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80–258 2013

HEARING ON THE MEDICARE DURABLE MEDICAL 

EQUIPMENT COMPETITIVE BIDDING PROGRAM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MAY 9, 2012

Serial No. 112–HL11 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

WALLY HERGER, California 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

GEOFF DAVIS, Kentucky 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

RICK BERG, North Dakota 

DIANE BLACK, Tennessee 

TOM REED, New York 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HEALTH 

WALLY HERGER, California, Chairman 

SAM JOHNSON, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

DAVID G. REICHERT, Washington 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

FORTNEY PETE STARK, California 

MIKE THOMPSON, California 

RON KIND, Wisconsin 

EARL BLUMENAUER, Oregon 

BILL PASCRELL, JR., New Jersey 

iii 

C O N T E N T S 

Page 

Advisory of May 9, 2012 announcing the hearing ................................................ 2 

WITNESSES 

Panel 1: 

Laurence Wilson, Director of the Chronic Care Policy Group, Center for 

Medicare, Centers for Medicare and Medicaid Services ................................... 6 

Kathleen King, Director, Health Care, Government Accountability Office ........ 18 

Panel 2: 

Joel D. Marx, Chair, Board of Directors, American Association for Homecare .. 48 

H. Wayne Sale, Chair, Board of Directors, National Association of Independent Medical Equipment Suppliers .............................................................. 61 

Dino Martis, President, Ablecare Medical, Inc. ..................................................... 68 

Alfred J. Chiplin, Jr., Senior Policy Attorney, Center for Medicare Advocacy, 

Inc. ......................................................................................................................... 75 

(1) 

HEARING ON THE MEDICARE DURABLE MEDICAL EQUIPMENT COMPETITIVE BIDDING 

PROGRAM 

WEDNESDAY, MAY 9, 2012 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, DC. 

The subcommittee met, pursuant to call, at 9:03 a.m., in Room 

1100, Longworth House Office Building, Honorable Wally Herger 

[chairman of the subcommittee] presiding. 

[The advisory of the hearing follows:] 

2 

HEARING ADVISORY 

Chairman Herger Announces Hearing on the 

Medicare Durable Medical Equipment Competitive Bidding Program 

Wednesday, May 09, 2012 

House Ways and Means Health Subcommittee Chairman Wally Herger (R–CA) 

today announced that the Subcommittee on Health will hold a hearing to examine 

the Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 

(DMEPOS) competitive bidding program to understand how the program is impacting patients, suppliers, and program expenditures. This hearing will help the Subcommittee assess the Round 1 experience in nine Metropolitan Statistical Areas 

(MSAs) and the plans for its 2013 expansion into 91 additional MSAs. The hearing 

will take place on Wednesday, May 9, 2012, in 1100 Longworth House Office 

Building, beginning at 9:00 A.M. 

In view of the limited time available to hear from witnesses, oral testimony at 

this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for 

consideration by the Committee and for inclusion in the printed record of the hearing. A list of witnesses will follow. 

BACKGROUND: 

The Medicare Modernization Act of 2003 (MMA) established the DMEPOS competitive bidding program to bring Medicare payments for certain high-cost and highvolume items—such as hospital beds and diabetic testing supplies—in line with actual market prices, as Medicare reimbursement rates often far exceeded retail rates. 

The Centers for Medicare and Medicaid Services (CMS) competitive bidding process 

entails DMEPOS suppliers submitting bids that include the price at which they are 

willing to sell a specific item in an MSA and the percentage of the market they 

would serve at that price. Contracts have been offered to the lowest bidders with 

sufficient capacity to serve the market. 

MMA specified that Round 1 of the competitive bidding program was to begin in 

10 MSAs in 2007. In response to concerns that the CMS handling of the process 

for awarding contracts to suppliers had significant flaws, Congress terminated 

Round 1 two weeks after the program began with passage of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). In addition to making improvements to the program, MIPPA mandated that a modified version of Round 1 

be re-bid and implemented in 2011, and that the number of MSAs be reduced to 

nine. The cost of this delay was offset by a 9.5 percent reduction in 2009 DMEPOS 

fee schedule payments for competitively bid items. Recently, the Medicare actuaries 

found that Round 1 has reduced program expenditures by $202 million in 2011. 

The competitive bidding program will soon undergo significant expansion beyond 

the initial nine MSAs. The Affordable Care Act (ACA) expanded the program so that 

Round 2 includes an additional 91 MSAs. CMS is now assessing supplier bids for 

Round 2 with the intent that competitively bid prices in these 91 MSAs take effect 

in mid-2013. The ACA directed the Secretary of the Department of Health and 

Human Services to use competitively bid prices nationwide beginning in 2016. The 

Medicare actuaries expect the competitive bidding program to save $43 billion over 

the next 10 years, including saving beneficiaries $17 billion, relative to the prior fee 

schedule-based system. 

In announcing the hearing, Chairman Herger stated, ‘‘Congress established the 

competitive bidding program in light of evidence that the Medicare fee 

schedule payments far exceeded retail rates, leaving the DMEPOS benefit 

prone to waste, fraud, and abuse. I believe strongly in the competitive 

forces of the private market and the first year of the program shows this 

3 

process has resulted in lower costs for Medicare and its beneficiaries. 

While this is encouraging, it is important to ensure the process by which 

suppliers compete is fair and that beneficiaries receive needed care. This 

hearing will help the Subcommittee understand the successes and challenges with Round 1 before the program’s scheduled significant expansion 

next year.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on the impact of the DMEPOS competitive bidding program on beneficiaries, suppliers, and Medicare expenditures and the implications for 

program expansion. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you 

would like to submit, and click on the link entitled, ‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance 

with the formatting requirements listed below, by the close of business on 

Wednesday, May 23, 2012. Finally, please note that due to the change in House 

mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House 

Office Buildings. For questions, or if you encounter technical problems, please call 

(202) 225–1721 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word format and MUST 

NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised 

that the Committee relies on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov/. 

f 

Chairman HERGER. The subcommittee will come to order. We 

are here today to assess the impact of the Medicare Durable MedVerDate Mar 15 2010 22:47 May 08, 2013 Jkt 080258 PO 00000 Frm 00007 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80258.XXX 80258
4 

ical Equipment Competitive Bidding Program. Our intent is to understand the program’s impact on beneficiaries, suppliers, and 

Medicare expenditures, and the implications or program expansion. 

Congress mandated the use of competitive bidding to establish payment rates for high cost and high volume DME and Medicare Modernization Act of 2003. Congress took this action in response to evidence that Medicare fee schedule payment rates often far exceed 

retail prices. 

In fact, in some cases, Medicare beneficiary copays exceeded the 

cost of the device on the open market. These generous payment 

rates also made the DME benefit especially vulnerable to waste, 

fraud, and abuse. A successful small-scale test required through 

the Balanced Budget Act of 1997 showed that competitive bidding 

for DME was feasible. Consistent with the statutes the Centers for 

Medicare and Medicaid Services implemented a competitive bidding process for nine DME product categories in nine geographic 

areas on January 1st, 2011. 

This first phase of implementation is known as Round 1. Medicare is in the process of expanding the competitive bidding program 

to an additional 91 areas with competition-based payment amounts 

to take effect in mid 2013. This expansion is referred to as Round 

2. The DME supplier industry has long had concerns about the use 

of competitive bidding. It is important to understand these concerns, not only because numerous beneficiaries rely on medical 

equipment to keep them in their homes and out of the hospital, but 

also because many suppliers are the kinds of small businesses that 

form the background of our economy. 

Congress, with input from members of this committee, responded 

to supplier concerns that the initial CMS effort to implement competitive bidding was flawed. As a result, we passed the Medicare 

Improvements for Patients and Providers Act in 2008, which terminated the initial Round 1 and required that it be a bid once improvements were made. That said, it is important that Medicare 

pay a reasonable and responsible price for DME so that beneficiary 

and taxpayer dollars are used wisely. 

CMS has reported that the competitive bidding program resulted 

in $200 million in savings in 2011. These first-year program savings are derived largely from competition-based payment amounts 

that are on average, 32 percent lower than DME fee schedule 

prices. And these lower prices mean that beneficiaries are paying 

less in the form of their 20 percent coinsurance. 

A comparison of the Medicare payment for an oxygen concentrator, a common DME item, shows how the Medicare program and 

its beneficiaries benefit from lower prices derived from the competitive bidding. In the nine Round 1 MSAs, Medicare would have paid 

$2,080 under the DME fee schedule with a beneficiary paying 20 

percent, or $416 on average. By contrast, with competitive bidding, 

Medicare paid $1,395 and the beneficiary paid $279 on average. 

While I strongly believe in the competitive forces of the private 

market, the process by which the competition is conducted must be 

fair. To help the subcommittee understand the successes and challenges associated with Round 1, before the program scheduled expansion next year, we will hear from witnesses who collectively 

5 

provide a balanced range of perspectives on the competitive bidding 

program. 

Before I recognize Ranking Member Stark, but I understand we 

will have Congressman Thompson speaking for him, I ask unanimous consent that all members’ written statements be included in 

the record. Without objection, so ordered. 

Chairman HERGER. I now recognize the gentleman from California, for 5 minutes. 

Mr. THOMPSON. Chairman Herger, thank you for holding this 

hearing on Medicare’s Durable Medical Equipment Competitive 

Bidding Program. Last year, we held a hearing on this topic in May 

2008, and what a different several years can make. That hearing 

revealed serious problems with the implementation of competitive 

bidding for DME. The health subcommittee worked together on bipartisan legislation to delay implementation of Round 1. Importantly, we didn’t just give the industry a pass. We reduced DME 

payments nationwide by 9.5 percent for all product categories that 

would have been in the DME demonstration, and we required CMS 

to revise the program to avoid missteps from the initial implementation effort. 

Historically, this subcommittee has raised concerns with competitive bidding. We want higher quality and lower prices. We can simply implement those changes through the fee schedule and other 

administrative tools. 

I have serious concerns about using competitive bidding for other 

services, but purchasing equipment is a fairly straightforward 

transaction, and I have been pleasantly surprised by the outcome 

of the Round 1 rebid. Unlike the first try, we haven’t heard an outcry from suppliers around the country facing difficulties in filling 

applications. 

CMS really seems to have worked diligently to address the operational programs—problems that plagued the inept attempt—initial attempt. Not only does the demonstration appear to have been 

implemented smoothly, it also appears that many of our concerns 

about negative beneficiary effects haven’t occurred. We typically 

hear directly from patients or their advocates when there are problems with such a substantial change to Medicare. 

I can report that we have not received any beneficiary complaints 

with regard to this demonstration. However, we need to be cautious 

as we proceed toward further expansion and remain ever diligent 

in looking out for negative effects for beneficiaries. I look forward 

to hearing from both CMS and the GAO today. 

In particular, I would like to thank the GAO for working with 

us to expedite release of their statutorily mandated report on the 

Round 1 rebid program. GAO’s work is the first outside audit of 

this demonstration and I am especially interested in their expert 

evaluation. 

Our second panel will also be important. We will hear from several DME suppliers and a patient advocate, all of whom will 

present their opinions on the DME competitive bidding program to 

date. 

We need to be circumspect about drawing significant conclusions 

from this hearing. We will hear an overview of the program in only 

nine metropolitan statistical areas across our country. The program 

6 

will expand next year to an additional 91 areas. While Round 1 impacts 6 percent of Medicare’s beneficiaries, Round 2 will increase 

that to more than half of all Medicare beneficiaries. That is a substantial increase. While the evidence appears to indicate that CMS 

can expand this program, while protecting beneficiary access to 

care, saving money for beneficiaries through lowered cost sharing, 

and recouping savings for taxpayers through lower overall Medicare spending, continued close scrutiny is necessary. DME is an important benefit. It enables people to remain in the community, and 

out of institutions. 

We have a duty, a duty to Medicare beneficiaries and to America’s taxpayers to ensure that we maintain access to quality care 

at the best price available. With that, I yield back the balance of 

Mr. Stark’s time. 

Chairman HERGER. Thank you. On our first panel the subcommittee will hear from two Government agencies. Laurence Wilson, who is the director of the Chronic Care Policy Group and the 

Center for Medicare at CMS will discuss the agency’s efforts to implement the competitive bidding program. Our second Government 

witness is Kathleen King, who is the Director of Health Care at the 

Government Accounting Office. Congress mandated that GAO 

study the competitive bidding program. We look forward to hearing 

from Ms. King on what her agency has found. 

Mr. King, you are now recognized for 5 minutes—excuse me. Mr. 

Wilson, you are recognized for 5 minutes. 

STATEMENT OF LAURENCE WILSON, DIRECTOR, CHRONIC 

CARE POLICY GROUP, CENTER FOR MEDICARE, CENTERS 

FOR MEDICARE AND MEDICAID SERVICES 

Mr. WILSON. Good morning, Chairman Herger, Mr. Thompson, 

and ranking members—and distinguished Members of the Subcommittee. I am pleased to be here today to discuss the Durable 

Medical Equipment Prosthetic Orthotics and Supplies Competitive 

Bidding Program. This important initiative, required under the 

Medicare Modernization Act of 2003, and recently expanded under 

the Affordable Care Act, has been effective in reducing beneficiary 

out-of-pocket costs, improving the accuracy of Medicare’s payments, 

reducing overutilization and ensuring beneficiary access to highquality items and services. 

CMS successfully implemented the program on January 1, 2011, 

in nine metropolitan areas after making a number of important improvements based on new requirements from Congress and after 

listening to feedback from our stakeholders. We are pleased to report that the program has saved $202 million in its first year of 

operation a reduction of over 42 percent compared to 2010, with no 

disruption in access, or negative health consequences for beneficiaries. We are now continuing with the expansion of the program 

to 91 additional areas of the country as the law requires. 

CMS worked closely with stakeholders to design and implement 

the program in a way that is fair for suppliers, and sensitive to the 

care needs of beneficiaries. For example, the program includes provisions to promote small supplier participation and numerous protections for beneficiaries. The program results in a large number 

of winners so that beneficiaries are assured access and choice and 

7 

there will continue to be competition among contract suppliers on 

the basis of customer service and quality. 

In addition, quality standards and accreditation combined with 

financial standards provide safeguards to support good quality and 

customer service, while acting to weed out bad actors and ensure 

a level playing field for legitimate suppliers. The many improvements made by Congress and CMS have been carried forward to 

successive rounds of the program. These changes provide for a fair 

process that is less complex for suppliers to navigate, and result in 

more effective scrutiny of suppliers’ qualifications and the integrity 

of their bids. We continue to make further improvements as the 

program expands. For example, to help fulfill our commitment to 

beneficiaries to ensure quality and good service, our comprehensive 

monitoring system will be expanded to cover the 91 additional 

areas and the various new items. 

This state-of-the-art system examines 100 percent of Medicare 

claims and other data in close to real-time and provides important 

indications on whether access or quality is threatened. It tracks 

over 3,400 data points including mortality, utilization, hospitalizations, ER visits, and many others to provide us with information 

about the Medicare beneficiaries and the services they receive. 

As I noted before, we have observed no trends in these health 

status indicators that cause us concern. Where we have seen more 

significant reductions in utilization, we have followed through with 

further investigation. For example, for mail-order diabetic testing 

supplies, we surveyed beneficiaries and found that they were still 

testing, but not ordering new strips because they had stockpiles at 

home, up to a 10-month supply or more, which is an indication of 

the overutilization occurring prior to when the program took effect. 

Our experience with Round 1 has shown that the competitive 

bidding brings value to Medicare beneficiaries and taxpayers compared to the current fee schedule system. In fact, the average price 

discount across the nine metropolitan areas, is 35 percent. The 

CMS actuary projects that the program will save $25.7 billion for 

Medicare over the next 10 years and another $17.1 billion for beneficiaries through lower coinsurance and premiums. In Orlando, the 

purchase amount of a standard wheelchair dropped by $1,362. That 

is a savings of $1,089 for Medicare, and the taxpayers, and an additional $272 in savings for beneficiaries. 

We are very pleased with the success of Round 1 of the program. 

Nevertheless, we recognize that the scope of the program is expanding and that it is a significant change for suppliers and patients. We will continue to monitor implementation closely, and be 

prepared to act swiftly to address any concerns that may arise on 

behalf of beneficiaries and suppliers. 

We have a network in place, built around our National ombudsman, local ombudsman, regional offices, CMS caseworkers, contractors, and Medicare call centers to address and track questions and 

concerns. 

In summary, we will be diligent and thoughtful in our implementation of this important program as it expands to more areas of the 

country, and we will continue to be open to further improvements 

suggested by our stakeholders, Members of Congress, and others. 

8 

Again, I very much appreciate the invitation to testify before you 

today, and would be happy to take any questions. 

Chairman HERGER. Thank you. 

[The prepared statement of Mr. Wilson follows:] 


Insert offset folio 1 here 80258.001
9 


Insert offset folio 2 here 80258.002

Hearing on the Medicare Durable Medical Equipment Competitive Bidding Program 

U.S. House Committee on Ways and Means, Subcommittee on Health 

May 9, 2012 

Chainnan Herger, Ranking Member Stark, and distinguished members of the Subcommittee, I 

am pleased to be here today on behalf of the Centers for Medicare & Medicaid Services (CMS) 

to discuss the competitive bidding program for durable medical equipment, prosthetics, orthotics 

and supplies (DMEPOS). This important initiative is reducing bencficiary out-of-pocket costs 

and program outlays, while ensuring continued access to high quality DMEPOS items and 

scrviccs, cstablishing Mcdicarc's DMEPOS paymcnts bascd on compctitivc markct pricing, and 

helping combat supplier fraud. On January I, 20 II, CMS launched the first phase of the 

program in nine major metropolitan areas for nine product categories. I am pleased to report that 

in its first year of operation, the DMEPOS competitive bidding program saved the Medicare feefor-service program approximately $202.1 million, and according to CMS's Independent Office 

of the Actuary, the program is projected to save the Medicare Part B Trust Fund $25.7 billion 

between 2013 and 2022, with an additional $17.1 billion in savings for beneficiaries during that 

period. 

Overview and Program History 

CMS is the largest purchaser of health care in the United States, serving more than 100 million 

Medicare, Medicaid, and Children's Health Insurance Program (CHIP) beneficiaries. Each year, 

DMEPOS suppliers provide items and services, including power wheelchairs, oxygen 

equipment, walkers and hospital beds, to millions of Medicare beneficiaries. In 2010, before 

competitive bidding took effect, combined expenditures (induding beneficiary cost-sharing) 

were approximately $14.3 billion for DMEPOS. About 15.5 million Medicare beneficiaries used 

DMEPOS in 20 I O. 

The current Medicare DMEPOS benefit is plagued by an obsolete pricing methodology, grossly 

inflated prices, and a well-documented proliferation of fraudulent practices fueled by these 

inflated prices. With the exception of the 9 areas where competitive bidding is now in effect, 

Medicare Part B currently pays for DMEPOS items and services using fee schedule rates for 

covered items. In general, fee schedule rates are calculated per the statute using historical 
10 


Insert offset folio 3 here 80258.003

supplier charge data from more than 20 years ago that are often much higher than market prices. 

Relying on historical charge data has resulted in Medicare payment rates that are often higher 

than prices charged for identical items and services furnished to non-Medicare customers. 

Mcdicare beneficiaries and taxpayers bear the cost of these inflated fee schedule rates. The 

Department of Health and Human Services' Office of Inspector General (OIG) 1, the Government 

Accountability Office (GAO), and other independent analysts have repeatedly warned that the 

fee schedule prices paid by Medicare for many DMEPOS items are excessive, as much as three 

or four times the retail prices and amounts paid by commercial insurers or customers who 

purchase these items on their own. These inflated prices in turn increase the amount 

beneficiaries must pay out-of-pocket for these items. 

To provide greater value to the Medicare program, beneficiaries and taxpayers, Congress 

established the Medicare DMEPOS Competitive Bidding Program in the Medicare Prescription 

DlUg, Improvement, and Modernization Act of 2003 (MMA) (P.L. 108-173). The program was 

modeled after the successful demonstration projects in Polk County, Florida and San Antonio, 

Texas between 1999 and 2002, which resulted in 20 percent savings for Medicare and 

beneficiaries without any negative impact on access to equipment or quality of care for 

beneficiaries. Under the MMA, the DMEPOS Competitive Bidding Program was to be phased 

into Medicare so that competition under the program would initially begin in 10 metropolitan 

statistical areas (MSAs) in 2007. Consistent with the statutory mandate, CMS conducted the 

Round 1 competition in 10 areas and for 10 DMEPOS product categories, and implemented the 

program on July 1,2008, for two weeks. The program's single payment amounts resulted in a 

projectcd savings of approximatcly 26 pcrcent compared to the traditional Medicare fcc 

schedule. This indicated the potential for substantial savings for Medicare beneficiaries and 

taxpayers upon full scale implementation of the program. 

On July 15,2008, the Medicare Improvements for Patients and Providers Act of2008 (MIPPA) 

(P.L. 110-275) delayed the start of the program. MIPPA terminated the Round 1 contracts that 

were in effect and reinstated fee schedule payment rates, required rebidding of the first round at a 

I See, for example, Comparison oFPrices for Negative Pressure Wound Therapy Pumps, OEI-02-07-00660, March 

2009; Powc:r lVhee1chairs in the Medicare Program: Supplier Acquisition Costs and Services, OEI-04-07-00400, 

August 2009; Medicare Home Oxygen Equipment: Lost and Servicing, OEl-09-04-00420, September 2006. 

2 
11 


Insert offset folio 4 here 80258.004

later datc, and imposcd a nationwidc 9,5 percent payment reduction for all Round 1 itcms in 

2009. M1PPA required competition for Round 2 of the program to be conducted in 2011 in 70 

additional MSAs. In addition to the delay, MlPPA mandatcd certain changes but maintaincd the 

competitive bidding program. Thc Affordable Care Act (P. L. 111-148 and P. L. 111-152) 

subsequently expanded the number of Round 2 MSAs from 70 to 91 and mandates that all areas 

of the country be subject either to DMEPOS competitive bidding or payment rate adjustments to 

thc fcc schcdulc using compctitivcly bid ratcs by 2016. 

CMS implemented a variety of operational improvements to the program prior to rebidding the 

first round as required by MlPPA. CMS incorporated all of the program improvements required 

by MIPPA, including the "covered document" review process. This process gives bidders the 

opportunity to be notified of missing financial bid documents and submit the missing documents. 

In addition, CMS implemented a number of other important improvements based on lessons 

learned from the 2008 bidding process, feedback from stakcholders, and advice from the 

Program Advisory and Oversight Committee. Some examples of these key operational 

improvements include an upgraded bidder education program completed prior to the opening of 

the bid window; a new and improved online bidding system; and enhanced bid evaluation 

processes such as a comprehensive upfront licensing verification process, a more rigorous bona 

fide bid evaluation process to vcrify the Sllstainability of vcry low bids, and increased scrutiny of 

expansion plans for suppliers new to an area or product category. 

Round I Rebid 

With these improvements in place, CMS implemented the Round I Rebid of the competitive 

bidding program in nine MSAs on January 1,2011, covering nine DMEPOS product 

categories.'" CMS awarded 1,217 DMEPOS competitive bidding program contracts to 356 

suppliers. All contract suppliers were thoroughly vetted during bid evaluation to ensure that they 

::: In addition to the larger programmatic changes described above, MIPPA excluded the Puerto Rico MSA and 

negative pressure \vQund therapy (NPWT) devices from the Round 1 Rebid. 

~ Round I Rebid product categories are: Oxygen Supplies and Equipment; Standard Power Wheelchairs, Scooters, 

and Related Accessories; Complex Rehabilitative Power Wheelchairs and Related Accessories (Group 2); MailOrder Diabetic Supplies; Enteral Nutrients, Equipment, and Supplies; Continuous Positive Airway Pressure (CPAP), 

Respiratory Assist Devices (RADs), and Related Supplies and Accessories; Hospital Beds and Related Accessories; 

Walkers and Related Accessories; and Support Surfaces (Group 2 mattresses and overlays) in Miami only. 
12 


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were in good standing with Medicare and met Medicare enrollment rules, quality and financial 

standards, and accreditation and state licensure requirements. CMS also screened and evaluated 

all bids to ensure that they were bona fide and based on real supplier costs. Only qualified 

bidders with bona fide bids were offered contracts. The bid evaluation process ensured that there 

would be more than enough suppliers, including small business suppliers, to meet the needs of 

the beneficiaries living in the competitive bidding arcas (CBAs). Approximately 51 percent of 

the winning suppliers from the Round I Rebid are small busincss suppliers, well exceeding the 

30 percent goal established by CMS. Ninety-two percent of suppliers that were offered a 

contract accepted the contract terms. 

While only nine MSAs currently participate in competitive bidding, the program is already 

generating significant savings for the Federal government and the approximately 2.3 million 

Medicare fee-for-service beneficiaries residing in the areas where competitive bidding is in 

effect. According to CMS's analysis of claims from 2010 and 2011,4 the competitive bidding 

program has reduced DMEPOS spending by approximately $202.1 million-or 42 percent 

overall-in the nine Round 1 Rebid areas. The program has significantly reduced payment 

amounts, with an average price reduction of 35 percent from the fee schedule. For example, if 

Mcdicarc supplicrs in thc ninc CBAs had instcad bccn paid thc 2011 Mcdicarc fcc-schcdulc 

amounts, Mcdicare suppliers would have becn paid S 173.31 per month for stationary oxygen 

equipment (e.g., oxygen concentrators), of which the beneficiary would have paid 20 percent in 

cost-sharing. (Thc supplier would have received $2,079.72 over the course of the year, of which 

the beneficiary would have paid $415.94 in cost-sharing.) Under the competitive bidding 

program, the average Medicare allowed monthly payment amount for stationary oxygen 

equipment in the nine competitive bidding areas has been reduced by 33 percent from $173.31 to 

$116.16. Further, a beneficiary's cost-sharing responsibility for stationary oxygen equipment 

rental for a year has been reduced by an average of $13 7 in the nine areas. 

4 Medicare fee-for-service claims. Savings derived by comparing 20 I 0 to 2011 Part B-allowed charges, which 

include program expenditures and beneficiary cost-sharing. Claims for 2011 are estimated to be 98 percent 

complete. 

4 
13 


Insert offset folio 6 here 80258.006

Monitoring of Beneficiary Health Status and Access 

CMS has closely monitored the results of the competitive bidding program since implementation 

to ensure that savings goals of the program have been achieved and - more importantly - to 

ensure that beneficiary access to appropriate supplies and equipment has not been compromised. 

To ensure effective monitoring, CMS implemented a real-time claims monitoring system which 

analyzes the utilization of the nine product categories. CMS' claims monitoring system was 

designed to pay particular attention to potential changes in key secondary indicators such as 

hospital admissions, emergency room visits, physician visits, and admissions to skilled nursing 

facilities before and after the implementation of the new payment model. To conduct this 

monitoring, the system looks at thrcc comparison groups of bcneficiaries over time: I) all 

Medicare beneficiaries living in one of the nine areas compared to beneficiaries living in a 

similar gcographic area not yet subject to competitive bidding (e.g., Orlando vs. Tampa); 2) 

beneficiaries most likely to use a particular item living in one of the nine areas compared to 

beneficiaries most likely to use the item in a similar geographic area; and 3) beneficiaries 

actually using an item living in one of the nine areas compared to beneficiaries actually using an 

item living in a similar geographic area. Beneficiaries are considered likely to use a 

competitively bid item based on the presence ofp31iicular health conditions (for instance, 

patients with pulmonary disease are monitored for use of oxygen therapy). 

For the first year of the program, CMS' real-time claims monitoring and subsequent follow-up 

has indicated that beneficiary access to all necessary and appropriate items and supplies has been 

preserved in the nine CBAs. Moreover, utilization of hospital services, emergency room visits, 

physician visits, and skilled nursing facility care has remained consistent with the patterns and 

trends seen throughout the rest of the country. The results of our claims monitoring are regularly 

posted on the CMS website.s 

Using the information generated by the real time monitoring, CMS has conducted follow up as 

necessary. For example, CMS' monitoring revealed declines in the use of mail-order diabetes 

test strips and Continuous Positive Airway Pressure (CPAP) supplies in the CBAs. In response 

to these utilization declines, CMS initiated three rounds of outbound phone calls to users of these 

5 Health status monitoring summaries are available at htiR;!i~:YY'·~Lcnls_:g~)_~!}~1e_(EcarQi-Med_lc:p.r~:-f~~-fot~-~'S.~\j~~: 

~Ylll~I1!! ThYU~J?i2S_CQ!D!2~Jjj~~lligJ'ylQJlilJ1UDzllJ!lll . 

5 
14 


Insert offset folio 7 here 80258.007

supplies in the nine CBAs, two rounds of calls for users of mail-order diabetes test strips and one 

round of calls to uscrs of CP AP supplics. In cach round, CMS staff randomly idcntificd 100 

beneficiaries who used the items before the program began but had no claims for the items in 

20 II. Thc calls rcvealed that in virtually cvcry casc, thc bcneficiary rcported having morc than 

cnough supplies on hand, often multiple months' worth, which would suggest that bencficiaries 

had historically received excessive replacement supplies before they werc medically necessary. 

As a result of this monitoring, CMS concludes that the competitive bidding program may have 

curbed previous inappropriate distribution of these supplies. 

In addition to careful monitoring of beneficiary health status, CMS is tracking the number of 

inquiries and complaints made to our regional offices, I-SOO-MEDICARE, and the Medicare 

Competitive Acquisition Ombudsman's Office. During pre-implementation education, CMS 

aggrcssively markctcd the 1-800-MEDICARE call center as a primary information tool for 

beneficiaries. In 2011, CMS received 127,466 beneficiary inquiries regarding the competitive 

bidding program, which represented less than I percent of total call volume at the 1-800-

MEDICARE call center. The vast majority of inquiries were about routine matters such as 

questions about the program or finding a contract supplier. The number of overall beneficiary 

complaints, defined as inquiries that express dissatisfaction with the program and cannot be 

resolved by a call center operator, continues to be minimal. All complaints were assigned to 

program experts for prompt resolution. Tn the fourth quarter of2011, CMS received complaints 

from only six beneficiaries. This is a minute fraction of the 2.3 million fee-for-service 

beneficiaries residing in the nine CBAs. 

Table I: Beneficiary Complaints by Quarter, 2011 

The small number of beneficiary inquiries and complaints further corroborate the positive results 

shown in the real-time claims monitoring data. 

6 
15 


Insert offset folio 8 here 80258.008

Round 2 Expansion and National Mail Order Competition 

Building on the success of the Round I Rebid, CMS is already in the process of expanding the 

competitive bidding program to 91 additional areas as required by MIPPA and the Affordable 

Care Act The bidding process is very similar to the process used successfully in the Round I 

Rebid, with minor adjustments. In addition to the items included in the Round I Rebid, CMS 

has expanded the list of items bid by combining standard manual wheelchairs, standard power 

whcclchairs, and scooters to form a new cxpandcd standard mobility dcvicc product category; 

expanding bidding for support surfaces throughout all Round 2 areas; and adding negative 

pressure wound therapy pumps and related supplies and accessories as an additional product 

category. CMS is also conducting a national mail-order competition for diabetic testing supplies 

at the same time as Round 2. The national mail-order competition includes all 50 States, the 

District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa. The 

bidding window was open from January 30 to March 30, 2012. CMS is currently evaluating the 

bids received and cxpccts to announcc thc paymcnt amounts and bcgin thc contracting proccss in 

Fall 2012, with an announcemcnt of contract supplicrs in Spring 2013. We anticipate that the 

Round 2 and national mail-order program contracts and prices will bc implemented in July 2013. 

CMS is continuing to make additional improvements in the bidding process for Round 2, 

focusing on increasing the scrutiny of bids and enhancing the successful bidder education 

program. CMS already used a rigorous bona fide bid review process in Round I to protect 

against unrealistic low bids. During the Round I Rebid bid evaluation, we found that about 8 

percent of bids were extremely low in comparison to other bids, so we asked these bidders to 

send us invoices and rationales explaining how they could furnish items at the bid price. Bidders 

were able to prove that 67 percent of these comparatively low bids were feasible. We rejected all 

of the bids that were not proven feasible, and we did not offer contracts to these suppliers or 

include the rejected bids in the calculation of single payment amounts. CMS is strengthening 

this rigorous process for Round 2 by focusing more on the highest costs, highest volume items 

and subjecting more bids to additional review beyond the initial screening and evaluation 

process. CMS also improved bidder education materials to emphasize more strongly the need to 

submit bids that include the cost for the supplier to buy the item, overhead, and profit 

7 
16 


Insert offset folio 9 here 80258.009

To help the large number of suppliers in these MSAs understand the process, CMS launched a 

bidder education program in November 2011. This program was designed to ensure that 

DMEPOS suppliers interested in bidding received the information and assistance they needed to 

submit complete bids in a timely manner. Comprehensive information on an array of topics, 

including bidding rules, user guides, policy fact sheets, checklists and bidding information 

charts, was made available at http://lvww.dmecQ!I!Q~litivebid.com. Bidders could also cal1 a tol1 

free help desk with expanded hours with any questions about the bidding process. The bidder 

education program featured numerous enhancements such as improved Request for Bids 

instructions, updated fact sheets, and a series of educational webcasts. The webcasts were posted 

online and could be accessed 24 hours a day to ensure maximum opportunities for suppliers to 

review them. 

CMS recognizes that the success of Round 2 will require significant efforts to educate 

beneficiaries, beneficiary partners, providers, stakeholders and contract suppliers about the 

program and, accordingly, is preparing to scale up the successful education and outreach efforts 

used in Round 1. The primary goal of this education campaign will be to keep beneficiaries, 

caregivers, referral agents (e.g., hospital discharge planners and physicians), and other 

stakeholders infOlmcd about thc program and how it affects them. Outreach to bcncficiarics will 

include fact sheets, brochures and booklets, Frequently Asked Questions and other postings on 

medicare.gov, newsletters, an update to the annual Medicare & You Handbook, emails, and 

letters. In addition, our 1-800-MEDICARE customer service representatives and direct service 

caseworkers are being trained and educated so they are better able to assist beneficiaries who 

may come to them with questions about the program. 

CMS wil1 deploy our central and regional office staff, along with local ombudsmen to work with 

providers of health care scrviccs, cstablishcd nctworks of providcrs, and beneficiary advocacy 

organization partners to keep beneficiaries informed. Outreach to physicians, social workers, 

referral agents, discharge planners and others will be delivered through the various listservs, and 

through the Medicare Learning Network (MLN), via MLN Matters articles, fact sheets, 

brochures, and national provider cal1s. Educational materials for medical professionals wil1 be 

available on the cms.gov website and are also communicated through national and State/local 

provider associations covering al1 provider types, as wel1 as through the Medicare fee-for-service 

8 
17 

f 

Chairman HERGER. Ms. King, you are now recognized for 5 

minutes. 


Insert offset folio 10 here 80258.010
18 

STATEMENT OF KATHLEEN KING, DIRECTOR, HEALTH CARE, 

GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. KING. Chairman Herger, and Members of the subcommittee, 

I am pleased to be here today. 

Chairman HERGER. Let’s have you push the button. 

There is a button in front, I believe. 

Mr. RYAN. You have to turn it on. 

Ms. KING. It says talk. 

Mr. RYAN. Is there a green light that is on in front of you there? 

Ms. KING. Is that better? 

Chairman HERGER. That is much better. 

Ms. KING. I pressed the wrong talk. Chairman Herger, and 

Members of the Subcommittee, I am pleased to be here today to 

discuss a report that we are releasing on the Round 1 rebid of the 

Medicare Competitive Bidding Program for Durable Medical Equipment. Congress directed us to examine several issues regarding the 

Round 1 rebid, and those are the subject of our report today. We 

found that the number of bidding suppliers and the number of contracts awarded in the Round 1 rebid were very similar to Round 

1. About a third of the 1,011 suppliers, or 356 suppliers that bid 

in the Round 1 bidding, were awarded at least one contract. CMS 

made improvements to the bidding process for the Round 1 rebid, 

and many fewer bids were disqualified in the Round 1 rebid than 

in Round 1. 

However, many suppliers still had difficulty meeting the bid requirements. And, as in Round 1, CMS determined that some suppliers bids had been disqualified incorrectly. Subsequently, CMS 

extended contracts to seven of those suppliers. 

During the first year, few contract suppliers, about 6 percent of 

those awarded contracts, had their contracts terminated by CMS, 

voluntarily canceled their contracts, or were involved in ownership 

changes. Under the program, many noncontract suppliers exercised 

the option to grandfather rental DME items for beneficiaries they 

were furnishing those services to prior to the program. 

We found that the number of these grandfathered suppliers generally decreased steadily throughout the year as the rental periods 

expired, or as beneficiaries chose a contract supplier. 

Some contracting suppliers entered into subcontracting agreements with noncontract suppliers to furnish services to beneficiaries. In July of last year, about 31 percent of contracting suppliers had subcontracting agreements. As the CBP allowed, 43 distinct or unique suppliers had contracts for product categories in 

which they did not have prior experience, and 44 distinct suppliers 

were awarded contracts in areas where they did not have a prior 

business location. 

CMS’s beneficiary access monitoring efforts reported declining inquiries and complaints over the first year of the program, high levels of beneficiary satisfaction, and no changes in health outcomes. 

Although some of CMS’s monitoring efforts have limitations, in the 

aggregate, they provide useful information to CMS regarding beneficiary access and satisfaction. Medicare claims data from the first 

6 months of the Round 1, show that fewer distinct beneficiaries in 

the areas received DME items in 2011 than 2010 for the six prodVerDate Mar 15 2010 22:47 May 08, 2013 Jkt 080258 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80258.XXX 80258
19 

uct categories we analyzed. However, we do not assume that utilization in 2010 was the appropriate level of Medicare utilization. 

Further, the decline in the number of beneficiaries receiving 

services in 2011 does not necessarily indicate that beneficiaries did 

not have access to needed DME. It is too soon to determine the full 

effects on Medicare beneficiaries and suppliers. Although we found 

that in general, the Round 1 rebid was successfully implemented, 

our findings are based on the limited data available at the time we 

did our work. While the prevalence of grandfathered suppliers for 

some rental items may have ameliorated beneficiary access concerns during the first year, the number of grandfathered suppliers 

will continue to decline as rental agreements expire. 

Likewise, we don’t know yet whether any change in the number 

of subcontracting suppliers will affect beneficiary access. Therefore, 

more experience with the program is needed, particularly to see if 

beneficiary access problems emerge. For that reason, it is important to continue to monitor changes in the number of suppliers covering beneficiaries, and trends in utilization. 

Mr. Chairman, that concludes my prepared remarks. I would be 

happy to answer questions. 

[The prepared statement of Ms. King follows:] 

20 


Insert offset folio 11 here 80258.011

GAO 

For Rp.iea.c;e on Deiiwry 

R)o,:pected at 9:00 a.m. EDT Wednesday, May 9, 2012 

United States Government Accountability Office 

Testimony 

Before the Subcommittee on Health, 

Committee on Ways and Means, House of 

Representatives 

MEDICARE 

The First Year of the 

Durable Medical Equipment 

Competitive Bidding 

Program Round 1 Rebid 

Statement of Kathleen M. King 

Director, Health Care 

***TESTIMONY IS EMBARGOED UNTIL 9:00 AM 

WEDNESDAY MAY 9, 2012*** 

To access this report 

electronically, scan this 

QR Code. 

Don't have a OR code 

reader? Several are 

available for free online, 

GAO-12-733T 

GAO 

Accountability ,.. Integrity * Reliability 
21 


Insert offset folio 12 here 80258.012

Chairman Herger, Ranking Member Stark, and Members of the 

Subcommittee: 

I am pleased to be here today to discuss the Medicare 1 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)' implementation of 

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

January 1, 2011. 

Most Medicare beneficiaries participate in Medicare Part B,3 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 

1Medicare 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. 

2CMS is an agency within the Department of Health and Human Services that has 

responsibility for administering the Medicare program. 

3Medicare 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. !n 

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

billion for DME and related items. 

Page 1 GAO-12-733T 
22 


Insert offset folio 13 here 80258.013

and supply items. 4 These overpayments increase costs to both Medicare 

and its beneficiaries. 

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' and nine product categories' for selected 

4GAO, Medicare: eMS Has Addressed Some Implementation Problems from Round 1 of 

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

GAO-1D-1057T (Washington, D.C.: Sept. 15,2010); GAO, Medicare: eMS 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 Courd Reduce Program Payments, but 

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

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

and Supplies, GJ\O-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. 

5The nine CBP round 1 rebid competitive bidding areas are: Charlotte (CharloUeGastonia-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, 

Califomia). 

6The 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); 

mait-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 2 GAO-12-733T 
23 


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DME items were included in the eBP round 1 rebid. eMS 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 eBP round 1 rebid. 7 We reviewed (1) the 

outcomes of the eBP round 1 rebid process including bid disqualifications 

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

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

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

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

selected DME items. 

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. 8 In that report, to 

examine eBP outcomes and effects, we analyzed data from eMS and its 

feedback provided to bidding suppliers, analyzed 2011 eBP data about 

different types of suppliers, and interviewed eMS and eBP contractor 

officials, DME industry groups, and suppliers. To examine the eBP'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 eBP continues. eMS 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. 

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

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

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

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

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

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 

7pub. L. No. 110-275, § 1S4(c), 122 Stat. at 2565-6. 

8GAO-12-683 (Washington, D.C.: May 9,2012). 

Page 3 GAO-12-733T 
24 


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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.' 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 documentationa 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. 

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. 

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 

9These bids may also have been dIsqualified for other reasons. 

Page 4 GAO·12·733T 
25 


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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." Seventyseven percent of CBP complaints-or 116 complaints-{)ccurred 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. 

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

show that fewer distinct CBP-covered beneficiaries 11 in competitive 

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

product categories that we analyzed. '2 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 

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 entitysuch as a eMS regional office-for resolution 

11 Each 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 DIG; (2) the complex power wheelchair category due to 

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

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

round 1 rebid. 

Page 5 GAO-12-733T 
26 


Insert offset folio 17 here 80258.017

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. 

Page 6 GAO-12-733T 
27 


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Appendix I: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Staff 

Acknowledgments 

(291048) 

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. 

Page 7 GAO-12-733T 
28 


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29 

f 

Chairman HERGER. Ms. King, thank you for your testimony, 

and I am grateful for the work that GAO has put into examining 

the performance of this program. As you know, Congress responded 

to initial concerns about the implementation of Round 1 by stopping it and requiring CMS to rebid it using an improved process. 

Did Round 1 rebid go more smoothly than the initial Round 1, and 

were Congress’ concerns addressed? 

Ms. KING. Yes, they were. The Round 1 rebid was definitely 

much more smooth than the Round 1, and we evaluated the Round 


Insert offset folio 20 here 80258.020
30 

1, and found a number of significant issues with that, and many 

of them were resolved. In particular, CMS gave more information 

about the kinds of financial documentation that were required and 

gave notice to a supplier when their financial documentation was 

incomplete. So most of the procedural aspects in Round 1 were definitely ameliorated. 

Chairman HERGER. Thank you, Mr. Wilson, I would like to get 

your reaction to some of the concerns we will be hearing from representatives of the supplier industry later today. One concern is 

that some suppliers may submit excessively low bids in order to be 

offered a contract. Some believe there is an additional incentive to 

submit low bids because bidders are not necessarily required to accept a contract when offered. Can you describe the process that 

CMS uses to determine which bids are not legitimate, and therefore, disqualified from competing on bid price, and whether the 

agency plans to expand this bona fide bid review process in Round 

2? 

Mr. WILSON. I would be happy to address that, Mr. Chairman. 

That was an issue that we gave serious consideration to in the design and development of the system, and is in fact, the subject of 

a number of discussions with stakeholders. So for example, we 

looked at the program and wanted to ensure that bids were bona 

fide and ensure that we didn’t have essentially low-ball bids accepted in the system that would be factored in the price. So we set up 

a system to essentially screen the bids statistically, and if they 

were aberrantly low, we would request information from the bidders that would support the price that they bid. We would ask for 

price sheets, manufacturer invoices, or other information that detailed service requirements in order to support the amount that 

they bid. And if they could not support that bid price, we actually 

threw out those bids. We feel that that process worked very, very 

well. 

And so we are carrying that forward to the next two, Round 2 

in the 91 areas and actually expanding it. We don’t feel as though 

the lock-in aspect, or issue is necessarily practical and we do have 

a concern that the statute may not allow us to carry that type of 

aspect or approach forward within the system. But we don’t have 

concerns because what we found in Round 2, was that essentially 

92 percent of suppliers accepted their contract offers. The ones that 

did not accept their contract offers, essentially their prices were 

about half above the price or the median, and half below. So we 

didn’t see that as a concern impacting price. That said, I think it 

is something that we should look at as the program moves forward, 

and consider. 

Chairman HERGER. Another concern we often hear is that because participation in Medicare will be limited to suppliers whose 

bids are accepted, other suppliers might be unable to stay in business, and there would be less competition when contracts are rebid 

in future years. What is your reaction to this concern, and could 

you also comment on why CMS believes it makes sense to limit 

participation to winning bidders rather than allowing any willing 

supplier to receive the competitively bid rate? 

Mr. WILSON. When we read the statute, it certainly tells us that 

we can only contract with the winners in the competition to provide 

31 

services. But I think there is an important reason for that. If you 

allowed non-winners to subsequently participate, there would be no 

incentive to offer value to Medicare and the taxpayers, no incentive 

to bid a price that truly represented a true market price for the 

product. And so I think it is important, from an economic sense 

and from a program savings perspective, and value to beneficiaries, 

to keep the program the way it is in that regard. 

Chairman HERGER. Thank you. Mr. Thompson is recognized for 

5 minutes. 

Mr. THOMPSON. Thank you, Mr. Chairman. Mr. Wilson, in your testimony, you state that the Round 1 rebid saved about $200 million so far. 

Mr. WILSON. Yes, sir. 

Mr. THOMPSON. Do those savings accrue to both the Federal 

Government, and to the beneficiaries? 

Mr. WILSON. They do. 

Mr. THOMPSON. If so, well, they do, so how much about the 

Government save, and how much did beneficiaries save? 

Mr. WILSON. I think we need to do further analysis of that. What I can tell you today, sir, is that at least $41 million of the 

$202 million, is direct beneficiary savings in terms of coinsurance. 

I think there are additional savings that are related to premium 

offsets, and I would be very happy to get back to you on that particular issue. 

Mr. THOMPSON. Okay, thank you. And how much does the average DME user in these areas save? Do you have that number? 

Mr. WILSON. Sure, the average price savings, is 35 percent, as 

I mentioned in my testimony, and so I think that on average, given 

that coinsurance is 20 percent for beneficiaries, that they would 

save that 35 percent on their coinsurance. 

Mr. THOMPSON. Well, and thanks for the good work of everyone on this committee on both sides of the aisle. The MIPPA 

strengthen accreditation requirements for all Medicare DME suppliers. Has this requirement helped prevent fraud, waste and abuse 

within the Medicare program? 

Mr. WILSON. I absolutely think it has. It does several important 

things. It elevates the standards by which suppliers, that suppliers 

need to meet in order to participate in the program. It also provides for some very, very important clinical requirements that relate to how beneficiaries are—how the items and services are delivered to beneficiaries, how they are educated, and what standard 

suppliers need to meet for the delivery of very, very important, and 

critical care items like oxygen and wheelchairs. 

Mr. THOMPSON. And how about the so-called illegitimate suppliers? Were you able to weed out some of those as well? 

Mr. WILSON. Well, we think that the accreditation program absolutely does that, because again, it sets standards. Accreditation 

agency goes out and survey suppliers. They need a physical location in order to be surveyed. Information is collected. And so I 

think that those kinds of standards erect barriers which filter out 

or stop at the front door some of those illegitimate suppliers. 

Mr. THOMPSON. The information that we have suggests that 

CMS has received about 130,000 beneficiary inquiries, and about 

150 beneficiary complaints about the competitive bidding program 

32 

in 2011. And as you know, it is important that we figure this one 

out, and make sure that beneficiary access to necessary suppliers 

is appropriate. But we also need to make sure that suppliers are 

complying with the terms of their contracts. So can you give us an 

example, or any examples of beneficiary inquiry or complaints that 

indicated supplier access, or quality problems and the actions that 

your agency took to correct those? 

Mr. WILSON. Sure. I would be happy to do that. And the first 

thing I would say is we are very pleased with the 1–800 response 

because we heavily marketed 1–800 to our information intermediaries like beneficiary groups and State health insurance programs and many, many others so that we could answer questions 

about the program and help our beneficiaries get the items and 

services they need. 

I think a good example of how we were able to address some concerns that came up through the call center process may go to 

wheelchair repairs. We had several instances of beneficiaries not 

being able to obtain repairs. The supplier was having difficulty getting parts from the manufacturer. We intervened in that process, 

facilitated a discussion between the manufacturer, the supplier, 

and the beneficiary in order to make sure the parts could be acquired to fix the wheelchair. And then beyond that, CMS went back 

and looked at its repair policy and expanded it to allow essentially 

any supplier to do any repair so that we could stem any future 

problems like that. So we had a policy response that worked. We 

had a response for the individual that worked, and I think that 

that was a very good result. 

Mr. THOMPSON. And then in the areas with competitive bidding, there has been some concerns that it has brought about an 

increased use in hospital care and ER visits. I know you are monitoring this. Can you speak about this complaint and about that increased hospital visit issue? 

Mr. WILSON. I would be happy to. We are not seeing increased 

hospitalizations. We have a very sophisticated monitoring system. 

We look at the entire competitive bidding area. We look at those 

beneficiaries that may be in a specific disease group, COPD, emphysema, that may use oxygen for example, that are likely to access the product, and then we look at the specific utilizers of the 

product. We look at all three cohorts to see if there are any types 

of concerns which would go to maybe their ability to get to a supplier, or even the quality of the product with looking at the ones 

that actually utilize it. We are not seeing increases in hospital utilization, hospital admissions compared to the comparator regions. 

Mr. THOMPSON. And the ER visits part? 

Mr. WILSON. And the ER visits, mortality, any of those important indicators. So we are very pleased with the health outcomes 

information that we are able to review. And I would just note as 

well, that we are looking at 100 percent of the Medicare database. 

We are not looking at a sample. We recreate this every 2 weeks. 

Policy staff, clinicians, physicians sit down and review this data, 

and so we are very, very attuned to what is going on and we take 

the monitoring program very seriously. 

Chairman HERGER. The gentleman’s time is expired. 

Mr. THOMPSON. Yield back. 

33 

Chairman HERGER. Thank you, the gentleman from Texas is 

recognized. 

Mr. JOHNSON. Thank you, Mr. Chairman. Mr. Wilson, you said 

in your testimony CMS has a goal of 30 percent of the contracts 

go to small businesses, or small suppliers as you call them. Is this 

an internal goal or requirement by Congress and do you feel 30 

percent is an adequate target? 

Mr. WILSON. Well, I would just start by saying, Congressman, 

that we are very pleased with small supplier participation in the 

program. The statute tells us we need to have at least two suppliers in every competitive bidding area, and it says we need to essentially help or provide opportunities for small suppliers to participate. We have gone way beyond that by setting up networks, or 

setting up a policy to allow small suppliers to join into networks. 

A new definition that we worked through with the Small Business 

Administration about the definition of a small supplier, and then 

we tied an important policy to that that essentially set a 30 percent 

target for small supplier participation, whereby, if 30 percent of the 

winners in a particular competition, in a particular area, by product category, are not small suppliers, we would add small suppliers 

until we met that target. 

That was very successful. We ultimately had about 51 percent of 

participating suppliers in the first nine areas meeting that definition of the small supplier. So we think that is a very good result. 

Mr. JOHNSON. Thank you. Is there any difference between metropolitan and rural? 

Mr. WILSON. I am sorry, Congressman, I couldn’t quite hear 

that. 

Mr. JOHNSON. Is there any difference between metropolitan 

areas an rural areas? 

Mr. WILSON. There is quite a bit of difference between metropolitan and rural areas. 

Mr. JOHNSON. I know that. How do you address it? 

Mr. WILSON. Well, we address it in a few important ways. One, 

we follow the terms of the statute which essentially say we cannot 

bid in a rural area, so we do not. We also have authority under the 

statute to essentially carve out of metropolitan areas any low-population density areas. So we have done that in a number of cases 

so that we are truly looking at integrated urbanized areas where 

there is a competitive number of suppliers and beneficiaries that 

will make the program work, generate savings for the program, 

and patients. 

Mr. JOHNSON. Well, I think small businesses are important job 

creators in this country, and I am pleased to hear that 51 percent 

of the contracts awarded went to small business. What are you 

doing to make sure that number holds steady and small businesses 

will always be part of the competitive program? 

Mr. WILSON. Well, we have offered the same opportunities in 

the current Round 2 of the program that we successfully brought 

forward in the initial round of the program. And we believe that 

that 30 percent target will allow us to have a lot of small suppliers 

participate. 

Mr. JOHNSON. You worked with the Small Business Administration several years ago to create the definition of small supplier 

34 

for this program, and under this definition of small supplier is a 

supplier that generates gross revenues of $3.5 million of more—or 

less in annual receipts, including Medicare and non-Medicare. Do 

you feel this definition is still an accurate representation of the 

DME community? 

Mr. WILSON. It is the definition that we currently are using. I 

believe it is still accurate. I think that is a very good question that 

I would be happy to look into further to see if, you know, potentially it should be revisited, and I will say that we have not revisited it since 2009 so it may be time to do that. 

Mr. JOHNSON. Well, why was the definition lowered from your previous standard of $6.5 million? Mr. WILSON. Well, $6.5 million was the standard for a small 

business, which is a more general standard. What we wanted to do 

was specifically target DME suppliers, because that is a narrower 

definition, or a narrower term of business, and to see what was reflective of that cohort. 

Mr. JOHNSON. Thank you. Thank you, Mr. Chairman, I yield 

back. 

Chairman HERGER. Thank you, Mr. Nunes is recognized. 

Mr. NUNES. Thank you, Mr. Chairman. Mr. Wilson, I am told 

that 80 to 90 percent of American businesses are being excluded 

from supplying Medicare beneficiaries under the competitive bidding model that CMS has implemented in the nine competitive bid 

areas, and I have three examples here of this. The first one is there 

were 1,409 suppliers of CPAP respiratory devices and supplies. 

Now there is 105. That is a 93 percent reduction. The second example is, there were 1,433 suppliers for life-support oxygen, and now, 

there are 211. That is 85 percent fewer. 

If a senior needs a walker, there used to be 1,501 locations to 

choose from. Now there are just 133. That is about a 94 percent 

reduction. So I am not an expert here, but given the size of the senior population and the growth and what seems to be a limited number and dwindling number of people being able to win these competitive bids, and then by your own numbers, people who even won 

the bids backed out, do you know why people that win the bids are 

backing out? 

Mr. WILSON. Congressman, are you referring to the 8 percent 

that I cited; 8 percent of bidders that did not accept their contracts? 

Mr. NUNES. Yeah, why is that happening? 

Mr. WILSON. We do not know why they didn’t accept their contracts. 

Mr. NUNES. Okay, so how it is possible that if you are going to 

reduce the number of suppliers that seniors won’t be impacted? 

And if the program is working well, why would bidders be pulling 

out? 

Mr. WILSON. We don’t know why that very small number of bidders decided not to accept our contract. It could have been for any 

number of reasons. We have suppliers that come into the program 

and out of the program all the time. That has always been the 

case, competitive bidding aside. 

I think the thing that I say about looking at the numbers you 

cited, and looking at this industry, there are a lot of supplier numVerDate Mar 15 2010 22:47 May 08, 2013 Jkt 080258 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80258.XXX 80258
35 

bers, a lot of suppliers providing a small amount of DME. It is not 

a big part of their business and so the numbers you cited don’t 

really go to full-service DME suppliers that are providing a lot of 

items, and I will give you an example. I will use Pittsburgh, a place 

that I am familiar with. In Pittsburgh, there were about, in 2010, 

about 815 DME supplier numbers. Only 169 were providing more 

than $10,000 in DME billing, so very small part of their business; 

maybe a cane, maybe a walker; maybe, you know, a few boxes of 

test strips, but not a big part of their business. I think seniors will 

not be impacted because we always award enough contracts to 

guarantee access. 

So when we looked, when we looked back at the 2008 round, 

what we saw was, we set a demand target that was generous in 

order to guarantee that beneficiaries would have access and choice, 

and the actual number of supplies and items delivered, fell far 

short of that. That way we were absolutely sure that we could 

guarantee access. We never want to worry about that. 

Mr. NUNES. But are you concerned with the three examples 

that I gave, like 85, to 95 percent reductions in suppliers. That 

seems like a just a huge change, or are you disagreeing with those 

numbers, or you agree that has happened? 

Mr. WILSON. I can’t—I can’t tell you if I agree that is happening. I would really have to look at the data. I think what I am 

saying is that when I looked at the data, I am seeing a much different picture about the composition of the industry, and who is 

providing a level of service that is important in the marketplace for 

ensuring access for our beneficiaries. And what I understand is 

that the great majority—— 

Mr. NUNES. I will tell you what I will do. I will get you the data 

that I have, and the examples that I have, and I will get those to 

you in writing and where I got the data from, and we will see if 

that matches up with your data, and see if, in fact, the suppliers 

are reducing dramatically in the marketplace. And so at least then 

we can clarify here whether there has been an 85, 95 percent reduction in some areas of suppliers. Will that be okay? 

Mr. WILSON. I would be very pleased to look at it, sir. 

Mr. NUNES. Okay, thank you, Mr. Wilson. Thank you, Mr. 

Chairman. 

Chairman HERGER. Mr. Kind is recognized. 

Mr. KIND. Thank you, Mr. Chairman. I want to thank the witnesses for your testimony here today, and Mr. Wilson, start with 

you. It sounds, based on your testimony, that so far so good. We 

are seeing some promising significant cost savings without jeopardizing access of care, quality of care, utilization or choices of patients, and you also cited—I wasn’t clear what this was referencing—$272 of savings per beneficiary. Is that an estimate of 

what the beneficiaries were receiving in the last year based on the 

savings? 

Mr. WILSON. That was an example that I used to show what a 

beneficiary would save in Orlando on a standard power wheelchair. 

Mr. KIND. Oh. 

Mr. WILSON. Based on coinsurance. 

Mr. KIND. Just on a standard power wheelchair in the Orlando 

market. 

36 

Mr. WILSON. Yes. 

Mr. KIND. Okay. And the $202 million in savings was a 42 percent reduction from 2010 from the previous year? 

Mr. WILSON. That is correct, a straight-line comparison. 

Mr. KIND. All right. Well, let me ask you and Ms. King, in regards to, and I think Mr. Nunes was kind of alluding to this in his 

questioning, is there concerns as we move forward and clearly, we 

are going to have to be attentive and continue to monitor this program and see how it plays out, but through the competitive bidding 

process, it is going to lead to greater consolidation and more suppliers dropping out, and getting back to Mr. Johnson’s line of inquiry, and the impact on small businesses, is that something we 

are going to have to keep an eye on; greater consolidation and ultimately losing the power of competitive bidding in certain areas? 

Why don’t you go first, Mr. Wilson. 

Mr. WILSON. Thank you. You know, I think we always have to 

monitor what is going on in the marketplace to ensure that there 

are no threats or concerns, particularly with respect to beneficiary 

access. I think we want a viable market. I think what we have 

tried to do is ensure participation of suppliers even beyond winning 

a contract, so there is a process for allowing subcontractors. There 

is a process where grandfathered suppliers, essentially, you can 

maintain the beneficiaries that you had prior to competitive bidding, and keep those and bill Medicare. There are opportunities to 

bill other payers. There are opportunities to bill Medicare for 

things and items that aren’t included under the competitive bidding program. 

Mr. KIND. A 30 percent figure for small businesses, is that a 

goal or is that a requirement? 

Mr. WILSON. That is a target for us, and the reason why we call 

it a target, sir, is that it may be that in certain competitions, although this was fairly rare, that there may not be enough small 

suppliers that won a contract, or bid. 

Mr. KIND. Let me ask you something more specific to my area. 

I represent Western Wisconsin, and Round 2 of the Minneapolis/St. 

Paul will be part of the competitive bidding MSA area. That leaks 

into some rural western counties in my congressional district. My 

concern is, my guess is, that most of the businesses winning the 

competitive bids are going to come from the Twin Cities area. And 

my guess again, I could be completely wrong, and getting back to 

Mr. Johnson, this is going to put the squeeze on a lot of my small 

suppliers in Western Wisconsin where they won’t be awarded the 

contracts, and might go out of business. 

We know that those that win the competitive bids have to service 

the Medicare beneficiaries, but there is no requirement that they 

have to service private insurance beneficiaries, including in the 

surrounding areas of the MSA area. Is that a concern, something 

that we should keep an eye on as we move forward in Round 2? 

Mr. WILSON. Well, on the first part, sir, I think the—we are 

hopeful that a lot of small suppliers will participate. Based on our 

experience, we think they will. But we are going to look at that 

pretty closely. In terms of participating, participation with private 

insurance, I mean, we are seeing that with a lot of the suppliers 

currently in the Round 2—in the Round 1 areas. I think if that is 

37 

a concern, that is something that we can look into and investigate 

for you. 

Mr. KIND. Yeah, because the counties that I describe in my district are heavily Medicare beneficiaries and so there is a smaller 

private presence in that. But even in the surrounding MSA area, 

and not within the MSA itself, the surrounding area, I am going 

to be, you know, concerned about the impact it is going to have on 

supplying private insurance beneficiaries through this next round. 

So that is something that you are sensitive to, or not aware of any 

potential problems? 

Mr. WILSON. Well, we are not aware of any potential problems; 

did not see any in the Round 1 areas. I think it is a very good 

point, and something that we can look into, because we do understand it is a broader marketplace and we don’t want to have a deleterious effect on those beneficiaries. 

Mr. KIND. Right, right. Thank you. 

Mr. WILSON. Thank you. 

Chairman HERGER. Dr. Price is recognized for 5 minutes. 

Mr. PRICE. Thank you, Mr. Chairman. I want to thank the witnesses on a very important topic. Competitive bidding is extremely 

vital for—the supply of these things for our communities is extremely important. Many of us are concerned about the competitive 

bidding process. Many of us don’t believe that it is actually competitive, and when we talk about canes and wheelchairs, as an orthopedic surgeon, that is one thing, but when you talk about oxygen supply, and CPAP machines, these are life-saving and lifethreatening devices if they are not available. So I think it is absolutely vital that we remember the importance of what this means 

to patients, to patients in the community. 

Mr. Wilson, I have got a number of questions and I will followup with written questions afterward. But are you aware of how 

many Round 1 contract winners have gone out of business? 

Mr. WILSON. They won a contract and then subsequently went 

out of business? 

Mr. PRICE. Yes. 

Mr. WILSON. My understanding, I don’t have an exact number 

for you. We would be happy to provide that, but I understand it 

is only a handful. 

Mr. PRICE. But you have that information? 

Mr. WILSON. We do. 

Mr. PRICE. Okay, if you could get that to us, that would be 

great. Does CMS screen the providers to determine whether or not 

they actually have the capacity to serve the Medicare population in 

an area? 

Mr. WILSON. We do very carefully. 

Mr. PRICE. How do you do that? 

Mr. WILSON. Well, there are a number of different tools that 

Medicare uses to screen a provider, both within the competitive 

bidding program and outside of the competitive bidding program. 

But we absolutely want to assure the qualifications of a provider. 

So there are many Medicare requirements, supplier standards that 

have to be met. We also look at the state licensing, the accreditation program, which relies on quality standards. There is a specific 

set of qualities. 

38 

Mr. PRICE. Many States don’t have licensing requirements, 

mine being one of them. Ms. King, you mentioned, I believe, I 

didn’t see it in your written testimony, but in your oral testimony, 

you said 44 percent of the contracts were awarded to companies 

that had previously not served that geographic area. Is that accurate? 

Ms. KING. Not quite; 44 suppliers, not 44 percent. 

Mr. PRICE. So Mr. Wilson, how, with those 44 suppliers, how do 

you determine their capacity to serve a population if they are never 

served before? 

Mr. WILSON. Well, they all need to be accredited and meet a set 

of quality standards. The quality standards include product-specific 

standards for oxygen, and all other requirements under the Medicare program. 

Mr. PRICE. But they have never served that area before. 

Mr. WILSON. Well, I don’t think that we see a lot of oxygen suppliers that have never provided oxygen before. I think what I would 

tell you is that 76 percent of all suppliers awarded a contract were 

experienced in an area providing the—providing the services for 

which they were awarded a contract. 

Mr. PRICE. Are you aware of the number that Mr. Nunes referred to in the nine CBAs, 1,409 suppliers of CPAP and respiratory devices before Round 1. Now there are 105, a 93 percent 

reduction. This isn’t a cane or a hospital bed. These are CPAP machines, respiratory devices, respiratory-assist devices, life and 

death issues. Are you aware of that number? 

Mr. WILSON. I am not aware of that specific number. I can tell 

you that there were over 950 oxygen suppliers in Miami prior to 

the competitive bidding program going into effect. We don’t think 

that all of those providers and provider numbers were appropriate. 

Mr. PRICE. What if the patients think that one of those that is 

actually the most responsive in their experience ought to be the 

one providing their care? Does that come into play? 

Mr. WILSON. Well, we want to have patient choice under the 

program, and so we award more than enough contracts. 

Mr. PRICE. Tell me how patient choice is arrived at when you 

have 1,409 suppliers before CMS intervenes, and 105 afterward. 

Tell me how that satisfies patient choice. 

Mr. WILSON. Well, for the items you mentioned, I would say 

that those are grandfathered items. They can elect to stay with 

their current supplier. 

Mr. PRICE. And as you know, the problem with that, is that as 

your program continues, the grandfathering ability to participate 

and the number of patients that they have dwindles; and therefore, 

they have much greater difficulty being able to continue their provision to the community. 

Mr. WILSON. That is true, but the individual patient can still 

elect to maintain their relationship with that supplier. 

Mr. PRICE. Are you aware of the number that was also quoted 

by Mr. Nunes, 1,433 suppliers of life-support oxygen; now there are 

211, an 85 percent decrease? 

Mr. WILSON. I am not aware of that. I am aware of some of the 

very, very high number of suppliers in certain areas of the—— 

39 

Mr. PRICE. Understanding that it is patients who are affected 

by this most directly, not CMS? 

Mr. WILSON. We hope—we hope to provide choice for patients, 

and we hope to judge the qualifications of suppliers so that they 

meet the standards that allow them to provide. 

Mr. PRICE. I would encourage you to reread Ms. King’s testimony which says that there is not the information available yet 

that allows us to draw that conclusion. Thank you, Mr. Chairman. 

Chairman HERGER. Thank you, Mr. Buchanan is recognized. 

Mr. BUCHANAN. Yeah, thank you, Mr. Chairman. And I want 

to also thank our witnesses for being here today. Mr. Wilson, back 

to your term, integrity of bidding. Is it true, that CMS has no 

mechanism to ensure that suppliers actually have the capacity to 

meet their claims in terms of their bid? For example, suppliers are 

not required to provide a letter of credit with a deposit or a surety 

bond. 

I guess I am talking about how do you determine whether a supplier is credible, or viable? 

Mr. WILSON. Well, we do have a process put in place by the 

Congress to ensure that they are viable providers that can meet 

the terms of their contract. 

Mr. BUCHANAN. What is that process? Do you have a letter of 

credit, or is there a surety bond? Some of the larger suppliers, 

what, you know, what how do you look at that, just so I know. 

Mr. WILSON. There are financial standards required under law, 

so we do look at a number of different data points, the same types 

of data elements, financial ratios that banks use to judge viability 

of either a borrower, or a business. And so we collect tax documents, balance sheets, cash flow. We get credit reports, credit 

scores, and other information that we can then use to evaluate 

whether or not the business, that the supplier is viable and able 

to meet the terms of their contract over a 3-year period. 

Mr. BUCHANAN. Also, Mr. Wilson, if a contractor doesn’t meet 

his commitments as a supplier, are there any penalties? 

Mr. WILSON. We do have an oversight process that we have 

used. We want to make sure that suppliers are following the terms 

of their contract and the regulations, and where they do not, we 

have intervened with the supplier, we have called in accreditation 

organizations to do surveys, and we have actually pulled contracts. 

Mr. BUCHANAN. Also, just at a conference last year, Mr. Blum 

stated he was concerned with overutilization. If overutilization is 

a problem, wouldn’t it be more effective to redefine eligibility criteria? In terms of overutilization, that is what we are talking about 

here. That was his quote. 

Mr. WILSON. I think that the accreditation program is a way 

that Congress put in place as a way of redefining the eligibility criteria for suppliers. I think also the competitive bidding program is 

another way where we only offer contracts to those that meet financial standards accreditation and offer the best value for Medicare and its beneficiaries. 

So I think that has had an effect on overutilization. And in reading the GAO report and looking at our own extensive monitoring, 

we have seen overutilization come down in the competitive bidding 

areas; but also, for those requirements that apply more broadly, we 

40 

have seen utilization come down in other areas of the country as 

well. 

Mr. BUCHANAN. Mr. Wilson, one other question here. It is my 

understanding that the CMS has added electrical stimulation devices, TENS, to a list of products included in the recompete. TENS 

is a noninvasive therapy used by physicians for treating chronic 

lower back pain. However, effective last month, CMS plans to roll 

back coverage for TENS devices while they study TENS, which has 

been approved by the FDA. In fact, it has been approved over the 

last 30 years. Why not continue coverage of TENS until you guys 

finalize your studies? 

Mr. WILSON. Well, I know that that is a proposed decision upon 

which we are accepting comments right now, and so it could be 

that that is given consideration by the folks in our Office of Clinical 

Standards and Quality. I am not personally working on that issue. 

What I would say about adding those devices to competitive bidding is that we are required by law to essentially phase in all items 

of DME over time, the particular order of which is that those at 

the highest cost, highest volume. So we are trying to meet the 

terms of the statute in that regard. However, I would say that we 

have been talking with our stakeholders about some of the items 

that we have brought in, received some feedback from some, and 

I expect to receive more—— 

Mr. BUCHANAN. Let me just say that there are people that 

have hundreds of employees, a lot of different firms, that are in the 

same situation. You create a lot of uncertainty when it has been 

approved by the FDA for 30 years, and then all of a sudden you 

cut it back without even completing the study. So I would just suggest that, you know, these are a lot of companies that create jobs, 

have been in business for some time, and just to create this uncertainty for them, they don’t know what exactly to do going forward, 

because these studies in terms of government could run on for 

years. So they are very concerned, a lot of them, about this. So I 

hope that you will take some of their thoughts and ideas into consideration. 

Mr. WILSON. I will carry that message back to the folks working 

on those coverage issues. 

Mr. BUCHANAN. Thank you, Mr. Chairman. I yield back. 

Chairman HERGER. Mr. Roskam is recognized. 

Mr. ROSKAM. Thank you, Mr. Chairman. Mr. Wilson and Ms. 

King, thank you for your testimony today. 

Mr. Wilson, I just wanted to focus in on a couple of the themes 

you have heard from other members and reflect on some of the concerns that I am hearing from providers in suburban Chicago that 

I represent. 

Could you walk me through the process by which you evaluate 

a meritorious bid? So, in other words, what happens if you miss it? 

What happens if you get it wrong? What happens if a bid gets 

through the process and basically poisons the well and creates 

something that in fact isn’t sustainable? What is the remedy? 

Mr. WILSON. Well, let me walk you through the process initially, and I can tell you how we address some of the concerns that 

have been raised, for example low-ball bids and maybe other 

issues. 

41 

Mr. ROSKAM. Go to low-ball bids, because that is really what 

I am hearing about. 

Mr. WILSON. The first thing we want to do is we want to qualify 

the supplier. We want to make sure they meet all of Medicare’s requirements, State requirements, everything else. We have an extensive process for doing that. So we evaluate the provider and 

then we scrutinize the bid, and the bid scrutiny starts with our 

low-ball bid process, something that we worked on with our advisory committee, industry and stakeholder advisory committee going 

back to the inception of the program. 

Essentially we screen out the lowest bids in a product category. 

We use a statistical measure to screen out the bottom ones. And 

then we ask the supplier to support that bid by providing information that shows us that they can obtain the product for less than 

what they bid and allow for the cost of the services to deliver to 

a beneficiary. 

Mr. ROSKAM. Let me just jump in. Have you had any experience where bidders have not been able to fulfill the commitment of 

their bid? 

Mr. WILSON. Well, within the bona fide bid process, we have 

thrown out bids where they could not document a price. 

Mr. ROSKAM. After you have approved it. 

Mr. WILSON. Yes. 

Mr. ROSKAM. So take the screened ones. I accept at face value 

that you have that original screening done. Somebody comes in, 

they meet that screen, and then they come through and as it turns 

out, they can’t do it. Have you had that experience? 

Mr. WILSON. We have had that experience where a supplier 

maybe did not meet the terms of their contract, where they were 

maybe unwilling to go deliver an item to a beneficiary that was a 

little bit far from their location or maybe not offering certain services that they should be offering, and we have put them on corrective action plans. This is a handful of cases. If they have not met 

the terms of that corrective action plan, we have sent in accreditation organizations to resurvey them, and if they have not come 

back into compliance, then we have pulled their contracts in a 

handful of cases. 

Mr. ROSKAM. Ms. King, you have done the evaluation. My 

memory is you have done the evaluation of those nine areas, is that 

correct? 

Ms. KING. We have. 

Mr. ROSKAM. Did GAO come across any examples of folks that 

had made a bid and not been able to follow through on the bid 

based on pricing, in other words, the so-called suicide bids where 

they come in too low? 

Ms. KING. That was not part of our analysis. 

Mr. ROSKAM. So you did not even look at that? 

Ms. KING. We did not. 

Mr. ROSKAM. Okay. Mr. Wilson, going back to you for just a 

minute, could you speak about—there is some controversy around 

this bidding process, obviously, and there is a public group of 

economists and others with some renown that have criticized the 

bidding process itself. 

42 

What is it that animates the hope in you that they are wrong, 

that all these people that have criticized, it is just like they don’t 

get it? Because it seems to me like there may be something ‘‘there’’ 

there, and you seem to have an extraordinary amount of confidence. From what does your confidence come? 

Mr. WILSON. I think there are two important goals for this program, and a bunch of others, but two important ones. One is to provide a savings for the taxpayers and beneficiaries of Medicare. The 

other is to ensure that our beneficiaries don’t have any negative effects on their health. 

Mr. ROSKAM. Agreed completely. 

Mr. WILSON. And we have seen—and that access is maintained. 

We have monitored that very, very closely and have seen that those 

goals are met. So that makes us pleased with the result that we 

have. 

Beyond that, I think that when a group of economists of the type 

that we saw writes us a letter, we take it very, very seriously. And 

we looked at the particular issues that we raised, we talked about 

them internally with our lawyers and on the policy staff with our 

leadership to see if those are things that we could do. 

I think at the end of the day, at least where we are in the program now, we had some concerns about moving forward with those. 

One was this lock-in issue, about being able to, if you bid, and you 

are locked into your contract, you can’t turn it down. I think from 

a practical matter, we don’t feel we have the authority to do that, 

but, more importantly, do we want to lock in a supplier that 

doesn’t want to participate and make them go into a beneficiary’s 

home and give them critical health care services. 

Mr. ROSKAM. My time has expired. Thank you. 

Chairman HERGER. Mr. Pascrell is recognized. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

Mr. Chairman, I think that our committee’s hearing back in 2008 

showed that competitive bidding for durable medical equipment is 

a place where we can find some agreement, believe it or not. In 

2008, when we saw the real problems with the initial incarnation 

of DME bidding, both sides came together to bring the program 

back to Earth. 

As this program is about to expand to 91 additional metropolitan 

areas, including northern New Jersey, I would say that we must 

ensure that beneficiaries continue to have access to lifesaving 

equipment at affordable prices. But it all comes back to our seniors. 

This needs to be about delivering the best care to beneficiaries for 

a lower price. 

Prior to implementation, Mr. Wilson, did CMS evaluate how the 

competitive bidding program would specifically impact patients residing in skilled nursing facilities, nursing facilities and intermediate care facilities? Secondly, what is CMS doing to ensure that 

these provider settings are not unduly impacted by the competitive 

bidding program prior to expanding the program to 91 additional 

MSAs nationwide. Could you answer those two questions, please? 

Mr. WILSON. Yes, sir. I think we did focus on the skilled nursing facility setting to see whether there were particular issues that 

we would need to address to make the program work. Really the 

only item that is a central concern for skilled nursing facilities 

43 

under the DME competitive bidding program are the enteral nutrition services. So we did look at that issue. We did provide for a special category of bidding where a skilled nursing facility could bid 

to just provide services to their own patients. They wouldn’t have 

to meet the other terms of the contract that other suppliers would. 

So we did allow this essentially exceptional process to exist for 

them, and we have been monitoring that area of the program closely to look and see whether there are concerns with respect to 

health outcomes for the patients receiving those services in skilled 

nursing facilities. We are not seeing any concerns right now and 

we haven’t heard any either through the complaint or inquiry process. But if anyone, or you, sir, are hearing those, we would be 

happy to look into them. 

Mr. PASCRELL. So you don’t see any impacts that we should be 

concerned about at this point? 

Mr. WILSON. I don’t at this time. However, we will continue to 

monitor that closely as part of the system that we have put in 

place. 

Mr. PASCRELL. Mr. Chairman, I think that we need to follow 

up, particularly in terms of the impacts of each of these procedures 

in different specialties within these nursing homes, nursing facilities, and not just the nutritional area. But the other areas you said 

do not have any concerns of yours? 

Mr. WILSON. DME, durable medical equipment as a benefit category under Medicare is not covered in skilled nursing facilities. 

The skilled nursing facilities under Medicare law are expected to 

provide those items to their in-patients. So oxygen, wheelchairs, all 

of the rest are really outside of the program we are talking about 

today. 

Mr. PASCRELL. Okay. Thank you, Mr. Chairman. 

Chairman HERGER. Thank you. Mr. Tiberi is recognized. 

Mr. TIBERI. Thank you, Mr. Chairman. 

Mr. Wilson, I realize that based on your testimony, you see few 

problems with the current competitive bidding process. In your 

opinion, why are so many suppliers dissatisfied with this current 

program? 

Mr. WILSON. You know, we do understand that this represents 

a change for suppliers. We do understand that the program represents reduced prices and less access to the Medicare market. I 

think what we have tried to do is to work with our stakeholders, 

suppliers, beneficiaries to understand how we can provide greater 

access, are there changes we can make to make the program work 

better but still achieve our goals. But we do understand that there 

are some fundamental goals in the system that don’t always maybe 

meet their goals. 

Mr. TIBERI. There are many that believe that the current program will lead to fewer suppliers sooner, maybe for sure later, 

meaning less competition and ultimately fewer to supply a growing 

number of beneficiaries which will lead to higher costs because of 

the less competition. What do you think about that? 

Mr. WILSON. You know, I think we have seen some consolidation in Medicare when you look at different benefit categories and 

different items. I think there is certainly the potential for some of 

that here. I think whether that results in a threat to access, I realVerDate Mar 15 2010 22:47 May 08, 2013 Jkt 080258 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80258.XXX 80258
44 

ly don’t see that coming. I think there is lots of access in the market now. I expect there will be access to meet the growing beneficiary population. 

Mr. TIBERI. Are either of you aware of auction expert and economist Dr. Peter Crampton’s recent criticism of the competitive bid 

process. Has that caused CMS at all to reevaluate? 

Mr. WILSON. Yes, and I think I addressed that a little bit earlier. I think we heard the issues coming from the economists that 

I think wrote this committee and wrote us. Dr. Crampton was the 

principal economist behind that letter and behind the effort to sort 

of look at these issues. 

We met with him several times to hear his concerns and his 

ideas. I think at the end of the day, we were moved away from the 

two issues that he was really concerned about. One is this lock-in 

issue that I discussed, and the other is median price. We think the 

program worked well the way we set it up and that there were 

problems making the changes that he described. 

I think one of the fundamental differences here is that we very 

much view the program as a way to—as more of a Medicare payment system that employs competition, and I think the perspective 

of Dr. Crampton and the economists’ letter is more this should be 

looked at as a commodities type auction. This is about providing 

services to patients in the home, and we have held that first. 

Mr. TIBERI. So have either of you read the industry’s market 

pricing proposal, and, if so, what do you think? 

Ms. KING. It is not something that we have evaluated. 

Mr. TIBERI. Okay. Mr. Wilson? 

Mr. WILSON. I have been provided a copy of the legislative language and I read that several months ago. 

Mr. TIBERI. What do you think? 

Mr. WILSON. We have some fairly fundamental concerns with 

the program as we read that legislative language. I think the first 

thing that I have mentioned is that when you look at some of the 

mechanics of the system that they have set up, we believe that it 

will result in almost universal failures of the auctions that they set 

up. 

Mr. TIBERI. All right. The last question is how much has it cost 

to implement the competitive bidding program, and did CMS have 

to hire additional staff? 

Mr. WILSON. Yes, sir, CMS hired a few additional staff. I can 

get you a number in terms of what we have spent so far. I am sorry 

I don’t have that today. When I did an analysis about a year ago, 

I can tell you that the administrative cost was about .04 percent 

of the savings that resulted from the program. 

Mr. TIBERI. Ms. King? 

Ms. KING. That is something that we were asked to look at as 

part of our work, and we collected some of the operational costs for 

operating the program and it was partly implemented through contractors, and costs that we were able to identify were about $19.6 

million. 

Mr. TIBERI. To implement? 

Ms. KING. Yes. 

Mr. TIBERI. $19.6 million? 

Ms. KING. Yes. 

45 

Mr. TIBERI. That is a number that will continue to grow, right, 

as it continues to be implemented, thus far? 

Mr. WILSON. It will grow as we expand the program to additional areas, yes, sir. 

Mr. TIBERI. And you will get back to me on the number of employees? 

Mr. WILSON. I can get you that. 

Mr. TIBERI. Thank you. 

Chairman HERGER. Ms. Black is recognized. 

Mrs. BLACK. Thank you, Mr. Chairman. Let me begin by thanking the chairman for allowing me to sit on the committee and hear 

the testimony and ask questions. I appreciate that. 

I want to just go down the future and look at what is going to 

happen in the future. So I wasn’t able to find in the documentation, 

I wasn’t here earlier for your oral testimony, you may have said 

this, but how long are these contracts for? 

Mr. WILSON. By law, the term is 3 years or fewer. So generally 

we have used a 3-year term. 

Mrs. BLACK. Okay. So we have 3 years worth of contracts. And 

then after that, we are going to put out bids again and we have 

already narrowed the pool of bidders. So how do we, going forward, 

I think you can show up to this point in time, by at least what I 

see here in this documentation, that there has been some savings. 

But when you narrow the pool of competitive bidders for the next 

round, how does that make sense? Now you have less people bidding. 

Mr. WILSON. Well, you may have less people bidding. You may 

have more. I don’t any think we know that. I think we still see 

many, many suppliers in the marketplace continuing to provide 

services. So I think we are already recompeting Round 1 of the program. We just began that process. 

Mrs. BLACK. How do you have more suppliers coming into a program where they can’t be reimbursed? Are you talking about subcontractors? Are they then going to be able to bid? 

Mr. WILSON. Sure. Subcontractors can bid, suppliers that are 

providing services maybe through Medicaid programs, those patients, private patients, those providing services that are not yet included in the Medicare program for competitive bidding. 

Mrs. BLACK. Ms. King, do you have any feeling on how this will 

affect future bidding when you narrow the pool? 

Ms. KING. I think that it is not something that we have examined, but we think that the program bears watching in the future 

to see what happens to the number of contract suppliers. But I 

think also, as Mr. Wilson said, it is not only the people who won 

in the first round who can bid in the second round. Other suppliers 

and subcontracting suppliers, new entrants into the market, people 

serving private beneficiaries will be able to bid in the second round. 

Mrs. BLACK. Well, I am concerned about access, and I have 

heard that. About 50 percent of my district is rural, so there are 

many of those suppliers that have gone out of business because 

they said they just, you know, are not able to compete, and I have 

heard from some of my constituents that they are not getting access the way they were previously. So I do have a concern about 

that. 

46 

But, Ms. King, let me go to you because your report looks at utilization for product categories by comparing the first 6 months of 

2010 with the first 6 months of 2011. Does GAO believe that reduced utilization in these MSAs is a sign of access of care being 

restricted? 

Ms. KING. No, we don’t necessarily draw that conclusion, because we don’t start with the premise that the level of utilization 

in 2010 was the appropriate level of utilization. And given the fact 

that there aren’t any demonstrated access problems in the first 

year, you know, we don’t think that it necessarily means that beneficiaries did not have access to needed equipment. 

Mrs. BLACK. Also then back to you again, Ms. King, the GAO 

documents the numbers of contract suppliers that have not had 

previous experience with a product category or geographic area. 

Are there contract suppliers more likely to subcontract? 

Ms. KING. I don’t actually know the answer about whether they 

are more likely to subcontract or not, but 31 percent of contracting 

suppliers had subcontracts as of the middle of the year last year, 

so it is a pretty common experience for contractors to have subs. 

Mrs. BLACK. I am sorry, what was the percentage? 

Ms. KING. Thirty-one percent. 

Mrs. BLACK. Okay, 31 percent. So there is no evidence right 

now that these suppliers are unable to fulfill their contractual 

agreements from what you have seen? 

Ms. KING. No. 

Mrs. BLACK. Thank you, Mr. Chairman. I yield back my time. 

Chairman HERGER. Thank you. Mr. Gerlach is recognized. 

Mr. GERLACH. Thank you, Mr. Chairman. I am sorry, I was out 

for a constituent meeting there. I am sorry if I ask a question that 

might have already been posed. 

But I was curious about, Mr. Wilson, the mail order diabetic supplies issue. Is that category of product, is that just as it says, mail 

order diabetic supplies versus a local pharmacist that might have 

a practice of doing home delivery of diabetic supplies, either to an 

individual senior’s home or to a long-term care facility? Is the mail 

order diabetic supply that you are part of Round 1 that you were 

bidding and then providing reimbursement for just mail order? 

Mr. WILSON. In the Round 1 program, that is correct, sir. It was 

just mail order basically through a commercial or government mail 

carrier, and home delivery and walk-in retail could be treated separately. For the national mail order program that we are rolling out 

now, our definition of what constitutes mail order will change and 

essentially we will have deliveries to home through the mail or 

home delivery through a van, all of that will be subsumed in the 

national mail order program, although walk-in retail, if someone 

wants to go in, talk to their pharmacist, get their drugs from the 

same place they get their diabetic test strips, they will still be able 

to do that. 

Mr. GERLACH. But how will the independent community pharmacist be able to continue to provide that home delivery to a senior 

that has a very great difficulty getting out of her home to get to 

the local pharmacy, how will you properly reimburse the local 

pharmacist for that delivery to make sure that kind of patient access and patient care is maintained? 

47 

Mr. WILSON. Well, I think we will be able—— 

Mr. GERLACH. Will you provide a separate home delivery reimbursement to the pharmacist for doing the home delivery? 

Mr. WILSON. Essentially if it is a home delivery, it would have 

to be accomplished through the national mail order program. 

Mr. GERLACH. Okay. But that is not answering my question. 

My question is, how will you reimburse the pharmacist so the 

pharmacist can still get out into the home of that patient, see that 

patient, talk to that patient, answer questions for that patient, 

without making that patient, who has a very difficult time physically from leaving his or her home and driving X number of miles 

to the pharmacist, who is not necessarily going to get reimbursed 

anymore for that home delivery under this new model? 

Mr. WILSON. I don’t know that our model accommodates that 

particular situation. 

Mr. GERLACH. So is that not then the patient access issue that 

might have been raised in Ms. King’s statement saying that the accessibility issue is not fully vetted here in your review of this situation, and you are not sure of what the impacts might be on patient 

accessibility and patient care? 

Mr. WILSON. What we are talking about in the national mail 

order is just replacement test strips. So they have their monitor. 

They can—if they need replacement test strips, that is something 

that can be sent through the mail. It is a very commodity type of 

product. That supplier, mail order, that provides it, is required to 

still be able to educate the patient, answer their questions and provide the services that they would normally get. 

Mr. GERLACH. It is my understanding, I have a local pharmacist who supplies supplies to a local long-term care facility, and 

he delivers a certain kind of supply product that they have requested, a certain kind of testing equipment, testing product. 

Under this new mail order diabetic supply program that you are 

going to have, and if it goes to a lower bidder that may use a different kind of testing product than the one that the people at this 

particular facility want to use, how is that going to be accommodated under that new program? Will they have to accept a testing 

product that they think is inferior compared to the one that this 

pharmacist now delivers to that long-term care facility? Will they 

have to just basically bite the bullet, I guess, and take the more 

inferior product, because that is the one that was awarded through 

this program? 

Mr. WILSON. I would have to look into exactly how that model 

would work at a nursing home, but I believe a caregiver at the 

nursing home could pick up the test strips and bring them back. 

I will look into that question. 

Mr. GERLACH. Can I write to you maybe and give a little more 

facts and circumstances around that question so you have an opportunity to look at it a little more fully and then can get back to 

me on that? 

Mr. WILSON. I would absolutely appreciate it because I want to 

make sure there are no concerns here, and if there are some, then 

I would like an opportunity to address them. 

Mr. GERLACH. Thank you. I appreciate it very much. Thanks. 

48 

Chairman HERGER. Thank you. I want to thank Mr. Wilson and 

Ms. King for testifying today. Your insights and perspectives are 

extremely helpful. 

I would now like to invite our second panel of witnesses to step 

forward so we may hear the supplier and beneficiary perspective on 

this important issue. 

On our second panel of the subcommittee, we will hear from representatives of the stakeholders directly affected by the competitive 

bidding program. Two of the witnesses are here on behalf of supplier organizations. 

Joel Marx is the chair of the Board of the American Association 

of Homecare, an organization that represents a large number of 

DME suppliers from around the country. 

Wayne Sale is the chair of the Board of the National Association 

of Independent Medical Equipment Suppliers, which is a national 

organization that focuses on small mom-and-pop suppliers. We look 

forward to hearing not only the concerns that these organizations 

have with the current program, but also what they see as an alternative. 

We will also hear from a small business owner, Dino Martis, who 

is President of Ablecare Medical, Incorporated. Mr. Martis is a 

Round 1 participant who believes that the current competitive bidding program functions relatively well. 

Our final witness is Alfred Chiplin, who is the senior policy attorney at the Center for Medicare Advocacy. We look forward to 

hearing Mr. Chiplin share the beneficiary perspective. Mr. Marx, 

you are now recognized for 5 minutes. 

STATEMENT OF JOEL D. MARX, CHAIR, BOARD OF DIRECTORS, 

AMERICAN ASSOCIATION FOR HOMECARE 

Mr. MARX. Good morning, Chairman Herger and Members of 

the Subcommittee. My name is Joel Marx. I have submitted written testimony which I hope will be accepted. 

I operate a medical service company which is based in Cleveland, 

Ohio. We provide virtually all types of home medical equipment 

and services, including oxygen therapy, wheelchairs and hospital 

beds. My company was founded by my parents in 1950, and we 

have grown over the years and are now somewhat larger than the 

typical provider in our sector. We serve more than 25,000 patients 

annually through 14 locations in Ohio, Pennsylvania, upstate New 

York and West Virginia. My company was awarded several contracts under the bidding program. 

I am also testifying today as the proud chairman of the board of 

the American Association for Homecare, which is the primary trade 

association for providers of home medical equipment. The vast majority of the Association’s members are small family operations 

that, like my company, have served seniors and people with disabilities in their communities for many years. 

Let me cut straight to the heart of the issue. We do not oppose 

a properly designed competitive bidding program for home medical 

equipment in Medicare. Let me repeat that. We do not oppose a 

properly designed competitive bid program for home medical equipment. In fact, we favor and strongly endorse a state-of-the-art auction system that would provide true market-based pricing, save exVerDate Mar 15 2010 22:47 May 08, 2013 Jkt 080258 PO 00000 Frm 00052 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80258.XXX 80258
49 

actly the same amount of Medicare and beneficiary dollars that the 

current bidding system is projected to save, and corrects the fundamental flaws in the current system. 

The current system limits Medicare beneficiaries’ access to care, 

it limits choices for consumers, and it will eliminate the Nation’s 

existing network of home care providers, which will ultimately result in hardship and added costs for patients. That would be extremely shortsighted since home care is cost-effective and preferred 

by patients. 

The existing Medicare bidding program designed by CMS distorts 

the marketplace and the intent of Congress. It radically reduces 

the number of providers, that is, competitors, allowed to serve 

Medicare patients, thereby creating oligopolies in the marketplace. 

It is forcing home care providers to reduce supporting services in 

order to accept manipulated reimbursement rates obtained through 

a flawed process. These sufficiencies have been highlighted numerous times before Congress. 

More than 240 economists and auction experts, including several 

Nobel Laureates, have told CMS that significant modifications are 

needed to fix the current bidding program. More than 30 patient 

advocacy groups believe that the bidding program as structured 

today is flawed and needs to be changed. I describe the flaws in 

the current bidding program in detail in my written testimony, but 

let me mention a few of them briefly. 

The bids are not binding. This is unheard of in any auction system. The pricing calculation uses a median bid rather than a clearing price, and, as CMS has testified, half the bidders bid their best 

price and ended up with a price lower than that. And there has 

been a troubling lack of transparency at CMS. 

To fix the fundamental flaws in the bidding program, an alternative market-based pricing program for home medical equipment 

has been proposed by market auction experts and providers. That 

proposal, known as the Market Pricing Program, or MPP, would require changes to ensure a sustainable program. These changes are 

consistent with the original intent of Congress and save the same 

dollars originally expected. 

Let me just mention a few key features of the program. It is designed to be budget neutral, and it is now before CBO for scoring. 

The bids are binding. You stand behind your bid. There are bid 

bonds, performance guarantees. And only serious bidders will participate and no one will game the system. 

The bid price is based on the clearing price, not the median price, 

which conforms with standard auction design. Reimbursement 

rates in areas would be adjusted based on the auctions conducted 

in comparable geographic areas. Rural areas that are currently exempted would remain exempt. 

And finally, bid areas would be smaller than metropolitan statistical areas and more homogeneous. Current bidding areas can encompass up to three States with differing laws, regulations and 

costs. This ensures fairness to smaller community providers. 

We strongly urge Congress to pass legislation that would change 

the current bidding system to a sustainable market pricing program at the earliest legislative opportunity. This will not result in 

50 

higher costs to Medicare beneficiaries and will fix a flawed program. 

We hope that Congress will take the advice of auction experts, 

listen to patient advocacy groups and work with the affected stakeholders to create a sustainable bidding system that will serve as 

a model for other parts of Medicare and not serve as a cautionary 

tale. 

I thank you and would be pleased to answer any questions the 

committee may have. 

Chairman HERGER. Thank you. 

[The prepared statement of Mr. Marx follows:] 

51 


Insert offset folio 21 here 80258.021

***TESTIMONY IS EMBARGOED UNTIL 9:00 AM WEDNESDAY 

MAY 9, 2012*** 

Testimony of Joel D. Marx 

Chairman, Medical Service Company, Cleveland, OH 

On behalf of the American Association for Homecare 

Before the Subcommittee on Health 

House Committee on Ways and Means 

on 

Medicare's Durable Medical Equipment Competitive Bidding Program 

May 9, 2012 

My name is Joel Marx and I own Medical Service Company, a regional home medical equipment (HME) 

and respiratory care provider based in Cleveland, Ohio. Medical Service Company is a full service home 

medical equipment provider furnishing virtually all necessary home and respiratory medical equipment 

and related services to individuals through 14 locations in Ohio, Pennsylvania, New York and West 

Virginia. We provide home medical equipment and related services to approximately 25,000 patients 

annually and employ 200 associates. 

Medical Service Company was founded in 1950 by my parents with one location and we have grown 

since then through a combination of excellent patient care and the acquisition of smaller companies 

that chose to sell their practices in the past few years in the face of numerous challenges. We hold all 

required licenses, are accredited by the Joint Commission and operate an organization-wide compliance 

program designed to make sure that we adhere to the increasingly complicated list of laws, rules, 

regulations and policies concerning the provision of HME to Medicare beneficiaries. 

I would like to thank Chairman Herger, Ranking Member Stark and members of the House Ways and 

Means Subcommittee on Health for holding this hearing on the Medicare competitive bidding program 

for durable medical equipment, also known as DME or HME, for short. I am pleased to share my 

experience with the initial round of the Medicare competitive bidding program and make 

recommendations on how Congress can create a state-of-the art auction program that achieves market 
52 


Insert offset folio 22 here 80258.022

pricing, is sustainable over the long term, will not reduce quality and access to home medical equipment 

and can be used as a model for other sectors of healthcare. 

As a proud member of the American Association for Homecare (AAHomecare), I also serve as volunteer 

Chairman of the Board of Directors. AAHomecare is the national trade association for home medical 

equipment service providers, manufacturers and other stakeholders in the homecare community. 

AAHomecare members serve the medical needs of Americans who require home oxygen therapy, 

mobility assistive technologies (standard and complex wheelchairs), hospital beds, diabetic testing and 

medical supplies, inhalation drug therapy, home infusion and other home medical products, services 

and supplies. 

Most of these services and products are already included or will be included in the Medicare 

competitive bidding program, some without any precedent for doing so. We believe that home medical 

equipment is a vital component of the continuum of care and is a fundamental component to 

controlling health care costs by keeping beneficiaries in the most cost-effective and patient preferred 

setting-their homes-rather than providing acute care in emergency departments and extended care 

institutional settings. We have grave concerns about the way in which the current bidding program is 

being implemented and operated. 

My goal before this Subcommittee is not to argue against competition. Both the Association and I 

support healthy and fair competition. HME providers compete every day to provide quality health care 

items and services to Medicare beneficiaries and embrace the opportunity to continue to compete to 

serve our patients. My testimony will highlight the flaws of the current competitive bidding program 

and recommend a sound, budget neutral alternative-the Market Pricing Program for Home Medical 

Equipment-that can be implemented on the same timeline as the current bidding program. 

Today-and even before competitive bidding-we are all reimbursed the exact same amount, and 

therefore we compete on the basis of the service and quality we offer. Ironically, the same is true in a 

competitive bidding market, where reimbursement is the same for all contracted providers. 

However, we are opposed to the competitive bidding scheme as developed by the Centers for Medicare 

and Medicaid Services (CMS). The CMS program distorts the marketplace and, by ignoring the pricing 

methodology used in the original demonstration projects in Florida and Texas and creating restrictive 

governing policies of the program, goes against the original intent of Congress when it voted to 

implement the program in 2003. It radically reduces the number of providers (competitors), thereby 

creating oligopolies in the marketplace at a time when our senior population is growing rapidly. It not 

only allows bidders to "game" the system's pricing rules but it actually encourages such manipulation 

during the bidding process. And it forces providers to reduce supportive services in order to meet 

drastically lower reimbursement rates that were obtained through a fundamentally flawed process. 

These deficiencies, which I experienced first-hand as both a contract winner and loser in this program, 

have been highlighted numerous times before the Congress. Meanwhile, CMS staff touts high cost 

savings and low negative beneficiary impact. However, the program is only running in nine markets, or 

six percent of the country. Providers, in the first year of a three-year fixed pricing contract, have been 
53 


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able to offset excessive and arbitrary price reductions in the bid areas with revenue from non-bid areas. 

This will prove to be impossible in Round 2 when an additional 91 markets are involved in 2013 and 

beyond that when CMS applies bidding pricing in non-bid areas, including rural markets like Montana, 

Iowa, Kansas and even upstate rural New York, where I operate in towns that are as small as those in the 

Midwest. 

AAHomecare does not stand alone in raising concerns with the current program. In fact, well over 200 

economists, computer scientists, statisticians and auction experts from around the world have advised 

CMS that significant modifications need to be made to the bidding program to make it sustainable over 

time. Moreover, more than 30 consumer and beneficiary groups believe that the bidding program is 

flawed and needs to be changed. 

AAHomecare has worked with auction experts to create an alternative to the current model that would 

give CMS a sustainable market-based pricing program for home medical equipment. This alternative 

preserves the concept of competition and ensures future beneficiary access. 

The Association has a track record for collaborating with Congress to raise the quality standards for the 

HME industry and reduce truly improper payments. We have supported mandatory accreditation for 

providers in our industry, and we have a zero tolerance policy for fraud and abuse as illustrated byour 

voluntary 13-point plan and formal Code of Ethics. We have supported numerous Congressional antifraud efforts, including Congressman Roskam's Medicare and Medicaid Fighting Fraud and Abuse to 

Save Taxpayers' Dollars Act (FAST Act, HR 3399). To help Medicare and its contractors increase payment 

accuracy, we have increased our educational efforts to improve the industry's compliance with 

extremely complicated Medicare coverage requirements, which change frequently. 

It is with this background that AAHomecare seeks again to be a partner with Congress and CMS to 

develop a market-based pricing program that is sustainable over the long term and which may serve as a 

model for other health care sectors. As Congress looks for ways to control health care spending through 

new and innovative delivery and payment models, I believe we have an obligation to listen to the 

auction experts who understand auctions best and thereby "get it right." 

If we do not address the fundamental flaws in this program now, the hidden cost to beneficiaries will be 

exorbitant and translate into extended hospital stays, an inability to obtain services when needed in the 

home and unnecessary trips to the emergency department. The time to fix this program is now. 

Cost Effectiveness of Homecare 

HME offers an efficient and cost-effective way to allow patients to receive care they need at home. The 

need for HME and HME providers will continue to grow to serve the ever-increasing number of older 

Americans. Homecare represents a small but cost-effective portion of the more than $2.3 trillion 

national health expenditures (NHE) in the United States, and approximately 15.5 million Medicare 

beneficiaries require some type of home medical equipment annually, from rather simple bedside 

commodes for people who have hip replacements to high-tech ventilators for quadriplegics. 

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Yet, not all products are created equal: some require licensed or credentialed clinicians to be on staff or 

cost $15,000 just to procure. And while Congress and the Office of Inspector General have shed light on 

products they believe to be overpaid, many others are unprofitable for us to provide even before the 

bidding program. The high cost of fuel, labor, rent and utilities and regulatory compliance associated 

with billing and collections, HIPAA privacy, identity theft, IT security, Sarbanes-Oxley, waste disposal, 

beneficiary and employee safety, OSHA, DOT and FDA regulations continues to escalate year after year. 

Anyone who has ever required HME or had a relative who needed it can attest that our service includes 

much more than just the equipment. 

The more that people receive quality equipment and services at home, the less that is spent on hospital 

stays, emergency room visits, and nursing home admissions. Home medical equipment is an important 

part of the solution to the nation's healthcare funding crisis. The facts bear this statement out as private 

health care plans have contracted for our services for decades and reaped the cost-savings along the 

way. Even the current Administration is trying to develop programs to manage chronically ill Medicare 

patients in the home through new demonstration projects and the Innovation Center. 

One key fact that is sometimes lost in this debate is that home medical equipment represents less than 

two percent of annual Medicare spending. So while this program appears to reduce home medical 

equipment expenditures when simply comparing past and current Medicare Part B expenditures, CMS 

has not examined the cost shifting that occurs as a result of the program as more beneficiaries will be 

forced to receive care in hospitals, nursing homes, and emergency treatments. CMS is also not required 

to report the total cost of administering the program and yet they have hired hundreds of people and 

are spending tens of millions of dollars to implement Round 1, with millions more planned for future 

Rounds. Our alternative auction program ensures that competitive market pricing is still derived while 

promoting increased access, transparency, fairness and confidence in the program. 

Flaws in the Competitive Bidding Program 

Experts in the design and operation of market pricing programs have explained in great detail why the 

CMS bidding program will fail. 

CMS is the only group predicting that the program is sustainable over the longer term and operating 

flawlessly. They are basing this on a short-lived, small sample in nine markets-a program that even 

CMS officials call a "pilot." Yet, Round 2, with 91 markets, is more than 10 times as complex as Round 1. 

AAHomecare is on the front lines and can see fundamental flaws that need to be addressed 

immediately. And 244 experts from across the world have weighed in identifying similar problems and 

have told CMS, Congress and the Administration that the program will fail. These are our main 

concerns: 

1. Providers' Bids Are Not Binding Commitments 

In Medicare's bidding program, bidders are not bound by the prices they bid. Any HME provider can 

decline to accept an offered contract from CMS after the prices, called Single Payment Amounts, are 

announced by the government. And because of CMS' decision about pricing, 50 percent of all bidders' 

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prices will be lower than their best submitted bid. Medicare's rule undermines the credibility and 

integrity of bids, and, without binding commitments, encourages low-ball bids from providers. 

To add insult to injury, if HME providers turn down contracts, their bid prices are still included in 

Medicare's calculation of bid amounts, and other bidders invited to participate are forced to choose 

between accepting the low price which they did not influence or losing their business altogether by not 

participating. 

CMS states that 92 percent of contract awardees accepted their contract offer. But to decline a contract 

would immediately imperil a provider's practice because Medicare typically represents 40-60 percent of 

an HME provider's revenue. Now that we are in year two of the Round 1 program, we are seeing both 

contracted and non-contracted providers exit the market, change their business model, close down or 

sell. What has propped this program up is its limited scope-it is being run in only 9 areas across the 

country. HME providers have been able to subsidize their competitive bidding markets with revenue 

from non-competitive bid areas. Yet, this cross-subsidization will evaporate as: 1) competitive bidding 

is expanded to 91 additional areas in 2013, 2) private payors adopt competitive bid rates, and 3) CMS 

applies bid pricing to non-bid areas, including all rural areas in the U.S., as early as 2015. 

2. The Pricing Calculation Is Flawed 

Rather than paying contracted providers the clearing price (the last-accepted bid) which is the standard 

in bidding and reverse auction programs, Medicare's bidding program establishes prices at the 

unweighted median among the winning bids, resulting in 50 percent of the winning bidders being 

offered a contract price less than their bids. We know of no other auction or bidding program that has 

such a perverse rule where bidders are offered contracts at less than the amount they submitted during 

the bidding process. 

3. Composite Bids Are Distorted 

A composite bid is an average of a bidder's bids across many products weighted by the government's 

estimated demand. The composite bid methodology as designed by CMS provides strong incentives to 

distort bids away from market prices. Only heavily weighted (based on utilization) products within a 

category will impact the composite bid. Providers can "game" the system by bidding very little off the 

current Medicare allowable for certain products with little weight while bidding more aggressively on 

other items with a higher weight. This creates a program where individual products are not closely 

related to costs and providers participating in the program can "game" the system in order to 

manipulate the single payment amount. In addition, Medicare set a maximum for all items bid-again 

distorting the bidding process by not permitting bidders to fairly bid based on their true, fully-loaded 

costs. 

4. Lack of Transparency 

CMS has shared virtually no data with the public on the selection of contracted providers, calculation of 

historical demand (capacity), calculation of the single payment amount for products and services 

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covered by bidding and outcomes-related findings to evaluate the program. Instead, eMS has made 

generalized statements that point to the so-called success of the program. Even the Agency's first year 

update after the implementation of the program is based on generalizations with little data to back up 

its findings. 

Moreover, the savings numbers recently quoted by eMS appear to "double-count" savings resulting 

from anti-fraud and abuse initiatives that were implemented concomitantly with this program. For 

example, new provider screening tools, real-time claims monitoring and an avalanche of incremental 

pre- and post-payment audit activity have been implemented since the program began in 2011. It is 

surprising and shocking to us that Medicare has elected to audit contract winners in Round One markets 

so heavily when, in fact, eMS has stated that the program should, on a stand-alone basis, root out fraud 

and abuse. If this is the case, why deluge contract winners with thousands of audits when those 

precious resources might be applied to other high-risk healthcare segments and markets? 

Under the current program, pricing can be easily manipulated through subjective adjustments to the 

capacity that a provider lists on its bid forms. During the announcement of the Round One Rebid pricing 

a eMS official stated the following about contract winners' financial stability. During a press calion July 

2,2010, the eMS official stated-

"We do screen bids that are on the low side (to) determine whether or not the provider can 

actually provide the service or the item at that price," the eMS official said. "That includes 

looking at invoices ... and the provider's financials, including their liquidity and credit, and their 

ability to expand into a market area. Where we do not feel comfortable, we may not count their 

capacity at all, or to the degree that they wish us to, in determining the number of winning 

providers. In fact, we did that 30% of the time. So we have been very careful in selecting 

providers and in scrutinizing these bids, in terms of prices and sustainability. I think we're 

comfortable, when we look at the prices that we see." 

This fact calls into question the validity of the payment rates established by the program and the 

supposed objective process that eMS established for the program and published in its original Final Rule. 

The above public comment confirms that eMS may adjust a provider's stated capacity if it questions the 

provider's bid because it was considered low. By adjusting capacity, eMS manipulated the single 

payment amount and subjectively decided how many winners were needed. This is completely counter 

to the more quantifiable rules eMS published initially for the program. The bidding program then just 

becomes another way to apply administered pricing rather than letting the market set reimbursement 

rates. The subjectivity is playing with the very viability of numerous family-owned businesses across the 

country. 

S. The Bidding Program Is Designed to Be "Gamed" 

Due to the methodology concerning how payment rates are calculated, the impact of non-binding bids 

and the ability to manipulate the capacity that a provider self reports, the program is built to be 

"gamed." eMS even appears to acknowledge this fact in its first annual report on the bidding program 

when they state that, "we are strengthening our bona fide bid review process ... to check that very low 

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bids are sustainable by checking more of those bids." Questioning the sustainability of very low bids 

implicitly brings into question a program where the single payment amount offered by CMS is, by 

definition, lower than 50 percent of the accepted bids presented. If the bid amounts represent the 

lowest pricing while maintaining quality service, how can a program that reduces the pricing additionally 

be sustainable over the long term? 

Under a "win at any cost" program, providers would do well to submit an unreasonably low bid-"a 

suicide bid"- in order to win a contract. These providers then would be assured of a contract but they 

must hope that other providers bid more rationally so that the single payment amount would be higher 

than their submitted bid. From here, providers facing low reimbursement rates could agree to furnish 

competitively bid items but subsidize their revenue from non-Medicare or non-competitive bidding 

patients. CMS has never shared with the public how many of the 356 original contract providers have 

sold their businesses, gone out of business or simply did not bill Medicare for competitively bid items. 

This is a critical question for Congress to consider, because there were 6,922 unique HME providers 

submitting claims/providing services in 2010 in the nine bidding areas. 

6. CMS Monitoring Is Weak and Non-Transparent 

When the bidding program was first implemented, CMS required HME providers to provide the exact 

brand and model of equipment they were providing to Medicare beneficiaries. CMS also stated that it 

would begin to measure the patient satisfaction of beneficiaries who received HME services. This 

equipment report was intended to allow the Agency to determine if contracted providers began to 

substitute lower quality equipment under the program than was previously furnished to beneficiaries. 

However, CMS modified this requirement after one quarter into the pilot so there is no way to monitor 

the quality of equipment Medicare beneficiaries are receiving. And to date, we have seen no 

beneficiary satisfaction data whatsoever, despite the program's 16-month implementation. 

7. No Due Process 

Currently, there are no due process protections or appeals processes in place for providers to appeal 

CMS' methodology for establishing payment rates, making contract awards, designating bidding areas, 

deciding on the phased-in implementation approach, selecting items and services or the bidding 

structure and number of contractors. Numerous companies were initially qualified due to a technical 

error on CMS' fault, and yet it took over 120 days to resolve the issue-a date past the implementation 

date of 1/1/11. 

Fixing the Bidding Program 

Congress's objective in requiring Medicare to use a competitive bidding model to establish payment 

amounts for HME was to reduce Medicare expenditures and ensure that beneficiaries have access to 

quality items and service. This objective cannot be met because CMS has designed a program that does 

not hold bidders accountable, does not ensure that bidders are qualified or capable to provide the 

products in the bid markets, and, due to the arbitrary nature of the capacity analysis, has produced bid 

rates that are financially unsustainable. 

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As I mentioned previously, auction experts and economists have warned that the Medicare bidding 

program is unsustainable in its current form. It will create significant barriers to access and will destroy 

the HME infrastructure that seniors and people with disabilities depend on as the program expands and 

providers cannot offset bid pricing with non-bid revenue. 

Unfortunately, the recommendations of auction experts, beneficiary and consumer groups, the 

Medicare Program Advisory and Oversight Committee (PAOC)-the panel created by Congress to advise 

CMS on the design and implementation of the program-and AAHomecare and other interested groups 

have not been acted upon. We now look to Congress to fix systemic problems so that Congressional 

intent is followed. 

To fix the fundamental flaws in the bidding program, an alternative market-based pricing program for 

HME has been developed, which has been specifically tailored to the HME marketplace. The proposal, 

known as the Market Pricing Program (MPP), would require changes to ensure a financially sustainable 

program. The MPP uses an electronic state-of-the-art reverse auction to establish market-based 

reimbursement rates for HME around the country. These changes are consistent with Congress' original 

intent: to create a program that is based on competition while maintaining beneficiary access to quality 

items and services. The MPP would be implemented on the same timetable and apply to the same DME 

product categories as the current program, and will reduce government spending for DME items 

nationwide. It is intended to be budget-neutral. 

The following are key features of the MPP: 

1. Timeline 

The MPP would be effective on July 1, 2013. The design of the program would be developed through a 

collaborative, transparent process, involving all stakeholders (HME providers, CMS, beneficiaries), with 

the guidance of an auction expert and the oversight of the market monitor, to establish market rules, to 

set market-based and sustainable reimbursement rates, and protect beneficiary access to, and choice, 

of quality HME products, services, and supplies. The use of an auction expert to help the Secretary of 

the Department of Health and Human Services design the auction program and a market monitor to 

help the Secretary ensure that the program is operating effectively and efficiently are common among 

public auctions. 

2. Auction Operation 

The M PP would auction a representative 20 percent of the market (counties eligible for bidding) with 

two-year contracts. The remaining market areas eligible for the program would be served by any eligible 

providers furnishing HME at the reimbursement rates determined by the auction. The reimbursement 

rate established through the auction would apply to similar geographic areas (i.e., urban to urban, 

suburban to suburban) and be adjusted for regional characteristics. 

Each year thereafter, the MPP would auction a representative 10 percent of the market (counties 

eligible for bidding) with two-year contracts starting on July 1 of the year of auction. 

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An additional 10 percent of eligible market areas would be subject to auction each subsequent year until 

market pricing programs are occurring in 100 percent of eligible market areas throughout the United 

States. The process would continue and the Secretary, in consultation with the auction expert, would 

continue to select additional eligible market areas on an ongoing and rotating basis. This design would 

create the most accurate competitive market payment methodology in the Medicare program. 

3. Market Areas 

Market Areas established by the Secretary would be composed of a county, an aggregation of counties 

or parts of counties that together form an economically interdependent area. Large counties would be 

permitted to be subdivided. The current program's geographic areas are too large to be effective 

because not all HME providers are able to service an entire area. Smaller contract winners need to 

subcontract to serve large MSAs and lose quality control since another provider is furnishing the 

prescribed equipment and related services. 

4. Rural Exemption 

The same areas that are exempted under the competitive bidding program would be exempted by the 

MPP. 

5. Transparent Process Required 

In establishing the MPP, the Secretary would utilize an open and transparent process that includes all 

relevant stakeholders in the market. Provider and beneficiary education would be required in 

consultation with the auction expert and market monitor. 

6. Market Design 

The Secretary would conduct an auction beginning no later than March 2013 and ensure that the 

market has these basic features: 

In each market area, two product categories would be auctioned, producing the clearing price and 

limiting supplying rights to bid winners. The "lead product" would be submitted for bid in the auction. 

Bidders must provide a cash deposit or irrevocable letter of credit (LaC) (from a qualified institution) of 

10 percent of expected annual volume as a bid guarantee and winning bidders must provide same as a 

performance guarantee. Winning bidders must accept a contract (binding bid). 

For each product category, a "lead product" is determined by the auction expert on the basis of cost and 

utilization. Only the "lead product" is bid. The "lead product" sets the pricing for the category and the 

pricing of all other products in the product category is set relative to the "lead product". The "lead 

product" is the baseline pricing for the category, and establishes the clearing price. The auction expert 

will aggregate the various price weighting percentages reported for each product to adopt a single 

capacity-weighted average. This relative price index will be publicly disclosed in advance of the auction 

so that each bidder will know how each product price will be determined in the auction. 

9 
60 

f 

Chairman HERGER. Mr. Sale, you are recognized for 5 minutes. 


Insert offset folio 30 here 80258.030
61 

STATEMENT OF H. WAYNE SALE, CHAIR, BOARD OF DIRECTORS, NATIONAL ASSOCIATION OF INDEPENDENT MEDICAL 

EQUIPMENT SUPPLIERS 

Mr. SALE. Good morning and Members of the Committee. 

Chairman HERGER. If you could hit the button for your mic, 

please. 

Mr. SALE. I am sorry. Thank you, sir. 

Good morning Chairman Herger and members of committee. 

Thank you for calling this hearing. I appreciate the invitation and 

the opportunity. 

My name is Wayne Sale. I am the chairman of the National Association of Independent Medical Equipment Suppliers, NAIMES. I 

have been asked to present my observations of the CMS version of 

Congress’ 2003 mandated competitive bidding program and forecast 

its effect when expanded into 91 additional CBAs. 

For many years, I have enjoyed going to auctions and bidding on 

everything from antiques to cars to artwork. At every one, I registered and was required to stand behind my bid. If I bid on it and 

I was the last guy to raise my hand, I bought it. If I scratched my 

head or waved my hand to a friend, I may buy it. So that is how 

auctions work. The high bidder wins when the buyer is bidding and 

the low bidder wins when the seller is bidding. Your bid is your 

word and your word is your bond. How else can it work? 

Well, CMS has developed a bidding process that is different. The 

bid that the sellers of medical equipment submit don’t count. They 

go into a pile and are sorted from the lowest to the highest and 

CMS picks the one in the middle and assigns it to the product that 

they are bidding on. If you bid low, below the median price, they 

may ask you if you want to sell to Medicare, and if you decline, 

then they go to the next bidder and they ask them. Does that 

sound like an auction you have ever heard of? 

Well, that is the competitive bidding process that CMS has created in response to your 2003 directive. And a taxpayer may ask, 

did you get what you asked for? I am not an auction expert, but 

this is not an auction at all. There are no market forces at play 

here. There is no competition in the pricing mechanism when 

prices are chosen behind closed doors and then released in a memo 

that says these are the prices, take them or leave them. CMS has 

taken years of time and $20 million to develop a competitive bidding system that contains everything but competition. 

Oh, those auctions I enjoy going to? I can see who I am bidding 

against and I know what the bid is and I know what I must do 

to win. In the CMS bidding process, I have no idea who is bidding 

or what they are bidding or how to win a product category. All of 

the bids are submitted through a closed-door process. It takes 

months and months to hear from them, and, if you win, you don’t 

know how, and if you lose, you don’t know why. And it is legal. 

This federally-funded and congressionally-mandated bidding process is contrived entirely in secrecy and then announced and implemented as if it were the result of a fair competitive price process. 

That is the truth, and that is the problem. You are one year into 

a competitive bidding process that has resulted in administratively 

assigned prices with zero transparency. There is more to their design that is built to fail, but I only have a minute and a half left, 

62 

so let me get to the remedy that we believe will satisfy Congress’ 

mandate. 

Today my colleagues and I bring a fix for your consideration. It 

is called real competition. A real competitive bidding program will 

work better than an old administrative pricing program. The process we are suggesting is that you replace CMS’s bidding scheme 

with one we call a market pricing plan. It is more like a real auction, where bidders are committed to their bids and the veil of secrecy is eliminated and transparency enters the process to keep it 

honest. The result will be good prices that will bring more beneficiary access, better beneficiary service, and progressive products 

and ideas. And a good healthy competition will bring Medicare 

good prices. 

An added benefit to the MPP is its sustainability. It is a program 

that will last through the challenging times that we have ahead as 

78 million baby-boomers march into the Medicare system over the 

next 30 years. The effects of the implementation of Round 1 competitive bid have not been pretty, nor have they been fully recognized at this point. The reduction of the number of suppliers in 

each CBA has made equipment and supplies difficult for Medicare 

beneficiaries to acquire. 

My written testimony will tell in greater detail the specifics, but 

for now, I ask the chairman that I be allowed to submit a CD for 

the record that contains the testimony of patients who have summoned the will to speak to you whenever you have a chance to listen. Their experiences with this pseudo-competitive bidding will 

say more than I ever could, and the complaints will grow if this 

version of competitive bidding is expanded into 91 additional CBAs. 

Chairman HERGER. Without objection. 

Mr. SALE. Thank you very much, sir. This small industry is only 

1.4 percent of the Medicare spending, and it has a lot of potential 

as a community-based supplier to meet patients’ needs. Avoiding 

expensive hospitalizations is our specialty. Keeping people at home 

keeps costs low. Don’t overlook our value by focusing just on our 

cost. We can help bring savings to this table and this country. I 

guarantee it. 

Thank you. 

Chairman HERGER. Thank you. 

[The prepared statement of Mr. Sale follows:] 

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***TESTIMONY IS EMBARGOED UNTIL 9:00 AM 

WEDNESDAY MAY 9, 2012*** 

Testimony of H. Wayne Sale, Chairman 

National Associational of Independent Medical Equipment Suppliers 

On behalf of its Members 

Before the 

House Ways & Means Subcommittee on Health 

May 9,2012 @ 9:00 am 

Chairman Herger, Ranking Member Stark, members of the Committee, my name is Wayne Sale, and I am the 

Chairman of the National Association of Independent Medical Equipment Suppliers (NAIMES). I hail from 

Virginia's 7th District where Patrick Henry gave his "Liberty or Death" speech, Jefferson built his state house and 

Chief Justice John Marshall called home. I have been active in this industry for 35 years as a respiratory therapy 

practitioner and business owner. [currently have a DME and Oxygen business in Central Virginia and employ 30 

great people. NAIMES is a volunteer trade association that represents the specific concerns of community 

based, independent medical equipment suppliers. Our member demographics comprise 96% of the currently 

active Medicare OMEPOS suppliers, 90% of whom are threatened by this purported Competitive Bidding 

process. 

It is important to begin my comments at the highest level of our country's domestic national concern - the everrising costs of healthcare. As medical inflation races ahead of the economy and accounts for higher and higher 

portions of GOP, we earnestly seek ways to slow its growth and manage our costs. This problem has haunted 

the budgets and politics of every President and Congress since Medicare's inception. When this hearing 

concludes, I hope you will leave with a better understanding of how OMEPOS suppliers can contribute to the 

reduction of those costs. 

History 

In an effort to curb the costs of Medicare expenditures in 2003, Congress directed CMS, through the Medicare 

Modernization Act, to employ a formal Competitive Bidding process in order to "reset" Medicare 

reimbursements for OMEPOS products to achieve "market-based efficiency". This sector of Medicare spending 

consistently comprised about 2% of the monies annually disbursed. In 2008, the Medicare Improvements and 

Patient Protection Act (MIPPA) amended CMS's directions for program development slightly, but did nothing to 

substantially amend the pseudo competitive bidding process that CMS created and controlled behind a veil of 

secrecy allowed them in 42 USC 1395 w-3(b)(lO), the elimination of a program participant's right to an 

administrative or judicial review. 
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On February 11, 2009, the DME industry's testimony before the House Small Business Sub-Committee on Rural 

and Urban Entrepreneurship, pointed out the detrimental effects and unintended consequences of the eMS 

designed bidding process, and urged the Committee to intervene before re-starting the stalled initial rollout. 

The industry, patient and expert testimony was not enough to stop the program from being reinstated and on 

January 1, 2011, eMS's version of pseudo-Competitive Bidding went into effect in 9 Competitive Bidding Areas 

(CBA's). (Cleveland, OH - Charlotte, NC - Cincinnati, OH - Dallas/Fort Worth, TX - Kansas City, MO/KAOrlando, FL - Miami/Fort Lauderdale/Palm Beach, FL - Pittsburgh, PA and Riverside/ San Bernardino, CAl 

The "competitionll that Congress planned to achieve was supposed to occur as suppliers offered the eMS prices 

at which they could sell the defined products, make a profit, and maintain service to their Medicare patient 

population. The CMS process of supplier contractor selection, side stepped the "competition" requirement as 

their program design accepted bids that were non-binding and used the collection of bids offered to choose the 

price they would assign the product. Apparently, that looked like "competition" to the creators, but in fact, was 

just another form of administrative price assignment. These contradictions to a genuine competitive bidding 

process were revealed by several economists, who looked closely at the bidding process created by CMS. Their 

findings of the program's serious shortcomings were bought to the Congress's attention and CMS leadership 

directly. Failing to generate sufficient interest to bring the needed change to the program, they thought it 

imperative to submit their findings and concerns to President Obama in a letter dated June 17, 2011. 

Since the commencement of the pseudo-CB in these 9 CBA's, 90% of the suppliers have been removed from the 

Medicare marketplace, leaving fewer suppliers to service the growing population of Medicare beneficiaries. The 

elimination of suppliers, combined with the program's forced enlargement of service territories in every CBA, 

has unquestionably caused distress in the healthcare continuum in the affected areas. Reports of stalled 

hospital discharges, delays in equipment delivery, and slower response to the delivery of physician ordered 

equipment have been reported. Suppliers who were not chosen to participate in the contracting process have 

experienced obvious decreases in referrals and revenues, and subsequently had to layoff workers; an estimated 

40% have gone out of business. 

While CMS boasts that the savings are mounting from the effects of this program, there are reports generated 

from FOIA data requests that indicate those savings are being quickly spent at more expensive treatment sitesemergency rooms, hospitals and skilled nursing facilities. These findings have, again, been openly shared with 

CMS leadership, in an effort to discern the truth of how this program is performing at the Medicare beneficiary 

level. CMS has merely ignored the findings, dismissing them on technical grounds instead of addressing the 

issues they raise. This conflict of data interpretation is a key point that must be resolved if Congress is to be 

satisfied with the manner in which CMS has carried out its directives. 

The fact that 244 economists from America's most prestigious colleges and universities have examined the CMS 

bidding design and found it wanting, is not insignificant. (Some of these economists are your constituents) This 

is NOT a consensus among economists - it is unanimous. Four of the examiners are uncompensated, unbiased 

Nobel Laureates. Their standards for a successful competitive bidding/auction program design are derived from 

years of study, scientific trial & error, and market experience around the globe. It is concerning and telling that 

their knowledge and feedback have been ignored and repelled by CMS for reasons yet to be revealed. 
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A concern voiced by my membership that exposes a hidden consequence of the CMS design is the fact that 

some companies that 0[0 get contracts are NOT getting business. The patient referral community - case 

managers and social workers - have learned that some suppliers were offered contracts for mu[tiple equipment 

categories and are calling them only, to avoid the time consuming complexity of calling multiple companies to 

arrange multiple deliveries to establish an adequate treatment site at the patient's home. This effectively 

eliminates "winning bidders" from the marketplace who accepted a single product contract, reducing the access, 

choice and service for Medicare beneficiaries, even further. 

The most distressing news in the forecast of Competitive Bidding's future is that of the program's 

unsustainability. There is a high degree of confidence from all parties that the program's design will ultimately 

lead to failure in the marketplace. Such an aberrant program design has never before been tried or tested. The 

absence of binding bids, and the assignment of the median bid as the final price, invites foundational 

weaknesses in the program from the very beginning. The low number of available contracts, and high 

probability that you won't be offered one, incents bidders to low baH their bid in a desperate act of continuing 

to participate in the largest insurance program in the world - Medicare. 

[f the economists are correct and the CMS program design is not sustainable, then neither is the billions of 

dollars of savings they claim their program will generate. For this reason, it seems realistic to believe that the 

CMS projected savings are overstated. 

The only defense that CMS offers for continuing their version of pseudo-CB is the absence of a significant 

number of complaints from Medicare beneficiaries. It is clear to my members that there are indeed problems, 

complaints and concerns. The primary complaint we hear is that people who call the Medicare Hotline to 

complain, stay on hold for unreasonable lengths of time and eventually give up on registering their complaint. 

Another reason complaints may not to be heard is that the effected Medicare beneficiary is Sick, and tired, and 

simply doesn't have the energy to go through the process of questioning and explaining and waiting. It's easier 

and less stressful to find another way to deal with their particular issue than to waste time on the phone. 

Round 2 - What's next? 

NAIMES leadership has met with CMS management and urged their reassessment of the CB program. Our 

discussions have been direct and clear as to the predictable outcomes voiced by the auction authorities and the 

dictates of the rules of market economics. The information submitted to CMS during those discussions, 

although compelling, have made no impact on CMS's position. [t has been clearly stated by CMS representatives 

that it is determined to carry out Round 2 in similar fashion as Round 1 and looks forward to similar results. That 

means in 91 US cities, another 90% of the community based DMEPOS suppliers will be eliminated from the 

Medicare program. As the number of business failures and worker layoffs increase, the number of Medicare 

beneficiaries will grow almost exponentially. Every day for the next 30 years, approximately 7000 Americans will 

turn 65 and enter the Medicare system; 78 million, in all. 

So, why is CMS intentionally reducing suppliers in the face of rising demand? 
66 


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With fewer suppliers, and more consumers, how does CMS expect prices to stay low? Laws of economics have 

soundly established that in a dynamic marketplace, competition among many suppliers keeps prices low, service 

high, and innovation moving forward. The people who know, say the CMS design will result in higher prices 

over a short time. In market growth such as the one America will experience in the next 3 decades, a preferred 

executive plan would be to grow and develop the supplier population to meet the demand. The Baby Boomer 

demographic has changed every market it has aged through over the last 50 years and those dynamic changes 

are beginning to trickle into the healthcare industry now. 

Over the first 3 years that this version of pseudo-CB is in place, the forced reduction of the supplier population 

and the increase in market demand promises to raise prices, and again, reduce the CMS projected savings. Said 

in a more familiar manner, healthcare costs will continue to rise. 

If, for all the reasons above, Congress does not stop the implementation of Round 2, we have no reason to 

believe the findings and ills of Round 1 will not be multiplied by 10. Expanding a poorly designed bidding 

program will expand the destructive results of that poorly designed bidding program. If we go forward into 100 

US cities, perhaps then the volume of beneficiary complaints will be high enough and loud enough for 

Washington to hear and be moved to act. But, will it then be too late? 

Changes are necessary, and sooner is better than later 

In order to avert the negative impact and consequences of the current version of pseudo-Competitive Bidding 

and secure the Medicare DMEPOS benefit sustainability, changes are necessary. 

Historic data of Medicare expenditures reveal that, unlike every other category of Medicare spending, Medicare 

Part B spending in the DMEPOS categories has been practically flat over the last 20 years. Although the industry 

has experienced an increase in utilization and in the costs of doing business (salaries, gas and employee 

benefits). US expenditures are consistently less than 2% of the per annum spending. The forced elimination of 

1000's of small businesses across the nation from a federally funded program is unimaginable, but that is 

currently the promise of the future. 

NAIMES, in cooperation with a coalition of industry associations, manufacturers and auction experts, have taken 

a properly designed auction format and created a replacement auction design we have named the "Market 

Pricing Program" (MPP). An earlier version of this bidding process was tested in a "mock auction" at a trial site 

on the campus of the University of Maryland in April of 2011. The trial engaged 100 suppliers and a wide variety 

of associated participants who learned, navigated and" bided" on a list of DMEPOS products, pulled from those 

used in Round 1. I was in attendance. At the end of the day, the results showed that the mock auction, 

conducted in the sunshine of transparency, resulted in lower prices for the payer, sustainable market prices for 

the seller, and market demand being met by a large number of willing participants. Initially, the industry eyed 

the process with skepticism, but saw that day, that it was a healthy alternative to the pseudo-competitive 

bidding process imposed by CMS. CMS, CBO and other government agencies was there also and invited to 

participate. Records of the mock auction are online at httpJ/www .cramton.umd.f:~du/papers/health-care/ 

4 
67 


Insert offset folio 35 here 80258.035

The M PP speaks directly to the short-comings of the current version of non-competitive bidding. Its creators are 

experts in auction design and, !ike any good architect, they have followed the known rules of market forces to 

build a system that will last. The MPP version employs binding bids, performance obligation and national 

accreditation to assure that suppliers bid to win, make a profit, and stay in business for years to come. The MPP 

reduces the enormous consumption of time that the current regulatory process requires, and promises to save 

millions in administrative costs. M PP reduces the geographic size of the CBA's, making them more conducive to 

prompt service and delivery. And best of all, it achieves sustainable savings and patient choice from a large 

supplier population ready to meet the growing future demand. Mechanisms have been built into the process 

that will assure the government gets the best competitive prices, offered by experienced suppliers, willing and 

able to meet the capacity in their service area. This plan sets the stage for healthy growth in an industry that 

has proven it can contribute much to the reduction of Medicare spending, particularly in the areas of chronic 

disease maintenance and prevention of expensive exacerbations. 

Since building and launching the MPP is a much less burdensome and time consuming process, the belief is that 

it could be built in more quickly than the current Round 2 process and be ready to engage the market on a very 

similar timeline as is currently scheduled. But we must admit, time is of the essence. 

What this change would mean to Congress is that the DMEPOS provision of the Medicare Program will be truly 

competitive, it will save money by enabling patients to be treated at home, avoiding expensive hospital stays, 

and will cost the Administration less to implement and maintain. 

Conclusion 

Congress should move to suspend or repeal the current program. If one believes the experts in auction design, 

and accepts the premise that it could be made better, then a replacement program should be vetted, secured 

and deployed. 

The warnings that the current version of Competitive Bidding will ultimately fail should be taken seriously. The 

drastic reduction of "supp[y" in the face of unprecedented national "demand" for home health products and 

services will bring irreparable harm to the industry and the Medicare population they serve. The sustained 

concerns voiced and high integrity of testimony is compelling, and should be heeded. 

The DME industry takes seriously its personal responsibility to ensure that our nation's seniors have proper 

access to medically needed, physician prescribed care. We take seriously the opportunity we have to reduce the 

costs of healthcare to our nation. Both objectives demand that seniors with chronic disease have the DME 

equipment they need to maintain their health and independence. Utilization of DMEPOS is the most cost 

effective manner in which to avoid the high cost of hospitalizations incurred by those few chronically diseased 

patients who consume the most expensive and largest volume of healthcare services. The DME industry brings 

real, measurable Value to the Medicare Program. Studies and Medicare claims data analysis show savings 

expressed in terms of Return on Investment to be $6-$10 for every $1 spent. Reductions in ER visits, reductions 

in hospital stays and reductions in the use of skilled nursing facilities fund the savings and RO[ calculated here. 

That's the Value of the DME benefit to the Medicare Program. [f the net savings (RO[) from avoiding the highest 

priced hea[thcare services is only $6: $1, the annual total savings that DMEPOS brought to the Medicare 
68 

f 

Chairman HERGER. Mr. Martis is recognized for 5 minutes. 

STATEMENT OF DINO MARTIS, PRESIDENT, ABLECARE 

MEDICAL, INC. 

Mr. MARTIS. Thank you. Chairman Herger and Congressmen, 

thank you for inviting me to testify today on the Medicare Durable 

Medical Equipment Competitive Bidding Program. 

I am president of Ablecare Medical. We are a small business 

based in Cincinnati, Ohio, and we began operations in 1991. We 


Insert offset folio 36 here 80258.036
69 

are a full service respiratory and DME company. Currently we take 

care of about 3,000 Medicare patients who depend on us to provide 

their care. 

Numerous studies have documented the problems in Medicare’s 

DME benefit; inappropriate reimbursement, fraud, lack of clearly 

defined services and outcomes. Competitive bidding has brought 

some pressure to bear on those problems, but concern remains. Fortunately, the debate is no longer centered on whether reimbursement should be reformed, but whether competitive bidding is the 

right approach. 

Based on my experience in Round 1, competitive bidding is working and we are excited about our involvement in this program. In 

the past, taxpayers and beneficiaries have paid for product that in 

some instances are tens of times greater than market rates. GAO 

and the Health and Human Services Inspector General found problems in documenting actual services provided to beneficiaries and 

the quality of those services. Our industry as a whole was unable 

to show a positive correlation between prices and clinical outcomes. 

There are many reasons for this and they have been outlined in my 

written statement. 

It is important to note that reimbursement prior to competitive 

bidding was not sustainable given continually rising overall health 

care costs and expected growth in the Medicare and Medicaid population over the next decade. This committee has heard testimony 

about beneficiaries paying more in cost sharing for certain DME 

than the typical cost of purchasing that equipment outright. 

We have seen that economic hardship has depressed patient utilization of health care services. It has been our experience over the 

last few years that consumers are reducing demand due to a combination of falling incomes and rising cost sharing requirements. 

With the introduction of competitive bidding, CMS has reduced the 

out-of-pocket burden for beneficiaries, many of whom, if not all, are 

on fixed incomes by lowering the cost of DME and by extension the 

required beneficiary cost sharing. 

From my perspective, the benefit to DME companies is that a 

greater probability exists that with lower out-of-pocket costs there 

will be more beneficiaries who are better engaged in their care over 

the long term as recommended by their physician. This will also increase patient volume, which will, in turn, compensate for loss reimbursement. 

In Round 1, we bid on oxygen, hospital beds, PAP, enteral and 

diabetic supplies. We did not win diabetic supplies. When we bid, 

our oxygen bid was exactly, in fact to the penny, the same as the 

current allowable by Medicare. For the other bids, we were 0.05 

percent from the current allowables. Competitive bid has forced 

changes in our business, but it has not reduced patient access or 

the quality of care. 

DME providers take pride in providing quality service services 

and access and the quality of service provided is market-based. We 

cannot afford to provide a lesser quality product if we intend to 

continue in business. We do have to become more efficient. We 

have recognized that, and we have to use technology. We have recognized that as well. 

70 

We commend CMS for the way they have structured the competitive bid process. The agency appropriately provided an opportunity 

to small- and medium-size businesses to be a part of this program, 

and they provided these same businesses the flexibility and opportunity to engage with the program as they saw fit. 

Our experience suggests that while no single solution will address all the issues generated by the transitioning to competitive 

bidding or delivery model, I think it would be a mistake to abandon 

competitive bidding. The alternative system proposed would encourage higher bids and it would mean higher cost sharing for patients. Various studies have shown that as out-of-pocket costs increase, beneficiary engagement and adherence to physician prescription decreases. This is detrimental to the beneficiary, to the 

DME industry, CMS and the taxpayer. 

In the interest of taxpayers, program beneficiaries and the DME 

industry, we respectfully urge Congress to let this program continue, making adjustments as needed. We stand ready and willing 

to assist in any effort. 

Thank you. 

Chairman HERGER. Thank you. 

[The prepared statement of Mr. Martis follows:] 


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71 


Insert offset folio 38 here 80258.038

Chainnan Herger and Ranking Member Stark, J am pleased to provide my thoughts on 

the Medicare Durable Medieal Equipment eompctitive bidding program. I am the President of 

Ablecare Medical, Inc., a small business based in Cincinnati and Cleveland, Ohio that began 

operations in 1991. We have been in business now for 20 years and are a full-service 

Respiratory and DME company. Cun'ently, Ablecare Medical has 42 employees and strives to 

cfficicntly provide the highcst quality scrvices to thc 3,000 Medicarc paticnts who depcnd on us 

to provide their care. 

My tcstimony today is bascd on my two dccadcs of cxpcricncc in providing scrviccs to 

America's seniors, both as part of the fee-for-service program and, morc recently, as a successful 

contract awardcc in thc DME compctitivc bidding program. 

Numerous studies have documented the problems in Medicare's DME benefit: 

inappropriate rcimburscment; fraud; lack of clearly dcfincd scrvices and outcomes. Compctitive 

bidding has brought some pressure to bear on those problems, but concerns remain. Fortunately, 

the debate is no longer centered on whether reimbursemcnt should be reformed and whether 

competitive bidding is the right approach. The focus has now shifted to how competitive 

bidding should be structured moving forward. Bascd on my experience in rounds one and two, I 

believe additional modifications should be made to the program, but that these changes are 

minor. 

Competitive bidding is working, and we are excited about our involvement in the 

program. We remain optimistic the competitive bidding approach holds great potential to 

improve care while lowering costs. We should also not lose sight of additional refonns that 

bring competition and tcchnology to bear on the pressing problems of poor outcomes, quality 

measurement and high costs in DME markets. 

Medicare Reimbursement for DME Prior to Competitive Bidding 

The Govcrnment Accountability Office and others have documentcd the extent of 

overpayments for DME over the last two decades. Taxpayers and beneficiaries have paid for 

products that in some instances are hundreds of times greater than market ratcs. Likewisc, GAO 

and the Health and Human Services Inspector General found problems in documenting actual 

services provided to beneficiaries and the quality of those services '. Our industry as a whole 

was unable to show a positive correlation between prices and clinical outcomes. The reasons for 

this include: 

DME companies are paid separately for clinical services and DME products under feefor-service. The only incentive to provide clinical services under the fee schedule is if 

those scrvices arc required under a rcfcrral. 

1 See, for example the testimony and reports at: ht1p:!lw\\'\V.U80.~!J)\'/arLhivc/ 19()X/hc9K I02.pdf; 

h t.~l-r/j\\·v.-'yt' og~lQ. m!Y!.;lbsq~L1 QQl97 ()O.(1·.n9. f; \:l1~P j ~ q i.K.D h.~ .. £-Q,v !~tGs ti.nw.n 1.1 d.Qc§/2QQ;2·I.Q 49J~.1_ J 11 11.-.pg C 
72 


Insert offset folio 39 here 80258.039

There currently are no standards for measuring how equipment and services affect 

beneficiary outcomes or treatment costs. Clinical guidelines used by each HME 

company are different. In part, this may reflect the lack of standardization of clinical 

processes and measures. 

Industry billing and rcporting systems do not neccssarily kcep track of hospitalizations or 

disease exacerbations, so it is unclear whether clinical services are positively impacting 

bencficiary hcalth. 

The rcimburscmcnt prior to compctitivc bidding was not sustainable givcn continually 

rising healthcare costs and expected growth in Medicare and Medicaid populations over the next 

decadc. As I noted, Medicarc rcimbursemcnt was wcll above markct ratcs for both product and 

any services that could be reasonably provided in delivering the product. This Committee has 

heard testimony about beneficiaries paying morc in cost sharing for certain DME than the typical 

cost of purchasing the equipment outright. These situations sow distrust in the Medicare 

program by eroding confidence that Congress and CMS are capable of designing systems to pay 

for services based on old fashioned commonsense. 

Value of Competitive Bidding 

As we have seen in other health services, economic hardship has depressed patient 

utilization of health services. It has been our experience over the last few years that consumersMedicare and private plan enrollees alike - are reducing demand for provider services in general, 

and for equipment services in particular, due to the combination of falling incomes and rising 

cost sharing requirements. 

With the introduction of competitive bidding, CMS has reduced the out-of-pocket burden 

for beneficiaries, many of whom are on fixcd incomc, by lowering the costs ofDME and, by 

extension, the required beneficiary cost sharing. From my perspective the beneflt to DME 

companies is a greater probability that there will be more beneficiaries who are better engaged in 

their care over the long term because they are using the products as recommended by their 

physician. This will likely increasc volume which, in tum, will compensate for lost 

reimbursement. The obvious additional benefit is a healthier, more functional beneficiary 

population. 

Our Experience with Round One of Competitive Bidding 

Our experience with Round One of competitive bidding was not uniformly positive. 

While the CMS interface and procedure for bid submissions were reasonably functional, there 

were instances where the system would go down and we would not be able to enter information 

required for bid submission. For example, we were unable to bid on the category for walkers. In 

all fairness, however, we delayed submission of our bids until the last day, and it is possible that 

others also did the same, creating a spike in server volume that caused intennittent system crash. 
73 


Insert offset folio 40 here 80258.040

We learned from our experience, and in Round Two we entered our bids well in advance 

of the due date. As a result, we were able to enter our infoTInation for all categories for which we 

intended to submit bids without incident. Thus, the bid submission system in our experience 

worked as intended. 

Competitive bidding has forced changes in our business, but not as commonly reported. 

Beneficiaries in our Cincinnati and Cleveland bid areas did not lose access or see a drop in 

service. No competitive bid winner would turn down a referral or provide sub-par service as such 

business practices would impact their ability to garner future referrals. Competitive bidding has 

likewise forced changes across our industry, but these changes are no greater than what every 

other industry experiences when forced to compete. To continue operation, we have had to 

become more efficient. We have learned how to use technology to our benefit. Manufacturers 

and other vcndors havc accepted the inevitability of the new, more competitive system and have 

made changes to their organizations that have enhanced efficiency. The resulting changes will 

allow us to reduce our bids and pass those savings onto to taxpayers and beneficiaries. 

It is our belief, proven by working in this environment for the last 16 months, that the 

competitive bid program as structured by CMS will allow us to service all beneficiaries in our 

area at lower costs and better quality, with no reduction in service. Increased volume replaces 

what was lost in profit per sale. It is our belief that, as the economy strengthens and beneficiaries 

feel more financially comfortable, engagement and referrals will return to nonnallevels and, in 

fact, increase as more beneficiaries (i.e. baby boomers) enter the Medicare program. 

Expectations in Round Two 

In Round 2, we bid in those areas in Ohio where we knew we could afford to expand and 

provide personalized product and service to beneficiaries. Therefore, we did not bid in any area 

outside of Ohio. Because our experience with competitive bidding has been positive, we are 

excited about the prospect of expanding our quality services to more Medicare beneficiaries for 

more products in round two of the competitive bidding program. 

Lessons Learned and Room For Improvement 

We commend CMS for the way they structured the competitive bid process. The Agency 

appropriately provided small and medium size companies an opportunity to be a part of the 

program, when it would have been easier and administratively simpler for them to work 

exclusively with large companies. CMS also provided an opt-out clause, whereby if we were 

awarded the bid at a price point that we felt was unreasonable, we were not compelled to enter 

into a contract with Medicare. This, too, created additional burdens for CMS, but provided 

suppliers with flexibility and opportunity. 

Likewise, we believe the use of subcontracting arrangements is well intentioned, but 

requires additional program oversight. If a bid winner requires assistance covering demand for 

product or services, they can contract with non-bid winners or sub-contractors that are Medicare 

Approved HMEs. This does happen and is good for the bid winners, non-bid winners, CMS, 
74 


Insert offset folio 41 here 80258.041

beneficiaries and for the program's success. In some instances, however, non-bid winners are 

leveraging their relationship with referral sources to raise costs beyond the normal and 

customary amount. This impacts bid winners by increasing their operational costs. 

While we can understand the rationale for sub-contracting, we do not agree that this is a 

positive for contract winners, CMS or the patient. Part of the rationale for entering into a 

competitive bid contract with CMS is the notion of exclusivity. Sub-contracting arrangements 

not only preclude exclusivity, but also introduces variables detrimental to the beneficiary. For 

example, because sub-contractors receive only a nominal setup fee and are not directly involved 

with the patient, they have reduced incentives to provide the best service to beneficiaries. 

Subcontracting is also more conducive to fraud. For example, a company that did not win a 

contract could function exclusively as a markcting company, obtain a rcferral and then providc 

the patient to a contract winner who would pay them the most for the referral. This puts the 

contract winner in an untenable position of receiving kickbacks. While CMS has tried to address 

the issuc by requiring referrals to be made directly to the contract winner, frequently it does not 

function that way on the ground. Most referral sources are still unclear as to what DME 

competitive bidding really entails. These companies are also fed misinformation by non-contract 

winners. For example, many non-contract winners inform referral sources, incorrectly, that they 

can service Medicare patients without divulging that they do so through a contract winner. 

We suggest the program should be improved in the following ways: 

1. CMS should take immediate steps to inform all current and future DME suppliers and 

subcontractors about the rules of the road. We believe the Inspector General should issue 

an advisory opinion to clarify any confusion. Doing so publicly not only would enhance 

trust in the program, but would quickly dispel incorrect information that leads to potential 

overspending. 

2. CMS also needs to establish a standardized process for reporting on outcomes. As 

mentioned above, there is little information on the correlation between services provided 

and patient results. 

3. DME competitive bidding should not be a static program. It should evolve as new 

services, technologies and creative and innovative approaches evolve. We have been 

involved in an effort to use a technology-based disease identification, prevention and 

management solution to serve as a model that improves health, improves health care, and 

reduces healthcare costs for patients with sleep apnea that require DME product. I 

believe this is the next generation of DME reform: leveraging actual services to improve 

outcomes while lowering costs. 

Conclusion 

Our experience suggests that no single solution will address all the issues generated by 

transitioning to a competitive payment and delivery model. Does that mean we should abandon 

hope and revert to a failed system that encouraged inappropriate, unnecessary, overpriced, 

wasteful and potentially harmful care? Absolutely not. 
75 

f 

Chairman HERGER. Mr. Chiplin, you are recognized for 5 minutes. 

STATEMENT OF ALFRED J. CHIPLIN, JR., SENIOR POLICY 

ATTORNEY, CENTER FOR MEDICARE ADVOCACY, INC. 

Mr. CHIPLIN. Thank you, Mr. Chairman and Members of the 

Subcommittee. We have also submitted written testimony for the 

record. 

The subcommittee’s continued focus on Medicare’s durable medical equipment, prosthetics, orthotics and supplies competitive bidding program is important. We remain cautious about beneficiary 

access to the scope and quality of DMEPOS items and services as 

suppliers continue to jockey to do business in this new environment. We think, nonetheless, that if properly implemented, including the development and expansion of appropriate beneficiary education and safeguards, the program could be a positive vehicle for 

ensuring that beneficiaries get the supplies that they need while 

holding down cost to the taxpayers. 

We are pleased to see that the Medicare agency in its April 2012 

assessment of the DMEPOS program is projecting savings to the 

Medicare Part B trust fund of $25.7 billion between 2013 and 2022 

and a reduction in beneficiary and coinsurance amount of $17.1 billion during that same period. 

Out-of-pocket savings in the area of the CMS report is the most 

exciting. We hope over time that the cost savings will increase and 

that access is not impacted by decreasing costs. As has been cited, 

out-of-pocket savings have an important impact on access. 

We remain concerned that providers carry a range of products 

within product categories and that beneficiaries are not inappropriately required to change brands or types of items and services in 

order to stay within cost parameters dictated by the competitive 

bidding process in local markets. On the whole, we feel that the 

Medicare agency should be required to step up its efforts to educate 

beneficiaries about the program, including a special Web site specifically for Medicare beneficiaries. 

As to the standards for DME that have been developed, we are 

pleased to see that they are extensive and comprehensive. We do 

have a few areas that we would like to see looked at. One is that 

there continues to be broad monitoring. We would also like to see 


Insert offset folio 42 here 80258.042
76 

that the data that is gathered include information about the level 

of beneficiary appeals through the appeals process in addition to 

complaints. Complaints and appeals are different matters. So we 

would like to see that tightened. 

We also would like to see Congress address how it might deal 

with the suppliers who are not awarded contracts and do continue 

to provide services in some areas. This, we think, may well be a 

problem. We would like to have some attention devoted to that. 

We also think it is important to give more attention and clarity 

for beneficiaries on the question of how grandfathering works. It is 

a complicated area and beneficiaries are often confused. In our 

work, we hear from beneficiaries more about the confusion about 

things than anything else at this point, just about how the program 

will work. 

We would also like to see that further analysis from the Medicare agency look at the broader comparison of the number of beneficiary complaints filed. Simply looking at what has come in on the 

800 number is not really enough. Over the years, our experience 

has been that even when serious problems occur, few beneficiaries 

file complaints and even fewer enter Medicare’s administrative 

process, and we think data analysis should have some mechanism 

for recognizing this reality. 

In conclusion, we remain cautious about the DMEPOS program. 

We think, nonetheless, that if properly implemented, including expanded beneficiary education efforts and safeguards, the program 

could be a positive force toward reducing cost to beneficiaries and 

saving costs to the Nation as a whole. 

Thank you very much. 

Chairman HERGER. Thank you. 

[The prepared statement of Mr. Chiplin follows:] 

77 


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***TESTIMONY IS EMBARGOED UNTIL 9:00 AM 

WEDNESDAY MAY 9, 2012*** 

it..., Center for Medicare Advocacv, Inc . ..I.r1...... 

\'ww.mcdicarcad\'ocacy.or~ 

Testimony before the 

United States House of Representatives 

Committee on House Ways and Means 

Subcommittee on Health 

Medicare's Competitive Bidding Program 

For Durable Medical Equipment, Prosthetics, Orthotics, and Supplies: "How the Program 

Is Impacting Patients, Suppliers, and Program Expenditures" 

1100 Longworth House Office Building 

Wednesday, May 9, 2012 

By 

Alfred J. Chiplin, Jr., Esq. 

Senior Policy Attorney 
78 


Insert offset folio 44 here 80258.044

Introduction 

Mr. Chainnan Herger and members of the Subcommittee, I am Alfred J. Chiplin, Jr., Esq., a 

senior policy attorney in the Washington, DC office of the Center for Medicare Advocacy, Inc. 

(the Center). We are a national, not-for-profit organization that advocates on behalf of older 

people and people with disabilities to ensure access to fair, comprehensive, and affordable health 

care. We are a beneficiary-focused advocacy group. I thank you for the opportunity to come 

before you this morning. 

The Subcommittee's continued focus on Medicare's Durable Medical Equipment, Prosthetics, 

Orthotics, and Supplies (DMEPOS) competitive bidding program is important. We at the Center 

share your overall concern that the DMEPOS program accomplishes its stated purpose of 

reducing Medicare costs while protecting beneficiary access to necessary and appropriate items 

of DMEPOS. Further, we agree that it is of critical importance to assess the Round I experience 

in the current nine Metropolitan Statistical Areas (MSAs), particularly as the Medicare agency 

prepares to implement Congress' directive to expand DMEPOS competitive bidding to an 

additional 91 MSAs in 2013. 

We are pleased to see that the Centers for Medicare & Medicaid Services (CMS), the Medicare 

agency, is projecting savings to the Medicare Part B Trust Fund of $25.7 billion between 2013 

and 2022 and a reduction in bcneficiary coinsurance amount of $17.1 billion during this same 

period.! These savings are substantial for taxpayers and beneficiaries. We remain cautious, 

however, about beneficiaty access to the scope and quality of DMEPOS items and services as 

suppliers jockey to do business in this new environment. We urge particular vigilance on the 

part of the Congress and CMS, particularly as more Metropolitan Statistical Areas (MSAs) are 

impacted by the DMEPOS competitive bidding program and as more items of DMEPOS become 

subject to competitive bidding. We think, nonetheless, that if properly implemented, including 

the development and expansion of appropriate beneficiary education and safeguards, the 

DMEPOS competitive bidding program could be a positive vehicle for ensuring that 

beneficiaries get the supplies they need while holding down costs to taxpayers. 

In the main, the Center is of the opinion that the DMEPOS competitive bidding program should 

go forward; that program elements such as grandfathering, smaller supplier networks, and out of 

network repair and replacement mles could be made more understandable for beneficiaries. In 

addition, the Medicare agency should step up its efforts to educate beneficiaries about the 

DMEPOS competitivc bidding program, including the development of a website specifically for 

Medicare beneficiaries. Education efforts should target MSAs as well as geographic areas not 

yet covered. This is especially necessary as misinformation about the program filters throughout 

the nation, making for confusion in all geographic areas, including those not currently affected 

by the DMEPOS competitive bidding program. 

I See CMS' "Competitive Bidding Update-One Year Implementation Update April 17, 2012, 

b ttps: ilwww.ems.gcn .. .McdicD.reil\ led i care- F cc-Ior-Servi cePa vmcnt/D \-1 EPOSe ompcl iii vc BId ,10d"" n loads/Compcti tivc-Bid d in:.!- L: pda tc-Onc-Y ca 1'-1 mp 1clllcn tal i OIl:.J2.Q.f. 

21 
79 


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Recommendations 

As my introductory comments reflect, the Center is concerned about beneficiary education and 

access. 

1. The Congress must mandate and the Medicare agency must provide clear information 

designed and directed specifically to beneficiaries. It can not be merely an add-on to 

suppler cducation activitics. Ncccssary infonnation includcs dcfining what bcncficiarics 

will need to know and do when their DMEPOS items need to be repaired or replaced, 

either in their MSA or while traveling outside that area; how to identify approved 

suppliers, the forms of acceptable notice; and how to initiate complaints and appeals 

when problems occur. 

2. As we said in our 20 to testimony, CMS must engage in a vigorous and focused campaign 

to educate the beneficiary community. CMS must step up its educational campaign to 

ensure that Medicare beneficiaries of all ages are aware of the DMEPOS program and 

ongoing changes and modifications. 

3. CMS must make clear to beneficiaries who reside in geographic areas not currently an 

MSA or a competitive bidding area (CBA) whether and how the DMEPOS rules affect 

them. 

4. There must be an exploration by the Congress of how to address the caprices of 

DMEPOS suppliers who do not participate in Medicare yet supply items of DMEPOS. If 

a supplier is not in an MSA covered by the DMEPOS competitive bidding program, how 

will Congress and the Medicare agency protect unsuspecting beneficiaries as to notice 

requirements as well as extend its sanctions and oversight authority? 

5. It will continue to be critical to provide clear information when new MSAs - and the 

CBAs within them - are added to the DMEPOS competitive bidding program. Likewise, 

there is the need for infonnation for beneficiaries who obtain their DMEPOS products 

through mail-order suppliers. 

6. There needs to be more clarity for beneficiaries about the DMEPOS rules for 

"grandfathered" suppliers. 

7. The Congress and the Medicare agency must continue to speak with a loud and clear 

voice about the rules of the program, including the limits placed on supplier registration, 

certification, advertising, and on supplier solicitation of beneficiaries. 

8. With respect to beneficiaries, data analysis of the DMEPOS program must look broader 

than a comparison of the number of beneficiary complaints filed. Over the years, our 

experience has been that even when serious access to service problems occur, few 

beneficiaries file complaints and even fewer enter Medicare's administrative appeals 

process. Data analysis must retlect this reality. 
80 


Insert offset folio 46 here 80258.046

The Center's Ongoing Concerns 

Thus far, we have not heard of specific access to DEMPOS problems. We expect, however, that 

as the program is expanded to the additional 91 MSAs as contemplated, we will hear of more 

problems. From our cxperience with other "'roll outs" of Medicare changes and additions, we 

anticipate problems that relate to beneficiaries obtaining DMEPOS and related services from 

suppliers who arc not certified as competitive bidding winners; about beneficiaries not getting 

adequate notice about the consequences of using suppliers who are not certified through the 

competitive bidding program; and about beneficiaries having overpaid for items of DMEPOS 

and for related services, given that they did not obtain their items and services from certified 

competitive bidding winners. 

Access to DMEPOS 

On September 15, 2010, I addressed issues of beneficiary access to DMEPOS at a hearing held 

by the House Energy and Commerce, Subcommittee on Health. The focus of that hearing was 

on DMEPOS Competitive bidding and implications for Quality, Cost and Access. The issues 1 

raised at that time centered on assuring beneficiary access to necessary DMEPOS and related 

services and on the need to step up efforts to educate Medicare beneficiaries about the DMEPOS 

Competitive Bidding program. 

In 2010, the Center heard confusion and conflicting conjectures from suppliers and beneficiaries 

about the consequences of the DMEPOS program, both positive and negative. Even so, our 

anecdotal experience was that suppliers were applying for certification and complying with the 

other DMEPOS requirements. What that raised for the Center was the need for clear, concrete, 

and factual infornlation about the rules of the DMEPOS program and about beneficiary rights 

and responsibilities. The same is true today. 

Access to information about the DMEPOS program 

A big concern in 2010 was that DMEPOS information for beneficiaries was lacking and 

incomplete and often difficult to find. The "Medicare.gov" website, for example, did not contain 

infornlation about the DMEPOS competitive bidding program on its home page. Moreover, a 

search for durable medical equipment on the Medicare.gov website took one to a Medicare 

Supplier Directory. At that time, when a zip code in a competitive bidding area (CBA) was 

entered (33394, Ft. Lauderdale, FL, for example), the resulting page did not include information 

about the new program. And, at that time, the Medicare publication, "What You Should Know if 

You Need Medicare-covered Equipment or Supplies," revised June 2010, did not appear among 

thc list of publications on thc wcbsitc icon for publications. Wc wcrc conccrncd that onc would 

only get to the appropriate section of the CMS website if one entered "DME competitive 

bidding." Then, as now, few beneficiaries know enough about the DMEPOS program to engage 

in a sophisticated search in order to obtain basic infonnation. 

In 2010, we were concerned that the DMEPOS program has been an enigma for the beneficiary 

community. Confusion reigned as providers vociferously opposed competitive bidding, 

including supplier certification, claiming that beneficiaries would not be able to obtain necessary 

41 
81 


Insert offset folio 47 here 80258.047

supplies and services. And, of course, Congressional action requiring that the Medicare agency 

engage in "Round I" rebidding added to the confusion. 

Limitations of the Medicare Website 

I am pleased that once located, there is a fair amount of information available on the Medicare 

website about the DMEPOS program. Yet, accessing information remains a "scavenger hunt." [ 

find few intuitive beneficiary focused prompts that lead to necessary DMEPOS information. 

Today, as in 20 I 0, if one knows key words and phrases, one is likely to get to useful information. 

[ recognize that designing informational tools for beneficiaries about any subject - much less 

complex information - is not easy. There is no "one-size-fits-all" solution, to say nothing about 

the need to design materials for different cultures and for multiple languages, as well as trying to 

account for the various levels of understanding and comprehension that comprise current and 

future Medicare beneficiaries. Even so, it is important that the agency and the Congress give 

priority to educating beneficiaries about the DMEPOS program. As it stands, from looking at 

what has been done thus far, it feels as though educating beneficiaries has not been given the 

same level of attention as has been directed to the supplier community. 

Diabetic testing supplies 

The purchase of diabetic testing supplies remains an area of concern. As was noted in my 20 I 0 

testimony, under the DMEPOS rules, a Medicare beneficiary who is a permanent resident in a 

Competitive Bidding Area (CBA) may purchase diabetic testing supplies from a mail order 

contract supplier that serves the area in which he or she is a permanent resident or from a noncontract supplier in cases where the supplies are not furnished on a mail order basis. For such 

purchases, the diabetic supplies will be reimbursed at the single paymcnt amount for the CBA 

where the beneficiary maintains a permanent residence. Moreover, when the diabetic supplies 

are not furnished through mail order, the suppliers will be paid the fee schedule amount. This 

process is confusing. It leaves beneficiaries unsure about pricing. Continuous monitoring and 

oversight is necessary to assure that problems are identificd and resolved expeditiously. 

In my 2010 testimony, I also emphasized the need for beneficiaries to have good information 

about their appeal rights - what to do when things go wrong and where they might obtain help in 

resolving disputes. 

Using non-participating suppliers 

We anticipate an increase in the number of suppliers who are not in an MSA covered by the 

DMEPOS program electing to be non-participating suppliers as defined in 42 USC § I 395u(i)(2). 

Some, moreover, will elect not to participate in Medicare. Moreover, Medicare's limiting charge 

law, 42 USC§ 1395w-4(g), is not applicable to non-participating suppliers. Rather, the limiting 

charge law applies only to non-participating suppliers who supply services related to physician 

services. 

51 P:, 
82 


Insert offset folio 48 here 80258.048

Non-participating suppliers in areas not covered by the DMEPOS competitive bidding program 

are free to require the Medicare beneficiary to submit DMEPOS claims to Medicare and demand 

payment up front - they are not subject to a particular written notice requirement - with Medicare 

reimbursing the beneficiary at the Medicare reasonable charge amount. Significantly, we 

encountered this very problem in December 2011. It is a problem that leaves the beneficiary 

responsible to pay the difference between Medicare's reasonable charge reimbursement (or the 

fee schedule amount) - whichever is less and the non-participating supplier's actual charge. 

Medicare will reimburse the beneficiary 80% of the Medicare reasonable charge amount (or the 

fee schedule amount) - whichever is less. The one saving grace for beneficiaries who use nonparticipating suppliers is that the beneficiary can submit the bill to Medicare and seek as much 

reimbursement as he or she can get, which, of course, reduces the beneficiary'S out-of-pocket 

costs. 

Once the DMEPOS program is fully implemented, and more DMEPOS items and more 

geographic areas are included in the DMEPOS program, beneficiaries should experience a 

greater reduction in DME out-of-pocket expenses as they will be required to use certified and 

registered DMEPOS providers in order to obtain Medicare-covered items of DMEPOS.2 A 

beneficiary has no financial liability to a non contract supplier that furnishes an item included in 

the competitive bidding program for a CBA unless the beneficiary has signed an advance 

bcncficiary noticc (ABN). Scc 42 C.F.R. §414.408(c)(3)(ii) (paymcnt rules DMEPOS). 

As we know, the consequences for beneficiaries when using a non-contract suppler are 

significant. Beneficiaries must be provided information about the impOliance of obtaining an 

Advance Beneficiary Notice (ABN) so that they fully understand the consequences of using noncontract suppliers, including possible waiver rights and higher payment rates. For example, 

contract-suppliers must accept assignment (that is, Medicare's reasonable charge amount, with 

the beneficiary being responsible for a twenty percent (20%) copayment amount, or the fee 

schedule amount) if they provide competitively-bid equipment to Medicare patients who reside 

in a CBA. 

Grandfathered suppliers 

Using "grandfathered" suppliers remains an issue for beneficiary education. As I stated in my 

2010 testimony, Medicare's statutory and regulatory definition of covered DMEPOS suppliers is 

quite broad. We fear continued confusion among beneficiaries and suppliers about these rules. 

In many instances, beneficiaries will not know that that their physicians, nurse practitioners, and 

physical therapists might be subject to the regulations of the DMEPOS program, unless 

"grandfathered." 

'Limited CMS data already supports this assumption. Sec eMS' "Competitive Bidding Update-Onc Year 

Implementation Update April 17,2012, hups:/'\\ \Yw.cll1~:&2.~~j.M~dicarc:rvlcdic~\l1'-Fcc-tQI::~9Jvico;,;­

£~t]J~m,J2~1IT_()S_~~(ll}lP~Ji!i~'~c_BjQJ2~l"-Dll~Kl?lI~Qlml~i1i~_~_-=-13jd~ljn~~l)R_ljal~QrrC:_-)~~_~1:JIl}QJc_I!l~I1t;:!Ji(m~r_(!r.. at 

page 7. 

61 " 
83 


Insert offset folio 49 here 80258.049

Supplier Calls to Beneficiaries 

We have not heard specific problems about the inappropriate use of cell phones, pages, and callforwarding and other devices while away from their places of business. As more MSAs are in 

place, we anticipate abuses in this arena. The rules establish a complex scheme for determining 

whether such use is permitted for purposes of defining working from one's place of business as 

well as defining supplier networks within a eBA. Ongoing monitoring in this area is essential. 

Finding a Supplier 

As we noted in our 2010 testimony, we have concel11S about DMEPOS program rules that 

beneficiaries must follow in finding or acquiring a DMEPOS supplier. Our concel11 remains that 

the burden on beneficiaries to understand suppler standards and requirements is too much. Even 

with a massive education campaign, beneficiaries will not be on an appropriate footing with 

suppliers to ascertain whether a suppler is in compliance with DMEPOS requirements. Under the 

DMEPOS rules, beneficiaries must change suppliers if their CUlTent supplier is not a competitive 

bidding winner or not otherwise grandfathered. Likewise, sOliing suppliers and supplier 

networks will become increasing more difficult as the DMEPOS program expands, particularly 

as suppliers with smaller businesses link to form networks as provided under the statute. 

Repair and Replacement Concerns 

We have heard from advocates that beneficiaries are beginning to raise repair and replacement 

concel11S as their CUlTent equipment ages. One concern in particular is about suppliers 

agreements for repair and replacement for those needing such services when outside the service 

area in which the DMEPOS was initially obtained. It is imperative that provider agreements, 

particularly where suppliers are not networked, are specific about responsibilities and clear about 

what the beneficiary is to do. We remain concel11ed about the burden on beneficiaries to know 

and make provisions for possible repairs or replacements in advance of travel. As currently 

established, repairs and replacements are to be made by the supplier in the eBA in which the 

beneficiary maintains a pennanent residence, unless the supplier or the supplier network has 

arrangements with certified suppliers in the areas to which the beneficiary will travel. 

Permanent residents within a eBA are required to obtain replacement of all items subject to 

competitive bidding from a contract supplier, including replacement of base equipment and the 

replacement of parts or accessories for base equipment that is being replaced for reasons other 

than servicing of the base equipment (for example, the need for a more durable piece of 

equipment given the beneficiaries weight or equipment usage). As was stated in my 2010 

testimony, absent a strong effort to establish a comprehensive beneficiary education effort by the 

Medicare agency, beneficiaries in this circumstance may face serious access and payment 

challenges. 

An additional repair and replacement concern is that some beneficiaries have complained that 

their suppliers are changing the products and items they carry and service, frustrating access to 

certain Medicare-covered items. A rationale for such changes, along with adequate notice to 

beneficiaries, is necessary. 

71' 
84 


Insert offset folio 50 here 80258.050

Additional matters 

eMS' April 2012 assessment of the DMEPOS program 

Savings 

The projected savings announced in CMS' April 2012 assessment is substantia!. We hope these 

savings can be sustained with minimal impact on beneficiary access. Out-of-pocket savings to 

beneficiaries is an important access mechanism in promoting service and benefit utilization. 

Admissions Data 

We apprcciatc thc focus ofthc Mcdicare agcncy on "secondary indicators of access to DMEPOS 

such as hospital admissions, emergency room visits, physician visits and admissions to skilled 

nursing facilities before and after the implementation of the DMEPOS competitive bidding 

mode!."] It is, nonctheless, important to state that morc research and analysis, form a variety of 

disciplines and perspectives, is obviously necessary in order to establish a reliable and verifiable 

correlation between admissions data from specific health care settings and DMEPOS utilization 

and access. 

Complaint Data 

It is difficult to rely on the CMS complaint analysis as a measure of how well the DMEPOS 

competitive bidding program might be working. As said elsewhere in this testimony, few 

beneficiaries file complaints or enter the Medicare appeals process even when faced with serious 

access to and denial of service problems. We are not at all surprised at the overall low number of 

complaints received4 Random beneficiary calls are useful, as is adding DMEPOS fields on 

beneficiary satisfaction survey forms. Moreover, the Medicare agency is still relatively early on 

in the implementation of the DMEPOS program. Data about the program at this point should be 

viewed for the limited, but important, value it represents - a CUlTent snapshot. 

Beneficiary Out-of-Pocket Savings 

This area of the CMS rep01i is the most exciting. We hope over time that cost-savings will 

increase and that access is not impacted by decreasing costs. Similarly, we remain concerned 

that providers carry a range of products within product categories and that beneficiaries are not 

inappropriately required to change brands or types of DMEPOS and supplies in order to stay 

within supplier costs parameters dictated by the competitive bidding process in local markets. 

'Ibid .. p. 4. 

4 Advocates and beneficiaries find it difficult to get through to the Medicare ombudsman for 

discussion and review of Medicare problems. Rather, Advocates and beneficiaries are generally 

shunted back to Medicare's "1-800" number, often experiencing long wait times. In addition, 

the quality of the information provided when one gets to a "live" person is often uneven. 

81 t' 
85 


Insert offset folio 51 here 80258.051

DMEPOS Supplier Standard, 

In general, we are pleased to see the level of detail provided in CMS' DMEPOS supplier 

standards. 5 We think they will be helpful to all concerned. We hope that CMS will take 

particular elements of these standards and turn them into beneficiary education pieces, using a 

variety of media and approaches. This could potentially enhance beneficiary knowledge about 

thc DMEPOS compctitivc bidding program. 

Areas of the standards for discussion: 

Standard # (b) II - Direct solicitation of a Medicare beneficiary 

Solicitation of beneficiaries by unscrupulous persons is always a problem. CMS must have in 

place a comprehensive monitoring approach. The approach should be viewed expansively so as 

to include new forms of media as they emerge, particularly the internet and the use of so called 

"smart phones and related devices." 

Standard #'s (b) 19 & 20 - Beneficiary Complaint Information 

It is imperative to keep good data on beneficiary complaints, including the nature and frequency 

of the complaints. We are pleased that the standards require the name of the person receiving the 

complaint, a description of the problem, and a summary of the action taken to resolve the 

complaint. We are concerned that data about complaint resolution is sufficiently complete to 

allow an analysis of spccific problcm arcas and thc solutions proposcd. In addition, wc would 

like to see the data set expanded to include information about the resolution of complaints that 

are taken through the Medicare administrative appeals process. 

Conclusion 

We remain cautious about the DMEPOS program, but hope our concerns regarding beneficiaty 

access and information will be addressed to ensure continued positive development of the 

program for beneficiaries and their families. Likewise, we hope the DMEPOS competitive 

bidding program will be able to sustain projected cost savings, while reducing fraud, waste, and 

abuse. We also note the concern of suppliers that use the DMEPOS competitive bidding 

program as an excuse to make business decisions - unrelaLed Lo the program - thaL adversely 

impact beneficiary access. Finally, we want to ensure beneficiaries have ready recourse when 

problems arise. We think, nonetheless, that if properly implemented, including expanded 

beneficiary education cfforts and safeguards, the DMEPOS compctitive bidding program could 

be a positive force toward beneficiaries getting the supplies they need while keeping down costs 

to taxpayers. 

Thank you very much. 

91 !'" 
86 

f 

Chairman HERGER. Mr. Marx, CMS has stated that the Medicare actuaries’ estimate that the current competitive bidding program will save more than $25 billion over the next 10 years with 

the Congressional Budget Office offering a figure in the same ballpark over the same period, realizing that it is challenging the past 

legislation that increases expenditures. What impact do you expect 


Insert offset folio 52 here 80258.052
87 

that the market pricing program that you support as a replacement 

would have on Medicare expenditures? 

Mr. MARX. Thank you for that question, Chairman Herger. The 

MPP, Market Pricing Program, is designed to be budget neutral. 

The Association and the industry supports a program that will 

keep the same savings for Medicare and beneficiaries through that 

10-year program, and we are prepared once we get the scoring to 

make sure that it does reach that goal. 

Chairman HERGER. If CBO were to come back with an estimate 

showing that MPP would increase spending, would the industry be 

willing to accept additional reductions to ensure that replacing 

competitive bidding with MPP is budget neutral? 

Mr. MARX. I would not expect that, but we are certainly open 

to looking at any alternative to fix a flawed program that is going 

to harm beneficiaries in the long run. 

Chairman HERGER. Thank you. 

Mr. Sale, your organization has focused on small suppliers and 

as someone who comes from a small business background myself, 

I certainly want to make sure that small businesses are able to 

compete on a level playing field. Considering that CMS set a target 

for small supplier participation to equal 30 percent, and both CMS 

and GAO state that actual participation exceeds 50 percent, do you 

believe that small suppliers are adequately represented in the competitive bidding program? 

Mr. SALE. Thank you for that question, sir. I have heard the 

numbers 30 and 50, 51 percent thrown around today several times. 

In looking at the Round 1 bidders, there are looked to be around 

7,000 bidders. There were 350 or so winners. My membership is 

comprised of about—well, of those 7,000 bidders, about 96 percent 

of them are small businesses. So when you eliminate 90 percent of 

7,000, you eliminate 6,300 small businesses. The 30 percent of the 

350 that they were supposed to hit, they hit 50 percent. So you got 

175 of that 350 are small businesses. The rest of larger. Just applying the percentages. It may not be totally accurate. 

So the answer is the competitive bidding process leaves a vast 

majority of small businesses outside of the Medicare program and 

subsequently, reduces the competition in the marketplace to frightening levels where service, access and innovation we believe will 

suffer. How could it not? 

Chairman HERGER. Thank you. Mr. Martis, I would expect a 

supplier to be firmly in the camp that higher Medicare fee schedule 

payment rates are strongly preferable. And I understand you have 

experienced no significant problems with lower reimbursements 

that resulted from the competitive bidding program. How was your 

company able to continue operating while seeing significant reductions in Medicare payments? 

Mr. MARTIS. Thank you, Chairman Herger. There are a number 

of reasons for that. One of the reasons is with the method that 

competitive bidding was structured, the very same issues that have 

been brought up here have actually benefited us in higher volumes, 

so higher volumes have, in fact, replaced the per-service reimbursement reduction. 

The second thing that we had to do at our company is, we had 

to learn how to use technology, and how to become more efficient 

88 

in our service provision. That does not mean that we, in any way, 

decreased service provision to the beneficiary, or the quality of 

services. It just meant using technology for greater efficiencies. 

In fact, in some cases, Chairman Herger, we have increased the 

provision of equipment to the patient, which has increased the 

quality of care and has decreased our cost. For example, Dr. Price 

was mentioning oxygen and PAP as life-saving care. And we have 

now started to use portable concentrators. We have started to use 

APAPs instead of just plain CPAPs, which is increasing the quality 

to the patient, but decreasing our service costs. 

Chairman HERGER. Thank you, Mr. Thompson is recognized. 

Mr. THOMPSON. Thank you, Mr. Chairman, and thank you to 

the witnesses for being here. Mr. Chiplin, the savings achieved 

through competitive bidding, is certainly a preferable proposal than 

one that would increase cost to beneficiaries, or erode the guaranteed benefits in my view. And I am pleased that this rebid seems 

to be running much better than the original program, and I am 

glad that beneficiaries are saving money. 

My question to you is, if we went back to the—if we didn’t do 

it this way, would we, in fact, raise cost to beneficiaries or erode 

the Medicare guarantee, such as premiums support, increased costsharing, and income-related premiums? And would you agree that 

that would be the case, and would have a negative impact on the 

beneficiaries? 

Mr. CHIPLIN. Thank you, Mr. Thompson. In general, yes, I 

think those are very serious areas of concern. 

Mr. THOMPSON. Now, in your testimony before the Energy and 

Commerce Subcommittee on Health in 2010, you noted that it was 

difficult to find beneficiary-specific information on CMS’s Web site. 

Is that correct? 

Mr. CHIPLIN. Yes, sir. 

Mr. THOMPSON. Has CMS addressed these problems? 

Mr. CHIPLIN. Well, I did a little homework before coming over, 

and it is still difficult to find, get to the information. Once you get 

to the information, it is actually pretty good. It is a big scavenger 

hunt. That is the term that I use for it. That is why I propose that 

we have a special Web site that is dedicated to seniors, to beneficiaries that really starts with their concerns and not just an addon to what we are dealing with with the suppliers. Because their 

issues and concerns are different, although there are overlaps, but 

they are basically different. 

Mr. THOMPSON. So that would be your recommendation? 

Mr. CHIPLIN. Yes, sir. 

Mr. THOMPSON. How about, a lot of beneficiaries, Medicare 

beneficiaries don’t have access to the Internet. How do you deal 

with that universe? 

Mr. CHIPLIN. Well, actually, the Medicare population is increasing its access to the—— 

Mr. THOMPSON. It is increasing, but it is not all there yet. 

Mr. CHIPLIN. Is the not all there, but it is certainly on the uptick. I think that you have to educate beneficiaries in a variety of 

ways. You have to use all kinds of media, written, word of mouth, 

television, all kinds of things, and also an intergenerational eduVerDate Mar 15 2010 22:47 May 08, 2013 Jkt 080258 PO 00000 Frm 00092 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80258.XXX 80258
89 

cation approach, because seniors rely on their family members and 

children for basic information about all kinds of services. 

Mr. THOMPSON. Mr. Marx, I would like to look at the estimated costs of the market pricing proposal, and one of the key elements of your proposal would be higher payments using a clearing 

price as opposed to the median price, and have you had this 

scored? Has this been scored? Push the button. 

Mr. MARX. The industry has had it scored, but not through CBO 

yet. It is at CBO awaiting scoring. 

Mr. THOMPSON. How is it that you assert that it would be revenue neutral if you haven’t yet had it scored? 

Mr. MARX. Well, there is an estimated increase in payments 

going from the market price to the clearing price, but we are expanding the universe of patients, which in Round 2, is going to affect right now in somewhere in the 50 to 60 percent range, and our 

program expands it to about 70 percent of the Nation, still maintaining that rural exemption. So we are picking up a greater population base at a slightly increased cost, which keeps businesses 

afloat, and that 3, 4, 5 percent difference will make a difference 

long-term. 

Mr. THOMPSON. But the price would still be higher than under 

the current program? 

Mr. MARX. It will be higher for those in that 50 percent range. 

It will be substantially lower for the 20 percent of the patients that 

are added additionally. 

Mr. THOMPSON. You had mentioned in your initial remarks 

that—I think you said bids are not binding. 

Mr. MARX. Currently, yes. 

Mr. THOMPSON. Currently. I find that difficult to deal with, 

and I, along with Mr. Sale, believe that once the bid is made and 

it is accepted, the deal is the deal. And if it is a moving target, it 

is extremely difficult to do business, and I would think that the 

beneficiaries are on a little shaky ground as well as far as knowing 

that they are—that their needs are going to be addressed. Is there 

anything that you want to add to that nonbinding binding bid? 

Mr. MARX. Not only are the bids not binding, March 30th, we 

placed our bids for the Round 2 locations, and that period is from 

July 1st, 2013, until June 30, 2016. So not only are the bids not 

binding, the bids that we are submitting don’t even go into effect 

for 15 months, and then they are in effect for 36 months after that. 

And how do I estimate my costs for gasoline 41⁄2 years from now? 

You can’t make a valid bid when you have that long a period between the time you placed the bid and the response you get back 

from the seller. 

Mr. THOMPSON. Thank you. 

Chairman HERGER. Mr. Nunes is recognized. 

Mr. NUNES. Thank you, Mr. Chairman. Mr. Wilson testified in 

the last panel that essentially everything was going forward, working well, there were no problems and he disputed the letter from 

the 200 economists who said that this program was not working 

well and needed to be fixed, changed, in some way. 

So who is right? The economists, or Mr. Wilson? We will start 

with Mr. Marx and I will let you all answer. 

90 

Mr. MARX. The economists did not say that the program is affecting beneficiaries today. What they are saying is, the long-term 

success of the program will ultimately decimate the industry, and 

you will have an access issue down the road. The pricing that is 

being used today is less than the best price submitted by half of 

the providers. So how can they—if they are putting in their best 

price, and the bid comes back lower than that, how can they maintain that long-term? That is the real issue. And when you only 

have 6 percent of the population affected by it right now, there is 

a lot of cost shifting and support from outside of the markets. 

Mr. NUNES. What about the examples that we were, that some 

of us gave to Mr. Wilson, and he disputed the data or seemed not 

to be aware of the data, how we have reduced 90 percent in terms 

of the numbers of suppliers. The data that we presented in the 

questioning that the members of this panel presented to—of the 

committee presented to the panel, are those, are you aware of these 

numbers that 90 percent of the suppliers in many areas are basically not able to compete? 

Mr. MARX. I am fully aware. That has been ameliorated a little 

bit by the grandfathering position, which gradually, which allowed 

existing patients to continue with their existing suppliers up till 

January 1st of this year. So that is just starting to kick in. Last 

year existing patients were not disrupted, which was an appropriate decision from the beneficiary’s perspective, not forcing them 

to change providers. 

Mr. NUNES. Mr. Sale? Would you like to comment? 

Mr. SALE. Yes, sir, thank you for the question. I have heard 

both sides, and I think the economists are looking at the future 

growth of the Medicare population, along with the trillions of dollars in unfunded debt that our country is looking at. I think the 

economists are looking forward and up. I think CMS is looking 

backward and down at the performance of a program that has lots 

of numbers that we don’t know about, and lots of data that we 

can’t see. 

Mr. NUNES. So I want to just to drill down this a little bit. So 

the CBO number of $25 billion, you don’t believe that that savings 

is going to be realized? 

Mr. SALE. I believe that it is forced savings, if it is correct. I 

tend to think they are inflated. 

Mr. NUNES. Maybe meaning that there will be lack of coverage 

at some point? 

Mr. SALE. Well, I don’t see how, when you eliminate 90, or 95 

percent in your example, of the competitors in the marketplace you 

can’t—you eliminate competition subsequently in every economic 

example I have seen. Prices go up in such an environment. So yes, 

I think it is unsustainable. Since the program seems to be 

unsustainable, certainly the savings would be, I think, overstated, 

yes. 

Mr. NUNES. Okay, Mr. Martis. 

Mr. MARTIS. Thank you, Congressman. While I cannot speak to 

the numbers of the economists, I can speak to what CMS has done 

with this program. So I would say I think CMS, or since you asked, 

Mr. Wilson, I think is correct. It has been said that we are depleting competition. We are not depleting competition. While there are 

91 

reduced number of providers, the providers that remain are adequately able to take care of the demand and we are also aware of 

the numbers of participants or beneficiaries that are expected into 

this system. 

I think CMS has done a very good job at deciding what a company’s capacity in actuality can be. They had conflicting mandates. 

I mean, on one hand, we are saying we will give them choice, or 

we have to give a patient a beneficiary choice; on the other, we are 

saying, well, we have to also do a bid. In normal bids, the lowest 

price wins as long as they have a certain accepted quality, and they 

have a certain accepted capacity. But here we have a number of 

different providers. I don’t believe if we allow every single provider 

back in, and we reduce costs, I don’t believe it is sustainable. I believe it sustainable as it stands today. I think CMS has designed 

the best program they could within the mandates that they have 

been given. 

Mr. NUNES. Okay, thank you, Mr. Martis. My time is expired. 

Thank you, Mr. Chairman. 

Chairman HERGER. Dr. Price is recognized. 

Mr. PRICE. Thank you, Mr. Chairman. Mr. Sale, I just want to 

commend you for what I think was probably the most eloquent description of the lack of competition in competitive bidding. I think 

we will probably replay that over and over and over. Mr. Martis, 

I am struck by your last comment. Do you believe it is the role of 

the Federal Government to determine how many providers are out 

there? 

Mr. MARTIS. No, sir, I—— 

Mr. PRICE. You just said that the number of providers that CMS 

has determined are an adequate number, so I—is my conclusion 

correct that you believe it is CMS’s role to determine how many 

providers are out there? 

Mr. MARTIS. No, sir, I think it is CMS’s role to reduce expenses 

to beneficiaries, to keep the program viable for the beneficiary, and 

for the DME dealer, and to ensure a certain amount of quality and 

access to care. I believe they have done that. 

Mr. PRICE. And I guess that is my concern, that CMS, a certain 

amount of quality, which is what I heard you and what I hear CMS 

talking about all the time. But it may not be the level of quality 

that the patients desire or want. 

Mr. Marx, I was struck by CMS’s comment that there were, and 

kind of offhand comment, that there were some suppliers who 

‘‘didn’t meet the terms of the contract.’’ What does that mean to patients when somebody doesn’t meet the terms of a contract? 

Mr. MARX. My guess would be that—— 

Mr. PRICE. Want to turn your mic on please. 

Mr. MARX. My assumption would mean that they are not providing the service to the patients that they contracted to provide. 

Mr. PRICE. What does that mean? 

Mr. MARX. I don’t know what Mr. Wilson meant, whether a patient called and asked for a service, and it was too late in the day 

to provide it, or it was in an outlying area. Those could be areas 

where the provider let the patient down. 

Mr. PRICE. And the service might be a hospital bed, or a walker, 

or a cane, but it might be an oxygen supply. 

92 

Mr. MARX. Oh, it could be oxygen. It would be CPAP. It could 

be life-sustaining items. 

Mr. PRICE. Life-sustaining items? 

Mr. MARX. Yes. 

Mr. PRICE. So when CMS selects suppliers who don’t necessarily 

meet ‘‘the terms of the contract,’’ that could be life-threatening to 

patient? 

Mr. MARX. Yes, it would be life-threatening. 

Mr. PRICE. I am impressed by this MPP, the Market Pricing 

Program that has been proposed that you all have proposed, because I think that it gets to the same level of savings in a way that 

provides much more efficient and higher quality, and more responsive care to patients as well as continuing to allow for innovation. 

Would you take a little time and just describe the Market Pricing 

Program for us? 

Mr. MARX. The Market Pricing Program is an auction program 

run by auction experts. It is proposed to be run electronically 

through an iterative process that reduces the pricing down to a 

true cost to do business. It is competitive. It allows multiple contracted providers, and it requires that if you want to bid, you have 

to be viable, you have to have a bid bond, a performance guarantee. 

If you bid it, and the pricing is above your bid, you will contract 

or forfeit your bid bond. 

It makes a fair pricing program, but it also preserves the choice 

of consumers. It keeps a larger population of local providers. It reduces the size of the bid area, whereas in an area of Cincinnati, 

there are three States the provider must serve to serve patients in 

that contract: Ohio, Kentucky and Indiana. They are all part of 

that competitive bid area, and for a small provider to be licensed 

in three States and meet three States’ regulations and a territory 

that could amount to 80 or 100 miles across, it is very difficult. 

The MPP reduces the size of the markets so that local providers 

can serve their local community as they have done for years. 

Mr. PRICE. So by exclusion of the small local providers CMS, by 

design of their program, CMS is, in essence, decreasing the responsiveness and the ability for patients to receive the care that they 

received in the past. Would you agree with that statement? 

Mr. MARX. I do. 

Mr. PRICE. Thank you, Mr. Chairman. 

Chairman HERGER. Thank you. Mr. Tiberi is recognized. 

Mr. TIBERI. Thank you, and thank you for allowing me to be 

here today, Mr. Chairman, to participate in this hearing. Mr. Marx, 

do you believe that allowing bids to be nonbinding encourages lowballing? 

Mr. MARTIS. Congressman, if a provider would like to low-ball, 

yes, the answer is yes, it could. I don’t know whether it encourages 

low-balling, but a submission of a low-ball bid is possible. However, 

my understanding of what CMS did in this bid process, is they took 

out the outlier bids, the highest and the lowest, and tried to come 

to a median bid on the remainder. 

My own personal experience, what we did with our company, is, 

as I stated before, for the majority of the bids, or actually all of the 

bids, except for oxygen, where we were dead-on. For all of the other 

bids, we are .05 percent away from the current allowed amount. So 

93 

I don’t see why providers would low-ball the bid to a level where 

they know they can’t provide service. 

Mr. TIBERI. Did you enter into all contracts that you were 

awarded? 

Mr. MARTIS. Did we enter all contracts that we were awarded, 

sir? Yes, we did. 

Mr. TIBERI. Were the payment amounts adequate to cover the 

project categories that you talked about that you were involved in? 

Mr. MARTIS. We believed so, because as I said, Congressman, 

we were .05 percent away from the allowed amount, so yes. 

Mr. TIBERI. Do you plan on participating into Round 2, and if 

so, like areas like Columbus, Ohio? 

Mr. MARTIS. We do, yes, sir. 

Mr. TIBERI. So you plan on participating? 

Mr. MARTIS. Yes, sir. 

Mr. TIBERI. Mr. Sale, you talked about this process of Market 

Pricing Program, or this new proposal. Would it have similar effects on reducing expenditures and beneficiary costs in your opinion? 

Mr. SALE. Would it have effects on reducing what, sir? 

Mr. TIBERI. Beneficiary cost, and cost to Medicare’s over all expenditures that CMS argues their current process does? 

Mr. SALE. I certainly think it would reduce the expenditures 

from where they are now, and I think 20 percent of that is going 

to reduce and save beneficiaries. I would like to say, though, that 

the 20 percent coinsurance that is left after Medicare has paid its 

80 percent, generally is paid by insurance companies. We talk 

about beneficiary savings, but 89 percent of my patient population 

that is Medicare, has a coinsurance; some through, you know, any 

other the Anthems, the AARPs. So they pay a monthly premium 

to someone to cover that $17 billion. 

So I would like to nullify the fact that these are really beneficiary savings. In many cases, these are insurance savings, and if 

you put that into context, the answer is both numbers will go 

down, yes. 

Mr. TIBERI. Thank you, you mentioned something that I don’t 

know if you were in the room when I was questioning Mr. Wilson, 

but I asked him with respect to the current process, did he believe 

that you would have—the current process would force fewer suppliers ultimately, sooner but certainly later, fewer suppliers in the 

business and then ultimately, we would have more beneficiaries? 

Everyone knows that we are going to have more beneficiaries, 

fewer suppliers. Would that lead to increased costs ultimately? He 

said no. Can you comment further on that based upon what you 

already said? 

Mr. SALE. Well, I am not. 

Mr. TIBERI. Why you believe that there will be fewer suppliers 

under the current system? 

Mr. SALE. Several reasons. First of all, this program as it is designed, has been in play a year. And already, 40 percent of those 

who submitted bids that are in bid areas that didn’t get them, 40 

percent of those businesses are going out of business. 

I have brought letters with me from people in CBAs. One company in particular that was almost 30 years old, they were left out 

94 

of the Medicare system. And when their patients were moved over, 

they went out of business. And it is not unusual to see those businesses fall in the process that is happening now. 

As the prices go down and the incentives to improve service and 

access are decreased, I believe service and access will decrease. 

And as businesses go out of business, and the 3-year contracts run 

on, when the rebid comes, there will be fewer and fewer people to 

bid, and subsequently, bids will go up. It is a supply/demand axiom 

that is pure, is true in every area. 

Mr. TIBERI. Thank you, Mr. Chairman, for indulging me and allowing me to go over. If I can just ask the chairman if we could 

ask both the—Mr. Sale’s association, and Mr. Marx’s association to 

provide some additional information regarding the number of folks 

who have gone out of business, because that is in direct conflict to 

what Mr. Wilson said. 

Chairman HERGER. Without objection, if you would supply the 

committee with that information, we would appreciate it. Certainly. 

Mr. SALE. Yes, sir. 

Chairman HERGER. Thank you. Mr. Stark is recognized. 

Mr. STARK. Thank you, Mr. Chairman, and I thank the panel 

for their informative testimony. My concern is that outside of the 

fact that I get more emails from the Scooter Store than I do from 

Viagra telling me that I can have the scooter free, and Medicare 

will pay for it, the small supplier who doesn’t bid is pretty much 

put out of business by the person who wins the bid. I don’t see that 

that is particularly fair. 

I guess, to cut to the chase, I would suggest, and I would ask Mr. 

Chiplin if there would be any real problem? We do it in most other 

things that we just set through negotiation or comparative shopping, set a price. This is what we will pay for oxygen. I don’t know 

that I would want to pay any more than a welding shop does, but 

the same guy delivers the oxygen to the welding shop as to grandma. I see absolutely no difference there. 

It has to be there at a certain time. They don’t want to let them 

run out. A tank is a tank. They are all standard. There are only 

a couple of suppliers of oxygen tanks. They are all alike. And I presume they are all priced the same. Perhaps they are made in different parts of the country for shipping reasons, so why wouldn’t 

it be possible for the government to set a price? And then anybody 

who chooses to provide the equipment or the service can do it? 

Mr. CHIPLIN. Well, thank you, Mr. Stark. In general, there are 

many ways that you could have designed the program, and 

achieved the similar kind of goal. I think what you have recommended should be explored. The bottom line for the beneficiary 

community is that they are able to get the services that they need, 

timely, and in the sufficient amount and quality. 

Mr. STARK. All of these products, it seems to me, are something 

I could go to the medical supply store and buy. 

Mr. CHIPLIN. Yes, sir. 

Mr. STARK. And so why should a Medicare beneficiary, or myself, or anybody else have anything different? If we go out and the 

government goes out to buy a pickup truck, we set a price. And 

then if you want to deal, if you are a local agency with a local Ford 

dealer, Chevy dealer go ahead, wherever you happen to like the 

95 

service. Same thing is true of Star Wars or nuclear weapons. We 

don’t have to put those out to bid. We don’t have a lot of suppliers 

for them, but—— 

Mr. CHIPLIN. It I think what you are—— 

Mr. STARK. [continuing]. But what we have in particularly 

small suppliers, who are apt to, you know, the Scooter Store guys 

go around and get the bid in the community, and then they subcontract through the local person and skim off the top. I don’t know 

why we should have to continue that. Is there any good reason? 

Mr. CHIPLIN. Not to my knowledge, sir. 

Mr. STARK. Anybody else think of any reason why we shouldn’t 

just set a price, and if you want to sell at the price, fine. 

Mr. SALE. My I respond? 

Mr. STARK. Sure. 

Mr. SALE. Thank you for the question, Congressman Stark. I 

hear intermittently as we are talking about the services that Medicare offers under the DME benefit, and I would like to clear up, 

there are no services paid for under the DME benefit. It is only 

equipment, one. Two, when we are paid, we are only paid for the 

equipment, but the list of things that we must do in order to get 

paid continues to grow through the years as CMS has added requirement after requirement after requirement. 

Mr. STARK. You buy a jet fighter, you are paying for the jet and 

not all of the fussing, so—— 

Mr. SALE. That is true. You pay for the jet and the building and 

the labor that goes into it. You don’t pay anything for—you have 

an oxygen machine delivered, they don’t pay anything for the oncall, the 24/7 on-call. They don’t pay anything for the billing requirements. 

Mr. STARK. Why should they? That is part of the service, for 

heaven’s sakes. I mean, come on. 

Mr. SALE. They don’t pay for service. 

Mr. STARK. McDonald’s is there 24/7. I don’t pay any more for 

the hamburger at midnight than I do at noon. 

Mr. SALE. We are an emergency service, and the calculations 

that they have put in place for reimbursing oxygen, and CPAPs, 

are based only on the cost of the equipment. 

Mr. STARK. Fine. 

Mr. SALE. They don’t include the service. We have to put that 

in, that is the small business’ investment in its community and in 

the patient care. 

Mr. STARK. Right. And why should anybody be excluded? 

Mr. SALE. Well, we have to supply that, otherwise you could go 

to an Internet and get what you wanted. 

Mr. STARK. That is even better. 

Mr. SALE. But they can’t bill Medicare. They don’t meet the requirements that are—— 

Mr. STARK. If it is at a price, I mean, all of this mumbo jumbo 

about bidding is nonsense. Government could set a price, and anybody that could provide it would. That is how it should work. 

Mr. SALE. And I think that is the way it was. They were administratively set for years, and then Congress came up with the idea 

to see if we could drive the cost down a little bit through competition. And competition is fine. We don’t mind competition. We just 

96 

want fair competition, and if you are going to have a bidding process, we would like to have competition as one of the factors of it. 

Mr. STARK. I say, let’s do away with the bidding process. Set a 

price. 

Mr. SALE. Really, we should do away with the CMS process that 

is cumbersome and time-consuming and takes years and years and 

years; put an MPP plan in place that could be done in 6 months, 

and rebid it every 2 years so that we can be sustainable for decades 

to come. 

Mr. STARK. Well, we are not here in the business to sustain 

your business for decades to come. That is hardly competitive. 

Mr. SALE. No, I have 78 million baby-boomers coming and aging 

is a disabling process. 

Mr. STARK. I don’t care. 

Mr. SALE. We are planning for that. 

Mr. STARK. Okay. Thank you, Mr. Chairman. 

Chairman HERGER. Thank you, and it would be nice if we could 

set a price. Maybe set it a little bit above free, but how do we know 

what that price is? I think that is what the question is. How do 

we know what the price is, and I think the success of this great 

Nation of ours is the free enterprise system where the marketplace 

has set what that price is. And I think that is what really the purpose of our hearing is today, to how do we get the lowest price that 

we can have and still sustain the quality that we need. 

With that, I want to thank each of our witnesses for your testimony today. Hearing such a range of perspectives has been helpful 

to the subcommittee. It is important for members to understand 

the impact that competitive bidding has on beneficiaries, suppliers, 

and Medicare expenditures. Since it would not be prudent, or viable to simply return to the often, excessive payment rates of the old 

DME fee schedule, I want to commend the supplier industry for offering an alternative that is based on competition and aims to set 

prices using market forces. 

The subcommittee will carefully consider all of this information. 

It is my hope that the Congressional Budget Office will soon inform 

us as to the spending implications of moving to such a proposal. As 

a reminder, any member wishing to submit a question for the 

record will have 14 days to do so. If any questions are submitted, 

I ask that the witnesses respond in a timely manner. With that, 

the subcommittee is adjourned. 

[Whereupon, at 11:32 a.m., the subcommittee was adjourned.] 

97 

Questions For The Record 

Member Questions 


Insert offset folio 53 here 80258.053

Committee on Ways and Means 

Subcommittee on Health 

Hearing on the Medicare Durable Medical Equipment Competitive Bidding Program 

May 9, 2012 

Question: 

Answer: 

Question: 

Answer: 

Questions for the Record for 

Laurence Wilson, Centers for Medicare and Medicaid Services 

Chairman Herger 

One of the criticisms raised by suppliers during the initial Round 1 was that 

a 26 percent reduction in reimbursements wouldn't be sustainable. 

However, when suppliers rebid Round 1, the median winning bids were even 

lower, representing between 32 and 35 savings, on average. Can you explain 

why the rebid produced greater savings? Does CMS expect this trend to 

continue in Round 2? 

CMS has not specifically investigated why the Round I Rebid resulted in greater 

savings than the initial Round I and has not yet completed bid evaluation for 

Round 2. However, the Department of Health and Human Services' Office of 

Inspector General. the Government Accountability Office, and other independent 

analysts have repeatedly warned! that the fee schedule prices paid by Medicare 

for many DMEPOS items are excessive, as much as three or four times the retail 

prices and amounts paid by commercial insurers or customers who purchase these 

items on their own. The competitive bidding program single payment amounts 

arc based on suppliers' bids that have bccn carefully serecned and evaluatcd to 

ensure that they are bona fide (rational and feasible). CMS' real-time claims 

monitoring program and subsequent follow-up have shown that beneficiaries' 

access to necessary and appropriate items and supplies has been preserved. This 

would indicate that the payment amounts established through the competition are 

sustainable. 

A concern frequently expressed is that winning suppliers may sign a contract 

with CMS with the expectation that it fulfill a certain amount of capacity 

within a market only sit on its hands and not supply the product. How many 

ofthe 356 suppliers have failed to supply even a single item? Has CMS 

tracked the expected market share identified in suppliers' bids against actual 

market share in the Round 1 re-bid? 

The capacity estimates in a supplier's bid represent the maximum number of 

items the supplier estimates it could furnish annually throughout a competitive 

I See, for example, Comparison of Prices for Negative Pressure Wound Therapy Pumps, OEI-02-07-00660, 

"March 2009; Power Wheelchairs in the Medicare Program: Supplier Acquisition Costs and Services, OEI-04-07-

00400, August 2009; Medicare Home Oxygen Equipment: Cost and Servicing, OEI-09-04-00420, September 

2006. 

1 
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Question: 

Answer: 

bidding area (CBA) if awarded a contract. CMS validates these capacity 

estimates during the bid evaluation process and awards contracts to more than 

enough suppliers to meet beneficiary demand. The competitive bidding program 

contracts require each contract supplier to furnish items in its contract to any 

bcneficiary who lives in or visits the competitive bidding area and requcsts those 

items from the contract supplier. Because of statutory requirements that 

guarantee beneficiary choice, beneficiaries may choose to obtain their items from 

any contract supplier. Therefore, competitive bidding program contracts do not 

guarantee any set volume of business, and contract suppliers must compete based 

on customer service and quality to gain market share. Thus, a contract supplier 

that furnishes items in its contract to any beneficiary who lives in or visits the 

CBA who requests them is in compliance with competitive bidding program rules 

even if that supplier has not furnished the maximum number of items in its bid. 

Contract suppliers can also furnish more than the maximum number of items in 

their bids. It is important to stress that CMS' real-time claims monitoring and 

subsequent follow up has indicated that beneficiaries' access to necessary and 

appropriate items and supplies has been preserved. 

Twelve contract suppliers that have contracts only for the group 2 complex 

rehabilitative power wheelchair product category did not furnish any items in 

their contracts during 2011. CMS was required by law to bid this product 

category in the Round I Rebid, but the vast majority of beneficiaries who need 

complex rehabilitative power wheelchairs use group 3 or higher power 

wheelchairs, not group 2. Because of very low demand and low savings potential 

for these items, this product category was not included in the current Round 2 

competition. 

Thirteen suppliers that have contracts for other product categories did not furnish 

any items in their contracts during 2011. This is less than 4 percent of the 356 

contract suppliers. CMS recently conducted secret shopping for these 13 

suppliers and confirmed that most of them are prepared to meet their contractual 

obligations. CMS will take enforcement action against any supplier that is 

determined to be in breach of its contract. 

We note that CMS has terminated the contracts ofa few suppliers; some of these 

suppliers may not have furnished contract items before tennination. 

I understand that many in the supplier industry are touting an analysis of 

claims information for the first nine months of 2011 showing beneficiary 

access problems and adverse outcomes. How do you respond to criticisms 

that this data analysis contradicts eMS' assertion that the program isn't 

harming benet1ciaries? 

CMS is aware of a January 20,2012 paper that claims to have found evidence of 

beneficiary access problems in the Round I Rebid competitive bidding areas. The 

paper contains strikingly inaccurate results because it uses technically flawed 

2 
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Insert offset folio 55 here 80258.055

analysis; the actual results described in eMS and GAO testimony are significantly 

different. Here are examples of some of the deficiencies that caused the 

inaccurate conclusions in the paper: 

It assumes that the pre-competitive bidding market is optimal and should 

be preserved when in reality there have been numerous reports 

documenting problems with fraud and overutilization in the Medicare 

durable medical equipment, prosthetics, orthotics, and supplies 

(DMEPOS) sector. 

It improperly analyzes claims data by: 

o failing to consider claims lag (the widespread practice of waiting to 

submit claims for a period of time (up to 12 months) after items are 

furnished) and thereby greatly underestimating the number of 

items furnished since the program began; 

o counting claim lines (which can each include a varying number of 

items) instead of allowed services; 

o failing to make any adjustments to consider typical DMEPOS 

billing patterns (i.e., more claims toward the end of the year after 

beneficiaries have met their deductible); and 

o using date of claims receipt to establish baseline utilization but 

switching to date of service for 2011 (not comparing "apples to 

apples"). 

Together, these mistakes resulted in extremely inaccurate volume 

estimates. 

It misrepresents the health status outcomes data that is available on the 

eMS website in the following ways: 

o It looks only at data from competitive bidding areas and ignores 

comparator areas. 

o It does not examine historical trends where the eMS data track 

trends for four years. 

o It relies on incorrect assumptions about the equipment needs of 

beneficiaries being tracked in the monitoring data. Specifically, it 

incorrectly assumes that all people with a diagnosis that makes it 

likely that they may need competitively bid equipment actually do 

need the equipment. It also assumes that anyone who has not 

submitted a claim for the equipment is still in need of the 

equipment (beneficiaries may have received equipment 

unnecessarily or have been victims of fraud). Further, it assumes 

that beneficiaries who have not submitted a claim for an item are 

not using the item, but data show that beneficiaries had months of 

oversupply of certain items2

• It builds on these mistakes by 

2 eMS's monitoring revealed declines in the use of mail-order diabetes test strips and continuous positive airway 

pressure (CPAP) supplies in the competitive bidding areas. In response to these declines, eMS initiated three rounds 

of calls to users of these supplies in the nine competitive areas, two rounds of calls for users of mail-order diabetes 

test strips and one round of calls to users of CPAP supplies. In each round, eMS staff randomly identified 100 

beneficiaries who used the items before the program began but had no claims for the items in 2011. The calls 

revealed that in virtually every case, the beneficiary reported having more than enough supplies on hand, often 

3 
100 


Insert offset folio 56 here 80258.056

Question: 

Answer: 

assuming that any negative health outcomes for beneficiaries who 

are not using the equipment result from lack of use. 

In fact, the health status outcomes data, which are posted on the CMS 

website at http://wvvw.cms.goviMedicare/Medicare-Fce-for-ServicePaymentIDMEPOSCompetitiveBid/Monitoring.html, have consistently 

shown that the trends in competitive bidding areas are consistent with 

trends in comparison areas. No changes in health status outcomes 

resulting from the competitive bidding program have been observed to 

date. 

What factors went into eMS' decision to select the nine geographic areas 

that would first be subjected to competitive bidding? Do you think the prior 

spending levels in these areas may have had something to do with the 

decreased utilization in these MSAs once competitive bidding was 

implemented? 

The statute originally required that competition under the program begin in 10 of 

the largest Metropolitan Statistical Areas (MSAs) in 2007. The competitive 

bidding program regulations required a fOTInula-driven methodology for selecting 

these MSAs. From the MSAs with the largest total populations, we identified the 

MSAs with the highest Medicare allowed charges for DMEPOS items. We scored 

these MSAs using criteria that equally weighed the allowed charges per 

beneficiary and the number of suppliers per beneficiary for an area. In selecting 

the MSAs for 2007, we excluded the largest MSA areas based on population 

(New York City, NY; Los Angeles, CA; Chicago, IL) to allow us to gain more 

experience with competitive bidding programs before we included these areas. 

We also excluded MSA areas that span more than one of the Durable Medical 

Equipment Medicare Administrative Contractors (DME MACs). The Medicare 

Improvements for Patients and Providers Act of 2008 required the Round I Rebid 

competition to occur in the same areas as the original Round I except for San 

Juan, Puerto Rico. 

The nine competitive bidding areas were among the most fraud-prone areas, with 

aberrant claims volume prior to selection of the competitive bidding areas as 

shown in the following table: 

Comparison of Allowed Charges in 

Competitive Bidding Areas vs Non Competitive Bidding Areas (2005) 

MSA FFS Pop Allowed Charges $/bene 

Miami' 517,370 $221,660,443 $428.44 

Dallas' 470,562 $139,910,862 $297.33 

multiple months' worth, and therefore did not need to obtain additional supplies when the program began. This 

would suggest that beneficiaries received excessive replacement supplies before they became medically necessary. 

eMS concludes that the competitive bidding program may have curbed inappropriate distribution of these supplies 

that was occurring prior to implementation. 

4 
101 


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Question: 

Answer: 

I Riverside* I 239,486 I $52,910,209 I $220.93 I 

Chicago 1,085,254 $173,922,952 $160.26 

Philadelphia 639,753 $97,487,063 $152.38 

San Francisco 357,207 $45,565,320 $127.56 .. 'CompetItlve BIddIng Area 

We believe that the implementation of the competitive bidding program has 

curbed inappropriate distribution of certain competitively bid items and that it 

helps prevent fraud and abuse. 

The agency indicates that beneficiaries continue to have access to needed 

products under competitive bidding and that they are not experiencing 

adverse health outcomes. Understanding how beneficiaries feel about their 

experience is also an important consideration. Can you describe what CMS 

has found in its effort to assess beneficiary satisfaction? 

CMS conducted beneficiary satisfaction surveys in the Round 1 Rebid areas and 

comparison areas. The survey collected beneficiary satisfaction ratings for six 

issues: the beneficiary's initial interaction with the supplier, the training received 

regarding the item, the delivery of the item, the quality of the item provided by 

the supplier, the customer service provided by the supplier, and the supplier's 

overall complaint handling. Based on the survey results, the vast majority of 

beneficiaries (over 85 percent) in both competitive bidding areas and comparison 

areas are pleased with the quality of items and services. There were minor 

fluctuations in survey results in both competitive bidding areas and comparison 

areas before and after January 1,2011, but we do not believe these are significant. 

In its review of the beneficiary survey results, the GAO confinned CMS' finding 

that the survey did not show issues with beneficiary satisfaction. Here are the 

GAO's findings 3

: 

CMS's beneficiary satisfaction survey did not reveal systemic 

beneficiary access or satisfaction problems with CBP. For all six 

questions in the competitive bidding areas, approximately 67 percent 

of beneficiaries reported their services as being "very good". 

Beneficiaries in competitive bidding areas rated as "good" or "very 

good" their initial interaction with the DME supplier (89 percent), the 

training received (86 percent), delivery (91 percent), quality (90 

percent), customer service (88 percent), and complaint handling (84 

percent). Results within competitive bidding areas show a drop of one 

to three percentage points on each of the six questions from preimplementation to post-implementation. Beneficiaries in the 

3 Review ofthe First Year ofCMS's Durable Medical Equipment Competitive Bidding Program's Round I Rebid, 

GAO-12-693 

5 
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Question: 

Answer: 

comparison markets rated their experiences similarly to those in 

competitive bidding markets: these beneficiaries rated as "good" or 

"very good" their initial interaction with the DME supplier (93 

percent), the training received (89 percent), delivery (93 percent), 

quality (93 percent), customer service (91 percent), and complaint 

handling (88 percent). 

The supplier industry is advocating for a "clearing price" reimbursement 

instead of the current "median bid price" structure. It seems to me that 

CMS has the authority to make this change. Has CMS considered such an 

approach and, if so, what did it conclude? 

It is very important to stress that the competitive bidding program has been 

carefully designed and balanced to ensure a sustainable program that achieves 

savings and preserves beneficiary access and choice. For example, the program's 

method for estimating beneficiary demand results in a generous "cushion" of 

excess supplier capacity. The generous demand results in the selection of a larger 

number of winning suppliers than if demand were set more conservatively. In 

tum, the number of winning suppliers has a direct impact on the calculation of the 

single payment amounts. Any change to the pricing methodology would require 

reconsideration of the demand estimation methodology and other interconnected 

policies. 

The competitive bidding program conducts bidding by product category rather 

than by individual item. eMS adopted this approach for many reasons, including 

beneficiary convenience and supplier business viability. Although bidding is by 

product category, the statute requires a single payment amount for each item 

based on bids submitted and accepted for that item. eMS uses a composite bid 

(the sum of a supplier's weighted bids within a product category) for purposes of 

determining the winning suppliers and then determines the price for each item 

using the median bid of the winners. The bidder with the "market clearing" 

composite bid may have high or low bids for individual items. 

eMS considered the use of the maximum winning bid to set the price for each 

item during notice and comment rulemaking. We were concerned about using the 

maximum bid for each item because this approach would have Icd to program 

payment amounts that were higher than necessary. In contrast, use of the median 

takes into consideration all bids submitted and accepted and not just the highest 

and lowest bids. The median is not influenced by outliers at the extremes of a 

data set. For this reason, the median is often used when there are a few extreme 

values that could distort what might be considered typical. 

We recognized the need to ensure that all bids are rational and feasible, so we 

screen and evaluate all bids to make sure they are bona fide. If necessary, eMS 

requires bidders to submit supporting documentation (e.g., invoices and 

rationales) to prove that they can furnish items with very low bid amounts. Any 

6 
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Insert offset folio 59 here 80258.059

Question: 

Answer: 

Question: 

bids that are not bona fide are disqualified and are not used in the single payment 

amount calculations. We believe the median of the accepted bids represents a 

reasonable payment amount that does not favor large or small suppliers. 

We note that 92 percent of suppliers offered contracts in the Round I Rebid 

accepted the contracts, and CMS had no difficulty in executing contracts with 

enough contract suppliers to meet beneficiary demand. 

eMS combined very different types of equipment into a single General Home 

Equipment product category in the Round 1 Recompete. This appears 

contrary to eMS regulations that say a product category will include related 

items used to treat similar medical conditions. 

In the General Home Equipment category, TENS equipment and supplies 

are the only products that treat pain. The way the category is configured, 

however, a TENS manufacturer cannot bid to supply TENS equipment 

unless it also provides more than 60 other products that have nothing to do 

with pain care. 

Why did eMS make this change? Will eMS work with stakeholders to 

rework the proposed product categories to separate distinct products 

treating different medical conditions into separate product categories? 

CMS meets frequently with stakeholders interested in the competitive bidding 

program to understand their concerns and perspectives. CMS selected the Round 

I Recompete product categories after consideration offeedback from suppliers 

and referral agents and analysis of our statutory mandate to phase in bidding for 

additional DMEPOS items. We believe these product categories will be 

beneficial for suppliers and beneficiaries. Some suppliers in the Round I Rebid 

expressed concerns about winning in one product category and not another. 

Including several related products in one product category addresses this concern 

for suppliers. Larger, more consolidated product categories will promote one-stop 

shopping for beneficiaries, simplify the referral process and enhance the 

opportunities for winning suppliers. Furthermore, we note that CMS is required 

to continue to phase in bidding for DMEPOS items that are subject to competitive 

bidding. We believe that phasing in numerous, separate product categories for 

lower volume items would make the program overly complicated and could lead 

to non-viable competitions. particularly in smaller competitive bidding areas. 

Certain stakeholders have contacted CMS to express concern about some of the 

Round I Recompete product categories. CMS met with these stakeholders and is 

looking into their concerns. 

What is the status of the eMS effort to collect and make available 

information on the products, brands, and quantity of items that contract 

suppliers provide to beneficiaries in the competitive bidding areas? My 

understanding is that eMS requires contract suppliers to submit this "Form 

7 
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Insert offset folio 60 here 80258.060

Answer: 

Qnestion: 

Answer: 

C" data qnarterly and that it was to be used by beneficiaries, Medicare 

customer service representatives, and referral sources to help patients get 

needed DME. 

All contract suppliers must update the brands that they are providing on a 

quarterly basis on a report called "Form C." This information is being collected to 

assist beneficiaries, Medicare customer services representatives, and referral 

agents and is available on the supplier locator tool at www.medicare.gov/supplier 

or by calling J-800-MEDICARE [(800) 633-4227]. 

We note that Form C also originally collected the approximate number of each 

brand of competitively bid item furnished to beneficiaries during the previous 

quarter. This information was intended to help CMS monitor the program. 

However, after analysis of the first two quarterly submissions and reviewing 

contract supplier feedback, CMS determined that the information could not be 

used to monitor the program and was very burdensome for contract suppliers. 

More importantly, CMS implemented a comprehensive monitoring system, 

including real-time claims analysis which effectively measures beneficiary health 

status outcomes and access. 

It seems to me that it would be more equitable if CMS could calculate the 

median single price payment amount by using only the bids of the 

contractors who actually end up signing a contract. This would require the 

agency to adjust the announced single price after all of the contracts were 

signed, but it seems feasible. What does the agency think about this 

approach? 

CMS carefully screens and evaluates bids to ensure that they are bona fide 

(rational and feasible) before determining the single payment amounts and 

offering contracts. Since only bona fide bids from qualified suppliers are 

included in the array of bids used to set prices, recalculating payment amounts 

based on contract rejections would not improve the validity of the single payment 

amounts. Additionally, 92 percent of suppliers that were offered contracts 

accepted those contracts. CMS analyzed the bid amounts for the most commonly 

used items in each product category from suppliers that chose not to accept any 

conti'act and found that approximately the same number of bids were above and 

below the single payment amounts. Such results indicate the single payment 

amounts are set at an appropriate level based on the bids received during the 

Round 1 Rebid. 

CMS also has some concerns about the administrative feasibility of this reversecontracting approach because it could require multiple iterative rounds of contract 

negotiations. We also note that suppliers may be unwilling to accept new 

contract offers if the prices go down as a result of an adjustment. 

8 
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Insert offset folio 61 here 80258.061

Question: 

Answer: 

eMS has stated that it adjusts the market capacity in supplier bids. What 

are the circumstances in which the agency makes such adjustments and does 

the agency use consistent guidelines in making these determinations? 

CMS has issued a fact sheet that explains the process for review of supplier 

capacity and expansion plans. The fact sheet is available on the Competitive 

Bidding Implementation Contractor website at the following link: 

httpj!"w\sdn1ccoml'ctitivcbid.comlPalm~tt().'Cbicrd2.]\ist;tiIcs!R2_FacLShceL 

CapacitL_and __ Expansion~Plan,pdf/SFilciR2Jact_Sheet __ CapacilLumLExpansi 

on Plan. pdt 

9 
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Insert offset folio 62 here 80258.062

Committee on Ways and Means 

Subcommittee on Health 

Hearing on the Medicare Durable Medical Equipment Competitive Bidding Program 

May 9, 2012 

Questions for the Record for 

Laurence Wilson, Centers for Medicare and Medicaid Services 

Mr. Price 

The release of additional information regarding Round 1 of the DME competitive bidding 

program is necessary in order for Congress to fully evaluate this program and assess the 

validity of the structural concerns raised by so many experts. CMS should provide the 

House Ways and Means Health Subcommittee with the following information: 

1. Provide the charts with the data appended that track the utilization for each 

DME competitive bidding product category, from 2008 to present, for each 

Competitive Bid Area (CBA) and its comparator city. Provide a full set of 

charts as follows for each product category: 

A. Percent of the Access Group (e.g. Cardio-Pulmonary Narrow, 

Diabetic, Sleep Disorders, a set for each one) purchasing or renting 

(the product category, such as Oxygen, Mail Order Diabetes Supplies, 

CPAP, etc.); 

B. Percent of the Medicare AlB fee for service (FFS) population 

purchasing or renting (a set for each product category); and 

C. A set of graphs for each of the above that reflects, in total, all CBAs 

and comparator cities combined. 

Answer: CMS has a strong commitment to ensuring that beneficiaries have continued 

access to quality equipment under the program. For this reason, we developed a 

comprehensive monitoring system to assess access and health outcomes in near real time. 

We monitor over 3,400 data points to ensure that Medicare beneficiaries who use a 

competitively bid item and those who have conditions that may warrant use of a 

competitively bid item have continued access and do not suffer adverse health outcomes 

as a result of the competitive bidding program. Charts that show program results are 

regularly updated and posted on the CMS website at: 

http://www.cms.goyiMeuicarelMedicarc-Fee-for·-Servicef'?"ylllS'I1li[)l'v1[:I)OSCon1p..c:tili~JlliILYlQnilQringJl1l11l. These charts are based on 1 00 

percent of Medicare claims and provide valid and reliable data about beneficiary health 

status outcomes, control for broader trends, and would indicate ifbeneticiary access or 

quality had been threatened. The health status health outcomes being monitored include 

events such as deaths, hospitalizations, emergency room visits, physician visits, 

admissions to skilled nursing facilities, average number of days spent hospitalized in a 

month, and average number of days in a skilled nursing facility in a month. As shown in 

lhe charts, fluclualions in outcomes match closely in competitive bidding areas and 

10 
107 


Insert offset folio 63 here 80258.063

comparison areas both before and after the start of the competitive bidding program. 

Historic seasonal trends also continue to be reflected. There have been no changes in 

beneficiary health status outcomes resulting from the competitive bidding program 

observed to date. 

Comparing trends in claims utilization data alone before and after the program began 

may not provide a valid and reliable way to measure the impact of the competitive 

bidding program because the number of claims does not necessarily provide a reliable 

measure of the number of medically necessary items furnished to Medicare beneficiaries. 

For years, the Office of Inspector General has issued reports finding frequent, widespread 

problems in the DMEPOS industry like claims for services to deceased beneficiaries and 

claims for excessive or duplicate services. CMS has been working hard to combat fraud 

and has also been taking steps to reduce the very high claims error rate in the DMEPOS 

arena; however, many claims for fraudulent or unnecessary services have been paid. 

Comparisons of201 1-2012 claims data to previous years could mislead observers 

because they have not been controlled for effects such as expansion of targeted anti-fraud 

efforts. 

To ensure that beneficiaries continue to have access to all needed DMEPOS items, CMS 

has taken the precautionary step of directly contacting beneficiaries in competitive 

bidding areas who had claims for mail order diabetes test strips and continuous positive 

airway pressure (CPAP) supplies before but not after program implementation. Through 

our direct beneficiary outreach, we determined that in virtually every case, the 

beneficiary reported having more than enough supplies on hand, often multiple months' 

worth, and therefore did not need to obtain additional supplies when the program began. 

The results of CMS' s real-time claims monitoring is also supported by the low number of 

beneficiary complaints the agency has received. For these reasons, we strongly believe 

that the best way to evaluate the program is to use the charts that are on the CMS website. 

We would be pleased to provide Members with a briefing to go over the health status 

outcomes in more detail and to explain the real time claims monitoring program 

methodology. 

2. Provide, by product category and for each eBA and each comparator city, 

the number of unique Medicare Beneficiaries with a claim submitted, and, 

separately, a claim paid, for the following two time periods: 

A. Date of Service from October 1 through December 31, 2010 

B. Date of Service from October 1 through December 31, 2011 

Answer: CMS has a strong commitment to ensuring that beneficiaries have continued 

access to quality equipment under the program. For this reason, we developed a 

comprehensive monitoring system to assess access and health outcomes in near real time. 

We monitor over 3,400 data points to ensure that Medicare beneficiaries who use a 

competitively bid item and those who have conditions that may warrant use of a 

competitively bid item have continued access and do not suffer adverse health outcomes 

as a result of the competitive bidding program. Charts that show program results are 

regularly updated and posted on the CMS website at: 

11 
108 


Insert offset folio 64 here 80258.064

hltgj/\\,~V W, CJ11 ,;,gCJ ~ 1\1 ed i~arcji\ic~licilrQ:: r"9()::f~)r:: ~ervic~~ 

f<1ylTIcnt[Q1'v1EPOSCOlllJ2'1itivcI3igLi\1onitoril}gJ:J1ml. These charts are based on 100 

percent of Medicare claims and provide valid and reliable data about beneficiary health 

status outcomes, control for broader trends, and would indicate if beneficiary access or 

quality had been threatened. The health status health outcomes being monitored include 

events such as deaths, hospitalizations, emergency room visits, physician visits, 

admissions to skilled nursing facilities, average number of days spent hospitalized in a 

month, and average number of days in a skilled nursing facility in a month. As shown in 

the charts, fluctuations in outcomes match closely in competitive bidding areas and 

comparison areas both before and after the start of the competitive bidding program. 

Historic seasonal trends also continue to be reflected. There have been no changes in 

beneficiary health status outcomes resulting from the competitive bidding program 

observed to date. 

Comparing trends in the number of beneficiaries for whom claims were submitted or paid 

alone before and after the program began may not provide a valid and reliable way to 

measure the impact of the competitive bidding program because the number of 

beneficiaries for whom claims were submitted or paid does not necessarily provide a 

reliable measure of the number of Medicare beneficiaries who need or receive these 

items. For years, the Office of Inspector General has issued reports finding frequent, 

widespread problems in the DMEPOS industry like claims for services to deceased 

beneficiaries and claims for excessive or duplicate services. CMS has been working hard 

to combat fraud and has also been taking steps to reduce the very high claims error rate in 

the DMEPOS arena; however, many claims for fraudulent or unnecessary services have 

been paid. Comparisons of 2011-2012 claims data to previous years could mislead 

observers because they have not been controlled for effects such as expansion of targeted 

anti-fraud efforts. 

To ensure that beneficiaries continue to have access to all needed DMEPOS items, CMS 

has taken the precautionary step of directly contacting beneficiaries in competitive 

bidding areas who had claims for mail order diabetes test strips and continuous positive 

airway pressure (CPAP) supplies before but not after program implementation. Through 

our direct beneficiary outreach, we determined that in virtually every case, the 

beneficiary reported having more than enough supplies on hand, often multiple months' 

worth, and therefore did not need to obtain additional supplies when the program began. 

These targeted outreach efforts reflect the Agency's commitment to act on the health 

status outcomes information produced from our comprehensive claims monitoring 

system. This information is displayed in the charts available on the CMS website. We 

would be pleased to provide Members with a briefing to go over these health status 

outcomes in more detail and to explain the real time claims monitoring program 

methodology. 

3. Provide for each product category in Rebid areas the number of unique 

DMEPOS suppliers that submitted a claim for a date of service in December 

2010 and, separately, in December 2011 as follows: 

A. Number of Contracted suppliers in each CBA submitting a claim; 

12 
109 


Insert offset folio 65 here 80258.065

B. Number of non-contracted suppliers in each CBA submitting a claim; 

and 

C. For each comparator city, the number of suppliers submitting a claim. 

Answer: The attached Excel document shows the number of unique DMEPOS suppliers 

with any allowed charges for competitively bid items in 20 I 0 and 20 II in CBAs and 

comparator areas. We note that many of these suppliers had very small allowed charges. 

To help provide perspective about suppliers with a more meaningful presence in the area, 

we have also provided the number of unique DMEPOS suppliers with allowed charges 

for competitively bid items of at least $10,000 in these years. 

4. Provide for the product categories of oxygen, CPAP and enteral nutrition, 

charts that track the health outcomes 

(IlJtp~:lj\\'\\'W'l:llls,goyll)l\lJ<:I,'Q~~<!I!IJl~titi,,~Ili<!lOlALl\'l()nit<!ril!g'llsp) of 

beneficiaries in each CBA and comparator city who: 

A. Had a claim for the product category with a date of service between 

October 1,2010 and January 31, 2011, and 

B. Did NOT have a claim for the product category with a date of service 

between October 1,2011 and January 31, 2012, and 

C. Are not deceased. 

Answer: CMS does not currently compile claims data in the manner requested. CMS 

understands the Subcommittee's interest in assessing the health status of beneficiaries 

with a history of equipment use who no longer use the product. We note that it is 

difficult to measure "non-use" with Medicare claims data. Instead, we identify 

individuals that are not billing for a particular product. These people may have excess 

replacement supplies, may have reached the end of their billing period, or may no longer 

need the product. It is possible that these beneficiaries may have changes in health status 

over time. However, these changes could occur for many reasons which may not be 

related to competitive bidding. This will make the results of this analysis difficult to 

interpret. We have summarized two hypothetical examples below. 

Example I: A beneficiary receives a CPAP device in 20 I O. Over the next few 

months, the person's health status improves and the CPAP device is no longer 

necessary. The beneficiary does not have a CPAP-related claim in 2011-2012. 

Since the beneficiary's health status has improved, he has decreased rates of 

emergency department utilization and fewer physician visits in 20 II compared to 

2010. We cannot conclude that the beneficiary's improved health status outcomes 

are the result of the competitive bidding program. 

Example 2: In 2010, a beneficiary is in her 36th month ofa rental period for a 

portable oxygen concentrator. Sinee Medicare pays for oxygen using a 36 month 

capped rental, the beneficiary does not have an oxygen-related claim between 

October I, 2011 and January 31, 2012, even though she is continuing to receive 

oxygen. The beneficiary has severe COPD along with several other conditions, 

and her health status is deteriorating with age. The beneficiary visits the hospital 

13 
110 


Insert offset folio 66 here 80258.066

more often in 2011 than 2010 as a result of her worsening health status; however, 

we cannot use claims data to conclude that this is related to competitive bidding. 

CMS agrees that it is very important to monitor access and outcomes for all beneficiaries 

who are likely to need a competitively bid item based on their medical needs, including 

beneficiaries who do not have a claim for the item. The CMS real-time claims analysis 

program is currently tracking this information; the relevant information can be found on 

the "Access Group" charts in the health status outcomes charts on the CMS website (see: 

http://www .cms.gov/Medicarc/Medicare-Fcc-f or-ScrviccI';lylll(;I1J,1J.)M[~Pm;Con1]2'jitivcfliQ~loniloril1&lllflll). The "Access Group" tracking has 

been designed to control for non-competitive bidding program effects and provide an 

accurate picture of program results. 

Despite the difficulty in measuring the "non-use" of a product, we have estimated the 

cost of compiling the requested data to be approximately $20,000 to $40,000. The 

compilation would take at least several weeks. 

To follow up on the May 9 House Ways and Means Health Subcommittee hearing on the 

DME competitive bidding program and alternative bid program support by the DME 

sector, CMS should answer the following questionsQuestion: 

Answer: 

Can you give examples of other government agencies that do not require 

binding bids for auctions and/or use the median bid price to set 

reimbursement? 

The DMEPOS Competitive Bidding Program is not an auction program. It is a 

competition-based methodology for determining Medicare payment amounts for 

equipment and services furnished to beneficiaries in their homes. CMS is 

unaware of any other government program that uses a competitive bidding 

program structure similar to the one mandated by section 1847 of the Social 

Security Act. There are unique statutory requirements for the program that make 

it very different from procurement auctions. For example, the Medicare statute 

does not provide any authority that would permit CMS to require winning 

suppliers to accept contracts. Further, the statute requires the selection of multiple 

contract suppliers even if only one supplier could satisfy beneficiary demand on 

its own. Also, because of statutory requirements that guarantee beneficiary 

choice, beneficiaries may choose to obtain their items from any contract supplier. 

Therefore, competitive bidding program contract suppliers are not guaranteed to 

receive any Medicare business. 

We note that the competitive bidding program has been designed to conduct 

bidding by product category rather than by individual item. CMS adopted this 

approach for many reasons, including beneficiary convenience and supplier 

business viability. Although bidding is by product category, the statute requires a 

single payment amount for each item based on bids submitted and accepted for 

that item. CMS uses a composite bid (the sum ofa supplier's weighted bids 

14 
111 


Insert offset folio 67 here 80258.067

Question: 

Answer: 

Question: 

Answer: 

Question: 

within a product category) for purposes of determining the winning suppliers and 

then detelmines the price for each item using the median bid of the winners. 

Setting the single payment amount for each item at the median of accepted bids 

for that item ensures that all accepted bids are reflected and protects against 

outlier bids for particular items. 

Does CMS support the use of binding bids for the competitive bidding 

program? If CMS believes it lacks statutory authority to require binding 

bids, would the agency support legislation to address this issue? 

The Medicare statute does not provide any authority that would permit CMS to 

require winning suppliers to accept contracts. This is consistent with other 

provisions of the Medicare statute that make supplier participation in Medicare 

voluntary. Although the law does not provide any authority for requiring 

suppliers to accept contracts, it is not clear that such authority is needed. In the 

Round I Rebid, 92 percent of suppliers that were offered contracts accepted those 

contracts. There have been no indication of any beneficiary access problems, and 

CMS has not had to add any new suppliers to meet demand. 

CMS has claimed that there have only been 151 complaints, but 127,466 

inquiries from Medicare beneficiaries regarding Round 1 of competitive 

bidding. Can CMS explain what constitutes a complaint versus an 

inquiry? Can CMS give details how it addressed the complaints and 

inquires? 

Complaints are inquiries that express dissatisfaction and cannot be resolved by a 

I-SOO-MEDICARE call centcr opcrator. Thc vast majority ofinquirics wcre 

about routine matters, such as questions about the program or finding a contract 

supplier. All complaints were assigned to program experts for prompt resolution. 

Most of the issues that were elevated involved providing assistance in finding a 

contract supplier (particularly mail order diabetic supplies contract suppliers) or 

finding a supplier to perform a repair of beneficiary-owned equipment 

(particularly a repair of a power wheelchair). We note that repairs are not a 

competitively bid service, but we are tracking repair issues in competitive bidding 

areas. We also note that we modified' our educational fact sheet on repairs of 

beneficiary-owned equipment in response to the complaints; the number of 

complaints about repairs went down dramatically after the issuance of the revised 

fact sheet. 

CMS planned to collect the type of products that were being provided to 

Medicare beneficiaries in bid areas using something called Form 

C. Regardless of the reason CMS canceled the collection of this information, 

how is CMS ensuring that beneficiaries get high quality DME when the 

average price decreased by 32 percent? 

.f eMS clarified the distinction between repairs, which can be pcrfonned by any enrolled suppliers, and 

replacements, which can only be furnished by contract suppliers. 

15 
112 


Insert offset folio 68 here 80258.068

Answer: 

Question: 

Answer: 

The competitive bidding program has been designed to ensure that beneficiaries 

have continued access to quality items that meet their needs. Contract suppliers 

are required to meet quality standards, be licensed and be accredited by an 

approved independent accrediting organization. As a term of the contract, 

suppliers must make available the same range of products to beneficiaries that 

they make available to non-Medicare customers. 

A quality item is an item that meets applicable Food and Drug Administration 

regulations and medical device effectiveness and safety standards and that meets 

the needs of the beneficiary receiving that item. CMS believes beneficiaries are 

receiving quality items under the competitive bidding program because we have 

received few inquiries and complaints about the program and because our realtime monitoring shows that there have been no significant changes in beneficiary 

health status outcomes resulting from the competitive bidding program. 

In Round 2, CMS included power and manual wheelchairs in one very large 

product category, this seems to discriminate against smaller providers who 

are less likely to provide all items in this very large product category. Can 

CMS explain the rationale for such large product categories and how even 

larger bid categories in the Round 1 recompete process may negatively 

impact small DME providers and patients? Did you seek input from the 

DME sector or Program Advisory and Oversight Committee (PAOC) on 

these broad Round 1 recompete categories? 

CMS meets frequently with stakeholders interested in the competitive bidding 

program to understand their concerns and perspectives. CMS selected the Round 

I Recompete product categories after consideration offeedback from suppliers 

and referral agents and analysis of our statutOlY mandate to phase in bidding for 

additional DMEPOS items. We believe these product categories will be 

beneficial for suppliers and beneficiaries. Some suppliers in the Round I Rebid 

expressed concerns about winning in one product category and not another. 

Including several related products in one product category addresses this concern 

for suppliers. Larger, more consolidated product categories will promote one-stop 

shopping for beneficiaries, simplify the referral process and enhance the 

opportunities for winning suppliers. Furthermore, we note that CMS is required 

to continue to phase in bidding for DMEPOS items that are subject to competitive 

bidding. We believe that phasing in numerous, separate product categories for 

lower volume items would make the program overly complicated and could lead 

to non-viable competitions, particularly in smaller competitive bidding areas. 

Certain stakeholders have contacted CMS to express concern about some of the 

Round I Recompete product categories. CMS met with these stakeholders and is 

looking into their concerns. 

16 
113 


Insert offset folio 69 here 80258.069

Question: 

Answer: 

Question: 

Answer: 

Question: 

Recently, there were a number of indictments in Miami, Florida related to 

Medicare fraud, where several individuals had prior criminal/felony records. 

Can CMS explain how these individuals received Medicare billing numbers? 

CMS has the authority to deny or revoke Medicare billing privileges for certain 

felony offenses. Examples of felony convictions that may lead to denial or 

revocation in Medicare include felony crimes against persons, financial crimes, or 

felonies that have placed Medicare beneficiaries at immediate risk. Not all fclony 

convictions result in revocation of Medicare billing privileges. 

In addition, the Department of Health and Human Services Office of Inspector 

General (OIG) also excludes individuals and entities from Medicare, Medicaid, 

and the Children's Health Insurance Program based on felony or misdemeanor 

convictions related to the Medicare or Medicaid programs or related to the abuse 

or neglect ofpaticnts. When the OIG exeludes an individual, CMS revokes the 

billing privileges for the same individual. 

Without the names of specific individuals, it is dimeult for CMS to detennine 

whether their particular prior felony convictions would require a revocation of 

Medicare billing privileges. We are happy to provide additional infonnation if 

the Committee would provide the names of the specific individuals referenced in 

the question. 

In the testimony you stated that ""Small suppliers do not account for that 

much of the market now so to meet this requirement, beneficiaries would 

have to be assigned to small suppliers, under CMS' current bid program, 

beneficiaries choose suppliers." Can you please advise us what percent of the 

total supplier number rail in the less than $3,5 million category? 

Additionally, what percent oftotal suppliers fall in the less than $10 million 

category? 

First, plcasc notc that Mr. Wilson's tcstimony rcfcrrcd to the pcrcent of 

beneficiary demand met by small suppliers, not the number of small suppliers. 

Also, the small supplier dcfinition (a supplier that generates gross revenue of $3.5 

million or less in annual rcceipts from Medicare and non-Medicare revenue) 

applics only to thc competitive bidding program. CMS docs not collect supplicr 

gross rcccipt data outside ofthc competitivc bidding program, so wc are unable to 

provide the requested data. However, in the Round 1 Rebid small suppliers make 

up about 51 perccnt of the contract suppliers. In 2011, small suppliers furnished 

13,88 percent of the market share for competitively bid items. 

CMS has "grandfathered" most product categories subject to the 

competitive hidding program. However, the one product in competitive 

bidding that is provided in nursing faeilities, enteral nutrition, was not 

grandfathered. As a result, wherever competitive bidding has been instituted 

or will be in the future, all enteral nutrition patients lose their enteral 

17 
114 


Insert offset folio 70 here 80258.070

Answer: 

Question: 

Answer: 

suppliers if they are not bid winners. Grandfathering ,"",as promoted by CMS 

as a means to ensure that patients do not fall through the cracks, but that 

safeguard simply does not exist for enteral patients who are residing in 

nursing facilities. 

Will CMS explain why it decided not to grandfathered enteral nutrition 

patients in the competitive bidding program? Will CMS extend this 

protection in the future expansions of the program'! If not, will the agency 

explain why? 

The statute does not give eMS the authority to grandfather enteral nutrition. 

Section I 847(a)(4) of the Social Security Act requires eMS to establish a process 

by which rental agreements for durable medical equipment (OME) and supply 

arrangements for suppliers of oxygen and oxygen equipment entered into before 

the implementation of a competitive bidding program may be continued. This 

statutory authority does not apply to other OMEPOS, such as enteral nutrition, 

equipment, and supplies that arc covered under the prosthetic device benctit and 

not the DME benefit. 

How many suppliers who billed Medicare in the Round 1 CBAs in last 

quarter of calendar 2010 were also billing Medicare in the last calendar 

quarter of 20 II? 

The following tables show the number of suppliers that fumished durable medical 

equipment, prosthetics, orthotics, and supplies (DMEPOS) items in the Round I 

Rebid competitive bidding areas and comparator areas annually and per month in 

2010 and 2011. We have not analyzed these numbers to determine the reasons for 

the change in the number of suppliers but note that the percent change in the 

number of suppliers in Table I is similar in competitive bidding areas and 

comparators. This would indicate that forces beyond competitive bidding played 

a role in the change. 

Table I: Yearly Supplier Summary, 2010-2011 

Suppliers by IO-dif;it Provider Transaction Access Number 

CBAs Comparator: 

Number of Suppliers within Allowable Charge Number of Suppliers w 

Year Number Range* Number Ran 

of < $10,000 $50,000 $100,000 $500,000 of < $10,000 $50,0 

Suppliers , $10,000 - - - + Suppliers $10,000 - - $50,000 $100,000 $500,000 $50,000 $100,1 

2010 23,059 17,890 3,083 1,060 607 419 19,994 15,689 2,613 79~ 

2011 22,703 17,879 3,038 906 543 337 19,758 15,462 2,635 81S 

18 
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Insert offset folio 71 here 80258.071

:« Allowable charge ranges exclude the upper bound 

Table 2: Monthly Supplier Summary, 2010-2011 5 

Suppliers by !O-digit Provider Transaction Access 

Nurnber 

CBAs 

Number Number of Suppliers within Allowable Charge 

Month Range* of < $1,000 - $5,000 - $10,000 - $50,000 Suppliers $1,000 $5,000 $10,000 $50,000 + 

Jan-IO 11,467 7,322 2,374 883 551 337 

Feb-IO 11,480 7,297 2,399 927 512 345 

Mar-l0 11,932 7,333 2,669 973 564 393 

Apr-IO 11,879 7,438 2,557 980 552 352 

May-IO 11,954 7,585 2,528 953 531 357 

JUll-10 12,361 7,817 2,650 962 545 387 

Jul-IO 12,377 7,958 2,560 976 524 359 

Aug-IO 12,570 8,135 2,551 965 559 360 

Scp-IO 12,392 8,045 2,486 949 538 374 

OCl-IO 12,163 8,013 2,380 942 494 334 

Nov-IO 11,765 7,778 2,255 913 480 339 

Dec-IO 11,931 7,691 2,362 970 515 393 

Jan-ll 11,485 7,633 2,331 791 475 255 

Feb-II 11,502 7,608 2,330 781 520 263 

Mar-II 11,859 7,566 2,616 860 516 301 

Apr-II 11,546 7,393 2,531 834 506 282 

May-II 11,814 7,530 2,641 825 533 285 

Jun-l1 12,100 7,823 2,626 824 523 304 

Jul-ll 12,005 7,881 2,550 785 503 286 

Aug-II 12,082 7,803 2,672 801 509 297 

Sep-ll 11,981 7,766 2,639 760 525 291 

Oct-II 11,498 7,625 2,410 750 454 259 

Nov-II 11,049 7,363 2,204 763 452 267 

Dcc-II 11,140 7,263 2,323 769 498 287 

Comparatl 

Number Number of Suppliers 

R of < $1,000 - $5 Suppliers $1,000 $5,000 $1 

10,081 6,668 2,006 

10,149 6,694 2,009 

10,647 6,796 2,245 

10,453 6,724 2,159 

10,378 6,703 2,123 

10,716 6,858 2,285 

10,780 7,097 2,149 

10,811 7,043 2,193 

10,774 7,008 2,168 

10,474 6,931 1,997 

10,275 6,858 1,917 

10,374 6,783 2,012 

10,317 6,838 2,042 

10,270 6,823 2,023 

10,669 6,821 2,280 

10,430 6,810 2,115 

10,545 6.782 2,235 

10,697 6,905 2,248 

10,573 6,894 2,179 

10,817 6,963 2,299 

10,722 6,981 2,209 

10,380 6,849 2,073 

10,089 6,723 1,953 

10,213 6,700 2,003 

~This provides an unduplicated count of unique suppliers that had allo\'\·ed charges in these areas during a month; the 

»uppliers furnishing items in a given month may not be the same ~uppliers furnishing items in another month 

19 
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* Allowable charge ranges exclude the upper bound 

Question: 

Answer: 

Question: 

Answer: 

Question: 

Answer: 

For how many bidders in Round 1 did CMS adjust the capacity to arrive at 

the final number of contract suppliers? 

eMS examines biddcrs' capacity estimates by itcm, not by product catcgory. 

eMS adjusted the capacity of at least onc item for 256 of the 356 contract 

suppliers. For the 256 suppliers that had at least one capacity estimate adjusted, 

56 percent of the items were not adjusted, 16 percent of the items were reduced to 

20 percent of demand for the item in the competitive bidding area, and 28 percent 

were adjusted to the bidder's historic levcls. 

You noted that the Cramton auction was designed for commodities and not 

for "services to patients in their homes". Since the benefit specifies that 

payment is for the equipment and Medicare does not pay for services, is this 

a change in policy? If so, will CMS identify which services suppliers are 

required to provide? 

Medicare's paymcnt for the equipmcnt includes costs that arc assoeiatcd with 

furnishing the equipment in accordance with Medicare requirements, such as the 

supplier standards, quality standards, and coverage policies. For example, 

Medicare's rental payment for a hospital bed includes delivery, set-up, patient 

training, and any needed repairs. These requirements apply regardless of whether 

the equipment is paid under the fee schedule or the competitive bidding program; 

there has been no change in policy. 

Can CMS explain the impact on state Medicaid recipients and their access to 

DME items and services as a result orthe bidding program? \fthere is a 

drastic reduction in the number of DME providers in the United States 

caused hy the current bid program, and rates are reduced significantly, can 

you explain how this will not negatively impact patients' access to DME in 

Medicare, Medicaid, and private insurance plans? 

eMS has not heard complaints of access problems for Medicaid recipients 

resulting from the competitive bidding program or observed a drastic reduction in 

thc numbcr of DMEPOS suppliers. Plcasc sec Table I (above) for the number of 

suppliers that furnished durable medical equipment, prosthetics, orthotics, and 

supplies (DMEPOS) items in the Round I Rebid competitive bidding areas and 

comparator areas in 2010 and 2011. eMS continues to monitor DME supplier 

data to monitor any change in the number of suppliers. 

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Committee on Ways and Means 

Subcommittee on Health 

Hearing on the Medicare Durable Medical Equipment Competitive Bidding Program 

May 9, 2012 

Questions for the Record for 

Laurence Wilson, Centers for Medicare and Medicaid Services 

Mr. Roskam & Mr. Nunes 

Mr. Roskam 

As the competitive bidding program for DMEPOS continues to move forward, we have 

heard from more and more companies in the Chicago land area that may be forced to close 

due to losing bids in round 2 because of the parameters of the existing competitive bidding 

program. During your testimony you stated that CMS reviews the bids and scrutinizes 

suppliers. However, I have heard anecdotally that, in 2011 (the first year of the competitive 

bidding program), a single supplier went from providing approximately 41 to 64 percent 

(Cincinnati) and 51 to 81 percent (Pittsburgh) of certain supplies in a competitive bidding 

area and that several winning suppliers have not provided any products in these (and 

other) areas during the first year of the program. 

Question: 

Answer: 

Question 

Answer: 

Why is a single supplier dominating a number of markets and some suppliers 

not providing products at all? This would seem to lead to the conclusion that 

other suppliers have either not been able to meet their commitments, have 

had to close, or the winning bidders were not thoroughly screened, can you 

speak to which is true? 

CMS awards contracts to qualified suppliers with sufficient capacity to meet 

beneficiary demand for each product category in each competitive bidding area. 

The competitive bidding program contracts do not guarantee a set volume of 

business. When contracts go into effect, the contract suppliers must compete 

against each other for Medicare beneficiaries' business on the basis of quality and 

customer service. 

What penalties are levied on contracted suppliers who do not come 

close to meeting their bid capacities? 

The competitive bidding program contracts require each contract supplier to 

furnish items in its contract to any beneficiary who lives in or visits the 

competitive bidding area and requests those items from the contract supplier. If 

a supplier does not meet its contractual obligation, CMS may take one or more of 

the following actions: require the contract supplier to submit a corrective action 

plan; suspend the contract supplier's contract; terminate the contract; preclude the 

contract supplier from participating in the competitive bidding program; revoke 

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Question: 

Answer: 

Question: 

Answer: 

the supplier's billing privileges; or impose other remedies allowed by law. (See 

42 CFR 414.422(g).) 

The capacity estimates in a supplier's bid represent the maximum number of 

items the supplier estimates it could furnish annually if awarded a contract. CMS 

validates these capacity estimates during the bid evaluation process and awards 

contracts to more than enough suppliers to meet beneficiary demand. Because of 

statutory requirements that guarantee beneficiary choice, beneficiaries may 

choose to obtain their items from any contract supplier. Therefore, competitive 

bidding program contracts do not guarantee any set volume of business. Thus, a 

contract supplier that furnishes items in its contract to any beneficiary who 

requests them is in compliance with competitive bidding program rules even if 

that supplier has not furnished the maximum number of items in its bid. 

I am concerned that the market will contract to a point where there are only 

a handful of DME providers left which could potentially lead to higher prices 

and less competition. What is eMS doing to prevent this from occnrring? 

The competitive bidding program includes numerous provisions to ensure a 

robust, competitive market. For example, CMS selects more than enough 

suppliers to meet demand. As a general rule for contract supplier selection 

purposes, we do not credit more than 20 percent of the total Medicare demand for 

a product category in a competitive bidding area to anyone supplier, meaning at 

least five suppliers serve most product categories in most areas. Also, CMS has 

taken specific steps to ensure that small suppliers have the opportunity to be 

considered for participation in the competitive bidding program. These steps 

include offering small suppliers the opportunity to form networks, a small 

supplier target, and not requiring suppliers to submit bids for all product 

categories. 

Why did the agency not exclnde snicide bids from the single payment amount 

(for example, where a snpplier did not accept a bid amount, yet their bid 

remained in the single payment amount)? Why are bids not binding on 

suppliers? 

Only legitimate, sustainable bids were included in the single payment amount 

determinations. We recognize the need to ensure that the single payment amounts 

are appropriate and viable, and through our bid evaluation process, identified and 

eliminated any irrational, infeasible bids. All bids are screened and evaluated to 

ensure that they are bona fide. During the Round I Rebid bid evaluation, we 

found that about 8 percent of bids were extremely low in comparison to other 

bids, so we asked these bidders to send us invoices and rationales explaining how 

they could furnish items at the bid price. Bidders were able to prove that 67 

percent of these comparatively low bids were feasible. We rejected all of the bids 

that were not proven feasible, and we did not offer contracts to these suppliers or 

include the rejected bids in the calculation of single payment amounts. 

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The Medicare statute does not provide any authority that would permit CMS to 

require winning suppliers to accept contracts. This is consistent with other 

provisions of the Medicare statute that make supplier participation in Medicare 

voluntary. Although the statute does not provide any authority for requiring 

suppliers to accept contracts, it is not clear that such authority is needed. [n the 

Round I Rebid, 92 percent of suppliers that were offered contracts accepted those 

contracts. CMS analyzed the bid amounts for the most commonly used items in 

each product category from suppliers that chose not to accept any contract and 

found that approximately the same number of bids were above and below the 

single payment amounts. Such results indicate the single payment amounts are 

set at an appropriate level based on the bids received during the Round I Rebid. 

There also have been no indications of any beneficiary access problems, and CMS 

has not had to add any new suppliers to meet demand. 

During your testimony you also spoke to conversations you have had with Peter Crampton 

(sic) about his letter signed by 244 economists and 4 Nobel Laureates pointing to flaws in 

the competitive bidding program. Further, Tom Bradley, Chief of Medicare Cost 

Estimates for the Congressional Budget Office while attending a briefing stated the 

following, "If they (CMS) don't change the mechanism they use, I think there is a high 

probability of failure in the near future. There is a near certainty of failure sometime down 

the road". 

Question: 

Answer: 

What were the specific concerns you had with Mr. Crampton's proposal 

relating to Market Clearing Price and binding bonded proposals, which is 

the accepted standard in other federal government contracting bidding 

processes? If others have stated the program cannot stand as it is currently 

implemented why would CMS not adopt a different method before 

expanding the program to an additional 91 areas? 

The current competitive bidding program is the successful result of decades of 

research and testing by economists and health policy experts. The program offers 

improved value to Medicare and taxpayers by using prices set through 

competition and ensuring access to quality items furnished by licensed, accredited 

suppliers that must meet strict quality and financial standards. As indicated in 

CMS testimony, the program has already yielded significant savings for taxpayers 

and Medicare beneficiaries while preserving beneficiary access and health status 

outcomes. 

CMS staff reviewed a January 16,2012 version of the "market pricing" program. 

We have grave concerns with many aspects of this proposal. For example, as 

discussed in the following bullets, we are concerned that this proposal would 

result in auction failure in all, or nearly all areas, would not result in accurate 

pricing in those auctions if any were successful, and would not guarantee 

beneficiary access to needed items. 

23 
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Auction Failure: The program would result in nearly universal auction failure. 

Bidders' capacities would be artificially capped at historic levels (for suppliers 

in the area) or a minute fraction of demand (for suppliers not in the area). In 

effect, it assumes that suppliers would be unable to expand their businesses. 

The sum of all of the historic capacities of eligible, legitimate suppliers would 

be unlikely to reach the demand target. At a minimum, contracts would need 

to be awarded to every supplier in the area currently furnishing the item. 

Suppliers would know this ahead of time since the capacity of every bidding 

supplier would be disclosed prior to bidding. There would be no incentive to 

bid competitively since suppliers would be virtually assured of being awarded 

a contract. 

Inaccurate pricing. Bidders would only submit bids for one item in the 

product category. Prices for the other items would be based on the price for 

the lead item. Prices could end up too high or too low for the other items, 

resulting in lost savings or access problems. 

Failure to guarantee access: The program fails to guarantee beneficiary 

access. In fact, it explicitly permits a supplier to turn beneficiaries away if the 

predicted demand in an area has been met even if that supplier has not 

furnished up to the level in its bid. 

We note that the auction model used in the January 16,2012 proposal has been 

used for commodities like diamonds and timber but has never been tested in the 

healthcare arena. This is a concern since applying this model could have a 

significant effect on the quality of items and services Medicare beneficiaries 

receive, Medicare expenditures, and the Medicare DMEPOS market overall. 

Finally, we note that this proposal would take many years to implement due to 

nced to comply with the requirements of procedural laws like the Administrative 

Procedures Act and the Paperwork Reduction Act and the time it would take to 

develop the infrastructure to support the program. These delays could have 

selious cost implications since the current DMEPOS competitive bidding program 

is working to replace Medicare's outdated fee schedule amounts with fair 

payment amounts. The Department of Health and Human Services' Office of 

Inspector General (OIG) 6, the Government Accountability Office (GAO), and 

other independent analysts have repeatedly warned that the fee schedule prices 

paid by Medicare for many DMEPOS items are excessive, as much as three or 

four times the retail prices and amounts paid by commercial insurers or customers 

who purchase these items on their own. These inflated prices in turn increase the 

amount beneficiaries must pay out-of-pocket for these items. CMS' Office of the 

Actuary (OACT) estimates that the current DMEPOS competitive bidding 

program will save the Medicare Part B Trust Fund $25.7 billion between 2013 

and 2022. Beneficiaries are expected to save an estimated $17.1 billion due to the 

reduction in coinsurance and the downward effect on premium payments. 

6 Sec, for example, Comparison of Pricesfnr Negative Pressure Wound Therap}' Pumps, OEI-02-07-00660, March 

2009; Po.ver Wheelchairs in the Medicare Program: Supplier Acquisition Costs and Services, OEI-04-07-00400, 

August 2009; Medicare Home Oxygen Equipment: Cost and Servicing. OEl-OY-04-00420. September 2006. 

24 
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Committee on Ways and Means 

Subcommittee on Health 

Hearing on the Medicare Durable Medical Equipment Competitive Bidding Program 

May 9, 2012 

Questions for the Record for 

Laurence Wilson, Centers for Medicare and Medicaid Services 

Mr. Roskam & Mr. Nunes 

Mr. Devin Nunes 

Question: After one year of competitive bidding for diabetic testing supplies, CMS 

claims that there was no evidence of negative health care outcomes for 

diabetes testing supply users. How confident is CMS that such negative 

health outcomes will not be apparent until 2013 or 2014 or later? Doesn't it 

take time for negative health outcomes to appear in a diabetes patient, who 

fails to be less adherent? Especially, higher mortality rates? 

Answer: 

Question: 

Answer: 

eMS is monitoring both short term and long term health care outcomes for 

diabetic patients. Diabetes is a chronic disease, and the manifestations of the 

disease are not all immediate. However, the comprehensive nature of our 

monitoring of health outcomes and the sensitivity to detect changes would detect 

any acute changes that could occur. For example, a rise in emergency 

department visits or physician visits would be precursors to the more chronic 

changes that would impact health outcomes. As we have not seen an increase in 

any short term negative health outcomes, it is unlikely that there would be an 

increase in negative long term outcomes. Since our monitoring is ongoing, we 

will be able to detect as early as possible such long-term outcomes, should they 

occur. 

The CMS report on Round 1 results showing that beneficiaries reported 

having more than enough supplies 011 hand and therefore did not need to 

obtain additional supplies when the program began. Does this indicate 

that mail order diabetic testing supply waste via auto-shipping is a major 

problem? 

Diabetes monitoring supplies have historically had high error rates. A recent 

report by the HHS Office of the Inspector General found that 76 percent ofa 

sample of claims for diabetes test strips and/or lancets were improperly 

paid7 Our findings suggest that beneficiaries received excessive replacement 

supplies before they became medically necessary. While more investigation is 

7 http://oig.hhs.goY/08s/reports/region9/911020n.pdf 

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Question: 

Answer: 

Question: 

Answer: 

needed to verify the cause or causes of inappropriate distribution, waste via autoshipping is a serious concern. 

Outside of 1-800-MEDICARE how does CMS collect patient complaints 

about the competitive bidding program for diabetic testing supplies? Does 

CMS collect complaint data based on patients who complain to their 

pharmacists or suppliers regarding the competitive bidding program? 

CMS has a comprehensive monitoring program that includes the 1-800-

MEDICARE call center; local, on-the-ground presence in each competitive 

bidding area through the CMS regional offices and local ombudsmen; a formal 

complaint process for beneficiaries, caregivers, providers and suppliers to use for 

reporting concerns about contract suppliers or other competitive bidding 

implementation issues; and a CMS Competitive Acquisition Ombudsman who 

responds to complaints and inquiries from beneficiaries and suppliers about the 

application of the program. These eMS customer service entities follow an 

integrated inquiry and complaint management process to ensure that any person 

who contacts eMS about the competitive bidding program will be promptly 

assisted. eMS has conducted extensive outreach to beneficiaries, suppliers, 

referral agents, and beneficiary advocacy groups like the local State Health 

Insurance and Assistance Program (SHIP) offices so that they understand how to 

how to contact eMS with any questions, concerns, or complaints about the 

program. 

Early data seemed to indicate that, in the competitive bidding areas, 

utilization of mail order pharmacies for diabetic testing supplies is 

decreasing, while the utilization of retail pharmacies for these supplies is 

increasing. This would seem to indicate that mail order suppliers in the 

competitive bidding areas are unable to meet the demands of the 

beneficiaries who need diabetic testing supplies. Is this the case? If it is, 

wouldn't it make sense to maintain access to diabetic testing supplies at retail 

pharmacies as a necessary safety valve in the competitive bidding program? 

eMS has not seen any evidence that the Round I Rebid mail order contract 

suppliers have capacity problems. However, manufacturers and suppliers have 

stated to eMS on numerous occasions that the option for beneficiaries to obtain 

diabetic supplies from local pharmacies with licensed phannacists in house who 

can provide instructions and guidance to beneficiaries related to their testing 

needs is important and should be preserved. In recognition of these concerns, 

eMS has elected not to include retail (non-mail order) diabetic supplies in any 

currently scheduled competitions. We note that retail diabetic supplies are a highvolume item with over $500 million in annual Medicare allowed charges and that 

there is a large disparity between the Medicare fee schedule amount for retail 

diabetic supplies and the Round I Rebid single payment amounts. 

26 
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Questiou: 

Answer: 

Diabetic testing supplies obtained at a retail pharmacy are not currently 

included in the competitive bidding program. Therefore, beneficiaries can 

still obtain their diabetic testing supplies at their local pharmacy. Mandating 

that diabetic testing supplies could only be obtained through mail order 

suppliers would mean that the pharmacist and the beneficiary would no 

longer meet face-to-face, as they do now. Would such a restriction increase 

the possibility that the beneficiary may become less adherent with his or her 

medications or that other health care issues may not be identified because 

they are no longer meeting face-to-face? 

Please see answer to previous question above. 

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Committee on Ways and Means 

Subcommittee on Health 

Hearing on the Medicare Durable Medical Equipment Competitive Bidding Program 

May 9, 2012 

Questions for the Record for 

Laurence Wilson, Centers for Medicare and Medicaid Services 

Mr. Tiberi 

Mr. Tiberi 

I would like to request additional information regarding Round 1 of the DME competitive 

bidding program in order for Congress to better evaluate the program and assess the 

validity of concerns raised by some. Please provide the following information: 

1. Provide the charts with the data appended that track the utilization for each DME 

competitive bidding product category, from 2008 to present, for each Competitive Bid Area 

(CBA) and its comparator city. Provide a full set of charts as follows for each product 

category: 

A. Percent of the Access Group (e.g. Cardio-Pulmonary Narrow, Diabetic, Sleep 

Disorders, a set for each one) purchasing or renting (the product category, such as 

Oxygen, Mail Order Diabetes Supplies, CPAP, etc.); 

8. Percent ofthe Medicare AlB fee for service (FFS) population purchasing or renting 

(a set for each product category); and 

C. A set of graphs for each of the above that reflects, in total, all CBAs and comparator 

cities combined. 

Answer: CMS has a strong commitmcnt to cnsuring that bcncficiarics havc continucd acccss to 

quality equipment under the program. For this reason, we developed a comprehensive 

monitoring system to assess access and health outcomes in near real time. We monitor over 

3,400 data points to ensure that Medicare beneficiaries who use a competitively bid item and 

those who have conditions that may warrant use of a competitively bid item have continued 

access and do not suffer adverse health outcomes as a result of the competitive bidding program. 

Charts that show program results are regularly updated and posted on the CMS website at: 

http://www .ems.goviM edicare/"Nledicare-f ec-for-ScrviccPaymcnt/DMEPOSColllpctitiveBid!Moniloring.htllll. These charts are based on 100 percent of 

Medicare claims provide valid and reliable data about beneficiary health status outcomes, control 

for broader trends, and would indicate if beneficiary access or quality had been threatened. The 

health status health outcomes being monitored include events such as deaths, hospitalizations, 

emergency room visits, physician visits, admissions to skilled nursing facilities, average number 

of days spent hospitalized in a month, and average number of days in a skilled nursing facility in 

a month. As shown in the charts, fluctuations in outcomes match closely in competitive bidding 

28 
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Insert offset folio 81 here 80258.081

areas and comparison areas both before and after the start of the competitive bidding program. 

Historic seasonal trends also continue to be reflected. There have been no changes in beneficiary 

health status outcomes resulting from the competitive bidding program observed to date. 

Comparing trends in claims utilization data alone before and after the program began may not 

provide a valid and reliable way to measure the impact of the competitive bidding program 

because the number of claims does not necessarily provide a reliable measure of the number of 

medically necessary items furnished to Medicare beneficiaries. For years, the Office of 

Inspector General has issued reports finding frequent, widespread problems in the DMEPOS 

industry like claims for services to deceased beneficiaries and claims for excessive or duplicate 

services. CMS has been working hard to combat fraud and has also been taking steps to reduce 

the very high claims error rate in the DMEPOS arena; however, many claims for fraudulent or 

unnecessary services have been paid. Comparisons of2011-2012 claims data to previous years 

could mislead observers because they have not been controlled for effects such as expansion of 

targeted anti-fraud efforts. 

To ensure that beneficiaries continue to have access to all needed DMEPOS items, CMS has 

taken the precautionary step of directly contacting beneficiaries in competitive bidding areas who 

had claims for mail order diabetes test strips and continuous positive airway pressure (CPAP) 

supplies before but not after program implementation. Through our direct beneficiary outreach, 

we determined that in virtually every case, the beneficiary reported having more than enough 

supplies on hand, often multiple months' worth, and therefore did not need to obtain additional 

supplies when the program began. The results ofCMS's real-time claims monitoring is also 

supported hy the low number ofbeneficiaty complaints the agency has received. For these 

reasons, we strongly believe that the best way to evaluate the program is to use the charts that are 

on the CMS website. We would be pleased to provide Members with a briefing to go over the 

health status outcomes in more detail and to explain the real time claims monitoring program 

methodology. 

2. Provide, by product category and for each CBA and each comparator city, the number 

of unique Medicare Beneficiaries with a claim submitted, and, separately, a claim paid, for 

the following two time periods: 

A. Date of Service from October 1 through December 31, 2010 

B. Date of Service from October 1 through December 31, 2011 

Answer: CMS has a strong commitment to ensuring that beneficiaries have continued access to 

quality equipment under the program. For this reason, we developed a comprehensive 

monitoring system to assess access and health outcomes in near real time. We monitor over 

3,400 data points to ensure that Medicare beneficiaries who use a competitively bid item and 

those who have conditions that may warrant use of a competitively bid item have continued 

access and do not suffer adverse health outcomes as a result of the competitive bidding program. 

Charts that show program results are regularly updated and posted on the CMS website at: 

http://www.cms.gov/Mcdicarc/Mcdicarc,Fcc-for-Scn icc, 

I'~X!119Jlt!DMill'Q~C()mpetilivclli<YMonitoring.hlml. These charts are based on 100 percent of 

29 
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Insert offset folio 82 here 80258.082

Medicare claims and provide valid and reliable data about beneficiary health status outcomes, 

control for broader trends, and would indicate if beneficiary access or quality had been 

threatened. 

Comparing trends in the number of beneficiaries for whom claims were submitted or paid alone 

before and after the program began may not provide a valid and reliable way to measure the 

impact of the competitive bidding program because the number of benefic aires for whom claims 

were submitted or paid does not necessarily provide a reliable measure of the number of 

Medicare beneficiaries who need or receive these items. For years, the Office of Inspector 

General has issued reports finding frequent, widespread problems in the DMEPOS industry like 

claims for services to deceased beneficiaries and claims for excessive or duplicate services. 

CMS has been working hard to combat fraud and has also been taking steps to reduce the very 

high claims error rate in the DMEPOS arena; however, many claims for fraudulent or 

unnecessary services have been paid. Comparisons of 20 11-20 12 claims data to previous years 

could mislead observers because they have not been controlled for effects such as expansion of 

targeted anti-fraud efforts. 

To ensure that beneficiaries continue to have access to all needed DMEPOS items, CMS has 

taken the precautionary step of directly contacting beneficiaries in competitive bidding areas who 

had claims for mail order diabetes test strips and continuous positive airway pressure (CPAP) 

supplies before but not after program implementation. Through our direct beneficiary outreach, 

we detennined that in virtually every case, the beneficiary reported having more than enough 

supplies on hand, often multiple months' worth, and therefore did not need to obtain additional 

supplies when the program began. These targeted outreach efforts reflect the Agency's 

commitment to act on the health status outcomes information produced from our comprehensive 

claims monitoring system. This information is displayed in the charts available on the CMS 

website. We would be pleased to provide Members with a briefing to go over these health status 

outcomes in more detail and to explain the real time claims monitoring program methodology. 

3. Provide for each product category in Rebid areas the number of unique DMEPOS 

suppliers that submitted a claim for a date of service in December 2010 and, separately, in 

December 2011 as follows: 

A. Number of Contracted suppliers in each CBA submitting a claim; 

B. Number of non-contracted suppliers in each CBA submitting a claim; and 

C. For each comparator city, the number of suppliers submitting a claim. 

Answer: The attached Excel document shows the number of unique DMEPOS suppliers with 

any allowed charges for competitively bid items in 20 I 0 and 20 II in CBAs and comparator 

areas. We note that many of these suppliers had very small allowed charges. To help provide 

perspective about suppliers with a more meaningful presence in the area, we have also provided 

the number of unique DMEPOS suppliers with allowed charges for competitively bid items of at 

least $10,000 in these years. 

30 
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Insert offset folio 83 here 80258.083

4. Provide for the product categories of oxygen, CP AP and enteral nutrition, charts that 

track the health outcomes 

(https;llwww.cD1s.gov/DJ\;1EPOS~omJletitiYeBid/Ol.\}_Monitoring.asp) of beneficiaries in 

each CBA and comparator city who: 

A. Had a claim for the product category with a date of service between October 1,2010 

and January 31, 2011, and 

B. Did NOT have a claim for the product category with a date of service between 

October 1,2011 and January 31, 2012, and 

C. Are not deceased. 

Answer: CMS does not currently compile claims data in the manner requested. CMS 

understands the Subcommittee's interest in assessisng the health status of beneficiaries with a 

history of equipment use who no longer use the product. We note that it is difficult to measure 

"non-use" with Medicare claims data. Instead, we identify individuals that are not billing for a 

particular product. These people may have excess replacement supplies, may have reached the 

end of their billing period, or may no longer need the product. It is possible that these 

beneficiaries may have changes in health status over time. However, these changes could occur 

for many reasons which may not be related to competitive bidding. This will make the results of 

this analysis difficult to interpret. We have summarized two hypothetical examples below. 

Example I: A beneficiary receives a CPAP device in 20 I O. Over the next few months, the 

person's health status improves and the CPAP device is no longer necessaty. The 

beneficiary does not have a CPAP-related claim in 2011-2012. Since the beneficiary's 

health status has improved, he has decreased rates of emergency department utilization 

and fewer physician visits in 2011 compared to 2010. We cannot conclude that the 

beneficiary's improved health status outcomes are the result of the competitive bidding 

program. 

Example 2: In 20 I 0, a beneficiary is in her 36th month of a rental period for a portable 

oxygen concentrator. Since Medicare pays for oxygen using a 36 month capped rental, the 

beneficiary does not have an oxygen-related claim between October I, 2011 and 

January 31, 2012, even though she is continuing to receive oxygen. The beneficiaty has 

severe COPD along with several other conditions, and her health status is deteriorating 

with age. The beneficiaty visits the hospital more often in 20 II than 20 I 0 as a result of 

her worsening health status; however, we cannot use claims data to conclude that this is 

related to competitive bidding. 

CMS agrees that it is very important to monitor access and outcomes for all beneficiaries who 

are likely to need a competitively bid item based on their medical needs, including beneficiaries 

who do not have a claim for the item. The CMS real-time claims analysis program is currently 

tracking this information; the relevant information can be found on the "Access Group" charts in 

the health status outcomes charts on the CMS website (see: 

http://www .ems.goy (Medicare!). 1edicare-F ee-for-ScrvicePaymcnt/[)\<1['POSCompctilivcRid/Monitoring.htllll). The "Access Group" tracking has been 

31 
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f 


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129 

Question Attachments 

Attachment for Mr. Tiberi and Mr. Price Q3 Complex WC 

Suppliers Year 

f 


Insert offset folio 85 here 80258.085
130 

Attachment for Mr. Tiberi and Mr. Price Q3 CPAP Suppliers Year 

f 


Insert offset folio 86 here 80258.086
131 

Attachment for Mr. Tiberi and Mr. Price Q3 Diabetic Suppliers Year 

f 


Insert offset folio 87 here 80258.087
132 

Attachment for Mr. Tiberi and Mr. Price Q3 Enteral Suppliers Year 

f 


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133 

Attachment for Mr. Tiberi and Mr. Price Q3 Hospital Bed 

Suppliers Year 

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134 

Attachment for Mr. Tiberi and Mr. Price Q3 Oxygen Suppliers Year 

f 


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135 

Attachment for Mr. Tiberi and Mr. Price Q3 Standard WC 

Suppliers Year 

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136 

Attachment for Mr. Tiberi and Mr. Price Q3 Surfaces Suppliers Year 

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137 

Attachment for Mr. Tiberi and Mr. Price Q3 Walker Suppliers Year 

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138 

Attachment for Mr. Tiberi and Mr. Price Q3 WC Parts Suppliers Year 

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139 

Public Submissions For The Record 

Center for Regulatory Effectiveness 


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140 


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Center for Regulatory Effectiveness 

- 2-

When over two-hundred professors describe a federal program as "the antithesis of science" and when a 

senior CBO official wams that there is the "near certainty offailure" for a major Medicare program, White 

House oversight and intervention is a necessity. I say this as someone who has served five presidents and 

who recently authored a law review article providing the history of Presidential regulatory review.' 

I am attaching a paper which analyzes the CMS competitive bidding program from a game theory 

perspective. The paper also contrasts the CMS program with the excellent work done by the Federal 

Communications Commission (FCC) in developing an auction system which has taken advantage of 

modem scientific techniques to test and improve their processes. 

The attached paper notes that EO 13563, in discussing the White House's Scientific Integrity 

memorandum, states that "each agency shall ensure the objectivity of any scientific and technological 

information and processes used to support the agency's regulatory actions." The President's Scientific 

Integrity directive itself requires that agencies use "well-established scientific processes, including peer 

review where appropriate .... " Developing an efficient auction is a scientific exercise. The Center for 

Regulatory Effectiveness, acting in its capacity as a regulatory watchdog, is working to ensure that 

agencies adhere to the "good government laws" including the Scientific Integrity Memorandum. 

The paper's recommendation is that: 

$ The federal govemment conduct a federally-sponsored laboratory simulation of CMS' DME 

bidding rules to assess their efficiency and determine how they can be reformed to the benefit of 

the nation's taxpayers and Medicare beneficiaries. 

The purpose of conducting a clinical trial would be to allow a fair comparison of how the CMS bidding 

rules affect the price to taxpayers of durable medical equipment and services. The clinical test could also 

address the differentiation between the quality ofthe services received by a beneficiary through the CMS 

competitive bidding program relative to the quality of services beneficiaries receive paid for under a price 

schedule. The clinical test also needs to evaluate the sustainability ofthe auction process relative to other 

sets of rules. On this point, I reiterate the Congressional Budget Office's warning that CMS's current 

bidding system has a "near certainty of failure." 

Auction failure would mean that life-saving home medical equipment and services would either be cut-off 

or provided at an increased cost to millions of Medicare beneficiaries resulting in an enormous human toll 

and in a financial toll for taxpayers from increased emergency room visits, hospitalizations and nursing 

home care. 

The warnings by everyone from CBO to hundreds of distinguished economists have been made. The dots 

have been connected. 

4 Jim Tozzi, "OIRA's Formative Years: The Historical Record of Centralized Regulatory Review 

Preceding OlRA's Founding," 63 Admin. L. Rev. (Special Edition) 37 (2011), available at 

tUlP:·_\\:_\~-_\\::W~~r~S9D1'~p'd.f?~n' I J.~J lj\~·_R_Tq;;zi_rlnaLIgJf 
141 

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142 

Council For Quality Respiratory Care 


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C() D jC I ~~UNCll 

~ IQyALITY I RESPIRATORY 

iCARE 

Statement for the Record Submitted on Behalf of 

the Council For Quality Respiratory Care 

U.S. House of Representatives Subcommittee on Health 

Committee on Ways and Means 

Hearing on the Medical Durable Medical Equipment Competitive Bidding Program 

May 9,2012 

The Council for Quality Respiratory Care (CQRC) appreciates the opportunity to submit this written 

statement for the record of the May 9. 2012, House Ways and Means Health Subcommittee hearing 

examining the Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Suppliers 

(DMEPOS) Competitive Bidding Program. CQRC applauds the Subcommittee's Leadership and 

Members for holding this hearing to learn more about the impact of the program on patients, 

suppliers, and Medicare expenditures. 

The CQRC supports the competitive bidding program for durable medical equipment, if 

implemented appropriately. We oppose efforts to delay or repeal the program that would 

r~_uI1 ill cut~ t~ t!t_~hQIll~ respir!ltorJ'therapLben~fit. 

The CQRC is a coalition of the nation's eight leading home oxygen therapy providers who have 

served beneficiaries in the Medicare DMEPOS program for more than 30 years, as well as DMEPOS 

manufacturing companies. Together we provide in-home patient services and respiratory equipment 

to more than 600,000 (the majority) of the more than one million Medicare beneficiaries who rely 

upon home oxygen therapy to maintain their independence and enhance their quality of life. Our 

members also employ approximately 36,000 people in the United States. 

The CQRC has sought to work with CMS to address implementation issues identified during Round 

1. It is important to evaluate Round I and modify the requirements for Round II to address problems 

that arose during that initial phase of the program. 

We strongly urge the Subcommittee to monitor the Round II competitive bidding process to 

ensure the bidding requirements are applied to all bidders. 

In Round I, not all contract suppliers were able to provide services on day one of the contract 

period. Our members were required to cover the gap to ensure beneficiaries received their lifesustaining oxygen therapy as Round I went into effect because some winning bidders did not provide 

services in the CBAs. In some instances, these suppliers offered to sell their contracts or companies 

to our members because they did not intend to provide services in the CBAs. This practice results in 

higher overall costs and threatens access to care for beneficiaries. 
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144 

Dr. Lawrence I Brant 


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Name: Dr. Lawrence I Brant 

Address: 10248 EI Caballo Court, Delray Beach, FL 33446 

Phone Number: Home: 561-637-4003 

Contact E-mail Address:lawrenceibrant@bellsouth.net 

Title of Hearing: Medicare Durable Medical Equipment Competitive Bidding Program 

Wednesday, May 09, 2012 

Dear Ways and Means, Health Committee Members, 

I am an eighty year old Medicare beneficiary, with type 2 diabetes and I am a victim of Round One of 

Medicare's bidding program. I have used diabetic testing supplies daily for the past 12 years and I reside 

in Delray Beach, Florida, part of the Miami Bidding Area. I felt compelled to submit written comments to 

set the record straight about my ordeal trying to get diabetic supplies from bid winners in my area. I am 

now receiving supplies, hand delivered from a local non-winning provider, but I have concerns when the 

national mail order program begins next year and my current provider will not be able to hand deliver my 

diabetic testing supplies anymore. 

For years I never worried about receiving my diabetic testing supplies, because my son owned an 

accredited home medical company in South Florida. Unfortunately, my son's company was awarded a 

contract in the Oxygen category, but ended up closing his company on April 30, 2011; and that's when 

my problems began. 

Despite testimony in your hearing from Mr. Laurence Wilson, I did not have "stockpiles of diabetic testing 

supplies on my shelf." As a matter of fact, even though my endocrinologist gave me a prescription to test 

twice a day (which I sometimes do), my own son refused to provide me and bill Medicare that quantity. 

That is because, as my son explained, the doctor's notes did not specifically detail the precise wording for 

medical need in her notes required by auditors. I know that Medicare previously audited my simple onetest-a-day order and on several quarterly supplies I received, my son's company was never paid. 

When the last 90 day supply provided by my son's company began to run out, I could not find a bid 

winner willing to provide my brand. I repeatedly called the 1-800-MEDICARE number and was given a list 

of companies that were supposed to help me. Some bid winners did not answer their phones and others 

just had an answering machine. Finally, one company contacted me back, but said that they could not 

provide my brand of strips. I was very surprised because about four years earlier, I had to give up the 

brand my doctor first prescribed. It was a very popular brand advertised on television, but about four 

years before competitive bidding began, my son told me that cuts in Medicare reimbursement meant he 

would have to take a fifty dollar loss for my quarterly supplies. 

My son switched me to a brand that he said that he would not take a loss on and it worked very well. 

Unfortunately, the one bid winner that was willing to work with me said that he could not provide me my 

regular brand of testing strips because it cost more than the Medicare reimbursement. My son told me 

that the bid winners are required to provide the brand I need and that I should call1-800-MEDICARE to 

complain. I called back 1-800-MEDICARE several times to complain and was redirected over and over 

again but was unable to record my complaint with anyone. 

Desperate for my diabetic testing supplies, I decided to switch to the brand now offered from the bid 

winner and it did not work properly and forced me to waste test strips. The glucometer was very 

cumbersome, bulky and hard to use. I wasted one out of every three strips because if you did not hit the 

blood on the tip of the strip properly, it did not work. I would have called back Medicare to complain, but is 

anyone listening? 
145 

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146 

Health Industry Distributors Association 


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IIfID"'iIII ... 

I!!I~,II 

HEALTH INDUSTRY DISTRIBUTORS ASSOCIATION 

Statement 

of the 

Health Industry Distributors Association (HIDA) 

to the 

House Ways & Means Health Subcommittee 

Medicare's Competitive Bidding Program for 

Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) 

May 23, 2012 

On behalf of the interests of over 600 medical-surgical products distributor companies operating throughout the 

United States. the Health Industry Distributors Association (HIDA) commends the Ways & Means Health 

Subcommittee for convening a hearing on Medicare's competitive bidding program for durable medical equipment, 

prosthetics, orthotics and supplies (DMEPOS) to explore the program's impact on patients and providers. 

Founded in 1902, HIDA is the professional trade association representing medical-surgical products distributors. 

Our members deliver life-saving healthcare products to more than 220,000 points of care including over 195,000 

physician offices, 5,700 hospitals, and 16,000 nursing home and extended care facilities throughout the nation. 

j-!lDA's members are committed to promoting safety and cost savings within the healthcare supply chain. 

The majority of distributors are small businesses. Over a quarter of the industry earns annual revenues under S I 

million dollars. The healthcare distribution sector employs 65,000 people nationwide and ranked 39'h out of 52 U.S. 

industries in relative annual profit margins by Fortune magazine. Distributors' average l.3% annual profit margin is 

among the lowest in health care, requiring distributors to operate at cxtremcly high levels of efficiency. 

HIDA is committed to efforts to ensure that Medicare beneficiaries, specifically those residing in skilled nursing 

facilities (SNFs), continue to have uninterrupted access to life-sustaining medical products. As such, we write to 

express our concerns about the competitive bidding program's impact on SNFs and the patients they care for. 

Specifically, HIDA recommends: 

A third patty validated study of the competitive bidding program's application to and impact on SNFs be 

conducted prior to the program '5 expansion nationwide; and 

The exclusion of enteral nutrients, equipment and supplies from Round Two of the competitive bidding 

program until the program's impact on SNFs and their patients is fully evaluated and understood. 

Transitioning to a competitive bidding program for DMEPOS items and services raises many serious questions 

related to cost, access and beneficiary protection. SNF patients are among the nation's most ill and frail. They 

2,10 Mon1:t-;orne:y SbGet '" Ak·.-<ondna vA 223>1·]:110 WWW.streamlininghE'.althcare.org 

Plr"'fl1,: (lCd) :A9-4·D2 ~ Fax: (70::l) 5l~9·649S * www,HIDA.org 
147 


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Health Industry Bistributors A!>\ociation 

Written ~tatement submitted to the 

House '" ays & ~:Iean!o Health Suhcommittee 

\-lay 23, 2012 

Page 2 

require 2417 direct clinical coordination and care by nurses, doctors and other trained healthcare professionals, 

induding long-term care specific enteral nutrient suppliers. The level of care required to SUppOit the healthcare 

needs of these patients must not be inadvertently threatened or compromised. 

Impact on SNFs must be assessed 

A third party validated study of the competitive bidding program's specific impact on SNFs must be conducted 

bcfore the program further expands. The Government Accountability Office (GAO) rccently released a report to 

Congress reviewing the first year of Medicare's DMEPOS competitive bidding program; however, it fails to 

provide a complete cmalysis of the program's specific impact on SNFs and their patients' Clccess to quality enteral 

nutrition therapy. As eMS moves toward expanding the competitive bidding program from nine to 100 MSAs, it is 

essential to assess how the program has impacted this vulnerable patient setting. 

It is apparent that the competitive bidding program was designed with the home care setting foremost in mind, yet 

SNFs care for the bulk of Medicare beneficiaries receiving enteral feeding for life-sustaining nutritional support. 

Me. Laurence Wilson, eMS' Director of Chronic Care Policy, acknowledged this reality in response to a question 

poscd by Rcprcsentative Bill Pascrcll (D-NJ) on the program's impact on SNFs during the May 9, 2012, Hcalth 

Subcommittee hearing. Mr. Wilson stated that the only product category reimbursable under Medicare Part B 

impacting SNFs is enteral nutrition therapy (tube feeding). 

Residents in SNFs often arc more impaired than home care patients and they require a more complex regimen of 

care for enteral nutrition therapy than home care patients. Enteral patients in SNFs have dietary needs that change 

more frequently than most home care p(ltients, thus requiring (In enteral nutrition supplier that can readily address 

their special needs. 

The competitive bidding program has interfered with a SNFs' ability to make decisions regarding the enteral 

nutrition needs of their residents. During the Round One rebid of the competitive bidding program a SNF had to 

submit and win a bid to continue providing enteral nutrition to its residents, or contract with a supplier from a list of 

bid winners in their respective metropolitan statistical area (MSA). Very few nursing homes won a bid to provide 

enteral nutrition to their own residents. Furthermore, many SNFs were forced to terminate long-standing 

relationships with their local long-term care specific enteral nutrient suppliers. These incidents raise a number of 

issues unique to the nursing home setting that must be evaluated prior to expanding the program nationwide. 

Enteral nutrition therapy is not well-suited for competitive acquisition 

Moving to a national compctitive bidding program for DMEPOS items and serviecs, specifically the inclusion of 

enteral nutrition therapy, raises many serious questions related to access, beneficialY protections, and market-based 
148 

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149 

Independent Medical Supply Inc 

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150 

Jersey Association of Medical Equipment Services 


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Keeping Members Informed 

Comments for the Record 

From the 

Jersey Association of Medical Equipment Services (JAMES) 

On behalf of its Memhers 

Tn Support of Hearing by the House Ways and Means Sub-Committee on Health 

Held 

Wednesday, May 9, 2012 at 9:00 am 

Summary Statement 

Chainnan Herger, Ranking Member Stark, members of the Committee, the Jersey 

Association of Medical Equipment Services (JAMES) submits the following comments for the 

record regarding the hearing by your subcommittee on the flawed competitive bidding program 

for durable medical equipment, prosthetics, orthotics, and suppliers (DMEPOS). We are a trade 

association representing and supporting the durable medical equipment (DME) supplier 

community of New Jersey. 

Our membership has raised serious concerns with the program for several years with our 

legislators, and has solicited their support as co-sponsors on legislation that would repeal the 

flawed bidding program. H.R. 1041, the Fairness in Medicare Bidding Act (FIMBA) has the 

support of six New Jersey House members. 

New Jersey is significantly impacted by the competitive bidding program, as we have 17 

out of 21 countics dividcd up amongst thc four compctitivc bid arca's (CBA's) that cncompass 

the state. Two of the four CBA's cross state lines and force New Jersey DMEPOS suppliers to 

commit to doing business in Pennsylvania, Delaware and Maryland, if they are awarded a 

contract. 

One of the most critical issues with competitive bidding is the apathetic lack of 

undcrstanding of how thc DME industry connccts with other hcalthcarc providcrs and functions. 

The DME supplier community is made up of providers who serve a local service area, sometimes 

as small as a few miles in any area. The bidding process of requiring a bid winner to serve the 

entire CBA is in itself exclusionary. An accredited provider serving the southern part of New 

Jersey would find it physically impossible to serve the portion of Maryland included in the CBA 

in a timely manner. Expecting that same supplier to subcontract in order to stay in business 

would require business expertise far beyond the abilities of most small businesses. 

The first real challenges our members faced with the competitive bidding program 

occurrcd last August whcn thc Ccntcrs for Mcdicarc & Mcdicaid Scrviccs (CMS) announccd thc 

Round 2 specific zip codes and product categories. Suppliers located in the southern portion of 

C'ommcnb for the Record - JAMES 

111'""" 
151 


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the state received confirmation that if they wanted to submit a bid to potentially continue to 

service their share of New Jersey's 1.4 million Medicare beneficiaries, they would need to plan 

to expand their operations to service areas in Pennsylvania, Delaware and Maryland. Their first 

commitment to this potential expansion was one that posed significant regulatory burden as they 

prepared their businesses for interstate commerce in a healthcare-related industry. The web of 

state regulations for DME suppliers varied by state; numerous licensing boards and regulatory 

agencies gave conflicting information, and the licensing resource provided by CMS was one that 

changed frequently without notice to DME suppliers. Complex out-of-state license application 

requirements and processing timerrames led JAMES to request relief from our legislators, and 

ultimately, CMS acknowledged challenges existed related to regulatory licensure requirements 

and granted a licensure delay. 

Similar barriers to access did not apply to DME companies outside of New Jersey, as our 

licensing requirements are minimal. The program, as currently designed, allows a DME supplier 

to bid to service a CBA without the need for a physical presence in the CBA. It is possible, 

based on the results the industry saw from Round 1, that many New Jersey DME companies 

were not only submitting bids to compete against established companies in their current 

marketplace, but also unknown out-of-state DME suppliers. Our association office fielded many 

calls from DME suppliers throughout the country inquiring about the restrictive nature ofthe 

regulations enacted by our State Board of Respiratory Care. These companies were ultimately 

working to devise a plan to circumvent the true intent of our regulations by utilizing minimal 

efforts to show compliance, if awarded a contract for oxygen and CP AP product categories. 

Considering our regulations set forth by the State Board of Respiratory Care are based on patient 

safety, this has raised significant concerns for our members. 

While attending a recent legislative event in the state, our association's representative had 

the opportunity to speak with many New Jersey small business owners. It is apparent that our 

small business base is still struggling to overcome the economic challenges of past years, and the 

competitive bidding program, as currently designed will provide additional challenges. A study 

conducted on potential supplier closure and job loss in the CBA's that impact New Jersey reveal 

there is a potential for the loss of 1,483 suppliers and 14, 831 jobs. l Medicare beneficiaries will 

experience access delays due to the magnitUde of the dismantling of the New Jersey DME 

industry. 

Unsustainable reimbursement rates, based on Round I outcomes, will further plague the 

DME suppliers who are successful at winning contracts. A recent study released discusses how 

lower medical equipment reimbursements have lead to the quality of such products degrading to 

the point where the patient is impacted by lesser-quality devices. While we are supportive of 

fiscal responsibility to protect the longevity of the Medicare program, we believe there are 

alternative ways to reflect updated pricing structures that will produce cost-savings for the 

Medicare program. It should be noted that CMS has ample authority to adjust prices to meet 

market demands without implementing such a devastating program. The concept of this 

misguided program came about because the creators did not understand the DME industry and 

how the network of over 100,000 suppliers has been woven into the fabric of healthcare in 

virtually every community. The businesses, small and large, live and work in neighborhoods 

where it is literally, "neighbors serving neighbors". It is not possible to move away from that 

1 The VGM Group. DME Competitive Bidding Will Cost MoreThan 1 00,000 Jobs. InfonnationaI brochure, 20 I O. 

Comments for the Record - JAMES 

21 P '1- " 
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concept without harming everyone involved, including the patient, the physician, and every other 

component of healthcare that touches that patient. 

Recent announcements by the Department of HeaILh and Human Services regarding the 

finalization of the Community First Choice rule indicate the agency is committed to keeping 

patients in their home environment - a true cost-savings measure. We applaud this initiative, but 

at the same time exercise caution as we are concerned that the competitive bidding program will 

eliminate the velY infrastructure needed to support the Community First Choice option. 

As New Jersey DME suppliers await the remainder of events in the Round 2 

competitive bidding timeline, our association is very concerned about competitive bidding and 

will work with our members of Congress to help meet the stated goals for this program following 

repeal. JAMES can otter alternatives that will both reduce fraud and abuse, and reduce program 

costs by applying realistic solutions. 

Wendy Russalesi 

Executive Director 

PO Boy, 38 ~ .. !a::kS0f1, New Jer':,ey 08527 ~ P: 731c503.5665 F: 732.833.2029 

Comments for the Record - JAMES 

3 II' .1 
153 

National Association for the Support of Long Term Care 


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STATEMENT OF THE 

NATIONAL ASSOCIATION FOR THE SUPPORT OF 

LONG TERM CARE (NASL) 

HEARING ON THE DURABLE MEDICAL EQUIPMENT, 

PROSTHETICS, ORTHOTICS, AND SUPPLIES (DMEPOS) 

COMPETITIVE BIDDING PROGRAM 

SUBCOMMITTEE ON HEALTH 

COMMITTEE ON WAYS AND MEANS 

UNITED STATES HOUSE OF REPRESENTATIVES 

WEDNESDAY, MAY 9, 2012 
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The National Association for the Support of Long Term Care (NASL) 

submits this statement to the House Ways & Means Subcommittee on Health 

for its May 9, 2012 hearing on the Medicare Durable Medical Equipment 

Prosthetics, Orthotics, and Supplies (DMEPOS) competitive bidding 

program. 

NASL represents providers and suppliers of products, medical supplies, 

diagnostic testing, professional services, therapy, and information systems 

for the long-term and post-acute care (LTPAC) industry, as well as LTPAC 

providers. NASL members include suppliers and manufacturers of durable 

medical equipment, prosthetics, orthotics and enteral nutrition, providers of 

physical, occupational, respiratory and speech-language pathology therapies, 

and health information systems developers. 

Simply stated, NASL remains concerned that the Medicare competitive 

bidding program needlessly forces quality suppliers out of the Medicare 

program. It is poorly structured and, we believe, ultimately is destined to 

fail, thus creating serious access and quality issues for Medicare 

beneficiaries in need ofDMEPOS products and services. Briefly, our 

principal concerns are the following: 

• Under the current competitive bidding system, 50% of the "winning" 

bidders must accept payment levels that are below their bids, which is 

directly contrary to the basic rules of competitive bidding programs 

conducted elsewhere in the federal government. Thus, the Centers for 

Medicare & Medicaid Services' (CMS') competitive bidding program 

does not accurately reflect the market for a particular product category 

in a particular geographic area. Despite the description of the 

program as market-based, it really is nothing more than an arbitrary 

fee schedule that is applied to a reduced number of participating 

DMEPOS suppliers. 

• The combination of allowing non-binding bids and inviting 

inexperienced suppliers to bid for the contracts has resulted in further 

distortions of the market, which is only accentuated when some of the 

lowest bidders walked away from the program but their bids still 

influenced the competitive bidding payment amounts. 

• CMS has not made public the level of information necessary to gauge 

how successful the competitive bidding program really is in terms of 

patient access to quality care. For example, CMS has not responded 
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to the request of the Program Advisory and Oversight Committee 

(PAOC) for information in 2011 that would enable the PAOC to 

assess the impact of the competitive bidding program on beneficiaries 

and suppliers. Preliminary analyses performed by outside economists 

have at least raised the question that the reduction in utilization of 

DMEPOS products and services in the competitive bidding areas may 

be adversely affecting Medicare beneficiaries' access to medically 

necessary care. Round Two of the program, which is a ten-fold 

increase in the scope of the competitive bidding program, should not 

be undertaken until CMS demonstrates that patient access to care has 

not been compromised. 

In addition to these basic concerns that are shared by virtually all DMEPOS 

suppliers, NASL wishes to raise particular issues that result from the 

application of the competitive bidding program to products provided in 

nursing facilities. One of the product categories that was included in Round 

One and expected to be in Round Two ofthe competitive bidding program, 

enteral nutrition, is primarily provided to residents of nursing facilities. Thi~ 

presents issues that go far beyond the scope of the competitive bidding 

program, as explained below. 

Enteral nutrition involves the provision of nutrients by tube into a patient's 

stomach or intestine. It is prescribed by physicians for patients whose lower 

gastrointestinal tract functions normally but who are unable to swallow, whc 

have a gastric obstruction or who cannot otherwise ingest adequate amounts 

of food and fluids by mouth. Medicare Part B covers enteral nutrition 

formulas, supplies and equipment under the prosthetic device benefit when 

enteral nutrition is necessary for the patient to maintain weight and strength 

commensurate with his or her general condition. 

It is noteworthy that enteral nutrition was not tested successfully during the 

two demonstration projects that preceded the enactment of the Medicare 

Modernization Act of 2003, which created the competitive bidding program 

for DMEPOS items and services. In fact, enteral nutrition was removed 

from the Polk County, Florida demonstration, in large part, we believe, 

because most enteral patients in that county resided in nursing facilities. 

This created complications that CMS did not want to address at that time. 

Nursing facilities have a special relationship with their residents. In most 

instances, the nursing facility is the resident's home. The nursing facilities 

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are responsible for providing complex nursing and rehabilitative therapy 

services involving an array of clinicians, providers and suppliers to meet 

patient health care needs, and the facilities are held accountable for the 

quality ofthese services. Nursing facilities must meet detailed conditions of 

participation to participate in the Medicare and Medicaid programs as well 

as a wide array of additional federal and state requirements regarding patient 

safety and quality of care. Because of their multiple responsibilities in this 

regard, nursing facilities traditionally have established long-standing 

relationships with selected suppliers based on experience, and suppliers 

understanding ofthe fragile and medically complex patient that relies on the 

nursing facility for care. 

For these reasons, many nursing facilities were extremely concerned that the 

competitive bidding program would force them to admit unfamiliar suppliers 

into their facilities to provide services, supplies and equipment to their 

residents. NASL agrees with nursing facilities on this point - that the 

facilities must be able to select the suppliers that the facilities believe can 

best enable them to meet resident needs and comply with applicable 

standards. Unfortunately, the competitive bidding program has interfered 

with their ability to make these decisions regarding the enteral nutrition 

needs of their residents, and has disrupted ongoing relationships that had 

worked to the benefit oftheir residents. The fact that grandfathering (i.e., 

permitting non-winning bidders to continue to provide care to their current 

patients if they accept the competitively bid rates) was not extended to 

enteral nutrition ensured that every nursing facility that did not win a bid, or 

where the particular nursing facility's enteral nutrition supplier did not win 

the bid, had to find a new enteral nutrition supplier. 

In addition, the provision of enteral nutrition therapy in nursing facilities 

differs from the provision of therapy in patients' homes. Residents in 

nursing facilities often are more impaired than home care patients and 

require a different regimen of care. Enteral patients in nursing facilities have 

dietary needs that change more frequently than most home care patients, 

thus requiring an enteral nutrition supplier that can readily address their 

special needs. An enteral supplier that has had no experience working with 

the complex medical needs of nursing facility residents may not be an 

adequate replacement for a supplier that has had years of such experience. 

We do not believe there has been adequate scrutiny of the application of the 

competitive bidding program to nursing facility residents. We urge 

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Congress to require CMS to provide the data to the Government 

Accountability Office for its required analysis of the competitive bidding 

program, and the public, to address the following issues: 

• Changes in treatment patterns of enteral nutrition patients in nursing 

facilities in competitive bidding areas, and whether the use of new 

enteral nutrition suppliers has increased nursing facility costs for the 

care of their enteral nutrition patients; 

• Observations from nursing facilities' clinicians as to any diminution 

in quality of enteral nutrition therapy provided to their residents; 

• Incidence of re-hospitalization of nursing facility residents in need of 

enteral nutrition in competitive bidding areas in 2011, compared to the 

re-hospitalization rates in those areas in 2010; and 

• Whether the new enteral nutrition suppliers providing enteral nutrition 

to nursing facility residents had previous experience in treating 

nursing facility residents. 

In addition, we request that Congress require CMS to grandfather all patients 

and products involved in the competitive bidding program in any future 

expansion or extension of the program. 

Additional Recommendations 

We join with numerous other commenters in advocating for the adoption of 

the concept of the Market Pricing Program developed by the DMEPOS 

industry. We believe that better definitions of the professional services and 

related costs for the provision of DMEPOS, along with a fairer and more 

reasonable bidding regimen that will accurately capture market prices, will 

be a dramatic improvement over the current competitive bidding program. 

If Congress decides to continue with the current competitive bidding 

program, then we urge Congress to correct the deficiencies in the program 

we have identified in this statement. In addition, we urge Congress to 

modify the planned product categories for the Round One Re-Compete, 

scheduled to go into effect in 2014 for the original nine competitive bidding 

areas. CMS intends to group certain unrelated product categories into larger 

categories. For example, CMS intends to create a new "General Home 

Equipment and Related Supplies and Accessories" category that will 

encompass hospital beds and related accessories, group 1 and 2 support 

services, transcutaneous electrical nerve stimulation devices, commode 

4 
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chairs, patient lifts and seat lifts. Many suppliers provide some but not all of 

these items. As a result, this will lead to several disturbing problems: 

• This approach unfairly favors large, "one-stop shop" operations, 

which ultimately will be anti-competitive. 

• Specialty or niche suppliers that have significant experience and 

enviable track records for quality for one or several of the items will 

be at a distinct disadvantage in the bidding for all of the items in this 

category. 

• To survive in this bidding process, small or niche suppliers will have 

to increase the degree of subcontracting to cover the wide array of 

products in the category. Subcontracting increases the possibility of 

patient and provider confusion, disruptions in care and similar issues. 

• For those suppliers that choose not to subcontract to provide the full 

array of items in this category, they must attempt to become proficient 

and efficient in product areas with which they do not have experience. 

We believe the Medicare program should be providing incentives to 

suppliers to provide services and products in areas where they excel, 

instead of encouraging suppliers to experiment in other product areas. 

The DMEPOS competitive bidding program must be designed to still 

produce savings for the Medicare program, and not diminish the quality of 

products, supplies and services for the patient. Therefore, we thank the 

committee for bringing attention to the issue by holding this hearing and 

urge Congress to complete a full analysis ofthe competitive bidding 

program before it expands the program to 91 Metropolitan Statistical Areas. 

NASL, is an organization that represents suppliers and manufacturers of 

durable medical equipment, prosthetics, orthotics and enteral nutrition, 

stands ready to be a resource, as you carry out the important work relating to 

the competitive bidding program. 

5 
159 

National Association of Chain Drug Stores 


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NA.CDS NATIONAL ASSOCIATION OF 

CHAIN DRUG STORES 

Statement 

Of 

The National Association of Chain Drug Stores 

For 

U.S. House of Representatives 

Ways and Means Committee 

Subcommittee on Health 

Hearing on: 

The Medicare Durable Medical Equipment 

Competitive Bidding Program 

May 9, 2012 

9:00 a.m. 

1100 Longworth House Office Building 

National Association of Chain Dmg Stores (NACDS) 

413 North Lee Street 

Alexandria, VA 22314 

703-549-3001 

www.nacds.org 
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NACDS Comments to House Ways and Means Subcommittee on Health 

The Medicare Durable Medical Equipment Competitive Bidding Program 

May 9,2012 

Page 2 of5 

The National Association of Chain Drug Stores (NACDS) thanks the Members of the 

Subcommittee on Health for consideration of our statement for the hearing on "The Medicare 

Durable Medical Equipment Competitive Bidding Program" to understand how the program 

is impacting patients, suppliers and program expenditures. 

In 2003, Congress created the Medicare Part B competitive bidding program for durable 

medical equipment (DME). While diabetes testing supplies (DTS) are considered DME 

under the Medicare program, the Centers for Medicare & Medicaid Services (CMS) has 

intentionally and wisely excluded diabetes testing supplies furnished by retail phannacies 

from competitive bidding, thereby ensuring beneficiary access to these vital supplies. 

Without this exclusion, it is highly unlikely that retail phannacies would be able to furnish 

DTS in Medicare, since competitive bidding reimbursement rates are below DTS product 

costs for retail phannacies. Limiting access to DTS will lead to poorer health outcomes and 

escalating costs of care. 

Early evidence suggests that beneficiaries requiring diabetes testing supplies and living in a 

competitive bidding area under Round One of the program have actually shifted towards 

obtaining their DTS from their local community phannacy. If this is the case it would 

indicate that mail order providers participating in the program are unable to provide the 

needed supply of DTS, a situation that would only become increasingly problematic should 

the beneficiary option to use the retail setting be eliminated. It is necessary that retail 

pharmacies be maintained as a safety valve for beneficiaries in competitive bidding areas. 

NACDS urges a comprehensive review of Round One of the Competitive Bidding Program 

(CBP), with a particular focus on access to DTS, including a review of beneficiary health 

outcomes and the ability of mail order suppliers to provide beneficiaries with their choice of 

supplies in the competitive bidding areas. 

Chain phannacies, which make up 66% of retail community pharmacies, are a vital access 

point for both diabetes testing supplies and prescription medications. Maintaining access to 
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NACDS Comments to House Ways and Means Subcommiffee on Health 

The Medicare Durable Medical Equipment Competitive Bidding Program 

May 9, 2012 

Page 3 0/,5 

diabetes testing supplies at local phannacies allows seniors to access all of the equipment and 

prescription drugs they need to manage their disease from a single source, 

Pharmacists are uniquely qualified as medication experts to work with patients needing 

medical supplies such as diabetes testing supplies, Pharmacists playa key role in ensuring 

patients use their supplies in the most proper and meaningful way, Including retail 

pharmacies in the competitive bidding program will limit the number of options available to 

beneficiaries, This will also prevent some beneficiaries from continuing the relationship with 

pharmacists they have been using for years, Beneficiaries should have the continued ability 

to obtain their medical supplies from pharmacies with which they have a long-standing 

relationship, 

One-on-one patient consultations provided by local pharmacists are often the first 

opportunity to identify other chronic illnesses and changes in patients' conditions, and these 

consultations often result in early detection, referral and treatment. Continued participation of 

community retail pharmacies in serving Medicare patients with medical supplies such as 

DTS should therefore be a priority of the Medicare program, 

In addition to resisting moving any segment of retail pharmacy into the Medicare competitive 

bidding program, NACDS urges the following future actions under the Competitive Bidding 

Program to ensure beneficiary access to all retail locations which are critical to access and 

care coordination for diabetes patients: 

Avoid proposals that reduce reimbursement for diabetes testing supplies 

obtained at a retail pharmacy to the level provided to mail order suppliers 

participating in the competitive bidding program, given that such an approach 

would not reflect the health-improving, cost-saving value of retail pharmacy 

services. 
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NACDS Comments to House Ways and Means Subcommittee on Health 

The Medicare Durahle Medical Equipment Competitive Bidding Program 

May 9, 2012 

Page 4 0/5 

Consider alternative approaches which would produce program savings without 

compromising beneficiary access and health, such as moving coverage of 

diabetes testing supplies from Medicare Part B to Part D. 

Do Not Lower Reimbursement for Retail DTS to Mail Order Levels 

NACDS is concerned with proposals which would lower the reimbursement rate for diabetes 

testing supplies obtained at retail pharmacies to the level paid to mail order suppliers in the 

CBP, Such an approach does not take into consideration the added value, in terms of 

improved health and reduced costs that result from services provided by retail pharmacies, 

This reimbursement reduction would hurt access to care and severely limit the valuable role 

of pharmacist-patient interactions in reducing overall program spending, Such reduced 

access and the elimination of face-to-face pharmacist counseling will lead to under-testing, 

decreased medication adherence, poorer outcomes, and increased overall costs, We urge the 

Subcommittee to advance healthcare proposals that not only improve patient outcomes, but 

can be implemented in a manner that does not increase overall costs, Lowering 

reimbursement for retail DTS would accomplish neither of these goals, 

Move DTS From Medicare Part B to Part D 

The Committee should consider moving diabetes testing supplies from Medicare Part B to 

the Part D program, Prescription drugs related to diabetes, such as insulin, are provided to 

Medicare beneficiaries through Part D, However, durable medical equipment such as 

diabetes monitors, testing strips and lancets are provided to Medicare beneficiaries through 

Part B. This results in difficulties coordinating care, 

Diabetes supplies should be covered through the Part D benefit. This would mlffor 

commercial practices, would allow beneficiaries with diabetes to access necessary 

medications and supplies from the same provider if they chose, and would reduce costs by 

moving products to the more efficient Part D program, which continues to operate below 

Congressional Budget Office (CBO) projections, Conversely, proposals to expand the 
163 

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164 

Reliable Medical Inc 

f 


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165 

Smith and Nephew Inc 


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Written Testimony Submitted to the United States House of Representatives 

House Ways and Means Health Subcommittee 

1100 Longworth House Office Building 

May 9,2012 Hearing on the Medicare Durable Medical Equipment Competitive Bidding Program 

On Behalf of Smith & Nephew, Inc. 

Thomas Dugan, President, North America, Advanced Wound Management 

970 Lake Carillon Drive 

St. Petersburg, FL 33176 

tom.dugan@smith-nephew.com I phone 727-399-3743 I fax 901-721-2455 

Chairman Herger, Ranking Member Stark and Members of the Subcommittee, on behalf of Smith & 

Nephew, Inc., I would like to thank you for holding this important hearing on Medicare's Durable 

Medical Equipment competitive bidding program. 

Smith & Nephew is a global medical technology business dedicated to helping improve people's lives. 

With leadership positions in Orthopedic Reconstruction, Advanced Wound Management, Sports 

Medicine, Trauma and Clinical Therapies, the Company has almost 11,000 employees and a presence in 

more than 90 countries, including more than 4,000 employees in the United States. Annual sales in 

2011 were nearly $4.3 billion. 

Smith & Nephew's Advanced Wound Management division makes a wide range of products designed to 

help the healing process and improve patient quality of life. These include advanced films, foams and 

polymeric gels that create a moist environment that encourages healing, and antimicrobial dressings 

and ointments for treating and preventing wound infection. Potential benefits to patients include fewer 

reapplications of dressings, less discomfort and pain, faster healing and reduced risk of complications. 

Treatment is clinically effective, less time-consuming and contributes to improved outcomes, and is 

therefore more cost-effective. 

Each year, Smith & Nephew trains thousands of healthcare professionals, offering programs and 

seminars from classroom to bedside. Smith & Nephew's research and development team is committed 

to helping people regain their lives and continues to advance wound care solutions that help reduce the 

human and economic costs of wounds. 

Some of these products, in particular negative pressure wound therapy (NPWT). are paid for by 

Medicare as durable medical equipment (DME). NPWT is one of the DME categories under Round 2 of 

the competitive bidding program. 
166 


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The benefits of NPWT are the result of multiple mechanisms of action. When the therapy is applied, a 

pressure gradient is created and results in physical forces being applied to the wound, removal of 

edema, improved blood flow, and removal of bacteria and wound fluid. The combination of these 

mechanisms stimulates the generation of new tissue and promotes wound healing. NPWT is a vital tool 

for doctors and wound care specialists. Multiple clinical studies provide the evidence that NPWT helps 

patients heal faster with a reduced risk of infections and complications. 

Our testimony before the Subcommittee today focuses on two issues. First, we wish to express our 

strong support for the concept of the DME competitive bidding program as a tool to encourage marketbased reimbursement while ensuring Medicare patient access to home medical equipment from an 

ample network of qualified suppliers. In particular, we have some comments related to the Market 

Pricing Program (MPP), which has the support of the American Association of Homecare, multiple 

economists and auction experts from around the world. 

We understand that Subcommittee has heard multiple stakeholders describe the various bidding 

methodologies, but we believe the MPP more appropriately and transparently arrives at competitive 

bids and ensures only legitimate suppliers participate. 

I will not restate the details that the Subcommittee already has received from other stakeholders; but as 

a company deeply impacted by the competitive bidding process, it is our experience that Medicare 

patients benefit only when qualified bidders provide products in a financially sustainable bidding 

program. We firmly believe that the MPP proposal developed by the independent auction experts 

should receive serious consideration by both Congress and the Centers for Medicare and Medicaid 

Services (CMS). 

Second, we commend CMS for the agency's interpretive guidelines for CMS-approved accrediting 

organizations. These entities will use the guidelines in accrediting suppliers that provide NPWT 

equipment to Medicare beneficiaries. The guidelines provide important patient safety protections, 

including specifications for suppliers to coordinate with the prescribing physician to confirm orders, 

ensure equipment delivery with home health care providers, and perform all needed quality checks on 

the various NPWT components. These final interpretive guidelines are a culmination of discussions 

among NPWT manufacturers, industry associations, and CMS. We applaud CMS's leadership in bringing 

this process to a close. 

In addition, CMS has provided assurances that the agency will track patient access to and outcomes 

from NPWT, in both competitive bidding and non-competitive bidding areas, to enable the agency to 

assess the effectiveness of the program following implementation. We believe this will allow 

stakeholders to assess whether modifications are needed due to Medicare patient access concerns. We 

appreciate CMS's commitment to monitoring the impact of the program. 
167 

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168 

T2United Spinal Association 


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United Spinal 

Association 

House Ways and Means Health Subcommittee 

May 9, 2012 

Impact of the DMEPOS competitive bidding program on beneficiaries, suppliers, 

and Medicare expenditures and the implications for program expansion 

75-20 Astoria Boulevard 

Jackson Heights, NY 11370-1177 

Tel 7188033782 

Fax 7188030414 

www_unlledsplnal org 

Statement for the Record of Paul Tobin 

President and CEO 

United Spinal Association 
169 


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Introduction 

My name is Paul Tobin and I am President and Chief Executive Officer of the United Spinal 

Association. I previously served as the Association's deputy executive director and was a 

member ifits Board of Directors from 1995 to 1996.1 have also held a variety of other 

managerial positions at the Association including hospital services officer, director of special 

projects, and group director of benefit services. I eal11ed my Bachelor of Science degree in civil 

cnginecring in 1991 from Manhattan Collcgc. I latcr attcndcd thc U.S. Navy Officcr Candidatc 

School in Newport, RI, from which I was commissioned an ensign and joined the Civil 

Engineering Corps. After sustaining a spinal cord injury in August 1993, I underwent 

rehabilitation at the Castle Point Veterans Affairs Medical Center in New York. I have since 

eal11ed a Master degree in Social Work at Fordham University and am taking coursework for a 

Master degree in Public Health Administration at Columbia University. My statement focuses 

on the impact the Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 

(DMEPOS) competitive bidding program has on the spinal cord injuries and disorders 

community. 

United Spinal Association is a national non-profit organization founded by paralyzed veterans in 

1946 and headquartered in New York. United Spinal has since provided service programs and 

advocacy to improve the quality oflife of individuals with disabilities across the life span living 

with spinal cord injuries and disorders (SCI/D) such as multiple sclerosis, amyotrophic lateral 

sclerosis, post-polio syndrome and spina bifida. There are more than a million individuals 

throughout the country with SCIID and to whom the Association's work is dedicated. United 

Spinal has more than 35,000 members and 68 chapters and support groups nationwide. 

Throughout its history, United Spinal Association has devoted its energies, talents and programs 

to improving the quality of life for these Americans and for advancing their independence. 

United Spinal Association is also a V A-authorized veterans service organization serving veterans 

with disabilities of all kinds. 

Consumer Access to Quality Products and Services 

Individuals with disabilities rely on access to quality products and services that enable us to be 

contributing members of society by being employed and active in our communities. Access to 

the right products and services fosters our independence and equality in the pursuit of happy 

productive lives and dreams. 

United Spinal Association has been monitoring the Medicare DMEPOS competitive bidding 

program through the roll-out and implementation of the initial Round One that occurred in July 

2008 through today. The Round One Rebid went into effect last January for nine areas across 

the country: Cincinnati and Cleveland, Ohio; Charlotte, North Carolina; Dallas, Texas; Kansas 

City in Kansas and Missouri; Miami and Orlando in Florida; Pittsburgh, Pennsylvania and 

Riverside, Califol11ia. United Spinal has heard numerous complaints from beneficiaries regarding 

the Round one Rebid and its impacts on their preferred equipment and services from their trusted 

providers. Some have had difficulty finding a local equipment or service provider. Others have 

experienced delays in obtaining medically required equipment and services or longer than 

necessary hospital stays due to equipment delays before discharging patients to home-based care. 

Others have bemoaned their fewer choices when selecting equipment or providers and the loss of 
170 


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one-stop shopping and the quality of services. They also pointed out the confusing or incorrect 

information Medicare provided to them about the changes while others felt totally ill-prepared. 

The lessons from the Round One Rebid raise serious concerns about what will result in 

Round Two next July when 91 additional areas will be affected across the west, midwest, south 

and highly populated northeast regions of the United States. Cities included in Round Two 

include the highly populated Chicago, Los Angeles and New York competitive bidding areas 

(CBAs) all of which had to be subdivided into multiple CBAs. As a New York resident, J am 

concerned about the impact on consumer access in the New York CBA which is divided into 5 

subcategories and includes New Jersey and Pennsylvania. The subdivisions are: BronxManhattan, NY; Nassau-Brooklyn-Queens, NY; northwest NYC metro, NJ; northern NYC 

metro. NY; southern NY metro, NY -NJ; and, Suffolk County, NY. I can personally speak to the 

hours that J spend stuck in traffic getting from point A to point B and this is a concern for me and 

others within the disability community that rely on their durable medical equipment providers 

and their assistive technology professionals to reach them in a timely manner. A consumer in the 

Miami CBA informed us that she cannot move independently within her own house and had to 

travel 60 miles to Miami to have her wheelchair fixed because there were no contract providers 

in her immediate area. Additionally, consumer access is affected by the competitive bidding 

program by the fact that small businesses may be unable to withstand the pricing model, leaving 

fewer suppliers in the marketplace from which consumers can obtain needed equipment and 

services over time, this will result in higher prices for the consumer service resulting in higher 

prices for the consumer and larger companies consuming more of the marketplace. 

For the Round One Rebid, 356 suppliers were awarded contracts to provide durable medical 

equipment and supplies, including Standard (Power and Manual) Wheelchairs, Scooters, and 

Related Accessories to Medicare beneficiaries in the 9 Round One Rebid competitive bidding 

areas. Of the estimated 47 million Medicare beneficiaries, about 2 million beneficiaries that are 

dependent on the competitive bidding program for coverage of products and services reside in 

the nine competitive bidding areas.! United Spinal Association will be sure to monitor closely 

the number of contract suppliers that are available to Medicare beneficiaries with disabilities 

under Round Two of the program in 91 additional areas. 

Of 127,466 inquiries in 2011 that CMS claims it received, only lSI were classified as 

complaints. CMS states that their pre- and post- implementation beneficimy satisfaction survey 

did not reveal systemic beneficiary access or satisfaction problems with the competitive bidding 

program. The agency also tracked health outcomes, including hospitalizations, physician visits 

and deaths for beneficiaries potentially affected by the program. However. the data that needs to 

be analyzed are the same consumer population sets pre- and post- bidding and health outcomes 

data over the long-term looking at how that population is being impacted. Moreover, when is an 

inquilY an inquiry versus a formal complaint? If a consumer inquires with CMS about why they 

are having difficulties under the new program finding needed equipment and services, should 

that not be registered as a complaint? 

Recently, CMS' Actuary Office found that Round I has reduced program expenditures by $202 

million in 20 II. eMS expects the competitive bidding program to save $43 billion over the next 

I GAO Report, 'Medicare: Rcvic\v of The First Year of eMS' Durable Medical Equipment Competitive Bidding 

Program's Round 1 Rehid', p.3. 
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10 years, including saving beneficiaries $17 billion, referring to beneficiary co-pays. However, 

these numbers do not take into consideration the health outcomes data of Medicare beneficiaries 

over the long-term or the increase in insurance premiums. Individuals with disabilities who are 

on Medicare, in many cases, do not call the federal government when a problem arises with their 

equipment or services. Most consumers are concerned they might lose their government benefits 

and are more likely to call their supplier or a family member or caregiver for assistance. 

Another concern that I have is the implementation of the national mail-order program next July 

due to the high incidence of diabetes within the SCI community. According to Dr. Jerome 

Stenehjem, medical director of the Sharp Rehabilitation Center, San Diego, California, "[p ]eople 

with spinal cord disorders are more prone than most to developing type 2 diabetes." A recent 

survey published in the Journal of Spinal Cord Medicine states that overall prevalence of 

diabetes in individuals with an SCIID was 20% (3 times higher than in the general population)2 

United Spinal Association will continue to monitor closely the impact that the competitive 

bidding program has on the SCIID community. 

A report published in May by the American Journal of Physical Medicine and Rehabilitation 

found that over 50 percent of wheelchair users experienced a breakdown in a six-month period. 

"It is possible that this increase in the number of repairs is the result ofa decrease in wheelchair 

quality resulting from changes in reimbursement policies ........ " write the researchers, led by Dr 

Michael Boninger of University of Pittsburgh's Department of Physical Medicine and 

Rehabilitation. They also found a significant increase in wheelchair breakdowns causing health 

and safety consequences] 

c:ol1~ume!_ EII\l~atil!n 

Medicare needs to continue to work at educating the consumer about how best to find a supplier 

and what a grandfathered supplier is. CMS admits that the Round One Rebid did not start 

cleanly relative to information accuracy on the CMS website about contract suppliers and what 

products they provided to beneficiaries. United Spinal looks forward to seeing an improved rollout for Round Two where far more beneficiaries will be affected. 1 would also like to draw 

attention to the wheelchair repair and replacement regulations. Permanent residents within a 

CBA are required to obtain replacement of all items subject to competitive bidding from a 

contract supplier, including replacement of base equipment and the replacement of parts or 

accessories for base equipment that is being replaced for reasons other than servicing of the base 

equipment (such as the need for a different piece of equipment due to the beneficiary's weight or 

equipment usage). Without a strong education initiative, beneficiaries in need of wheelchair 

repair and replacement may face significant access challenges to appropriate equipment and 

services. 

2 J Spinal Cord Med. 2006; 29(4): 387-395. "Diabetes Mellitus in Individuals With Spinal Cord Injury or Disorder" 

3 Am J Phys Med Rehabil 2012;91 :OOYOO. "Increases in Wheelchair Breakdowns, Repairs, and Adverse 

Consequences for People with Traumatic Spinal Cord Injury" 
172 

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