Competitive Bidding Round 2021 Update: A deep dive on the data
Our company, J&J Medical Inc., has been serving orthopedic patients with back and knee braces and other rehab products since 1996. We were recently awarded over 100 competitive bidding contracts for back and knee braces in markets representing about half of the country. Now that the contracts are signed and data on the contracts has been released by CMS, we wanted to take a deeper look at the new realities in the market. Here are some highlights of what we have learned:
Background
In 2003, the Centers for Medicare & Medicare Services (CMS) who oversees Medicare was instructed to initiate a process to award contracts for certain Durable Medical Equipment, Prosthetics, Orthotics & Supplies (DMEPOS) items on a “competitive bidding” basis. Prior to competitive bidding, CMS would issue a price list and “any willing provider” could supply these items to patients. Through the competitive bidding process, companies like ours had to provide the government with the lowest price we were willing to accept and to support this bid with significant financial data and post a bond. Bid “winners” would be able to continue to provide these items at a potentially lower price and bid “losers” would no longer be permitted to supply products to Medicare patients. Since most DMEPOS companies are small, the prospects of either “winning” a very low bid, or “losing” and not getting any bids, were equally daunting. Over the last few weeks, the results of the bidding process have been released.
Winners
For back braces, there were approximately 310 unique companies that received contracts. (Note: It’s a little difficult to get an exact count because some companies have multiple company names which we tried to combine). While that seems like a lot of winners, it’s important to note that most companies won very few bids. We are not aware of how many companies bid and lost, or declined to bid altogether.
Through the bidding process, the country was split up into 118 Competitive Bidding Areas (CBAs). Multiple contracts were awarded in each CBA ranging from less than 10 providers in some smaller markets (like Salt Lake City, UT) to more than 50 in places like Detroit and Cleveland. On average, there were around 20 winners in each CBA. Some markets only received a handful of winners such as Los Angeles and Orange County, where there were only 10 winners (including us).
It’s not surprising to see that there were several “national players” who won contracts in all or nearly all CBAs. These are familiar companies in our industry like Hanger, Breg and Colonial. However, it’s interesting to note that after competitive bidding, there are surprisingly few companies who will have nationwide coverage. Of the 118 CBAs, only five companies won 100 or more back bracing contracts, and only 15 companies won 50 or more contracts (we are in this category). The rest of the winners are relatively smaller and likely more regional. 92% of the companies that won contracts in Round 2021 for the back brace category have less than 25 CBA contracts, with almost 79% of winners receiving five or fewer CBA contracts. The rest are very small and likely independent. 126 companies, or 40.5% of the winners, received just one CBA contract.
Contracts Issued Count Percent
100+ contracts 5 1.61%
50-100 contracts 10 3.22%
25-50 contracts 10 3.22%
6-25 contracts 41 13.18%
2-5 contracts 119 38.26%
1 contract 126 40.51%
For some perspective on the fragmented nature of the contract awardees, each CBA is one metropolitan market. Winning one bid likely means that it’s a small mom and pop company that has one location. 3-5 CBAs can make up an area equal to one state and 5 or more is likely multiple states. The implication here is that of the 310 bid winners, 79% are likely small businesses.
Pricing
The winning pricing for back braces was surprisingly high in some markets and surprising low in others and the range was very wide. Since the products generally cost the same across the industry, it seems that the reason for the differences is the supply and demand of bidders rather than cost of goods. For example, the California CBAs with their mature O&P companies were generally bid down to the lower end of the pricing, while some smaller markets like South Carolina were given contracts with among the highest prices. We won contracts in both of these types of markets.
Previous to competitive bidding, the average medicare price for the lead back brace item, the L0650 LSO back brace was $1,184 with a high of $1,371 and a low of $1,050. The contracts awarded under Round 2021 have a new average price of $787.41 with a very wide range from $237.91 to $1,308.99. The new median price is $800. So, in general, the average price dropped by 33.5%. For a company with scale and a blended rate of some higher prices and some lower prices, this seems like a manageable price structure. We are pleased with our mix.
Conclusions
We see several permanent changes to the orthopedic bracing market as a result of competitive bidding round 2021.
Some small businesses will fail. Many “mom and pop” orthopedic and prosthetic companies didn’t win bids or won at a price so low that they can’t stay open. If they are in a market with just one contract at one of the lower rates, that’s not a sustainable business.
Fewer manufacturers. There are fewer DMEPOS companies buying braces and these customers are more price sensitive. Higher priced items are not going to have buyers. There have been great advances in technology and products. Hopefully this will continue despite constraints on price and fewer customers.
New Technology. In preparation for competitive bidding, companies like ours instituted new technology such as HIPAA compliant telemedicine fittings and electronic signature captures. This is a requirement for most companies going forward.
Consolidation. After a nearly complete M&A standstill awaiting the results of Round 2021, most companies finally know where they stand for the next three years. I expect significant consolidation among manufacturers, distributors and DMEPOS companies.
New Partnerships. Some of the competitive bidding rules allow bid winners and bid losers to work together to serve patients. We have already started some of these conversations and expect many more to develop.
Next Steps
Now that Round 2021 is being implemented, its time to get back to work. The uncertainty of how this would play out is behind us and we have a solid framework to move forward.
Did you win? Did you lose? Want to work together? Send me an email:
Brad Sinrod
President
J&J Medical, Inc
brad@jandjmedicalinc.com
About J&J Medical
Founded 24 years ago in 1996, J&J Medical is a leading provider of orthopedic bracing and rehab products to orthopedic, pain and rehabilitation physicians in the eastern United States. We have always put patients first, providing best in class products, expert patient instruction and excellent customer service. Our entire team is focused on patient recovery.
Over the last twenty four years, we have expanded from a regional provider of CPM rentals for total knee replacement patients, to a full service orthopedic and rehab products provider. We currently focus on back, knee and extremity bracing, cervical traction units, muscle stimulators, knee and shoulder CPM machines, bone growth stimulators, pneumatic compression devices for lymphedema treatment and hundreds of other items.
We have been awarded over 100 contracts by the Centers for Medicare and Medicaid Services (CMS) through the Round 2021competitive bidding process and are in-network with BCBS, Aetna, Cigna, Humana, US Healthcare, UPMC, Tricare Workers Comp and over 1,000 other insurance plans.