The new Round of Competitive Bid proposal explained:

Step 1: Suppliers Place Bids

Let’s say we’ve got 5 suppliers bidding to provide oxygen concentrators in Miami:

• Supplier A: $100

• Supplier B: $110

• Supplier C: $120

• Supplier D: $130

• Supplier E: $140

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Step 2: CMS Chooses Enough to Cover the Area

CMS decides: “Okay, we need 3 suppliers to cover this Competitive Bidding Area (CBA).”

• They take A, B, and C.

• Supplier C’s bid ($120) becomes the clearing bid.

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Step 3: How SPA Used to Work (Pre-2021)

Instead of paying suppliers their actual bids, CMS said:
“Hmm… let’s take the median of accepted bids (A $100,B$110, C $120).”

• Median = $110.

So:

• Supplier A (who bid $100)gets\ast \ast paid$110** – more than they asked for. 🎉

• Supplier B (who bid $110)gets\ast \ast paid$110** – exactly what they bid. 😐

• Supplier C (who bid $120)gets\ast \ast paid$110** – less than they bid. 😡

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Step 4: Round 2021 Change

CMS said: “Fine, we’ll pay 100% of the clearing bid instead.”
So now:

• All three suppliers get $120.

• No one is underpaid relative to their bid.

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Step 5: CMS’s New Proposal (Going Forward)

CMS wants to bring the pain back:

1. 75th percentile method: Pay less than clearing bid, plus cut the number of contracts.

2. Median method below clearing bid: Pay even less, but keep more suppliers.

3. 100% clearing bid with half the contracts: Pay fairer rates, but kick half the suppliers out.

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👉 So the ridiculous part is: under the old system, you could bid low, win a contract, and then get paid more than you bid, while your competitor who bid slightly higher gets paid less than they bid.
It’s like showing up to a car auction, bidding $10,000foracar,andtheauctioneersays:“Congrats!Youwon.We’llactuallygiveyouthecarfor$11,000.” 🚗💸

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Let’s run the Miami example through this ridiculous CMS math machine. 🧮

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📍 Setup: Miami Competitive Bidding Area

• Previous awards: 29 contracts

• “Meaningful contributors” (those who did at least 5% of the volume): 9 suppliers

• CMS assumes 5% fewer patients in FFS (so they shave off a bit).

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⚖️ Option 1: 50% SPA (Median Below Clearing Bid)

• CMS says: “We’ll keep more suppliers, but we’re gonna pay them less.”

• Calculation: 29 – 5% ≈ 27 contracts

• SPA set at the median of bids BELOW the clearing bid (ouch).

• Outcome:

  • Lots of suppliers survive (27).

  • Payment rates are suppressed downward.

  • Basically: “Congratulations, you get a contract! …But don’t spend it all in one place.” 💸

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⚖️ Option 2: 100% Clearing Bid (Half the Contracts)

• CMS says: “We’ll pay you fairly, but we’re cutting the party in half.”

• Calculation: (29 – 5%) * 0.5 ≈ 13 contracts

• SPA set at the clearing bid (100%).

• Outcome:

  • Only 13 suppliers left standing.

  • Rates are fairer — nobody gets paid less than they bid.

  • But half the suppliers get locked out completely.

  • Translation: “The money’s good… if you’re one of the chosen few.” 🎲

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⚖️ Option 3: 75% SPA (CMS’s Favorite)

• CMS says: “We’ll do a little of both — fewer suppliers and lower rates.”

• Calculation: (9 meaningful contributors × 2) – 5% ≈ 17 contracts

• SPA set at the 75th percentile of bids, relative to clearing bid.

• Outcome:

  • 17 contracts awarded.

  • Rates are discounted again (lower than clearing bid).

  • CMS gets its “downward trend” back.

  • Or in human terms: “We’ll starve you a little, but hey, at least we’re not starving everyone.” 🍽️

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🎭 How It Feels

• Option 1: Everyone gets a ribbon, but your prize money shrank.

• Option 2: Half the players get kicked out, but the survivors actually get what they asked for.

• Option 3 (CMS pick): A middle ground where fewer contracts exist and the rates are squeezed.

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Here’s a toy numbers walk-through that shows exactly how the SPA would land under each option. same Miami spirit, smaller dataset so it’s easy to see what’s going on. 🧮

Setup (toy example)

Ten bidders for the same item (sorted low → high):

$95, $100, $104, $107, $112, $118, $121, $127, $133, $140

Assume CMS decides it needs 5 suppliers to cover the CBA.
That means the clearing bid is the 5th accepted bid = $112\ast \ast .Acceptedbidders(thefirst5):\ast \ast$95, $100,$104, $107,$112

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How the SPA would be set under different rules

A) Pre-2021 method (median of accepted bids)

• Median of the 5 accepted bids = the 3rd value = $104.

• **SPA = $104\ast \ast (everyonegets$104).

Impact

• $95,$100, $104 bidders get paid more than they bid (🥳).

• $107and$112 bidders get paid less than they bid (😬).

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B) Round 2021 method (100% of the clearing bid)

• SPA = clearing bid = $112.

• Everyone gets $112.

Impact

• No one is paid less than their bid among the accepted suppliers.

• Lower bidders ($95–$107) get paid more than they bid.

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C) CMS’s new proposals (illustrative math)

These are illustrative using your summary of CMS-1828-P. The exact percentile mechanics in the final rule could be more fussy, but this shows the direction.

Option 1 — “50% SPA” flavor: Median of bids below the clearing bid, keep (roughly) all contracts

• Bids below the clearing bid are: $95,$100, $104,$107 (4 numbers).

• Median of those four = average of the middle two = (100 + 104) / 2 = $102.

• SPA ≈ $102.

Impact

• Keeps more contracts (Miami framing ≈ 27).

• Pushes rates down: everyone gets ~$102,whichisbelowtheclearingbid($112).

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Option 2 — “100% clearing bid with ~50% contracts”

• Slash contracts to about half (Miami framing ≈ 13).

• SPA = 100% of the clearing bid.

In our toy, if CMS only “needs” 3 suppliers, accepted are $95,$100, $104\to \ast \ast clearingbid=$104**
So **SPA = $104\ast \ast (not$112 anymore because fewer suppliers means an earlier clearing point).

Impact

• Fewer winners, but the winners get their clearing bid (no discounting).

• Rate level depends on where the new (earlier) clearing bid lands; here it’s $104.

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Option 3 — CMS’s preferred: 75th percentile relative to the clearing bid, with fewer contracts

• Keep fewer contracts than old rounds (Miami framing ≈ 17).

• Set SPA near the upper quartile of accepted bids (discounted vs 100% clearing, but not as low as Option 1).

Using our 5 accepted bids ($95,$100, $104,$107, $112):

• 75th percentile position = (n+1)·0.75 = 6·0.75 = 4.5

• Interpolate between 4th ($107)and5th($112):
  $107+0.5\cdot ($112 − $107)=107+2.5=\ast \ast$109.50**

• SPA ≈ $109.50\ast \ast (roundingto\ast \ast$110 wouldn’t be shocking in practice).

Impact

• Fewer contracts than Option 1, higher SPA than Option 1, lower SPA than 100% clearing.

• CMS gets both levers: capacity control and some rate discounting.

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Quick side-by-side (with this exact toy data)

Method	Contracts (Miami vibe)	SPA result in toy	Notes
Pre-2021 median of accepted	many	$104	pays some below their bids
2021: 100% clearing	—	$112	no one underpaid vs bid (given 5 accepted)
Option 1 (median below clearing)	~27	$102	keeps many suppliers, lowest rate
Option 2 (100% clearing, ~half contracts)	~13	$104 (with 3 accepted)	fewer winners, fair to bids
Option 3 (75th percentile, fewer contracts)	~17	**$109.50\ast \ast ($110)	middle path: fewer suppliers + some discount

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TL;DR vibes

• More contracts ⇒ lower SPA (Option 1).

• Fewer contracts ⇒ can keep SPA at clearing (Option 2) or slightly below it (Option 3).

• The “ridiculous” bit is still that under discounting methods, what you bid ≠ what you’re paid.