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 program’s 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

 

9 SSA, § 1847(b)(5); Medicare Claims Processing Manual, ch. 36, § 40.1. 

 For example, 

if a physician prescribes diabetic test strips for measuring a beneficiary’s 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 

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 Bidding–Round 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.
Page 4

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

 15 MMA, P.L. 108-173, § 302(b)(1). 

. 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 

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