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CMS on Bidding with the new Lead Item Pricing Method
CMS is implementing a new bidding methodology, called “lead item pricing,” where bidders submit a price only for the lead item in the product category. The lead item will be the item in the product category with the highest total national submitted charges the previous year. All other items in the product category will be priced off the lead item, based on the relative payment levels reflected in the 2015 Medicare fee schedules.
The lead item pricing bid methodology is a dramatically different way of bidding. And while it may be administratively simpler because bidders only input a single price per product category, there is significant additional complexity because bidders must also understand the impacts of the lead item price on all the non-lead items in the product category. If a bidder bids a lead item at today’s Medicare payment rate, all the non-lead items payment will be reduced significantly, many over 50 percent from today’s payment rates. In fact, virtually all non-lead items will be reduced significantly compared to today’s rates.
For this round of bidding, CMS has increased the bid ceiling to the 2015 Medicare fee schedule. Due to the significant complexity of this bid method change, it is critical that bidders analyze the impact of the non-lead item price on all non-lead items. In its November 2018 final rule, CMS also recognized that bidders may have to bid a higher amount on the lead item, due to the impact of lead item pricing. CMS explained:
Under lead item pricing, suppliers will be educated on how the payment amounts for the items in the product category will be established based on the maximum winning bid for the lead item, and that they should consider their costs for furnishing all items in the product category in formulating their bid for the lead item .… a supplier that cannot accept a payment reduction of 50 percent for a non-lead item would need to factor this fact into what they bid for the lead item, because the bid for the lead item would also represent their bid for furnishing all of the items in the product category. They may have to bid an amount that is higher than the amount they would bid if they were bidding for the lead item alone in order to factor in the cost of furnishing all of the other items in the product category. If the historic differences in the fees for the various items in the product category do not align well with the actual differences in the cost of the items, the supplier will need to take this into consideration when submitting their bid for the lead item.
 See 81 Fed. Reg. 77834 (November 4, 2016).
 “Medicare Program; ESRD PPS, Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury, ESRD Quality Incentive Program, DMEPOS Competitive Bidding Program and Fee Schedule Amounts, and Technical Amendment to Correct Existing Regulations Related to the CBP for Certain DMEPOS (83 Fed. Reg. 56922, at 57023, Nov. 14, 2018)