 mail-order test strip types associated with Medicare claims from October-December 2009) – See page 8 from this US Inspector General Report

Appendix – DTM 2014

Medicare Reimbursement for Diabetes Technologies: Is Competitive Bidding Sustainable?

James Scott, JD (CEO, Applied Policy, Alexandria, VA)

Mr. James Scott strongly asserted that “the competitive bidding program is unsustainable,” sharing valuable new commentary we had not ever before heard. Most notably, he emphasized that the program requires suppliers to sort through thick red tape, as they are actually responsible for obtaining medical necessity information from doctors to get paid by CMS; doctors often ignore the request, and the CMS appeals process is long and inefficient. Mr. Scott proposed two solutions to make competitive bidding more sustainable: (i) treat national mail order supply bid winners like any other Medicare contractor (i.e., don’t make them obtain medical necessity forms); and (ii) Congressional bill HR 4920, designed to improve Medicare’s bidding program with binding bids. On the latter, he said there is a chance it could pass by end-of-year, or perhaps in March. The next round of competitive bidding begins in late 2015, and on June 30, 2016, the current national mail order contract will expire.

• “The competitive bidding program is unsustainable for many reasons.” – (i) amounts only account for the costs of supplies and shipping, not red tape (E.g., the need to contact doctors); (ii) anticipated volume increases did not materialize; (iii) contract prices were further reduced by an arbitrary amount this year (a 2% reduction); (iv) the Medicare appeals process to address improper denials is inefficient; (v) there is a broken system for accountability of physician documentation of medical necessity.
• According to Mr. Scott, evidence suggests that beneficiaries aren’t testing as much anymore – the implication was that prescribed BGMs aren’t actually getting to patients, given the challenges of suppliers obtaining medical necessity forms. Mr. Scott did not share specific data or sources.
• Regarding  pumps, Mr. Scott said “patients are being disadvantaged” in the nine competitive bidding areas. Again, he did not share specific data or sources.

Slide from Dr. Scott’s Talk – Red Tape Faced by Medicare Suppliers, who must reach out to doctors to obtain medical necessity forms

Appendix – Competitive Bidding Primer

The durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program was created in December 2003 and has since held three rounds of bidding – Round 1, Round 1 Rebid, and Round 2 – with the Round 2 Rebid upcoming. The national mail-order (NMO) competitive bidding program for diabetic supplies was conducted in concert with the Round 2 program. For a brief review of the competitive bidding program, we’ve included a timeline below.

• December 2003 – The Medicare Prescription Drug, Improvement, and Modernization Act established the durable medical equipment, prosthetics, orthotics, and supplies competitive bidding program, in which CMS solicits bids from contractors for selected DMEPOS products. The program was intended to reduce costs to CMS and Medicare beneficiaries. The first round of competitive bidding, Round 1, was held in ten metropolitan statistical areas (MSAs; defined by the US Office of Management and Budget based on population density) in 2007. Importantly, mail order diabetic supplies were included under selected DMEPOS products.
• July 2008 – Round 1 single payment amounts for competitive bidding products went into effect in 10 MSAs; however, after two weeks, the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) terminated supplier contracts in order to implement bidding process changes. Though MIPPA delayed the competitive bidding program, it simultaneously imposed a nationwide 9.5% reduction for all Round 1 items in 2009. At this time, CMS planned to conduct a Round 1 Rebid in 2009, a Round 2 program in 2011 in 70 additional MSAs, and a national mail- 0rder (NMO) competitive bidding program for diabetic supplies to be implemented after 2010.
• March 2010 – The Affordable Care Act of 2010 expanded the Round 2 program to include 91 MSAs and mandated that all areas of the country would be subject to competitive bidding programs or beholden to competitively bid rates by 2016.
• November 2010 – CMS announced that the national mail-order competition for diabetes care supplies would be conducted in 2011. Additionally, CMS finalized the 50-Percent Rule and Anti- Switching Provision as part of the competitive bidding program. The former “required bidders for mail order diabetic supplies to demonstrate that their bids cover at least 50 percent, by volume, of all types of diabetic testing strips on the market.” The latter “prohibits contract suppliers from influencing or incentivizing beneficiaries to switch their current glucose monitor and testing supplies brand to another brand.” For a fuller description, please see CMS’ publication.
• January 2011 – The Round 1 Rebid Program went into effect in nine metropolitan areas. The bidding resulted in an average 55% price decrease for mail order strips in these nine locales, as the Medicare payment for a 50-count box of strips dropped to $13.88 - $15.62 (average: $14.62). Prior to Round 1 Rebid, CMS payments for mail order strips in the nine metropolitan areas averaged $37.55 per 50-count box of strips in the retail segment and $32.36 in the mail-order segment. Nationwide, retail averaged $37.67 and mail order $32.47.
• July 2012 – CMS hosted an open public meeting regarding the inherent reasonableness (IR) of Medicare fee schedule amounts for non-mail order (retail) diabetic testing supplies. IR authority is used to change Medicare payments that are deemed “grossly excessive” – at least 15% higher than appropriate. To this end, CMS could chose to evoke its IR authority and apply competitive bidding prices from the mail order diabetic supply program to the retail setting. For our coverage of the open floor discussion, please see our July 25, 2012 Closer Look. Overall, while we felt the public generally supported using IR to lower long-term medical costs, great contention existed as to whether CMS should bring retail payment amounts in line with the results of competitive bidding in the mail order arena.
• January 2013 (a) – The American Tax Relief Act (ATRA) stipulated that CMS’ current payment adjustment for diabetes care mail order supplies (i.e., the 9.5% payment reduction established by MIPPA July 2008) be applied to the retail arena in April 2013, and that payments established under the national mail order competitive bidding program for diabetic supplies (i.e., the $10.41 single payment amount for 50-count box of strips) be applied to the retail arena July 2013. The new legislation can be found in section 636 of the ATRA.
• January 2013 (b) – CMS announced the results of the national mail order diabetic supply and Round 2 competitive bidding program. According to CMS, the NMO program has resulted in a 72% average payment reduction from current fee schedule amounts, with average Medicare allowable monthly payments for mail order diabetic supplies (e.g., strips, lancets, batteries) decreasing from $77.90 to $22.47. CMS intends to announce contract suppliers in spring 2013 and for the program to go into effect July 1. You can find the CMS press release here. The full listing of diabetes care products and competitive bidding payment amounts can be seen here.
• July 2013 – Round 2 and NMO competitive bidding contracts and prices go into effect with CMS expanding the competitive bidding program to 90 additional areas of the country.
• December 2014 – CMS announces bidding timeline for the Round 2 Recompete and NMO recompete of the DMEPOS Competitive Bidding Program. Suppliers will compete (with no guaranteed carryover) to become a Medicare contract supplier. CMS’s schedule guides for a ~18 month process with subsequent contract and price implementation to begin on July 1, 2016.

-- by Varun Iyengar, Adam Brown, and Kelly Close