AAHomecare: DMEPOS Competitive Bidding Improvement Act FAQs

american association for homecare logoH.R. 4920 – Frequently Asked Questions

With the recent introduction of H.R. 4920, Medicare DMEPOS Competitive Bidding Improvement Act of 2014, questions about the specifics of the bill and why it is important for the HME industry have come from providers around the country. Cara Bachenheimer, senior vice president of government relations at Invacare, sat down with AAHomecare to answer the most frequently asked questions:

How would this bill encourage bidders to honor their bids?

As Rep. Tiberi stated in his press release for the bill: “This bill would reduce the number of bad actors participating in the program by imposing a penalty if the supplier does not accept a contract.” The bill would require bidders in the Medicare DME bidding program to obtain a bid bond from an outside bonding firm before submitting a bid. Currently, supplier bids are not binding, meaning that when a DME supplier submits a bid and then gets offered a contract, the DME supplier can simply walk away and not sign the contract. Under the bill, if the bidder does not sign the contract, then the government collects on the bond, imposing a financial penalty on the bidder.

How would the new bid/performance bond requirement actually work?

Each supplier submitting one or more bids in the Medicare DME bid program would have to obtain a bid bond, also known as a surety bond, for each bidding area in which it would like to submit bids. A private, third-party firm would make a financial assessment of the bidder and charge the bidder for the bond based upon the bidder’s financial performance. If the bidder is offered a contract and their bid is below the bid price set by CMS, the bidder must accept the contract, and the Secretary of Health and Human Services would retain the bid bond as a performance guarantee. When the contract is successfully completed, the Secretary would return the bid bond to the bidder. If the bidder does not accept the contract, the Secretary will collect on the bond. If a bidding entity is not offered a contract or is offered one below their bid rate and chooses not to accept it, their bid bond would be returned. If a bidding entity’s bid is above the SPA and they are offered a contract, they can turn that contract down without jeopardizing their bond.

What about bidders whose bid price was above the winning bid price – would they be forced to accept a lower bid price?

No. Bidders who bid above the CMS contract price—the single payment amount (SPA)—can turn-down a contract, if offered, without putting their bond at risk for collection. CMS can only collect a bond if the bidder who is offered a contract submitted a bid price that was at or below the final contract price (SPA) and refused a contract. For example, if a company bids $10 for a products, and CMS’ SPA comes back at $8, that company can turn down a contract without putting their jeopardizing their bond. The bill would not impose a penalty on bidders who are offered a contract but whose bid price was above the winning bid price.

Isn’t State Licensure Already Required in the Medicare and the Bid Program?

Yes. The bill does restate the existing licensure requirements that the Centers for Medicare and Medicaid Services (CMS) has required through its own regulations. However, Members of Congress have been very concerned because CMS has selected many contractors in Rounds 1 and 2 of the bid program that did not meet the licensure requirements for the states in which they bid at the time of bid submission. The bill would “elevate” the licensure requirement to a statutory requirement.

Why Hasn’t CMS required Binding Bids on its Own?

CMS officials have told Members of Congress in briefings that they do not believe they have the statutory authority to require binding bids. Therefore, Congress must pass legislation.

Do Other Bid Programs Require Binding Bids?

Yes. In fact, over 200 economists who are experts in bids/auctions have stated that there is no bid program in the world that does not require binding bids. Even other federal government programs that do competitive bidding, such as the Department of Veterans Affairs, require binding bids. Expert economists explain that binding bids are essential to encourage rational bidding and discourage low-bill bidding.

There are a number of ways you can contribute to the success of this bill. Send an email in support of H.R. 4920 to your Representative here, and find additional resources for contacting Capitol Hill on the AAHomecare H.R. 4920 Take Action page.