MEDICARE

The First Year of the 

Durable Medical Equipment 

Competitive Bidding 

Program Round 1 Rebid

Statement of Kathleen M. King 

Director, Health Care

Testimony 

Before the Subcommittee on Health, 

Committee on Ways and Means, House of 

Representatives

For Release on Delivery 

Expected at 9:00 a.m. EDT

Wednesday, May 9, 2012

GAO-12-733T

United States Government Accountability Office

GAO

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Page 1 GAO-12-733T

Chairman Herger, Ranking Member Stark, and Members of the 

Subcommittee:

I am pleased to be here today to discuss the Medicare1 competitive 

bidding program for selected durable medical equipment (DME) and 

certain other items. My testimony today is focused on our review of the 

Centers for Medicare & Medicaid Services (CMS)2

Most Medicare beneficiaries participate in Medicare Part B,

implementation of 

the competitive bidding program (CBP) round 1 rebid that began on 

January 1, 2011.

3

 

1

Medicare is a federal health insurance program for people age 65 and older, individuals 

under age 65 with certain disabilities, and individuals diagnosed with end-stage renal 

disease.

which helps 

pay for DME items, such as oxygen, wheelchairs, hospital beds, walkers, 

as well as prosthetics, orthotics, and related supplies. Medicare 

beneficiaries typically obtain DME items from suppliers, which submit 

claims for payment to Medicare on behalf of beneficiaries. Both we and 

the Department of Health and Human Services (HHS) Office of Inspector 

General (OIG) have reported that Medicare and its beneficiaries have 

sometimes paid higher-than-market rates for various medical equipment 

2

CMS is an agency within the Department of Health and Human Services that has 

responsibility for administering the Medicare program. 

3

Medicare Part B helps pay for certain physician, outpatient hospital, laboratory and other 

services, and medical equipment and supplies—DME. Beneficiaries are required to pay a 

monthly premium for Part B coverage, an annual deductible, and coinsurance. In general, 

Medicare beneficiaries pay 20 percent—the coinsurance—of the Medicare fee schedule 

payment rate for the DME item after reaching their annual Medicare Part B deductible. In 

2010, CMS reported that Medicare Part B and beneficiaries paid approximately $14.3 

billion for DME and related items. 

 
 

Page 2 GAO-12-733T

and supply items.4

To achieve Medicare savings for DME, the Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003 required that CMS 

implement the CBP for certain DME. CMS began implementing the first 

round of the CBP in 2007 and 2008—but 2 weeks after the round 1 

began, the Medicare Improvements for Patients and Providers Act of 

2008 (MIPPA) terminated the first round of supplier contracts and 

required CMS to repeat the CBP round 1—the round 1 rebid. In 2009, 

CMS began implementing the round 1 rebid, which resulted in the award 

of contracts to suppliers with payments that began on January 1, 2011. 

Nine competitive bidding areas

These overpayments increase costs to both Medicare 

and its beneficiaries.

5 and nine product categories6

 

4

GAO, Medicare: CMS Has Addressed Some Implementation Problems from Round 1 of 

the Durable Medical Equipment Competitive Bidding Program for the Round 1 Rebid, 

for selected 

GAO-10-1057T (Washington, D.C.: Sept. 15, 2010); GAO, Medicare: CMS Working to 

Address Problems from Round 1 of the Durable Medical Equipment Competitive Bidding 

Program, GAO-10-27 (Washington, D.C.: Nov. 6, 2009); GAO, Medicare: Competitive 

Bidding for Medical Equipment and Supplies Could Reduce Program Payments, but 

Adequate Oversight Is Critical GAO-08-767T (Washington, D.C.: May 6, 2008); GAO, 

Medicare: Past Experience Can Guide Future Competitive Bidding for Medical Equipment 

and Supplies, GAO-04-765 (Washington, D.C.: Sept. 7, 2004); Department of Health and 

Human Services Office of Inspector General, A Comparison of Prices for Power 

Wheelchairs in the Medicare Program, OEI-03-03-00460 (Washington, D.C.: April 2004); 

and Janet Rehnquist, Inspector General, Department of Health and Human Services, 

Medicare Reimbursement for Medical Equipment and Supplies, testimony before the 

Senate Committee on Appropriations, Subcommittee on Labor, Health and Human 

Services, and Education, 107th Cong., 2nd sess., June 12, 2002.

5

The nine CBP round 1 rebid competitive bidding areas are: Charlotte (CharlotteGastonia-Concord, North Carolina and South Carolina); Cincinnati (Cincinnati-Middletown, 

Ohio, Kentucky, and Indiana); Cleveland (Cleveland-Elyria-Mentor, Ohio); Dallas (DallasFort Worth-Arlington, Texas); Kansas City (Kansas City, Missouri and Kansas); Miami 

(Miami-Fort Lauderdale-Pompano Beach, Florida); Orlando (Orlando-Kissimmee, Florida); 

Pittsburgh (Pittsburgh, Pennsylvania); and Riverside (Riverside-San Bernardino-Ontario, 

California).

6

The CBP round 1 rebid’s nine product categories are: complex power wheelchairs 

(complex rehabilitative power wheelchairs and related accessories—limited to group 2—

power wheelchairs with power options); CPAP/RAD (continuous positive airway pressure 

devices, respiratory assist devices, and related supplies and accessories); enteral (enteral 

nutrients, equipment, and supplies); hospital beds (hospital beds and related accessories); 

mail-order diabetic supplies; oxygen (oxygen supplies and equipment); standard power 

wheelchairs (standard power wheelchairs, scooters, and related accessories); walkers 

(walkers and related accessories); and support surfaces (support surfaces limited to group 

2 mattresses and overlays—pressure reducing support surfaces for persons with or at 

high risk for pressure ulcers—in the Miami competitive bidding area only). 
 

Page 3 GAO-12-733T

DME items were included in the CBP round 1 rebid. CMS has estimated 

that the rebid will lead to significant savings for Medicare.

MIPPA also required us to examine particular issues regarding early 

results from the ongoing CBP round 1 rebid.7

My remarks today are based on our report, released today, Medicare: 

Review of the First Year of CMS’s Durable Medical Equipment 

Competitive Bidding Program’s Round 1 Rebid.

We reviewed (1) the 

outcomes of the CBP round 1 rebid process including bid disqualifications 

and contracts awarded; (2) the effect of the CBP round 1 rebid on DME 

suppliers; (3) how the CBP round 1 rebid has affected Medicare 

beneficiary access to and satisfaction with selected DME; and (4) the 

extent to which the CBP round 1 rebid has affected the utilization of 

selected DME items.

8

Our work on the outcomes of the CBP round 1 rebid found that the 

number of bidding suppliers and the number of contracts awarded in the 

CBP round 1 rebid were very similar to the CBP round 1 and about a third 

of the 1,011 suppliers that bid in the rebid were awarded at least one CBP 

contract. CMS made improvements to the bidding process for the CBP 

round 1 rebid—such as providing additional information about 

disqualification reasons—and significantly fewer bids were disqualified 

than in round 1. However, many suppliers still had difficulty meeting bid 

In that report, to 

examine CBP outcomes and effects, we analyzed data from CMS and its 

feedback provided to bidding suppliers, analyzed 2011 CBP data about 

different types of suppliers, and interviewed CMS and CBP contractor 

officials, DME industry groups, and suppliers. To examine the CBP’s 

effects on beneficiary access, we analyzed Medicare claims data for the 

first 6 months of 2011, because claims data for those months were the 

most complete, and compared that data to the same months in 2010. Our 

findings on the first year of the round 1 rebid are based on the limited 

evidence available at the time we did our work; more data will become 

available as the CBP continues. CMS officials commented on a draft of 

our report. Our work was performed in accordance with generally 

accepted government auditing standards from May 2011 through May 

2012 for both the report and for this statement.

 

7

Pub. L. No. 110-275, § 154(c), 122 Stat. at 2565-6.

8

GAO-12-683 (Washington, D.C.: May 9, 2012).
 

Page 4 GAO-12-733T

requirements. Of the bids that were disqualified during the initial bid 

review, 73 percent were disqualified because suppliers failed to provide 

the required financial documentation or did not meet CMS’s minimum 

financial standard threshold for suppliers.9

During CBP’s first year, few contract suppliers—those awarded CBP 

contracts—had their contracts terminated by CMS, voluntarily canceled 

their contracts, or were involved in ownership changes. Under the CBP, 

many non-contract suppliers—those that were not awarded CBP 

contracts—exercised the option to grandfather certain CBP-covered 

rental DME items for beneficiaries they were furnishing prior to the 

implementation of the CBP. Many grandfathered suppliers, for example, 

continued to furnish the CBP-covered oxygen product category to their 

beneficiaries. The number of these suppliers generally decreased steadily 

throughout the first year as CBP-covered beneficiaries’ rental periods 

expired or as beneficiaries chose contract suppliers. Some contract 

suppliers entered into subcontracting agreements with non-contract 

suppliers to furnish certain services to CBP-covered beneficiaries. As the 

CBP allows, some contract suppliers were awarded contracts for product 

categories that they did not have prior experience in, or for competitive 

bidding areas where they did not have a prior business location.

The number of bids 

disqualified for missing financial documentation in the CBP round 1 rebid 

would have been higher if many suppliers had not benefited from a 

MIPPA provision that required that CMS provide suppliers the opportunity 

to be notified of and to submit missing required financial documentation—

a process not available during CBP round 1. As a result, 93 of the 

321 suppliers—about 29 percent—that were notified by CMS that they 

had missing financial documentation, and subsequently provided correct 

documentation, were ultimately awarded one or more CBP contracts. In 

the CBP round 1 rebid, as in CBP round 1, CMS determined that some 

suppliers’ bids had been disqualified incorrectly. CMS told us it received 

bid inquiries from 99 suppliers that had bids disqualified in the CBP round 

1 rebid and subsequently extended contracts to 7 of those suppliers that 

were found to have incorrectly disqualified bids.

CMS’s on-going monitoring activities generally indicate that beneficiary 

DME access and satisfaction have not been affected by the CBP. 

Although some of these efforts have limitations, in the aggregate, they 

 

9

These bids may also have been disqualified for other reasons.
 

Page 5 GAO-12-733T

provide useful information to CMS regarding beneficiary access and 

satisfaction. CBP-related calls to 1-800-MEDICARE declined during the 

first year of CBP implementation. Two percent of calls were from 

beneficiaries with an urgent need for CBP-covered DME. Of 

127,466 inquiries in 2011, CMS classified 151 as complaints.10

Medicare claims data from the first 6 months of the CBP round 1 rebid 

show that fewer distinct CBP-covered beneficiaries

Seventyseven percent of CBP complaints—or 116 complaints—occurred in the 

first half of 2011. CMS’s pre-and post-implementation beneficiary 

satisfaction survey did not reveal systemic beneficiary access or 

satisfaction problems with the CBP, although the survey’s questions were 

limited. For all six questions regarding the CBP, nearly 90 percent of 

beneficiaries reported their service as being “good” or “very good”. 

Beneficiary satisfaction survey results within competitive bidding areas 

show a drop of one to three percentage points on each of the six 

questions from pre-implementation in 2010 to post-implementation in 

2011. CMS tracks health outcomes including, for example, 

hospitalizations, physician visits, and deaths, for beneficiaries potentially 

affected by the CBP. While the data do not show directly whether 

outcomes were caused by problems accessing CBP-covered DME, CMS 

reports no changes in health outcomes for beneficiaries living in 

competitive bidding areas in 2011.

11 in competitive 

bidding areas received DME items in 2011 than in 2010 for the six CBP 

product categories that we analyzed.12

 

10CMS defines a CBP complaint as a CBP inquiry that cannot be resolved by any 

customer service representative with 1-800-MEDICARE and is sent to another entity—

such as a CMS regional office—for resolution.

For example, the number of 

distinct beneficiaries receiving hospital bed product category items in the 

CBP areas was about 13 percent lower in May 2011 than the distinct 

beneficiaries receiving these items in May 2010. However, we do not 

11Each distinct Medicare beneficiary is only counted once in each of the 6 months 

analyzed in 2010 and 2011 for each product category in a competitive bidding area, 

regardless of how many items that beneficiary received.

12We did not include these round 1 rebid product categories: (1) the mail-order diabetic 

testing supplies category due to some beneficiaries switching to non-mail-order sources, a 

concern being studied by the HHS OIG; (2) the complex power wheelchair category due to 

potential data reliability concerns reported by a CMS contractor; and (3) the support 

surfaces category because it is limited to only the Miami competitive bidding area in the 

round 1 rebid.
 

Page 6 GAO-12-733T

assume that utilization in 2010 was the appropriate level of Medicare 

utilization and the decline in the number of beneficiaries served between 

2010 and 2011 does not necessarily indicate that beneficiaries did not 

have access to needed DME.

Although the first year of the CBP round 1 rebid has been completed, it is 

too soon to determine its full effects on Medicare beneficiaries and DME 

suppliers. Although we found that the round 1 rebid was, in general, 

successfully implemented, our findings are based on the limited data 

available at the time we did our study and for only the first year of the 

rebid’s contract period. While the prevalence of grandfathered suppliers 

for some CBP rental items may have ameliorated beneficiary access 

concerns during the first year, the number of grandfathered suppliers will 

continue to decrease as rental agreements expire. Likewise, it is not yet 

known whether any change in the number of subcontracting suppliers will 

affect beneficiary access. Therefore, more experience with DME 

competitive bidding is needed, particularly to see if evidence of 

beneficiary access problems emerges. For that reason, it is important to 

continue to monitor changes in the number of suppliers serving CBPcovered beneficiaries and trends in utilization of the CBP-covered DME.

Chairman Herger, Ranking Member Stark, and Members of the 

Subcommittee, this completes my prepared statement. I would be 

pleased to respond to any questions that you may have at this time.

If you or your staff have any questions about this testimony, please 

contact me at (202) 512-7114 or kingk@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this statement. GAO staff who made key contributions to 

this testimony are listed in appendix I.
Appendix I: GAO Contact and Staff 

Acknowledgments

Page 7 GAO-12-733T

Kathleen M. King, (202) 512-7114 or kingk@gao.gov

In addition to the contact named above, Martin T. Gahart, Assistant 

Director; Michelle Paluga; Katherine Perry; and Opal Winebrenner were 

key contributors to this statement.

Appendix I: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Staff 

Acknowledgments 

(291048)
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