[Federal Register Volume 74, Number 11 (Friday, January 16, 2009)]
[Rules and Regulations]
[Pages 2873-2881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-863]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 414

[CMS-1561-IFC]
RIN 0938-AP59


Medicare Program; Changes to the Competitive Acquisition of 
Certain Durable Medical Equipment, Prosthetics, Orthotics and Supplies 
(DMEPOS) by Certain Provisions of the Medicare Improvements for 
Patients and Providers Act of 2008 (MIPPA)

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period implements certain 
provisions of section 154 of the Medicare Improvements for Patients and 
Providers Act of 2008 (MIPPA) related to the durable medical equipment, 
prosthetics, orthotics, and supplies (DMEPOS) Competitive Acquisition 
Program. Specifically, this rule: Implements certain MIPPA provisions 
that delay implementation of Round 1 of the program; requires CMS to 
conduct a second Round 1 competition (the ``Round 1 rebid'') in 2009; 
and mandates certain changes for both the Round 1 rebid and subsequent 
rounds of the program, including a process for providing feedback to 
suppliers regarding missing financial documentation and requiring 
contractors to disclose to CMS information regarding subcontracting 
relationships.

DATES: Effective date: These regulations are effective on February 17, 
2009.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on March 17, 2009.

ADDRESSES: In commenting, please refer to file code CMS-1561-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.regulations.gov. Follow the 
instructions for ``Comment or Submission'' and enter the filecode to 
find the document accepting comments.

[[Page 2874]]

    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address only: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-1561-IFC, P.O. Box 8020, Baltimore, MD 21244-8020.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address only: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1561-IFC, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to either of the following addresses:
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201;
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Sabrina Teferi, (410) 786-6884. Barry 
Brook, (410) 786-5889.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following Web site as soon as possible after they have been 
received: http://regulations.gov. Follow the search instructions on 
that Web site to view public comments.
    Comments received timely will be also available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Background

A. Legislative and Regulatory History of the DMEPOS Competitive Bidding 
Program

    Medicare pays for most DMEPOS furnished after January 1, 1989 
pursuant to fee schedule methodologies set forth in section 1834 of the 
Social Security Act (the Act), as added by section 4062 of the Omnibus 
Budget Reconciliation Act of 1987 (OBRA '87) (Pub. L. 100-203). 
Specifically, sections 1834(a)(1)(A) and (B), and 1834 (h)(1)(A) of the 
Act provide that Medicare payment for these items is equal to 80 
percent of the lesser of the actual charge for the item or the fee 
schedule amount for the item. We implemented this payment methodology 
at 42 CFR Part 414, Subpart D of our regulations. Sections 1834(a)(2) 
through (a)(5) and 1834(a)(7) of the Act, and implementing regulations 
at Sec.  414.200 through Sec.  414.232 (with the exception of Sec.  
414.228), set forth separate payment categories of durable medical 
equipment (DME) and describe how the fee schedule for each of the 
following categories is established:
    <bullet> Inexpensive or other routinely purchased items (section 
1834(a)(2) of the Act and Sec.  414.220 of the regulations);
    <bullet> Items requiring frequent and substantial servicing 
(sections 1834(a)(3) of the Act and Sec.  414.222 of the regulations);
    <bullet> Customized items (section 1834(a)(4) of the Act and Sec.  
414.224 of the regulations);
    <bullet> Oxygen and oxygen equipment (section 1834(a)(5) of the Act 
and Sec.  414.226 of the regulations);
    <bullet> Other items of DME (section 1834(a)(7) of the Act and 
Sec.  414.229 of the regulations).
    For a detailed discussion of payment for DMEPOS under fee 
schedules, see the final rule published in the April 10, 2007 Federal 
Register (72 FR 17992).
    Section 1847 of the Act, as amended by section 302(b)(1) of the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
(MMA) (Pub. L. 108-173), requires the Secretary to establish and 
implement a Medicare DMEPOS Competitive Bidding Program (``Competitive 
Bidding Program'' or ``program''). Under the Competitive Bidding 
Program, Medicare sets payment amounts for selected DMEPOS items and 
services furnished to beneficiaries in competitive bidding areas (CBAs) 
based on bids submitted by qualified suppliers and accepted by 
Medicare. For competitively bid items, these new payment amounts, 
referred to as ``single payment amounts,'' replace the fee schedule 
payment methodology. Section 1847(b)(5) of the Act provides that 
Medicare payment for these competitively bid items and services is made 
on an assignment-related basis equal to 80 percent of the applicable 
single payment amount, less any unmet Part B deductible described in 
section 1833(b) of the Act. Section 1847(b)(2)(A)(iii) of the Act 
prohibits the awarding of contracts to any entity unless the total 
amounts to be paid to contractors in a CBA are expected to be less than 
the total amounts that would otherwise be paid under the fee schedule 
methodologies set forth in section 1834(a) of the Act. This requirement 
guarantees savings to both the Medicare program and beneficiaries under 
the program. The fee schedule methodologies will continue to set 
payment amounts for noncompetitively bid DMEPOS items and services. The 
program also includes provisions to ensure beneficiary access to 
quality DMEPOS items and services: section 1847 of the Act limits 
participation in the program to suppliers who have met applicable 
quality and financial standards and requires the Secretary to maintain 
beneficiary access to multiple suppliers.
    When first enacted by the Congress, section 1847(a)(1)(B) of the 
Act required the Secretary to phase in the Competitive Bidding Program 
in a manner so that the competition under the program occurred in 10 of 
the largest metropolitan statistical areas (MSAs) in 2007. The program 
was to be expanded into 70 additional MSAs in 2009, and then into 
additional areas after 2009.
    In the May 1, 2006 Federal Register (72 FR 25654), we issued a 
proposed

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rule that would implement the Competitive Bidding Program for certain 
DMEPOS items and services and solicited public comment on our 
proposals. In the April 10, 2007 Federal Register (72 FR 17992), we 
issued a final rule addressing the comments on the proposed rule and 
establishing the regulatory framework for the Medicare DMEPOS 
Competitive Bidding Program in accordance with section 1847 of the Act.
    Consistent with the requirements of section 1847 of the Act and the 
competitive bidding regulations, we began implementing the program by 
conducting the first round of competition in 10 of the largest MSAs in 
2007. We limited competition during this first round of the program to 
DMEPOS items and services included in 10 selected product categories. 
The bidding window opened on May 15, 2007 and was extended to allow 
bidders adequate time to prepare and submit their bids. We then 
evaluated each submission and awarded contracts consistent with the 
requirements of section 1847(b)(2) of the Act and Sec.  414.414. 
Following the bid evaluation process, we awarded over 329 contracts to 
qualified suppliers.
    We implemented the Competitive Bidding Program on July 1, 2008. 
Beginning on that date, Medicare coverage for competitively bid DMEPOS 
items and services furnished in the first 10 competitive bidding areas 
(CBAs) was limited to items and services furnished by contract and 
grandfathered suppliers, and payment to these suppliers was based on 
the single payment amount, as determined under the competitive bidding 
regulations. This program was projected to result in a savings of 
approximately 26 percent annually to the Medicare program and Medicare 
beneficiaries. We calculated these projections by subtracting the lower 
single payment amount from the applicable fee schedule amount per CBA 
per item and then multiplying this amount by the weighted national 
utilization data. For further discussion of the Competitive Bidding 
Program and the bid evaluation process, see the final rule published in 
the April 10, 2007 Federal Register (72 FR 17992).

B. The MIPPA and the Medicare DMEPOS Competitive Bidding Program

    On July 15, 2008, the Medicare Improvements for Patients and 
Providers Act (MIPPA) was enacted. Section 154 of the MIPPA amended 
section 1847 of the Act to make certain limited changes to the Medicare 
DMEPOS Competitive Bidding Program. Section 154(a) of the MIPPA delays 
competition under the program and amends section 1847(a)(1)(D)(i) of 
the Act to terminate the competitive bidding contracts effective June 
30, 2008 and prohibit payment based on the contracts. This action 
effectively reinstates as payment for competitively bid items and 
services the Medicare fee schedule amounts, as set forth in section 
1834 of the Act and 42 CFR part 414, subpart D of our regulations. In 
light of the amendments, items that had been included in the first 
round of the Competitive Bidding Program could once again be furnished 
by any enrolled DMEPOS supplier in accordance with existing Medicare 
rules. Payments for these items would no longer be made pursuant to 
competitive bidding contracts at the single payment amount, but instead 
would be based on the applicable Medicare fee schedule (includes 9.5 
percent reduction) amount(s) based on the date of service.
    Section 154(a) of the MIPPA requires the Secretary to conduct a 
second competition to select suppliers for Round 1 in 2009 (``Round 1 
rebid''). The Round 1 rebid includes the ``same items and services'' 
and is to be conducted in the ``same areas'' as the 2007 Round 1 
competition, with certain limited exceptions. Specifically, the Round 1 
rebid must exclude negative pressure wound therapy (NPWT) items and 
services and exclude Puerto Rico. In addition, section 154(a) of the 
MIPPA permanently excludes group 3 complex rehabilitative wheelchairs 
from the Competitive Bidding Program by amending the definition of 
``items and services'' in section 1847(a)(2) of the Act. Suppliers, 
including suppliers that previously were awarded a competitive bidding 
contract, will need to submit bids to be considered for a contract 
under the Round 1 rebid.
    Section 154(a) of the MIPPA also delays competition for Round 2 of 
the competitive bidding program from 2009 to 2011 and subsequent 
competition under the program from 2009 until after 2011. A competition 
for a national mail order competitive bidding program may occur after 
2010.
    The MIPPA mandates certain changes to the bidding process, starting 
with the Round 1 rebid. Section 154(a) of the MIPPA adds a new 
paragraph (F) to section 1847(a)(1) of the Act, which sets forth a 
process for supplier feedback on missing financial documents. Pursuant 
to this requirement, we will notify suppliers who submit their bids 
within a specific time period if their bid submission is missing any of 
the required financial documents. We will allow suppliers to submit 
missing financial documents within 10 business days after this notice.
    Section 154(b) of the MIPPA amends section 1847(b)(3) of the Act to 
require contract suppliers to notify us of subcontracting relationships 
they have entered into for the purpose of furnishing items and services 
under the competitive bidding program. Contract suppliers must also 
inform CMS whether each such subcontractor meets the accreditation 
requirement set forth in section 1834(a)(20)(F)(i) of the Act, if 
applicable to such subcontractor.
    Section 154(d) of the MIPPA excludes from the competitive bidding 
program certain DME furnished by a hospital to the hospital's patients 
during an admission or on the date of discharge.
    In addition to the changes outlined above that we are implementing 
through this interim final rule with comment period, section 154 of the 
MIPPA made other changes to the competitive bidding program which 
include:
    <bullet> Exclusions of certain areas in subsequent rounds that are 
not already selected under Rounds 1 and 2;
    <bullet> Extension of the Program Advisory and Oversight Committee;
    <bullet> Exemption for Off-the-Shelf Orthotics from Competitive 
Bidding when provided by Certain Provided; and
    <bullet> Evaluation of certain Healthcare Common Procedure Coding 
System (HCPCS) codes.
    These provisions are not addressed in this rule, but may be 
addressed through future rulemaking or subregulatory guidance, as 
appropriate.
    As the following are administrative requirements, they are not 
addressed in this rule and will be handled by the appropriate agencies:
    <bullet> A post-award audit by the Office of Inspector General;
    <bullet> Establishment of a Competitive Acquisition Ombudsman;
    <bullet> A Government Accountability Office report on the results 
of the competitive bidding program;
    As discussed below, we believe that the changes specifically 
mandated for the Round 1 rebid are largely self-implementing. The MIPPA 
delayed the Competitive Bidding Program and requires certain changes in 
subsequent competitions under the program, but it did not alter the 
fundamental requirements contained in the competitive bidding program 
statute and regulations, or revise the methodologies used by us in 
calculating payment amounts and selecting suppliers under the program. 
We have therefore chosen to continue to apply the same methodologies to 
calculate payment and select suppliers, and,

[[Page 2876]]

except as discussed below, the current competitive bidding regulations 
published on April 10, 2007 will continue to provide the framework 
under which we implement the program.
    We will implement other changes regarding subsequent rounds of 
competition through future rulemaking or subregulatory guidance, as 
appropriate. As noted in the regulatory impact analysis of this rule, 
the MIPPA mandated a nationwide 9.5 percent reduction in payment for 
all items and services that were competitively bid during the prior 
round of competition regardless of any exclusion such as group 3 
complex rehabilitative wheelchairs. The 9.5 percent reduction in 
payment was completed through the standard process for covered item 
updates rather than through this rule.

II. Provisions of the Interim Final Rule

    In this interim final rule, we are revising current provisions at 
42 CFR Part 414, Subpart F, to incorporate certain self-implementing 
MIPPA provisions. To the extent this interim final rule with comment 
period does not specifically modify regulatory language, the current 
regulations, as set forth in the April 10, 2007 final rule, remain 
unchanged and will govern the Round 1 rebid.
    The interim final rule addresses the following changes made by the 
MIPPA:
    General Changes to the DMEPOS Competitive Bidding Program
    <bullet> Temporary Delay of the Medicare DMEPOS Competitive Bidding 
Program
    <bullet> Supplier Feedback on Missing Covered Documents
    <bullet> Disclosure of Subcontractors and their Accreditation 
Status under the Competitive Bidding Program
    <bullet> Exemption from Competitive Bidding for Certain DMEPOS
    <bullet> Exclusion of Group 3 Complex Rehabilitative Wheelchairs
    Round 1 Changes of the Competitive Bidding Program
    <bullet> Rebidding of the ``same areas'' as the previous Round 1, 
unless otherwise specified.
    <bullet> Rebidding of the ``same items and services'' as the 
previous Round 1, unless otherwise specified.

A. General Changes to the DMEPOS Competitive Bidding Program

1. Temporary Delay of the Medicare DMEPOS Competitive Bidding Program
    Section 154(a) of the MIPPA amends section 1847(a)(1) of the Act to 
delay competition under Rounds 1 and 2 of the Competitive Bidding 
Program from 2007 and 2009 to 2009 and 2011, respectively. It also 
delays competition for a national mail order program until after 2010 
and competition in additional areas, other than mail order, until after 
2011.
    We are amending Sec.  414.410(a)(1) and (2) to indicate that 
competition under Round 1 of the competitive bidding program will occur 
in 2009 and competition under Round 2 of the program will occur in 
2011. In addition, we are revising Sec.  414.410(a)(3) to indicate that 
competition in additional MSAs will occur after 2011 (or, in the case 
of national mail order for items and services, after 2010) .
2. Supplier Feedback on Missing Covered Documents
    Section 1847(b)(2)(A) of the Act prohibits the Secretary from 
awarding a contract under the program to a supplier unless the supplier 
meets applicable financial standards specified by the Secretary, taking 
into account the needs of small providers. We have implemented this 
requirement at Sec.  414.414(d) of the competitive bidding regulations, 
which requires suppliers to submit, as part of their bids, financial 
documents specified in the request for bids (RFB).
    The RFB issued for the Round 1 rebid will require suppliers to 
submit the same categories of financial documents as we requested for 
the previous Round 1 competition. In the previous round of competition, 
we required suppliers to submit financial documents from the most 
recent three years. As stated in 42 CFR 414.414(d), the required 
financial documents will be specified in the RFB. Based on experience 
from the previous round of competition, we are modifying the required 
financial documents to lessen the burden on suppliers; instead of 3 
years of documentation, we will require only 1 year. We believe that we 
can determine whether a supplier demonstrates financial soundness by 
reviewing one year of documentation.
    Section 154(a) of the MIPPA adds a new paragraph (F) to section 
1847(a)(1) of the Act, which establishes a detailed process by which we 
must notify suppliers of missing ``covered documents''--defined by 
MIPPA as financial, tax or other documents required to be submitted by 
a bidder as part of an original bid submission in order to meet 
required financial standards--if such documents are submitted within a 
specified time period. The MIPPA details the specific steps of this 
process and provides a timeline for each stage of this covered document 
submission review. We are implementing this provision of the MIPPA 
consistent with its detailed requirements.
    Consistent with section 1847(a)(1)(F) of the Act, in the case of a 
bid in which one or more covered documents in connection with such a 
bid has been submitted not later than the covered document review date, 
we will notify suppliers of each covered document that is missing from 
the bidder's submission as of the covered document review date. As set 
out in the Act the ``covered document review date'' is the later of-- 
(1) the date that is 30 days before the final date specified by the 
Secretary for submission of bids; or (2) the date that is 30 days after 
the first date specified by the Secretary for submission of bids. For 
example, if a bid window opens on January 1st and closes on April 30th, 
the ``covered document review date'' would be the later of: (1) March 
31st (30 days before the final date specified by the Secretary); or (2) 
January 31st (30 days after the first date specified by the Secretary). 
Therefore, in this case, the ``covered document review date'' will be 
March 31st. Suppliers that submit their financial documents after the 
covered document review date will not receive notice of any missing 
financial documents.
    Section 1847(a)(1)(F)(i) of the Act requires that we notify bidders 
of any missing covered documents within 45 days after the covered 
document review date for the Round 1 rebid. In subsequent rounds of 
competition, we have 90 days after the covered document review date to 
provide such notice. For all rounds of competition, bidders that are 
notified of the missing covered document(s) have 10 business days after 
the date of notice to submit the missing covered document(s). If a 
supplier submits the missing covered document(s) within this time 
period, we may not reject the supplier's bid on the basis that any 
covered document is missing or has not been submitted on a timely 
basis.
    Section 1847(a)(1)(F)(iii) of the Act places certain limitations on 
the covered document review process. First, the covered document review 
process applies only to the timely submission (prior to the covered 
document review date) of covered documents. Second, the process does 
not apply to any determination as to the accuracy or completeness of 
the covered documents submitted or whether such documents meet 
applicable financial requirements. Third, the process does not prevent 
us from rejecting a bid for reasons other than those not described in 
section 1847(a)(1)(F)(i)(II) of the Act. Fourth, the covered document 
review process shall not be construed as permitting a bidder

[[Page 2877]]

to change bidding amounts or to make other changes in a bid submission.
    We are revising Sec.  414.414(d) by adding paragraphs (2)(i) 
through (iii) to set forth the required covered document review 
process. These paragraphs identify the timeframes established by the 
MIPPA for--
    <bullet> Suppliers to submit covered documents in order to be 
eligible to receive notice of any missing covered documents;
    <bullet> For CMS to review the submitted covered documents and 
notify bidders of any missing covered documents; and
    <bullet> For suppliers to submit the missing covered documents.
    We are also adding a definition for ``covered document'' and 
``covered document review date'' to Sec.  414.402.
3. Disclosure of Subcontractors and Their Accreditation Status Under 
the Competitive Bidding Program
    Section 154(b)(2) of the MIPPA adds a new paragraph (C) to section 
1847(b)(3) of the Act. This new paragraph requires contract suppliers 
to disclose information on: (1) Each subcontracting arrangement the 
supplier has in furnishing items and services under the contract; and 
(2) whether each such subcontractor meets the accreditation requirement 
of section 1834(a)(20)(F)(i) of the Act, if applicable to such 
subcontractor. The contract supplier must make this disclosure not 
later than 10 days after the date a supplier enters into a contract 
with CMS. If the contract supplier subsequently enters into a 
subcontracting relationship, the supplier must disclose this 
information to CMS no later than 10 days after entering into the 
subcontracting relationship. We will issue subregulatory guidance 
regarding the need to keep CMS current on all subcontracting 
relationships.
    Section 154(b) of the MIPPA added section 1834(a)(20)(F)(i) to the 
Act, which mandates that the Secretary require suppliers furnishing 
items and services under a competitive bidding program on or after 
October 1, 2009, directly or as a subcontractor for another entity, to 
submit evidence of accreditation by a CMS-designated accreditation 
organization. Both contract suppliers and their subcontractors that 
furnish items and services under the competitive bidding program must 
do so in accordance with the applicable supplier standards found in 
Part 424, subpart D and other Federal regulations.
    We are amending Sec.  414.414(c), redesignating Sec.  414.422(f) as 
Sec.  414.422(g) and adding a new Sec.  414.422(f) to set forth these 
requirements for disclosing subcontracting arrangements. We expect to 
further address subcontracting relationships and the method for 
disclosure of the subcontracting relationships in subregulatory 
guidance.
4. Exemption From Competitive Bidding For Certain DMEPOS
    Section 414.404(b) currently exempts from competitive bidding 
certain DME items when furnished by a physician or treating 
practitioner to his or her own patients as part of his or her 
professional services. This exception is limited to crutches, canes, 
walkers, folding manual wheelchairs, blood glucose monitors, and 
infusion pumps that are DME. Section 154(d) of the MIPPA amended 
section 1847(a) of the Act to exclude from the competitive bidding 
program these same items when they are furnished by hospitals to the 
hospital's own patients during an admission or on the date of 
discharge. We are interpreting this exclusion to include only DMEPOS 
paid for under Part B of the Medicare program because section 1847 does 
not apply to items that are paid for under Part A. As discussed in the 
April 10, 2007 final rule, in accordance with Sec.  414.404(b)(3) 
payment for items furnished under the exceptions in Sec.  414.404(b) 
will be made in accordance with Sec.  414.408(a).
    We are amending Sec.  414.402 to include a definition for 
hospitals. We have also amended Sec.  414.404(b)(1) to incorporate the 
added exemption for hospitals that furnish certain types of 
competitively bid DME to their own patients during an admission or on 
the date of discharge from the competitive bidding program. In 
addition, we amended subparagraph (b)(1)(iii) to address the billing 
requirements for hospitals under this exemption.
5. Exclusion of Group 3 Complex Rehabilitative Power Wheelchairs
    Section 1847(a)(2) of the Act defines the items and services 
subject to competitive bidding. Section 1847(a)(2)(A) of the Act 
includes durable medical equipment and supplies as items and services 
subject to competitive bidding. Section 154(a) of the MIPPA amended 
this definition to exempt group 3 complex rehabilitative power 
wheelchairs (and related accessories when furnished in connection with 
such wheelchairs) from competitive bidding. For Medicare coding, 
coverage, and payment purposes, power wheelchairs are classified under 
several groups based on performance and durability test results, 
patient weight capacity, and equipment handling capabilities. For a 
description of the components, performance requirements and coding 
guidelines for group 3 power wheelchairs, see https://www.dmepdac.com/resources/articles/2006/08_14_06.pdf. Group 2 complex rehabilitative 
power wheelchairs will be included in the competitive bidding program 
because they were not excluded by the MIPPA and thus will continue to 
be included in the Round 1 competitive bidding program.
    We are amending Sec.  414.402 to revise the definition of ``item'' 
to exclude group 3 complex rehabilitative wheelchairs from the 
competitive bidding program.

B. Round 1 Changes of the Competitive Bidding Program

    1. Rebidding of the ``same areas'' as the previous Round 1, unless 
otherwise specified.
    Section 1847(a)(1)(D)(i)(II) of the Act, as amended by section 
154(a) of the MIPPA, requires us to conduct a Round 1 rebid in 2009. 
Pursuant to section 1847(a)(1)(D)(i)(II) of the Act, we shall conduct 
the competition for the Round 1 rebid in a manner ``so that it occurs 
in 2009 with respect to the same items and services and the same 
areas'' as the first Round 1 competition, except as provided by section 
1847(a)(1)(D)(i)(III) and (IV) of the Act. Under section 
1847(a)(1)(D)(i)(III), as amended by the MIPPA, we must exclude Puerto 
Rico so that the Round 1 rebid of the competitive bidding program 
occurs in 9 of the largest MSAs. Therefore, the Round 1 rebid will 
occur in the following MSAs:
    <bullet> Cincinnati--Middletown (Ohio, Kentucky and Indiana)
    <bullet> Cleveland--Elyria--Mentor (Ohio)
    <bullet> Charlotte--Gastonia--Concord (North Carolina and South 
Carolina)
    <bullet> Dallas--Fort Worth--Arlington (Texas)
    <bullet> Kansas City (Missouri and Kansas)
    <bullet> Miami--Fort Lauderdale--Miami Beach (Florida)
    <bullet> Orlando (Florida)
    <bullet> Pittsburgh (Pennsylvania)
    <bullet> Riverside--San Bernardino--Ontario (California)
    Section 154(a) of MIPPA mandated that we conduct the round 1 ``re-
bid'' in the ``same areas''--except for Puerto Rico--as the previous 
competition. As stated in the final rule, we identified CBAs in the 
first round of competition by counties and zip codes to clearly 
identify the boundaries of a CBA. Therefore, we believe it is 
reasonable to implement the ``same areas'' mandate by conducting the 
round 1 re-bid in those same zip codes. It is possible that

[[Page 2878]]

certain zip codes may have changed since the first competition. We will 
therefore review zip code changes made since 2007 and incorporate 
applicable updates to these zip codes. For example, if a particular zip 
code has been split into two new zip codes, we will include the new zip 
codes in the CBA. We will not add any new zip codes that would expand 
the geographic area of the CBAs.
    Accordingly, we are amending Sec.  414.410(a)(1) to reflect the 
areas for competition set forth in section 1847(a)(1) of the Act, as 
amended by the MIPPA.
    2. Rebidding of the ``same items and services'' as the previous 
Round 1, unless otherwise specified.
    Section 1847(a)(1)(D)(i)(II) of the Act, as amended by the MIPPA, 
requires that we conduct the Round 1 rebid competitive bidding program 
with respect to the ``same items and services'' as were previously bid 
in Round 1 except as provided in section 1847(a)(1)(D)(i)(IV) of the 
Act, which excludes negative pressure wound therapy. The Round 1 rebid 
will also exclude group 3 complex rehabilitative power wheelchairs as 
noted previously. Therefore, the Round 1 rebid will include the 
following categories of items and services:
    <bullet> Oxygen Supplies and Equipment
    <bullet> Standard Power Wheelchairs, Scooters, and Related 
Accessories
    <bullet> Complex Rehabilitative Power Wheelchairs and Related 
Accessories (Group 2)
    <bullet> Mail-Order Diabetic Supplies
    <bullet> Enteral Nutrients, Equipment and Supplies
    <bullet> Continuous Positive Airway Pressure (CPAP), Respiratory 
Assist Devices (RADs), and Related Supplies and Accessories
    <bullet> Hospital Beds and Related Accessories
    <bullet> Walkers and Related Accessories
    <bullet> Support Surfaces (Group 2 mattresses and overlays) in 
Miami.
    In the April 10, 2007 final rule we define an item, in part, as a 
product included in a competitive bidding program that is identified by 
a HCPCS code.
    Therefore, consistent with our understanding of the MIPPA and the 
mandate that bidding in the Round 1 rebid occur with respect to the 
``same items and services'' as the previous round of competition, we 
will conduct the competition for the Round 1 rebid for essentially the 
same codes for which we bid in 2007. We have made certain adjustments 
to reflect changes in the HCPCS codes consistent with Sec.  414.426. We 
have made additional exceptions for obsolete codes and codes which, in 
light of the MIPPA amendments, are no longer separately payable. For 
example, under the MIPPA, the transfer of title provision was deleted, 
thus oxygen accessories are no longer separately payable because the 
supplier maintains ownership of the equipment. The final list of HCPCS 
codes will be published on the Competitive Bidding Implementation 
Contractor (CBIC) Web site at http://www.dmecompetitivebid.com prior to 
opening of the bid window.

III. Considerations for Future Rulemaking Under the Competitive Bidding 
Program

    We are considering alternatives for the competition of diabetic 
supplies. This competition will potentially take place sometime after 
the Round 1 rebid, and will be the subject of a future notice and 
comment rulemaking. We believe it is consistent with the section 
1847(a) of the Act to employ competitive bidding for diabetic supplies 
in both the mail order and traditional retail markets, in part due to 
concerns raised about the bifurcation of the method of delivery of 
diabetic supplies and the difficulty in defining what constitutes 
``mail order.'' We welcome public comment on the competition of 
diabetic supplies.

IV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

V. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide for public comment before the provisions of 
a rule take effect in accordance with section 553(b) of the 
Administrative Procedure Act (APA) and section 1871 of the Act. This 
process may be waived, however, if an agency finds good cause that a 
notice and comment procedure is impracticable, unnecessary, or contrary 
to the public interest. In such cases, the agency must incorporate a 
statement of this finding and its reasons in the rule issued, or 
explain that the agency is promulgating interpretive rules, general 
statements of policy, or rules of agency procedure or practice outside 
the scope of notice and comment rulemaking.
    We do not believe that we need to delay publication of this rule 
until a notice and comment period is completed. We are conforming the 
competitive bidding regulations to specific statutory requirements 
contained in section 154 of MIPPA and informing the public of the 
procedures and practices the agency will follow to ensure compliance 
with those statutory provisions. However, to the extent that notice and 
comment rulemaking would otherwise apply, we find good cause to waive 
such requirements.
    We find it unnecessary to undertake notice and comment rulemaking 
in this instance in light of the statutory language. We are applying 
statutory language that is highly detailed and proscriptive, and we 
believe it is redundant to, in effect, propose a rule to incorporate 
the words of a provision already contained in the statute. We would not 
be able to revise the changes to this regulation in response to public 
comment because this regulation reiterates the statutory language found 
in MIPPA and because the statute requires implementation to occur in 
2009. We are also describing a procedure to ensure compliance with the 
relevant provisions of the statute. This description is exempt from 
notice and comment rulemaking as an interpretive rule, general 
statement of policy, and/or rule of agency procedure or practice. 
Therefore, under 5 U.S.C. 553(b), we find good cause to waive notice 
and comment rulemaking procedures for this revision, if such procedures 
are required at all.

VI. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are requesting 
emergency approval of the information collection requirements contained 
in this interim final rule with comment period. Please provide comments 
on these information collection requirements by February 2, 2009. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
    The need for the information collection and its usefulness in 
carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    These requirements are not effective until approved by OMB. We are 
soliciting public comment on the

[[Page 2879]]

following information collection requirements (ICRs):

A. ICRs Regarding Round 1 Rebid

    We previously estimated that the burden associated with Round 1 
would be 1,086,164 hours. Our estimate was that on average it would 
take a supplier 68 hours to complete and submit a bid and that we would 
receive 15,973 bids. Although we expect the amount of hours to 
generally remain the same (68 hours) for the round 1 rebid, based on 
our round 1 experience we anticipate fewer bids. For the 2007 round 1 
of the competitive bidding program, we received approximately 6,500 
bids. Therefore, the total estimated burden associated with the round 1 
rebid is approximately 442,000 hours (68 hours X 6,500).

B. ICRs Regarding Disclosure of Subcontracting Arrangements

    Section 414.422(f) states that suppliers entering into a contract 
with CMS must disclose information on each subcontracting arrangement 
that the supplier has to furnish items and services under the contract 
and whether each subcontractor meets the accreditation requirements in 
Sec.  424.57, if applicable. Section 414.422(f) also requires that the 
required disclosure be made no later than 10 days after the date a 
supplier enters into a contract with CMS or 10 days after a supplier 
enters into a subcontracting arrangement after entering into a contract 
with CMS.
    The burden associated with the requirements in Sec.  414.422(f) are 
the time and effort necessary to disclose the information to CMS. In 
the 2007 Round 1 competition, there were 329 winning suppliers. 
Therefore, we approximate fewer than 400 winning suppliers for the 
Round 1 rebid. Also, we estimate it will take each of the winning 
suppliers that use subcontractors on average approximately 1.5 hours to 
submit information on each subcontracting arrangement to furnish items 
and services under the contract and whether each subcontractor meets 
the accreditation requirements in Sec.  424.57, if applicable. Those 
that do not use subcontractors will not have a reporting burden. The 
total estimated burden associated with these requirements is 
approximately 600 hours (1.5 hours X 400 winning suppliers).
    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Mail copies to the address specified in the ADDRESSES section of 
this proposed rule and to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, 725 17th Street, NW., Room 
10235, Washington, DC 20503, Attn: CMS Desk Officer, Fax (202) 395-
6974, E-mail: <a href="/cdn-cgi/l/email-protection#56191f0417092523343b3f25253f393816393b347833392678313920"><span class="__cf_email__" data-cfemail="713e3823302e0204131c180202181e1f311e1c135f141e015f161e07">[email protected]</span></a>.

VII. Regulatory Impact Statement

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993, as 
further amended), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4), and Executive Order 13132.
    Executive Order 12866, as amended, directs agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
The provisions of this rule only implement limited changes to how the 
program will be implemented and will not result in a change in 
expenditures of $100 million or more annually, and is therefore not a 
major rule as defined in Title 5, United States Code, section 804(2) 
and is not an economically significant rule under Executive Order 
12866.
    As stated in section I.B. of this preamble, section 154 of the 
MIPPA amended section 1847 of the Act to make limited changes to the 
Medicare DMEPOS Competitive Bidding Program. This regulation merely 
incorporates limited statutory changes to the Medicare DMEPOS 
Competitive Bidding Program and does not change the fundamental 
requirements of the program. In addition, a regulatory impact is 
unnecessary due to previous regulatory action taken when implementing 
the competitive bidding program, as described in the May 1, 2006 
Federal Register (72 FR 25654) proposed rule. Specifically, this rule 
cites the new timeframes for competition to occur under the program. In 
addition, the rule implements the MIPPA provisions that mandate limited 
changes that affect competition under the program including a process 
for providing feedback to suppliers regarding missing financial 
documentation, requiring contractors to disclose to CMS information 
regarding subcontracting relationships, and exempting from competitive 
bidding certain items and services.
    The MIPPA also mandated a 9.5 percent reduction in payment for all 
items and services that were competitively bid during the round of 
competition in 2008 regardless of any exclusion such as group 3 complex 
rehabilitative wheelchairs. The 9.5 percent reduction in payment was 
completed through the standard process for covered item updates rather 
than through this rule. Because we are not implementing the 9.5 percent 
reduction in payment in this rule and the provisions of this rule do 
not change the fundamentals of this program, and 9.5 percent reduction 
in payment is not included in this rule, we have determined that a full 
regulatory impact analysis is unnecessary. Because the statute rather 
than the regulation is imposing a 9.5 reduction in payment, this rule 
is not a major rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of section 604 of the RFA, small 
entities include small businesses, non-profit organizations and 
government agencies. Individuals and States are not included in the 
definition of a small entity. Based on data from the Small Business 
Administration (SBA), we estimate that 85 percent of suppliers of the 
items and services affected by this rule would be defined as small 
entities with total revenues of $6.5 million or less in any 1 year. 
This regulation merely codifies the MIPPA provisions, so there are no 
options for regulatory relief for small suppliers. The RFA therefore 
does not require that we analyze regulatory options for small 
businesses.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. We have determined that 
this rule will not have a significant impact on a substantial number of 
small entities and on small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in an expenditure

[[Page 2880]]

in any year by State, local or tribal governments, in the aggregate, or 
by the private sector, of $100 million. The $100 million in 1995 
dollars is updated annually for inflation and the current expenditure 
threshold is approximately $130 million. This rule will not have an 
effect on the governments mentioned, and the private sector costs would 
be less than the $130 million per year threshold. Hence, the Unfunded 
Mandates Reform Act of 1995 would not apply.
    Lastly, Executive Order 13132 establishes certain requirements that 
an agency must meet when it promulgates a proposed rules (and 
subsequent final rule) that imposes substantial direct requirement 
costs on State and local governments, preempts State law, or otherwise 
has Federalism implications. We have determined that this rule will not 
have a significant effect on the rights, roles and responsibilities of 
States.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 414

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare Reporting and recordkeeping 
requirements.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

0
1. The authority citation for part 414 continues to read as follows:

    Authority: Secs. 1102, 1871, and 1881(b)(1) of the Social 
Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(1)).

Subpart F--Competitive Bidding for Certain Durable Medical 
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS)

0
2. Section 414.402 is amended by--
0
A. Revising the introductory text of paragraph (1) of the definition of 
``item.''
0
B. Adding the definitions of ``covered document'', ``covered document 
review date'' and ``hospital''.


Sec.  414.402  Definitions.

* * * * *
    Covered document means a financial, tax, or other document required 
to be submitted by a bidder as part of an original bid submission under 
a competitive acquisition program in order to meet the required 
financial standards.
    Covered document review date means the later of--
    (1) The date that is 30 days before the final date for the closing 
of the bid window; or
    (2) The date that is 30 days after the opening of the bid window.
    Hospital has the same meaning as in section 1861(e) of the Act.
    Item * * *
    (1) Durable medical equipment (DME) other than class III devices 
under the Federal Food, Drug and Cosmetic Act, as defined in Sec.  
414.202 of this part and group 3 complex rehabilitative wheelchairs and 
further classified into the following categories:
* * * * *

0
3. Section 414.404 is amended by revising paragraphs (b)(1) 
introductory text, (b)(1)(ii), and (b)(1)(iii) to read as follows:


Sec.  414.404  Scope and applicability.

* * * * *
    (b) * * *
    (1) Physicians, treating practitioners, and hospitals may furnish 
certain types of competitively bid durable medical equipment without 
submitting a bid and being awarded a contract under this subpart, 
provided that all of the following conditions are satisfied:
* * * * *
    (ii) The items are furnished by the physician or treating 
practitioner to his or her own patients as part of his or her 
professional service or by a hospital to its own patients during an 
admission or on the date of discharge.
    (iii) The items are billed under a billing number assigned to the 
hospital, physician, the treating practitioner (if possible), or a 
group practice to which the physician or treating practitioner has 
reassigned the right to receive Medicare payment.
* * * * *

0
4. Section 414.408 is amended by revising paragraph (e)(2)(iv) to read 
as follows:


Sec.  414.408  Payment rules.

* * * * *
    (e) * * *
    (2) * * *
    (iv) A physician, treating practitioner, physical therapist in 
private practice, occupational therapist in private practice, or 
hospital may furnish an item in accordance with Sec.  414.404(b) of 
this subpart.
* * * * *

0
5. Section 414.410 is amended by revising paragraph (a) as follows:


Sec.  414.410  Phased-in implementation of competitive bidding 
programs.

    (a) Phase-in of competitive bidding programs. CMS phases in 
competitive bidding programs so that competition under the programs 
occurs--
    (1) In CY 2009, in Cincinnati--Middletown (Ohio, Kentucky and 
Indiana), Cleveland--Elyria--Mentor (Ohio), Charlotte--Gastonia--
Concord (North Carolina and South Carolina), Dallas--Fort Worth--
Arlington (Texas), Kansas City (Missouri and Kansas), Miami--Fort 
Lauderdale--Miami Beach (Florida), Orlando (Florida), Pittsburgh 
(Pennsylvania), and Riverside--San Bernardino--Ontario (California).
    (2) In CY 2011, the additional 70 MSAs selected by CMS as of June 
1, 2008.
    (3) After CY 2011, additional CBAs (or, in the case of national 
mail order for items and services, after CY 2010).
* * * * *

0
6. Section 414.414 is amended by revising paragraph (c) and (d) as 
follows:


Sec.  414.414  Conditions for awarding contracts.

* * * * *
    (c) Quality standards and accreditation. Each supplier furnishing 
items and services directly or as a subcontractor must meet applicable 
quality standards developed by CMS in accordance with section 
1834(a)(20) of the Act and be accredited by a CMS-approved organization 
that meets the requirements of Sec.  424.58 of this subchapter, unless 
a grace period is specified by CMS.
    (d) Financial standards.
    (1) General rule. Each supplier must submit along with its bid the 
applicable covered documents (as defined in Sec.  414.402) specified in 
the request for bids.
    (2) Process for reviewing covered documents.
    (i) Submission of covered documents for CMS review. To receive 
notification of whether there are missing covered documents, the 
supplier must submit its applicable covered documents by the later of 
the following covered document review dates:
    (A) The date that is 30 days before the final date for the closing 
of the bid window; or
    (B) The date that is 30 days after the opening of the bid window.
    (ii) CMS feedback to a supplier with missing covered documents.
    (A) For Round 1 bids. CMS has up to 45 days after the covered 
document review date to review the covered documents and to notify 
suppliers of any missing documents.

[[Page 2881]]

    (B) For subsequent Round bids. CMS has 90 days after the covered 
document review date to provide notify suppliers of any missing covered 
documents.
    (iii) Submission of missing covered documents. Suppliers notified 
by CMS of missing covered documents have 10 business days after the 
date of such notice to submit the missing documents. CMS does not 
reject the supplier's bid on the basis that the covered documents are 
late or missing if all the applicable missing covered documents 
identified in the notice are submitted to CMS not later than 10 
business days after the date of such notice.
* * * * *

0
7. Section 414.422 is amended by--
0
A. Redesignating paragraph (f) as paragraph (g).
0
B. Adding a new paragraph (f).
    The addition reads as follows:


Sec.  414.422  Terms of contracts.

* * * * *
    (f) Disclosure of subcontracting arrangements.
    (1) Initial disclosure. Not later than 10 days after the date a 
supplier enters into a contract under this section the supplier must 
disclose information on both of the following:
    (i) Each subcontracting arrangement that the supplier has in 
furnishing items and services under the contract.
    (ii) Whether each subcontractor meets the requirement of section 
1834(a)(20)(F)(i) of the Act if applicable to such subcontractor.
    (2) Subsequent disclosure. Not later than 10 days after the date a 
supplier enters into a subcontracting arrangement subsequent to 
contract award with CMS, the supplier must disclose information on both 
of the following:
    (i) The subcontracting arrangement that the supplier has in 
furnishing items and services under the contract.
    (ii) Whether the subcontractor meets the requirement of section 
1834(a)(20)(F)(i) of the Act, if applicable to such subcontractor.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: November 13, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: December 5, 2008.
Michael O. Leavitt,
Secretary.
 [FR Doc. E9-863 Filed 1-15-09; 8:45 am]
BILLING CODE 4120-01-P


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