The threat posed by Medicare's competitive bidding program to manufacturers of durable medical equipment such as Baxter, ResMed and Philips has lessened, according to analysts at Cowen.
Last year, CMS opted against awarding contracts in 13 of 15 DME categories after its bidding process failed to generate the expected savings. CMS followed up by publishing details of the bids last month.
Cowen analysts said the report "showed a wide variation in bid amounts and in many cases steep rate increases," leading them to conclude the program is no longer such a big threat to the DME industry.
Analysts feared the latest round of competitive DME bidding would lead to significant declines in reimbursement and pricing pressures. The industry was spared that fate in October when CMS said it would only award new deals in two product categories.
At the time, commentary was split on implications of the inaction, with the team at Needham cheering the removal of a potential near-term pricing headwind while those at Jefferies warning it raised the prospect of CMS returning with a new, more punitive pricing mechanism. Now, Cowen has offered a fresh take informed by CMS' full report on the round of competitive bidding.
"The future of Medicare's competitive bidding program for [DME] appears to be up in the air after a recent Pivotal Bid Report requested by stakeholders showed a wide variation in bid amounts and in many cases steep rate increases," the analysts wrote. "What seems clear, though, is that Medicare's competitive bidding program is no longer the threat it once was to the DME industry."
The analysts listed ResMed, Philips Respironics, Invacare, Inogen, Fisher & Paykel, Smith and Nephew, Apex Medical and Baxter as companies that could benefit from the weakening or elimination of the competitive bidding program.
CMS shared details of the bidding process in a spreadsheet that compared the pivotal bid amounts for the 2021 round to the former adjusted fee schedule amount. Seven CPAP competitive bidding areas saw increases of more than 100%. Many more areas saw high-double-digit increases. Almost 30 nebulizer competitive bidding areas saw increases of more than 100%.
The Cowen analysts said it is "unclear why the rates went up so much and what this means for the future of the program." CMS is legally required to rebid the program in three years. Until then, the Cowen analysts said CMS is likely to keep the old rates, adjusted for inflation every year, while it works out the future of the program.
"On the other hand, we would not be surprised to see the DME industry file a lawsuit for CMS to implement the higher rates for the 13 other product categories. Congress could also intervene and introduce legislation altering the bid program," the analysts wrote.
The uncertainty comes just months after the Office of Inspector General gave high marks to the bidding program. AdvaMed recently lobbied for more digital health devices to be categorized as DME to improve access.