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Lead Item Pricing Fact Sheet

Beginning in Round 2021, the Centers for Medicare & Medicaid Services (CMS) is implementing the lead item pricing methodology for all product categories in the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program. Under this methodology, CMS establishes the single payment amounts (SPAs) for competitive bidding items based on maximum winning bid amounts for the lead item in each product category. This new pricing methodology is set forth under 42 CFR §414.414 and §414.416. Suppliers are responsible for furnishing all items in the product category for which they are submitting bids, and each supplier’s bid for the lead item is a bid for furnishing all items in the product category.

How will the bidding process be different?

Round 2021 includes 16 product categories. Within each of these product categories, a single lead item has been identified for bidding purposes. Suppliers will submit one bid for the Healthcare Common Procedure Coding System (HCPCS) code representing the lead item in the product category (e.g., code E0260 for hospital beds). Under the DMEPOS Competitive Bidding Program, CMS has adopted new definitions for “lead item” and "composite bid” under §414.402. “Lead item” is defined as the item in a product category with multiple items with the highest total nationwide Medicare allowed charges of any item in the product category prior to each competition, and “composite bid” means the bid submitted by the supplier for the lead item in the product category. The supplier’s bid for the lead item represents the supplier’s bid for furnishing the lead item and all other items in the product category, i.e., each supplier now submits one composite bid for furnishing all of the items in the product category as a whole. Bids for the lead item in the product category will be used to calculate the SPAs for all of the items within that product category.

How was the lead item HCPCS code identified?

The lead item in the product category is the item with the highest total allowed charges nationwide (all states, District of Columbia, Puerto Rico, and the US Virgin Islands). The item with the highest allowed charges is the item within the product category that generates the most revenue for suppliers in general.

How will lead item pricing be used to calculate SPAs for all items?

Under the lead item pricing methodology, the SPA for the lead item HCPCS code is the maximum bid submitted for that item by suppliers whose bids for the item are in the winning range in that competitive bidding area and product category combination (§414.416). The SPAs for all other HCPCS codes within the product category (the non-lead items), are determined by multiplying the lead item SPA by a relative ratio. The ratios are based on the historic differences in the fee schedule amounts for the lead item and non-lead items. In accordance with §414.416(b)(3), this ratio is calculated by dividing the average of the historic unadjusted fee schedule amounts in all areas for the non-lead item by the average of the historic unadjusted fee schedule amounts in all areas for the lead item. Calendar year 2015 is the last year the fee schedule amounts were not adjusted based on information from the competitive bidding program.

Relative ratio is equal to the average of the historic unadjusted fee schedule amounts for the non-lead item HCPCS code, divided by the average of the historic unadjusted fee schedule amounts for the lead item HCPCS code

For example, the 2015 average historic unadjusted fee schedule amount for a wheelchair battery (E2365NU), a non-lead item, is $107.25, and the 2015 average historic unadjusted fee schedule amount for the group 2 standard captain’s chair power wheelchair (K0823RR), a capped rental lead item, is $578.51. The ratio for these two items is computed by dividing $107.25 by $578.51 to get 0.185390. As an example under the lead item pricing methodology, if the maximum winning bid for the group 2 standard captain’s chair power wheelchair is $3,333.33, that amount is multiplied by 15 percent to compute the first month rental SPA of $500.00. The SPA for the wheelchair battery would then be $92.70 (multiplying $500.00 by 0.185390).

Suppliers should take into account the costs of furnishing all of the items described by the HCPCS codes in each product category when submitting their bid for the lead item. For example, if the daily supplies necessary for enteral nutrition (tube feeding) using an infusion pump are the lead item for the enteral nutrition product category, the supplier’s bid for the daily supplies represents its bid for furnishing all of the various supplies necessary for beneficiaries receiving enteral nutrition administered via an infusion pump. The supplier’s bid also represents its bid for furnishing all of the supplies necessary on a daily basis for enteral nutrition administered via the gravity or syringe methods, and all of the enteral nutrition formulas, feeding tubes, and other items included in the product category for enteral nutrition. Please refer to the Lead Item Pricing Calculator to determine the impact of the lead item bid amount on the non-lead items in the product category.



last updated on 03/07/2019

 

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