DEPARTMENT OF HEALTH & HUMAN SERVICES  Office of Inspector General 
Washington , D.C. 20201 
JUN  2 92011 

Congressional Letter - Status ofMandated Review ofthe Competitive Bidding Program 
The following letter provides initial information about a statutorily mandated Office of 
Inspector General review ofthe competitive bidding program.  Identical letters were 
issued to the Chairman and Ranking Member ofappropriate Congressional committees. 
This letter provides initial information about the Office of Inspector General (OIG) 
review of the durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) 
competitive bidding program.  The Medicare Prescription Drug Improvement and 
Modernization Act of 2003 (MMA) directed OIG to study the extent to which suppliers 
ofDMEPOS items covered under the program solicit physicians to prescribe certain 
brands or modes of delivery of covered items based on profitability and to issue a report 
about the study by July 1, 2011.1 
As you know, the program became operational in January 2011.  Because of the short 
timeframe between program implementation and the due date, I informed the committees 
ofjurisdiction in a letter dated June 30, 2010, that by July 1, 2011, OIG would issue an 
initial report describing our work to date and plans for completing the study.  This letter 
serves as that initial report. 
To date, OIG has undertaken several activities to address the issues identified in the 
mandate.  We conducted multiple interviews with Centers for Medicare & Medicaid 
Services (CMS) staff and its contractors involved with the program.  We then analyzed 
Medicare claims submitted for 2010 for covered products in the nine competitive bidding 
areas (CBA).  We also interviewed numerous physicians in each of the nine CBAs who 
were most frequently indicated on 2010 Medicare claims as the prescribing physicians for 
DMEPOS items now covered under the program. 2 
BACKGROUND 
The Competitive Bidding Program Began in Nine Areas in January 2011 
Before the program began on January 1,2011, suppliers competed to become Medicare 
contract suppliers for selected DMEPOS items within nine specific geographic areas. 3 
I Section 302(e) of the MMA, as amended by  I 54(c)(2)(C) of the Medicare Improvements for Patients 
and Providers Act of2008 (MIPPA). 

2 Although provisions in the MMA required that the initial phase of the competitive bidding program cover 

10 CBAs, provisions in the MIPPA changed the requirement to 9 CBAs. See 42 U.S.C. 1395w-3(a)(1)(D). 

3 The competitive bidding statutory provisions require CMS to expand the program to an additional 70 

metropolitan areas in the next phase of implementation. The expansion timetable has not been finalized. 
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Each CBA includes ZIP Codes surrounding the associated metropolitan area.  The nine 
CBAs are:   
 
  Charlotte, Gastonia, Concord (North Carolina and South Carolina);  
  Cincinnati, Middletown (Indiana, Ohio, and Kentucky);  
  Cleveland, Elyria, Mentor (Ohio);  
  Dallas, Fort Worth, Arlington (Texas);  
  Kansas City (Kansas and Missouri);  
  Miami, Fort Lauderdale, Pompano Beach (Florida);  
  Orlando, Kissimmee (Florida);  
  Pittsburgh (Pennsylvania); and 
  Riverside, San Bernardino, Ontario (California).4  
 
CMS evaluated eligible suppliers bids based on several criteria, including the bidders 
financial stability, estimated capacity to provide DMEPOS products, and bid amounts.5  
CMS announced the winning bidders in November 2010 and awarded contracts to the 
suppliers that offered lower prices and met the programs quality and financial 
standards.6   
 
These contractors then became the primary suppliers authorized to provide covered 
DMEPOS items to Medicare beneficiaries in each CBA.  The program substantially 
reduced the number of DMEPOS suppliers authorized to provide covered items to 
beneficiaries in each of the nine CBAs.  Suppliers not awarded contracts by CMS, known 
as noncontract suppliers, may continue to receive payment for providing covered items 
only in certain circumstances.7  Additionally, noncontract suppliers may be grandfathered 
to continue providing a small number of covered rental items for existing customers.8  
Noncontract suppliers may continue to provide beneficiaries with DMEPOS items and 
services not included in the program.   
   
                                                 
4 CMS, Facts About the DMEPOS Competitive Bidding Program Round 1 Rebid Competitive Bidding 
Areas (CBAs).  Accessed at 
http://www.dmecompetitivebid.com/Palmetto/Cbic.nsf/files/Fact_Sheet_Competitive_Bidding_Areas.pdf/$
FIle/Fact_Sheet_Competitive_Bidding_Areas.pdf on June 10, 2011. 
5 CMS, DMEPOS Bid System (DBidS) Application:  Getting Started.  Accessed at 
http://www.dmecompetitivebid.com/cbic/cbicrd1.nsf/files/DBidS_Getting_Started_Checklist.pdf/$FIle/DB
idS_Getting_Started_Checklist.pdf, on June 10, 2011.  See also 42 CFR  414.414 and Social Security Act 
(SSA)  1847(b)(2). 
6 CMS, Contract Suppliers Selected Under New Medicare Program.  Accessed at 
http://www.cms.gov/apps/media/press/release.asp?Counter=3861 on March 11, 2011.  
7 SSA,  1847(a)(7); 42 U.S.C.  1395w-3; and the Medicare Claims Processing Manual, Pub. 100-04,  
ch. 36,  20.6. 
8 SSA,  1874(a)(4); Medicare Claims Processing Manual, Pub. 100-04, ch. 36,  20.6; CMS, Exemptions 
to the Requirement to Be a Contract Supplier for Furnishing Competitive Bidding Items and Services Fact 
Sheet.  Accessed at 
http://www.dmecompetitivebid.com/Palmetto/Cbic.nsf/files/Fact_Sheet_Exemptions.pdf/$FIle/Fact_Sheet_
Exemptions.pdf on June 6, 2011.  
 
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The Competitive Bidding Program Reduces Medicare Payments 
Using the bids submitted by suppliers, CMS set a single payment amount for each 
DMEPOS item in each CBA.  This single payment amount replaced the prior Medicare 
fee schedule amount.9  CMS stated that the new methodology is intended to reduce 
beneficiary out-of-pocket expenses and save the Medicare program money while 
ensuring beneficiary access to quality DMEPOS items and services from qualified 
suppliers.10  CMS estimated that these new, lower payment amounts would result in an 
average cost savings of 32 percent for the covered products across the nine CBAs when 
compared to the 2009 fee schedule payment amounts.11   
 
The DMEPOS items included in the program are generally high-cost and/or high-volume 
products.12  There are 253 individual products grouped into the following 9 product 
categories, with each product category consisting of multiple related items:   
 
  oxygen, oxygen equipment, and supplies;  
  standard power wheelchairs, scooters, and related accessories;  
  complex rehabilitative power wheelchairs and related accessories;  
  mail-order diabetic supplies;  
  enteral nutrients, equipment, and supplies;  
  continuous positive airway pressure devices and respiratory assist devices and 
related supplies and accessories;  
  hospital beds and related accessories;  
  walkers and related accessories; and  
  support surfaces (Group 2 mattresses and overlays in the Miami CBA only).13   
 
Physicians May Prescribe Specific Brands and Modes of Delivery 
In general, DMEPOS suppliers are not required to provide a specific brand or mode of 
delivery for a product when they fill a prescription for a DMEPOS item.14  For example, 
if a physician prescribes diabetic test strips for measuring a beneficiarys blood glucose 
level, the supplier has discretion to provide any brand of test strips.  However, the MMA 
established a special provision, known as the physician authorization process, to ensure 
that beneficiaries have access to specific brands or modes of delivery of covered items 
                                                 
9 SSA,  1847(b)(5); Medicare Claims Processing Manual, ch. 36,  40.1. 
10 Medicare Claims Processing Manual, ch. 36,  10. 
11 CMS, DMEPOS Competitive Bidding  Round 1 Rebid  Weighted Average Savings.  Accessed at 
http://www.dmecompetitivebid.com/Palmetto/Cbic.nsf/files/Weighted_Average_Savings.pdf/$FIle/Weight
ed_Average_Savings.pdf on June 10, 2011.  
12 CMS, General Overview of the Final Rule for Competitive Acquisition for Certain Durable Medical 
Equipment, Prosthetics, Orthotics, and Supplies.  Accessed at 
https://www.cms.gov/DMEPOSCompetitiveBid/Downloads/DMEPOSRegSumm.pdf on June 10, 2011.  
See also 72 Fed. Reg. 17992, 18021 (Apr. 10, 2007). 
13 CMS, DMEPOS Competitive BiddingRound 1 Rebid Product Categories and HCPCS Codes, Accessed 
at 
http://www.dmecompetitivebid.com/Palmetto/Cbic.nsf/files/HCPCS_Codes.pdf/$FIle/HCPCS_Codes.pdf 
on June 10, 2011.  Group 2 support surfaces include powered pressure-reducing mattress overlays and 
replacement mattresses. 
14 SSA,  1847(a)(5); Medicare Claims Processing Manual, ch. 36,  30.4. 
 
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when a physician determines that they are needed to avoid an adverse medical outcome.15  
Under this process, when a physician prescribes a specific brand or mode of delivery, the 
contract supplier must furnish the item as prescribed, consult with the physician to find 
an appropriate alternative brand or mode of delivery, or assist the beneficiary in finding a 
contract supplier that can furnish the prescribed brand or mode of delivery.16   
 
Suppliers May Have Incentives To Limit Brands and Modes of Delivery 
The physician authorization process may create an incentive for suppliers to solicit 
physicians to change their prescriptions to maximize profitability, irrespective of the 
patients needs.  This could occur, for example, if suppliers cut their costs by stocking a 
limited number of brands for items covered under the competitive bidding program.  
When a physician prescribes a specific brand that a supplier does not stock, the supplier 
might have to incur additional costs or pass the business to another supplier to ensure that 
the beneficiary receives the item as prescribed.  This provides a financial incentive for 
suppliers to persuade physicians to change their prescriptions.  The supplier is not 
allowed to ignore the prescription or compel the physician to change the prescribed brand 
or mode of delivery, but may consult with the physician or use the physician 
authorization process described above. 
   
PROGRESS TO DATE AND PLANS FOR FINAL REPORT 
 
OIG Is Using Data Analysis and Physician Interviews To Address the Mandate  
Before beginning this study, we reviewed all statutes, regulations, and other material 
relevant to the rules, history, and operations of the competitive bidding program.  
Additionally, we conducted multiple interviews with CMS staff and contractors, 
including the competitive bidding implementation contractor and the pricing, data 
analysis, and coding contractor, to gather additional insight about vulnerabilities related 
to brands and modes of delivery.  
 
Medicare Claims Analysis.  We analyzed 2010 Medicare DMEPOS claims to better 
understand the claims data.  We calculated the volume and dollar amounts of claims for 
all DMEPOS items now covered under the program and identified physicians in the nine 
CBAs who frequently prescribed these products.  As more 2011 Medicare claims data 
become available, we will compare them to the 2010 claims data to identify changes in 
beneficiary utilization of covered items under the program, calculate the volume of 
payments for the covered items, and identify any potentially problematic shifts in 
Medicare billing.  We will include this analysis in the final report.   
 
Physician Interviews.  Because Medicare claims do not record brand information and 
contain only limited information about mode of delivery, we conducted additional data 
collection regarding supplier solicitation of physicians.  We began by conducting 
structured prestudy interviews with numerous physicians who prescribed the largest 
dollar amount of covered DMEPOS items in each CBA.  As more 2011 claims become 
available, we will select a larger representative sample of physicians in each CBA to 
                                                 
15 MMA, P.L. 108-173,  302(b)(1).  
16 Medicare Claims Processing Manual, Pub. 100-04, ch. 36,  30.4. 
 
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survey about their experiences since the program began in January 2011.  For our final 
report, we will determine to what extent physicians prescribe specific brands or modes of 
delivery for covered DMEPOS items; whether suppliers have solicited them regarding 
brand or mode of delivery; and if so, under what circumstances. 
 
Our final report will include our analysis of both Medicare claims and physician 
responses to our survey.  We will continue to meet with CMS officials about the program 
and our report findings.   
 
 
            Sincerely,  
 
 
 
            Daniel R. Levinson 
            Inspector General