Medicare: Review of the First Year of CMS's Durable Medical Equipment Competitive Bidding Program's Round 1 Rebid
Released: 2012-05-09T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: To achieve Medicare savings for DME, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) required that CMS implement the CBP for certain DME. In 2008, the Medicare Improvements for Patients and Providers Act (MIPPA) terminated the first round of supplier contracts and required CMS to repeat the CBP round 1—referred to as the round 1 rebid, resulting in the award of contracts to suppliers with payments that began January 1, 2011. CMS has estimated that the rebid will lead to significant savings for Medicare.

MIPPA requires GAO to examine certain aspects of the CBP. In this report, GAO reviews (1) the outcomes of the CBP round 1 rebid process; (2) the effect of the CBP round 1 rebid on DME suppliers; (3) how the CBP round 1 rebid has affected Medicare beneficiary access to and satisfaction with selected DME; and (4) the extent to which the CBP round 1 rebid has affected the utilization of selected DME items.

To examine CBP outcomes and effects, GAO analyzed data from CMS and its feedback provided to bidding suppliers, analyzed 2011 CBP data about different types of suppliers, and interviewed CMS and CBP contractor officials, DME industry groups, and suppliers. To examine CBP’s effects on beneficiary access, GAO analyzed Medicare claims data for the first six months of 2011 because the data for those months were the most complete, and compared it to the same months in 2010.

section_title: What GAO Found
paragraphs: The Centers for Medicare and Medicaid Services (CMS), within the Department of Health and Human Services (HHS), implemented the durable medical equipment (DME) competitive bidding program’s (CBP) bidding process for the round 1 rebid. Nearly the same number of suppliers submitted a similar number of bids for both the CBP round 1 rebid and round 1. Many suppliers continued to have difficulty complying with financial documentation requirements; however, the number of bids disqualified in the round 1 rebid was significantly less than for round 1. After being notified of their bid results, some suppliers were found to have bids that were disqualified incorrectly and were subsequently offered round 1 rebid contracts. About one-third of the bidding suppliers were awarded CBP contracts.

Relatively few CBP 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, non-contract suppliers (those not awarded CBP contracts) can grandfather certain rental DME for beneficiaries they were servicing prior to the implementation of CBP until CBP-covered beneficiaries’ rental periods expire. Also, some CBP contract suppliers entered into subcontracting agreements with non-contract suppliers to furnish certain services to CBP-covered beneficiaries in the round 1 rebid.

CMS’s ongoing multiple monitoring activities generally indicate that beneficiary DME access and satisfaction have not been affected by CBP. Although some of these efforts have limitations, in the aggregate, they provide useful information to CMS regarding beneficiary access and satisfaction.

Early data indicate that utilization has decreased in some CBP-covered DME categories. GAO’s review of Medicare claims data found that fewer beneficiaries in competitive bidding areas received some CBP-covered items in any of the first six months of 2011 than in the same month of 2010.

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. GAO found that, in general, the round 1 rebid was successfully implemented. GAO also found that utilization of selected DME declined in the CBP areas; while there are many possible reasons for this, it does not necessarily indicate that beneficiaries have not had access to needed DME. GAO does not assume that all pre-CBP utilization was appropriate and the CBP may have reduced unnecessary utilization of DME. 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 monitoring changes in the number of suppliers serving CBP-covered beneficiaries.

In commenting on a draft of this report, HHS noted that the CBP round 1 rebid resulted in savings of more than $200 million in its first year. HHS also cited the results of CMS’s monitoring of beneficiaries’ access to DME in CBP areas as evidence that the CBP did not affect beneficiaries adversely.

section_title: Letter
paragraphs: In 2010, Medicare—a federal health insurance program—spent   $8.1 billion on durable medical equipment (DME), prosthetics, orthotics,  and related supplies for beneficiaries.administered by the Centers for Medicare and Medicaid (CMS) within the   The Medicare program is  Department of Health and Human Services (HHS). Most Medicare  beneficiaries participate in Medicare Part B, which helps pay for  DMEPOS items and supplies, such as oxygen, wheelchairs, hospital  beds, walkers, orthotics, prosthetics, and supplies if they are medically  necessary and prescribed by a physician. Medicare beneficiaries typically  obtain DMEPOS items from suppliers, which submit claims for payment to  Medicare on behalf of beneficiaries. Both we and the HHS Office of  Inspector General (OIG) have reported that Medicare and its beneficiaries  have sometimes paid higher-than-market rates for various medical  equipment and supply items. These overpayments increase costs to  both Medicare and its beneficiaries.

To achieve Medicare savings for DMEPOS and to address DMEPOS  fraud concerns, Congress, through the Medicare Prescription Drug,  Improvement, and Modernization Act of 2003 (MMA),phase in a competitive bidding program (CBP). Under CBP, DME  suppliers are competitively selected to furnish certain DME product   required CMS to  categories to Medicare beneficiaries in designated competitive bidding  areas. On January 1, 2011, CMS began operating the CBP—referred to  as the CBP round 1 rebid—in nine competitive bidding areas for selected  DME items in nine product categories. The DME suppliers that won CBP  contracts—contract suppliers—are paid at the competitively determined  payments for the CBP-covered DME items which must be less than or  equal to Medicare’s fee schedule payments for the same items. Of the  estimated 47 million Medicare beneficiaries, about 2 million CBP-covered  beneficiaries reside in the nine competitive bidding areas.

CMS began implementing CBP in 2007 and 2008—referred to as   round 1. However, the Medicare Improvements for Patient and  Providers Act of 2008 (MIPPA) terminated the CBP round 1 supplier  contracts on July 15, 2008, and required CMS to repeat the CBP   round 1—referred to as the round 1 rebid. To compensate for the loss of  the projected Medicare savings due to the termination of CBP round 1  and delay of CBP and to ensure budget neutrality, MIPPA reduced the  Medicare payments for the DME items that had been included in round 1  by 9.5 percent nationally.bidding process, and in January 2011, the CBP round 1 rebid began.

In 2009, CMS began the CBP round 1 rebid  MIPPA requires us to examine particular issues regarding early results  from the ongoing CBP round 1 rebid. In this report, we review (1) the  outcomes of the CBP round 1 rebid process including bid disqualifications  and contracts awarded; (2) the effect of the CBP round 1 rebid on DME  suppliers; (3) how the CBP round 1 rebid has affected Medicare  beneficiary access to and satisfaction with selected DME; (4) the extent to  which the CBP round 1 rebid has affected the utilization of selected DME  items; and (5) the costs for CMS to implement, and for DME suppliers to  participate, in CBP.

To examine the outcomes of the CBP round 1 rebid, we analyzed data  from CMS and reviewed feedback that CMS provided to suppliers to  explain bid deficiencies. We also reviewed CMS’s notification to suppliers  that did not win a contract describing the opportunity to have their bids  reviewed. To examine the effect of the CBP round 1 rebid on DME  suppliers, we analyzed 2011 CMS data on contract suppliers including  those that were terminated by CMS or voluntarily withdrew from CBP,  grandfathered suppliers, subcontracting suppliers, and suppliers’  ownership changes, and interviewed CMS and CBP contractor officials,  DME industry groups, and selected suppliers.

To examine how the CBP round 1 rebid has affected Medicare  beneficiary access to and satisfaction with selected DME items,   we analyzed 2011 CMS data, including CBP inquiry data from the   1-800-MEDICARE beneficiary help line, CBP complaint data, and  interviewed CMS and CBP contractor officials and Medicare beneficiary  advocacy groups. To examine the extent to which the CBP round 1 rebid  has affected the beneficiary utilization of certain DME items, we obtained  and analyzed the first six months of Medicare claims data both pre-CBP  (2010) and post-CBP (2011) because data for those months are the most  complete. We used these data to determine whether the number of CBP- covered beneficiaries utilizing CBP-covered items and services increased  or decreased in the first 6 months of 2011 when the CBP round 1 began  compared to the same time period in 2010. We compared the number of  Medicare beneficiaries using selected CBP-covered items—chosen by  CMS as the top 80 percent highest cost and highest utilization items—in  the nine competitive bidding areas to non-competitive bidding areas (see  appendix I for the DME items included in our analysis). In submitting  claims for Medicare payments, suppliers use a standardized coding  system—the Healthcare Common Procedure Coding System (HCPCS).  Since HCPCS codes identify a category of like DMEPOS items, for  example, hospital beds, individual HCPCS codes can include a broad  range of items that serve the same general purpose but that vary in price  and characteristics and do not identify an item’s manufacturer, or brand or  trade name, we determined that an analysis to compare utilization of  items included in the same HCPCS code would not be meaningful.

To describe the costs for CMS to implement and for DME suppliers to  participate in CBP, we reported the CBP round 1 rebid pre- implementation costs provided to us by CMS. We also interviewed CMS  officials, DME supplier trade groups, and selected DME suppliers to  obtain descriptions and estimates of CBP-related administrative costs and  suppliers’ participation expenses.

To assess the reliability for all the data we received from CMS, we  reviewed and identified outliers in data, and interviewed CMS and other  appropriate officials to clarify and resolve any discrepancies. We  assessed the reliability of the Medicare claims data from the 100 Percent  Standard Analytic Files from CMS by reviewing existing information about  the data and the systems that produced them, performing appropriate  electronic data checks, and interviewing individuals from CMS, CMS’s  Pricing, Data Analysis and Coding Contractor, and two DME Medicare  Administrative Contractors. We determined that these data were  sufficiently reliable for the purposes of this report.

Our findings are based on the limited evidence available at the time we  did our work, and more data will become available as CBP continues. We  conducted this performance audit from May 2011 through May 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings based on our audit  objectives.
subsections: section_title: Background
subsections: section_title: Medicare Payments
paragraphs: Medicare pays for most DMEPOS through fee schedules based on  suppliers’ previous charges to Medicare. The fee schedule payment is  generally equal to 80 percent of the lesser of either the supplier’s actual  charge or the Medicare fee schedule for a particular item or service. In  general, Medicare beneficiaries are responsible for paying the supplier   To process all Medicare  the remaining 20 percent—the coinsurance.

DMEPOS payment claims including coverage and payment  determinations, CMS contracts with four DME Medicare Administrative  Contractors.

section_title: The CBP
paragraphs: CMS and its CBP implementation contractor—Palmetto GBA—administer  and implement CBP and its bidding rounds. To be eligible to submit bids  to furnish CBP-covered DME items in one or more product categories in  one or more of the competitive bidding areas, suppliers must first meet  several requirements. Specifically, suppliers must have an active National  Supplier Clearinghouse (NSC) number that makes them eligible to bill  Medicare for DME, have met Medicare enrollment and quality  standards, have a surety bond, and be accredited. After the bid  window closes, Palmetto GBA reviews bids to determine whether each  supplier’s bid submission is complete and compliant with the bidding  requirements, and whether the supplier’s financial score meets CMS’s  minimum financial standard threshold to be eligible to compete on price. If  the bid meets these requirements, it is considered a qualified bid and can  then compete on price. Before comparing prices, Palmetto GBA reviews  each qualified bid’s estimated capacity projections—the supplier’s  anticipated ability to provide the volume of items claimed in the bid in light  of the supplier’s historical capacity, expansion plans, and financial score.

Palmetto GBA uses several steps to compare prices and identify the  winning bids. First, Palmetto GBA reviews the DME bid item prices  submitted by suppliers with qualified bids and uses a methodology to  calculate what is known as a composite bid to allow for a comparison of  prices submitted across bidding suppliers with qualified bids. A composite  bid is determined by summing all of the weights assigned to each item in  a product category—with each item weight calculated using national  beneficiary utilization data for that item compared to the other items within  that product category. Once the composite price has been calculated, the  bids are ordered by the lowest to highest composite bid price in each  product category in each competitive bidding area. When the bids have  been ordered, Palmetto GBA calculates the cumulative projected capacity  of the competing bids—which indicates the capacity that each supplier  projects it could furnish throughout an entire competitive bidding area  each year. Palmetto GBA begins with the lowest composite price and  moves up the ordered list to identify the bid where the suppliers’  cumulative projected capacity meets or exceeds CMS’s estimated  beneficiary demand, which is referred to as the pivotal bid. Although  many bids can be qualified to compete on price, only those with  composite prices that are equal to or less than the pivotal bid are  determined to be winning suppliers, based on price, and are used to  establish Medicare’s CBP single payment amounts for each item in a  product category in a competitive bidding area. Specifically, for each item,  the winning bids’ price offers are ordered from lowest to highest and the  median bid price offered by these suppliers for that item becomes the  single payment amount. To ensure there is a sufficient number of  suppliers and to meet its target goal of awarding at least five contracts in   CMS caps the  each product category in each competitive bidding area,estimated projected capacity of any single supplier to 20 percent of the  total projected beneficiary demand for each product category in each  competitive bidding area, regardless of the capacity estimated by the  supplier in its bid.

The CBP single payment amounts are required to be less than or equal to  the Medicare fee-for-service payments for the same items. The same  DME item may have a different CBP single payment amount in each  competitive bidding area. CMS offers the winning suppliers 3-year  contracts to furnish items in the product categories and competitive  bidding areas in which they won. All contract suppliers that accept the  contract offers must maintain their Medicare billing privileges, state  licensure, and accreditation throughout the contract period and accept   CMS is required,  assignment on all DME items under their contracts.under federal law, to conduct another bidding round to select contract  suppliers no less often than once every three years.

CBP round 1 was conducted in 2007 and 2008 for 10 competitive bidding  areas. For the bidding, CMS chose certain DME items in 10 product  categories—generally high-cost and high-volume items and services— that were most likely to result in Medicare savings if competitively  acquired. The round 1 contract suppliers were announced in May 2008.  However, round 1’s bid submission and contract award processes caused  concerns about CMS’s CBP implementation. In our November 2009  report, we found problems with the bidding process, including poor timing  and lack of clarity in bid submission information and CMS’s inability to  inform suppliers of missing financial documentation. We also found that  CMS did not provide suppliers with timely and clear bid submission  information, used an inadequate electronic bid submission system, and  did not have a process to inform bidders of missing financial  documentation—42 percent of all submitted bids were disqualified due to  incomplete financial documentation. In our report, we recommended that  if CMS reviews suppliers’ disqualified bids during the round 1 rebid and  future rounds, it should notify all suppliers of any such process, give  suppliers equal opportunity for such reviews, and clearly indicate how  suppliers can request a review.

The enactment of MIPPA stopped CBP round 1 two weeks after it began  operating and required CMS to repeat the competition for CBP round 1 in  2009. MIPPA also imposed additional criteria for how CMS should  conduct later CBP rounds and expand the CBP to additional areas. In  addition, MIPPA required that CMS notify bidding suppliers about any  missing financial documentation if the suppliers submitted their  documentation within a time period known as the covered document  review date.acquisition ombudsman (CAO) to respond to inquiries and complaints  made by DME suppliers and individuals concerning the CBP’s  application. The CAO can work with Palmetto GBA and its local offices.

In the CBP round 1 rebid, the product categories were revised to delete the negative  pressure wound therapy category—pumps that apply controlled negative or  subatmospheric pressure used to treat ulcers or wounds that have not responded to  traditional wound treatment methods—and to exclude group 3 complex rehabilitative  power wheelchairs (must meet the highest performance requirements, for example, be  able to travel at least 12 miles on a single charge of batteries) from the entire CBP, and to  delete San Juan (San Juan-Caguas-Guaynabo, Puerto Rico) as a competitive bidding  area. provide DME items and services in nine DME product categories in nine  competitive bidding areas. CMS has stated that the CBP round 1 rebid  single payment amounts resulted in an average savings of 42 percent in  2011 compared to 2010 for the same items.

In January 2012, CMS began CBP’s bidding process for round 2.   Round 2 will cover 91 metropolitan statistical areas and CMS has  determined the competitive bidding areas within those MSAs. The   60-day round 2 bid window was open from January 30, 2012, to   March 30, 2012. CMS intends to announce the round 2 winning contract  suppliers in spring 2013, and for the contracts and single payment  amounts to become effective July 1, 2013.

Round 2 will operate for 3 years and includes the same product  categories as the round 1 rebid except for the addition of the negative  pressure wound therapy category, the deletion of the complex power  wheelchairs and mail-order diabetic supplies categories, and the  expansion of the support surfaces category to all competitive bidding  areas. A national mail-order diabetic supplies program competition will  be conducted at the same time as round 2, and will require bidding  suppliers to demonstrate that their bids cover at least 50 percent, by sales  volume, of all types of diabetic testing strips on the market.for CBP’s legislative history and program implementation time line.)   (See fig. 1  To ensure that small suppliers are considered when selecting contract  suppliers, CMS set a target that 30 percent of the qualified suppliers in  each product category in each competitive bidding area are small. CMS  defines small suppliers as those that generate gross revenue of   $3.5 million or less in annual receipts that include both Medicare and non- Medicare revenue. In cases where the small supplier target goal is not  met, CMS can award additional CBP contracts to small suppliers after it  determines the number of suppliers needed to meet or exceed CMS’s  estimated beneficiary demand.

Between 2 to 20 small suppliers are allowed to group together as a  network to submit a bid as a single entity under CBP, and to provide  services as a contract network if awarded a CBP contract. The suppliers  involved must certify that they cannot independently furnish all the  competitively bid items in the product category to beneficiaries throughout  the entire competitive bidding area for which the network is submitting a  bid.

Some suppliers not awarded contracts have the option to choose to  continue to furnish certain CBP-covered rental items to beneficiaries who  were their customers when CBP began on January 1, 2011, and who are  residing in the competitive bidding areas. These suppliers are referred to  as grandfathered suppliers. It is the beneficiaries’ choice whether to  remain with their grandfathered supplier or to select a CBP contract  supplier. Many CBP-covered items that are rented can be grandfathered  including, for example, oxygen and oxygen equipment, capped rental  DME—such as hospital beds—and inexpensive and routinely  purchased DME for the remaining rental months. Once the relevant  rental periods expire or a beneficiary decides to select a contract supplier,  the grandfathered supplier can no longer provide the CBP-covered items  and services to the beneficiary.

Subcontracting allows contract suppliers to work with suppliers that are  Medicare-accredited to provide limited services to CBP-covered  beneficiaries. A supplier that subcontracts may perform only three  services: (1) purchase inventory and fill orders, fabricate or fit items from  its own inventory or contract with other companies to purchase items  necessary to fill an order, (2) deliver CBP-covered items to beneficiaries,  and (3) repair rented equipment. For CBP, subcontracting suppliers may  include suppliers that did not bid, that bid and lost, or that won contracts  but subcontract with other contract suppliers for a product category not  won. The contract suppliers are responsible for billing Medicare for any  services that their subcontract suppliers perform since subcontract  suppliers are not eligible to bill Medicare themselves. Contract suppliers  are to disclose to CMS each subcontracting agreement and are also  responsible for ensuring that their subcontractors are Medicare- accredited for the product categories covered by the subcontracting  agreement.   are the only  Skilled nursing facilities (SNF) entities that can bid to win a CBP contract as a CBP specialty supplier. If  such a facility wins a specialty supplier contract, the facility can only  furnish the CBP enteral nutrients, equipment, and supplies product  category to its own residents covered under Medicare Part B. The  facilities may also choose to submit bids to win CBP contracts as a  regular contract supplier. If they win a regular contract, they may then  furnish the CBP-covered items in the product category they have won to  beneficiaries throughout their competitive bidding area.   and nursing facilities (NF)

A SNF provides residents with restorative services such as physical or speech therapy.  A SNF provides a level of care distinguishable from the intensive care furnished by a  general hospital or the custodial or supportive care furnished by nursing homes primarily  designed to provide daily services above the level of room and board.

section_title: CBP Online Contract Supplier Locator
paragraphs: To assist beneficiaries in locating a contract supplier in their competitive  bidding area, CMS maintains a CBP supplier locator tool on the Medicare  website. The supplier locator contains the names of the contract  suppliers in each competitive bidding area and the product categories for  which they furnish CBP-covered items. The contract suppliers submit  information to CMS each quarter on a form that lists the specific items  they furnish—including the brand names and equipment models which  CMS uses to update the supplier locator.

section_title: CBP Beneficiary Assistance through 1-800-MEDICARE
paragraphs: Beneficiaries with CBP questions—referred to by CMS as inquiries—are  directed to call 1-800-MEDICARE. Callers are assisted by CBP customer  service representatives (CSR) trained to answer questions about CBP in  general and to assist beneficiaries in finding CBP suppliers. Beneficiaries  calling from area codes in competitive bidding areas hear a prompt at the  beginning of their call, which takes them directly to a CBP CSR.  Beneficiaries calling from an area code not in a competitive bidding area  can also reach a CBP CSR through a series of prompts.

CSRs use CBP scripts—written responses to commonly asked  questions—when initially responding to CBP-related calls. CSRs read a  response to the beneficiary either from a script about CBP in general, or  from a script specific to one of the nine product categories. If the  beneficiary’s inquiry cannot be addressed by the scripts, the CSR will  forward it to an advanced-level CSR trained to research a CBP-related  question and respond after completing research on the caller’s inquiry.  For example, an advanced CSR might work with a beneficiary traveling  outside a competitive bidding area to ensure the beneficiary continues to  receive necessary DME.

CMS defines a CBP complaint as a CBP inquiry that cannot be resolved  by any CSR with 1-800-MEDICARE and is sent to another entity for  resolution. The CBP-related entities include: Palmetto GBA, the CMS  regional offices, and the CAO. Palmetto GBA investigates all beneficiary  or supplier complaints related to alleged CBP contract violations, supplier  or quality standard violations, and CBP and Medicare program violations,  including fraud and abuse. CMS’s regional offices are the focal point for  unresolved calls; for example, the offices may assist when a CSR is  unable to help a beneficiary find a contract supplier. The CAO responds  to other unresolved CBP questions from both suppliers and individuals.

section_title: CMS’s CBP Monitoring Activities
paragraphs: CMS conducts several monitoring activities to determine whether  beneficiary access or satisfaction have been affected by the  implementation of CBP. CMS monitors outcomes such as  hospitalizations, physician visits, and deaths for beneficiaries in  competitive bidding areas, because these outcomes may reflect issues  with beneficiary access to necessary DME. CMS posts to its Web site  monthly reports on these outcomes in competitive bidding areas and in  comparison areas to demonstrate the effects of CBP on health outcomes.  CMS also conducted a pre and post-implementation survey to measure  beneficiary satisfaction with CBP. The pre-implementation survey was  conducted from June 24 to August 3, 2010, and the post-implementation  survey was conducted from August 29 to October 20, 2011. CMS  surveyed beneficiaries in the nine CBP competitive bidding areas as well  as nine comparison markets, chosen to allow a comparison with  competitive bidding areas.

CMS may also conduct secret shopping in  response to complaints such as those concerning diabetic testing  suppliers.

section_title: Outcomes of CMS’s Implementation of the CBP Round 1 Rebid
paragraphs: The number of bidding suppliers and the number of contracts awarded in  the CBP round 1 rebid were very similar to CBP round 1. Improvements  were made to the bidding process for the CBP round 1 rebid, and  significantly fewer bids were disqualified; nevertheless, many suppliers  still had difficulty meeting bid requirements. As in round 1, some suppliers  that requested that CMS review their disqualified bids were found to have  been incorrectly disqualified and offered a contract.
subsections: section_title: Nearly the Same Number of Suppliers Bid As in Round 1, and About the Same Percentage of Submitted Bids Resulted in Contracts
paragraphs: Nearly the same number of suppliers bid in both CBP round 1 (1,010  suppliers) and the CBP round 1 rebid (1,011 suppliers). About a third of  all the suppliers that bid were awarded at least one CBP contract, and  CMS generally met its target—that 30 percent of the suppliers awarded a  contract for each product category in each competitive bidding area be  small—by awarding contracts to 219 small suppliers of the 356 winning  suppliers. (See table 1.)

The number of bids that were disqualified in the initial bid review and,  therefore, not eligible to compete on price was significantly less in   CBP round 1 rebid than in CBP round 1. In CBP round 1 rebid, about   30 percent of bids submitted were disqualified for at least one or more  reasons (1,854 of 6,215 submitted). Therefore, about 70 percent of all  bids submitted were qualified and used to determine the pivotal bid, which  was then used to establish single payment amounts for each item that  was included in the CBP round 1 rebid.almost 50 percent of bids submitted were disqualified during the initial bid  review (3,143 of 6,374 submitted) and only about half of all bids submitted  were qualified to compete on price.

In contrast, in CBP round 1,  About 20 percent of bids submitted in the CBP round 1 rebid resulted in  contracts between CMS and suppliers (1,217 out of 6,215)—which is  comparable to 22 percent of bids that resulted in contracts between CMS  and suppliers in CBP round 1 (1,372 out of 6,374.) (See table 2 for   round 1 rebid results.)

CMS made initial contract offers for CBP round 1 rebid within the 3-month  period between July 1, 2010, and September 24, 2010, and announced  the winning contract suppliers on November 3, 2010. Although CBP  round 1 rebid contracts began on January 1, 2011, CMS made additional  contract offers between December 17, 2010, and January 24, 2011.

section_title: Despite Improvements and Fewer Bid Disqualifications, Many Suppliers Still Had Difficulty Meeting Bid Requirements
paragraphs: Fewer bids were disqualified in CBP round 1 rebid and CMS provided  additional feedback to suppliers that had bids disqualified, indicating to  suppliers all the reasons for disqualification. While CMS improved the  CBP bidding process, many suppliers still had difficulty complying with bid  submission requirements, and had particular difficulty with financial  documentation requirements. Although the majority of suppliers with  disqualified bids that contacted CMS with questions were found to have  been correctly disqualified, some suppliers were later found to have  incorrectly disqualified bids and were offered contracts.

About 20 percent fewer bids were disqualified during the initial bid review  of CBP round 1 rebid than in round 1. The number of bids disqualified in  CBP round 1 rebid would have been higher if many suppliers had not  benefited from a new process giving suppliers the opportunity to be  notified of and submit missing required financial documentation—a  process that was not available during CBP round 1.

The term distinct is used to indicate a supplier that is not being double-counted. For  example, if a supplier had multiple bids disqualified because the bids did not meet  licensure requirements, the supplier is only counted one time for having bids disqualified  for that reason. If a supplier had a bid disqualified for two or more reasons, the supplier  would be counted as one distinct supplier for each reason that its bids were disqualified. either for that reason alone or in addition to another bid submission  deficiency reason.

Although fewer bids were disqualified in CBP round 1 rebid, many  suppliers had difficulty meeting the bidding requirements. As occurred in  CBP round 1, in which 88 percent of disqualified bids were disqualified  because they failed to provide the required financial documentation or did  not meet CMS’s minimum financial standard threshold for suppliers, the  majority of CBP round 1 rebid bids (73 percent) that were disqualified on  initial bid review were also disqualified for the same reasons.

Specifically, 44 distinct suppliers (about 4 percent of all bidding suppliers)  had 293 bids disqualified because the bidding suppliers did not meet  CMS’s minimum supplier financial standards. Bidding suppliers that did  not meet minimum financial standards would be unlikely for financial  reasons to be able to fulfill their contract obligations, in CMS’s judgment.  In addition, 162 distinct suppliers (about 16 percent of all bidding  suppliers) submitted 834 bids that were disqualified because of  unacceptable or inaccurate financial documentation, while 51 distinct  suppliers (about 5 percent of all bidding suppliers) submitted 216 bids  with missing financial documentation.

The number of CBP round 1 rebid bids disqualified for missing financial  documentation would have been higher without CMS’s implementation of  the MIPPA provision for financial document review. Under this provision,  CMS is required to determine if any suppliers’ financial documents that  are submitted by a certain time in a CBP bid window—known as the  covered document review date—are missing and to notify and   provide suppliers the opportunity to submit them. In CBP round 1 rebid,  791 suppliers—or 78 percent of all bidding suppliers—submitted their  financial documentation by the covered document review date. Of those  eligible to have their financial documentation reviewed, 321 suppliers  (about 41 percent) were notified that they had missing documentation— including 184 small suppliers. Of the 321 suppliers that were notified,   232 suppliers submitted the correct missing documentation, 14 did not  provide missing documentation, and 75 resubmitted their documentation,  but were ultimately disqualified for unacceptable (such as incomplete or  inaccurate) documents. Ninety-three 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 both CBP round 1 and the CBP round 1 rebid, the statement of cash  flow was the most common reason that suppliers were disqualified for  missing or unacceptable financial documentation. Although CMS provided  an example of a statement of cash flow in the CBP round 1 rebid bidding  instructions and suggested that financial statements be compiled by an  independent accounting firm or prepared by the supplier, Palmetto GBA  reported that it was obvious that many bidding suppliers still did not  understand what constituted an acceptable statement of cash flow during  the CBP round 1 rebid bid submission process. According to CMS, one  reason that the statement of cash flow was the most difficult financial  document to prepare in both CBP rounds is because it is prepared much  less often than other types of financial documents—particularly by small  suppliers. CMS reported that another obstacle in preparing acceptable  statements of cash flow is that suppliers with very limited understanding  of accounting practices and how to prepare financial statements compiled  the statements of cash flow themselves and relied on results generated  by inexpensive accounting software, which CMS told us was not  sufficient. As a result, CMS provided additional information in its CBP  round 2 bidding instructions, and strongly recommended that suppliers’  financial statements be compiled by an independent accounting firm to  discourage suppliers from preparing their own financial documents.

In the CBP round 1 rebid, as in CBP round 1, CMS determined that some  suppliers’ bids had been incorrectly disqualified. During CBP round 1, we  reported that CMS did not effectively communicate to suppliers that they  had an opportunity to have their round 1 bids reviewed. CMS officials told  us that they conducted a postbidding review process for suppliers which  contacted the agency with questions or requested a review and  subsequently found that 10 of the 357 round 1 suppliers that had bids  reviewed had been incorrectly disqualified. After reviewing the language  that CMS provided to suppliers during CBP round 1, we determined that  CMS did not effectively communicate to suppliers that they had an  opportunity to have disqualified round 1 bids reviewed. As a result, in  2009, we recommended, and CMS agreed, that if CMS chose to conduct  a review of disqualification decisions during CBP round 1 rebid and future  bids, CMS should notify and give all suppliers an equal opportunity for  review, and clearly indicate how suppliers can request a review.

Although the notification that CMS provided to suppliers during the CBP  round 1 rebid provided more information than was provided during CBP  round 1, CMS did not inform suppliers that a review of a disqualified bid  could possibly result in reversal of the disqualification and extension of a  contract offer. (See fig. 2.)

In both CBP rounds, CMS determined that some suppliers that contacted  Palmetto GBA and requested a review of their bids had been incorrectly  disqualified. (See table 4.) CMS told us it received bid inquiries from   99 suppliers that had bids disqualified in CBP round 1 rebid and  subsequently extended contracts to 7 of those suppliers—about   7 percent. In CBP round 1, 10 suppliers—or 3 percent of the 357  suppliers that contacted Palmetto GBA—were found to have bids that  were incorrectly disqualified. Suppliers’ bids could have been incorrectly  disqualified for various reasons, such as for issues regarding financial  documentation, because they were thought not to have the required  license in the state or product category in which bids were submitted, or  because the bids were deemed not bona fide.

section_title: Effects on Suppliers of the First Year of the CBP Round 1 Rebid
paragraphs: Both contract and non-contract suppliers have been affected by the first  year of the CBP round 1 rebid. In the first months of 2011, few CBP  contract suppliers had their contracts terminated by CMS, voluntarily  canceled their contracts, or were involved in ownership changes. Since  the CBP round 1 rebid began, many non-contract suppliers have chosen  to be grandfathered suppliers for certain CBP rental DME. Some contract  and non-contract suppliers have entered into subcontracting agreements  to provide certain services to beneficiaries in CBP competitive bidding  areas. Some suppliers with no previous experience with the DME product  category or no location in a competitive bidding area were awarded  contracts as CBP allows.
subsections: section_title: Four Percent of the Original Contract Suppliers Had Contracts Terminated or Canceled in CBP’s First 10 Months of 2011
paragraphs: During the first 10 months of 2011, 16 of the original 356 contract  suppliers—4 percent—left CBP due to CMS terminating contract  suppliers (8), or from contract suppliers voluntarily canceling their CBP  contracts (8). (See table 5.) The 16 contract suppliers had 28 affected  CBP contracts—about 2 percent of the 1,217 original CBP contracts.  Thirteen of the 16 contract suppliers were small suppliers.

CBP contracts can be terminated by CMS when a contract supplier fails  to meet CBP requirements, for example, when Medicare accreditation is  not maintained. A contract supplier can end its CBP contracts by  voluntarily withdrawing from Medicare. For example, one contract supplier  testified at a CMS CBP Program Advisory and Oversight Committee  (PAOC) meeting that it had bid on numerous product categories but won  only one contract and would be closing its business due to lost revenue;  the supplier withdrew from Medicare in May 2011.

Twenty-one of the 28 contracts involved two competitive bidding areas— Miami (15) and Riverside (6). Eighteen contracts involved two product  categories—oxygen (10) and standard power wheelchairs (8). The  Riverside competitive bidding area had six of the eight standard power  wheelchair contracts that were ended.

section_title: Eight DME Contract Supplier Ownership Changes Occurred in CBP’s First 11 Months
paragraphs: Eight DME supplier ownership changes—about 2 percent of the original  356 contract suppliers—occurred from November 3, 2010, when the  winning contract suppliers were first announced, through November 30,  2011. While contract suppliers can be sold, their CBP contracts cannot.  If a contract supplier’s ownership changes, CMS decides whether the  CBP contract can be assumed by the new purchasing supplier—which  can be another contract supplier or a non-contract supplier—by  determining if the purchasing supplier meets the CBP contract supplier  standards. In all nine changes, CMS determined that the new owners  would assume the CBP contracts involved. (See table 6.)

The CBP provides a grandfathering option that temporarily benefits some  non-contract suppliers while also temporarily disadvantaging some  contract suppliers. For non-contract suppliers, grandfathering allows them  to retain Medicare revenues for some CBP-covered capped rental DME  items for the length of the items’ rental periods, if the beneficiary involved  chooses to remain with the grandfathered supplier until the rental period  expires. For contract suppliers that won CBP contracts for the same DME  capped rental DME items, grandfathering may be a temporary  disadvantage in both limiting the number of Medicare beneficiaries they  can serve and the amount of Medicare revenue they can immediately try  to gain. Unless the beneficiary served by a grandfathered supplier  decides to choose a contract supplier, the contract suppliers cannot try to  furnish items to the same beneficiary and thus cannot increase their CBP  Medicare revenue as quickly as they may have anticipated.

The degree of grandfathering varies among the allowed product  categories and competitive bidding areas. In CBP’s first 11 months of  2011, the top three grandfathered product categories—both by the  number of beneficiaries renting items and by the allowed Medicare  payments to grandfathered suppliers—were CPAP/RAD, hospital beds,  and oxygen. (See table 7.)

The number of grandfathered suppliers has generally steadily declined  during 2011 as rental periods expire or beneficiaries chose contract  suppliers. In January 2011 when the CBP round 1 rebid began, there  were 1,364 grandfathered suppliers or 58 percent of the 2,363 suppliers  that billed for beneficiaries they had been serving as of December 31,  2010. In comparison, in December 2011, there were 575 grandfathering  suppliers or 22 percent of the 2,594 suppliers that billed for beneficiaries  they had been serving as of December 31, 2010. (See fig. 3.)

At the end of July 2011, about 31 percent of contract suppliers had  subcontracting agreements. There were 112 distinct contract suppliers  that had at least one subcontracting agreement with one of 211 distinct  subcontractor suppliers. Four contract suppliers had terminated some of  their subcontracts, and three contract suppliers had subcontracting  agreements pending CMS approval.

Some contract suppliers that were new to the competitive bidding area  where they won or were new to a product category they won have  subcontracting agreements with non-contract suppliers. Among the   44 distinct contract suppliers that did not have a previous business  location in the competitive bidding area where they won at least one  contract, 30 percent (13 suppliers) had at least one subcontracting  agreement with a non-contract supplier. For the 43 distinct contract  suppliers that were new to a product category, 37 percent (16 suppliers)  had at least one subcontracting agreement.

Although CMS requires contract suppliers to notify it of their  subcontracting agreements, contract suppliers do not have to provide  CMS with copies of their subcontracting agreements or report what they  pay their subcontract suppliers. Contract suppliers are free to negotiate  their own subcontracting agreements as CMS does not have  subcontracting guidelines or an agreement template. For example, one  subcontract supplier told us it negotiated with a contract supplier for a flat  rate for hospital bed deliveries of $60 and another subcontract supplier  had a $75 rate; one also negotiated a $20 delivery fee for walkers. Two  subcontract suppliers told us that they have a 30-day termination notice  provision in their agreements with contract suppliers.

section_title: As CBP Allows, Some Suppliers with No Previous Experience in a Product Category or with No Location in a Competitive Bidding Area Were Awarded Contracts
paragraphs: As allowed under CBP, CMS awarded round 1 rebid contracts to some  suppliers that at the time they bid had no previous experience in at least  one product category, or were new to at least one competitive bidding  area—did not have a prior business location in the area—or both. There  were 43 distinct44 new to a competitive bidding area—each were about 12 percent of the  356 original contract suppliers awarded contracts. Nine distinct contract  suppliers were new to both a product category and a competitive bidding  area; four of these were small suppliers.   contract suppliers new to a product category and   Of the 43 distinct contract suppliers with no previous experience for a  product category they won, 23 are small suppliers. The enteral nutritionproduct category had the most contract suppliers new to a product  category—19; the complex power wheelchairs product category had  none. (See table 8.)

Additionally, 44 distinct contract suppliers were new to a competitive  bidding area where they won at least one contract; 18 were small  suppliers. While all of the competitive bidding areas had suppliers new to  the area, the Cleveland competitive bidding area had the most (21), and  the Miami area had the least (3). (See table 9.)

section_title: Although CMS’s Monitoring Activities Have Limitations, They Indicate that Beneficiary Access and Satisfaction Have Not Been Affected by CBP
paragraphs: CMS’s monitoring efforts reported declining inquiries and complaints over  the first year of CBP implementation, high levels of beneficiary  satisfaction, and no changes in health outcomes. Although some of these  efforts have limitations, in the aggregate, they provide useful information  to CMS regarding beneficiary access and satisfaction.
subsections: section_title: CBP Inquiries and Complaints Decreased During CBP’s First Year 2011
paragraphs: Information collected from CMS’s monitoring of inquiries to   1-800-MEDICARE suggests that CBP has not adversely affected  beneficiary access to or satisfaction with DME. Calls to 1-800-MEDICARE  regarding CBP declined during the first year of CBP implementation, and  2 percent of calls were from beneficiaries with an urgent need for CBP- covered DME. CBP-related calls comprised a small fraction of all calls to  1-800-MEDICARE.

In 2011, CMS classified 127,466 CBP-related calls to 1-800-MEDICARE  as inquiries. (See fig. 4.) The total number of CBP-related inquiries to   1-800-MEDICARE declined from 19,887 in January 2011 to 4,501 in  December 2011. In the first 3 months of CBP implementation, most  inquiries were regarding CBP in general. In subsequent months, there  were more inquiries about specific CBP-covered products than about  CBP generally. Over 2 million beneficiaries were involved in CBP round 1  rebid; the ratio of inquiries to 1-800-MEDICARE compared with CBP  beneficiaries is approximately 1 inquiry for every 16 beneficiaries.

Inquiries to 1-800-MEDICARE regarding CBP comprise less than one-half  of 1 percent of inquiries to 1-800-MEDICARE. On average, CBP-related  calls to 1-800-MEDICARE comprise nearly 13 percent of all DMEPOS- related calls. The proportion of DME-related 1-800-MEDICARE inquiries  pertaining to CBP fell in 2011 from 19 percent in the first quarter to less  than 7 percent in the fourth quarter. (See fig. 5.) Inquiries and complaints  to 1-800-MEDICARE regarding DMEPOS in general, including CBP- related calls, have remained fairly steady from 2010 to 2011.

The majority of product-specific inquiries to 1-800-MEDICARE—over  40,000—were about mail-order diabetic supplies. There were  approximately 5,000 inquiries regarding standard power wheelchairs,  4,000 inquiries regarding CPAP/RAD, and 3,000 regarding walkers. (See  fig. 6.)

CSRs at 1-800-MEDICARE may respond to beneficiaries with time- sensitive inquiries. In 2011, there were no life-threatening inquiries related  to CBP and 2,539 immediate-needs inquiries—about 2 percent of all  inquiries. Immediate needs inquiries are defined as situations in which  beneficiaries have less than 2 days of life-sustaining DME, or in which  beneficiaries’ medical condition will be worsened if they are unable to  access DME.

section_title: CBP Complaints Decreased During 2011, But CMS’s Definition of Complaint May Not Reveal Beneficiary Access Problems
paragraphs: In the first year of CBP, CMS classified 151 calls as complaints. (See   fig. 7.) Seventy-seven percent of these complaints—or 116 complaints— occurred in the first half of 2011.

CMS’s definition of inquiry and complaint may be an optimistic  characterization of beneficiary calls. According to CMS, all calls are first  classified as inquiries and are only classified as complaints when they  remain unresolved by CSRs. However, CSRs are able to address most  beneficiary inquiries, so the definition of inquiry encompasses the majority  of types of calls to 1-800-MEDICARE. Inquiries may be recorded as  complaints because of their level of complexity, rather than as a reflection  of beneficiary dissatisfaction. CMS officials told us CSRs may forward  complex inquiries to another entity for response, and these inquiries  would be classified as complaints regardless of whether the beneficiary  intended to log a complaint.

section_title: CMS Monitored Beneficiary Satisfaction and Health Outcomes During the First Year of Implementation
paragraphs: CMS has multiple ongoing monitoring efforts to ensure that CBP  beneficiaries can access DME and are satisfied with the program. While  these tools have limitations, CMS’s monitoring of the first year of CBP  implementation does not show evidence that beneficiaries have been  affected negatively by CBP. Some of these tools—such as the beneficiary  satisfaction survey—finished collecting data at the end of 2011. CMS’s  claims and health outcomes monitoring tool found no changes in health  outcomes in competitive bidding areas in 2011, but this method may not  fully capture the relationship between access to DME and health  outcomes. Other tools—such as secret shopping—are limited in scope,  so their data will not provide beneficiary access information on the  program as a whole.

The results of CMS’s beneficiary satisfaction survey were generally  positive, although the survey had limitations. CMS obtained responses  from at least 400 beneficiaries in each of the nine competitive bidding  areas, and in each of nine non-CBP comparison markets—areas chosen  to closely match the makeup of each of the competitive bidding areas.  Responses were collected by telephone in these 18 locations both pre- CBP and post-CBP. The survey collected beneficiary satisfaction ratings  on a five-point scale for six topic questions about the beneficiary’s initial  interaction with DME suppliers, the training received regarding the DME  item, the delivery of the DME item, the quality of service provided by the  supplier, the customer service provided by the supplier, and the supplier’s  overall complaint handling. Respondents answered these questions with   Follow-up questions  one of five options from “very poor” to “very good.”were not used to obtain more detailed information.

The survey design did not capture responses from beneficiaries living in  those locations who may have needed, but did not obtain, DME during  the period; that is, if a beneficiary’s access problems resulted in his not  receiving DME, that beneficiary would not be included in the survey. The  survey’s sampling methodology also did not ensure that all socio- economic groups were represented, so it does not confirm that all  beneficiaries within an area had equal access.

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 pre-implementation to post-implementation. Beneficiaries  in the 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).

CMS’s daily monitoring of national Medicare claims data in real time  found no changes in health outcomes in competitive bidding areas in  2011, but this method may not fully capture the relationship between  access to DME and health outcomes. CMS tracks health outcomes— such as hospitalizations, emergency room visits, physician visits,  admissions to skilled nursing facilities, and deaths—for beneficiaries likely  to use a CBP-covered product and who have used a CBP-covered  product, in both competitive bidding areas and similar comparison areas.  CMS reports that, in 2011, the rate of use of hospital services, emergency  room visits, physician visits, and skilled nursing facility care for  beneficiaries in competitive bidding areas remained consistent with  national trends. While these results are reassuring, these measures do  not show directly whether beneficiaries received the DME they needed on  time, or whether health outcomes were caused by problems accessing  CBP-covered DME.

In the first 6 months of 2011, CMS’s online supplier locator tool may not  have provided beneficiaries with up-to-date item availability for two  reasons. First, CMS’s update of its requirements after the second quarter  no longer required suppliers to list the brands and models they had made  available to beneficiaries in the previous quarter.not have records of supplies actually furnished, only of the type of  supplies that contract suppliers intended to furnish. Second, suppliers we  spoke with reported problems submitting the required forms in the first  quarter of 2011, which may have caused a delay in updating information  on the online supplier locator tool. These suppliers reported that the  online submission form was unavailable during the period they were  required to submit their first quarter data. They told us they had to submit  hard copies of the forms, a time-consuming process which may have  caused delays in reporting.

section_title: Early Data Indicate Some Decreases in DME Utilization
paragraphs: CMS data show that fewer distinct beneficiaries in competitive bidding  areas received CBP-covered DME items in 2011 than in 2010 for the six   However, we do not assume that  product categories that we analyzed.the 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. For example, the number of beneficiaries served in 2010  may have been inflated by suppliers billing for unnecessary items; and  2011 claims data may not yet be complete. Data on the utilization of mail- order diabetic testing supplies is limited because some beneficiaries used  non-CBP retail suppliers.
subsections: section_title: Early Data Generally Indicate Utilization Decreases for Six CBP Product Categories
paragraphs: For the six CBP product categories we analyzed for CBP’s first 6 months  of 2011, initial Medicare claim data trends generally indicate a decrease  in the number of CBP-covered Medicare beneficiaries who were furnished  certain CBP-covered items. The decrease is evident when comparing  changes in the number of distinct CBP-covered beneficiaries served in  2011 compared to 2010 in both the nine competitive bidding areas and  non-competitive bidding areas.beneficiaries served does not necessarily indicate beneficiaries do not  have access to needed DME as CMS told us that possible reasons for the  decline in utilization may be the result of:   However, such decline in the number of

CBP’s round 1 rebid competitive bidding areas were selected by  CMS, in part because they had high utilization, implying that some  utilization may have been unnecessary.

CBP bidding requirements may have eliminated some suppliers that  previously may have been involved in potentially fraudulent Medicare  claims billing which could have inflated pre-CBP utilization. CBP  Medicare claims can be more closely monitored for possible fraud  because there are fewer suppliers furnishing items.

Some suppliers may have increased their Medicare claims  submissions prior to the CBP round 1 rebid’s start date, which could  have inflated 2010 utilization.

Because suppliers have up to 1 year from the date of service to  submit claims, the 2011 claims data may not yet be complete.

For the CPAP/RAD product category, the number of distinct CBP-covered  beneficiaries who were furnished these items in the nine CBP competitive  bidding areas was smaller in each of the first 6 months of 2011 than in the  same months of 2010. For example, in May 2010, 21,382 beneficiaries  residing in the competitive bidding areas were furnished one or more  CPAP/RAD product category items, while in May 2011, the number of  beneficiaries furnished these items had declined by about 8 percent to  19,572. In contrast, in non-CBP competitive bidding areas, more  beneficiaries were served in each of the first 6 months of 2011 compared  to the same months in 2010. For example, in May 2010, 308,728  beneficiaries not residing in competitive bidding areas were furnished one  or more CPAP/RAD product category items, while in May 2011, the  number of beneficiaries furnished these items had risen to 333,746—for  an increase of about 8 percent. (See fig. 8.)

For the enteral product category, there were fewer beneficiaries served in  both the nine CBP competitive bidding areas and the non-competitive  bidding areas in the first 6 months of 2011 compared to the same months  of 2010. However, for every month between January and June, the  number of beneficiaries served in competitive bidding areas showed a  larger decrease from 2010 to 2011 than occurred in the same month for  non-competitive bidding areas. For example, in May 2010, 5,378  beneficiaries residing in the competitive bidding areas were furnished one  or more enteral product category items, while in May 2011, the number of  beneficiaries furnished these items had decreased by almost 15 percent  to 4,576. Similarly, in May 2010, 62,298 beneficiaries not residing in  competitive bidding areas were furnished one or more enteral product  category items, while in May 2011, the number of beneficiaries furnished  these items decreased by about 9 percent to 56,680. Although both CBP  competitive bidding areas and the non-competitive bidding areas showed  a decrease in the number of beneficiaries served in May 2011 as  compared to May 2010, the competitive bidding areas had an additional   6 percent decrease than the non-competitive bidding areas. (See fig.9.)

For the hospital beds product category, the number of distinct CBP- covered beneficiaries who were served these items was smaller in each  of the first 6 months of 2011 than in the same months of 2010. (See   fig. 10.) In non-CBP competitive bidding areas, more beneficiaries were  served in the first 3 months of 2011 than in the first 3 months of 2010 but  progressively fewer beneficiaries were served in April, May, and June of  2011 than in the same months of 2010.

For the oxygen product category, the number of distinct CBP-covered  beneficiaries who were served these items in the nine CBP competitive  bidding areas was smaller in each of the first 6 months of 2011 than in the  same months of 2010. (See fig. 11.) Similar to what occurred for the  hospital bed category, in non-CBP competitive bidding areas, more  beneficiaries were served in the first 3 months of 2011 than in the first   3 months of 2010, but progressively fewer beneficiaries were served in  April, May, and June of 2011 than in the same months of 2010.

For the standard power wheelchair product category, the number of  distinct CBP-covered beneficiaries who were served these items in the  nine CBP competitive bidding areas was also smaller in the first 6 months  of 2011 than in the same months of 2010. While we included  information about changes in utilization of the standard power wheelchair  product category in competitive bidding areas, we did not include like  information for non-competitive bidding areas because CMS changed the  payment policy for standard power wheelchairs in non-competitive  bidding areas only, making comparison to non-competitive bidding areas  difficult. The payment policy change, effective January 1, 2011,  eliminated the option for the lump sum purchase payment for standard  power wheelchairs in all non-competitive bidding areas. (See fig. 12.) We  also did not include utilization data for the complex wheelchair product  category as it is unreliable due to suppliers’ inconsistent use of Medicare  claims payment modifiers.

For the walkers product category, the number of distinct CBP-covered  beneficiaries who were furnished these items in the nine CBP competitive  bidding areas was smaller in each of the first 6 months of 2011 than in the  same months of 2010. While more beneficiaries were served in non- CBP competitive bidding areas in January 2011 than in January 2010,  fewer beneficiaries were served in February through June of 2011  compared to the same months of 2010. (See fig. 13.)

Although CBP-covered beneficiaries pay less for their diabetic testing  supplies if they choose a CBP mail-order contract supplier, CMS has  determined that some CBP-covered beneficiaries who had been receiving  their supplies by mail-order in 2010 have been switching to non-mail- order sources in 2011. This switching would decrease both CBP’s mail- order utilization and its anticipated Medicare savings.

CBP’s diabetic testing supplies product category is the only category that  allows CBP-covered beneficiaries to choose how to receive their  supplies—delivered by mail-order from a CBP contract supplier or  furnished by a non-mail-order retail or storefront supplier. The  beneficiary’s choice determines whether the CBP-covered supplies are  paid at the CBP single payment amounts or at the Medicare fee schedule  payments, and whether the beneficiary’s coinsurance is based on the  lower CBP payment or the higher fee schedule payment.

The HHS OIG is studying the extent to which and why beneficiaries have  switched from mail-order to non-mail-order suppliers between 2010 (the  year prior to CBP) and 2011 (the first year of CBP). There are concerns  that suppliers may be providing testing supplies by mail-order but billing  at the non-mail-order fee schedule payments, or may be incentivizing  beneficiaries to choose non-mail-order instead of mail-order. The HHS  OIG has stated that either of these activities could affect CBP mail-order  utilization and projected CBP Medicare savings.

section_title: Both CMS and DME Suppliers Incurred Costs During the CBP Round 1 Rebid, but CMS Estimates Significant Medicare Savings
paragraphs: Both CMS and suppliers incurred costs related to CBP. However, CMS  estimates that CBP savings to Medicare and to beneficiaries are greater  than its costs.
subsections: section_title: CMS Reported Costs of Nearly $20 Million in the 18 Months Prior to the Round 1 Rebid Start, and Contract Suppliers Reported Varying Costs to Participate
paragraphs: CMS told us that it spent nearly $20 million on pre-implementation costs  for the CBP round 1 rebid from May 2009 through December 2010. In  August 2009, CMS began the suppliers’ bidding education campaign, and  the round 1 rebid bid window opened on October 21, 2009. The CBP  costs incurred during this time included outreach materials for  beneficiaries, referral agents, and others, an IT contract, and other  implementation costs. (See table 10.)

In its 2007 CBP Final Rule, CMS estimated that a bidding supplier spends  an average of $2,303.16 to prepare bids for CBP, and in May 2011, CMS  officials told us that this estimate had not changed. Suppliers and supplier  organizations told us they incurred varying costs when preparing a bid,  including fees for legal and financial services. For example, one supplier  hired a new staff member to oversee the bidding process, and some  suppliers reported paying for assistance in compiling the required  financial documentation. Some suppliers reported additional legal  services to prepare their bids.

Contract suppliers also incurred expenses for participating in the  program. Winning suppliers may incur additional expenses to fulfill their  contractual obligations—for example, one supplier told us that it paid up  to $1,500 for updates to a software program in order to provide CMS the  data required under CBP. Suppliers that subcontract with contract  suppliers stated that they also incur expenses, such as the costs involved  in negotiating an agreement with the contract supplier.

section_title: CMS Estimates that CBP Round 1 Rebid Will Result in Significant Savings for Both the Medicare Program and Beneficiaries
paragraphs: CMS’s estimated savings to both the Medicare program and beneficiaries  is significantly higher than its costs. In a 2012 report, CMS estimated  the CBP saved Medicare approximately $202.1 million in its first year of  implementation, a decrease in expenditures of over 42 percent in the nine  competitive bidding areas. This estimate is larger than the CMS’s 2011  estimate, which did not include possible reductions in claims due to a  decline in utilization. According to CMS, most savings come from the  oxygen, mail-order diabetic supplies, and standard power wheelchair  product categories. CMS also reported that CBP resulted in savings for  beneficiaries.

section_title: Agency Comments and Our Evaluation
paragraphs: HHS reviewed a draft of this report and provided written comments which  are reprinted in appendix II. HHS also provided technical comments,  which we incorporated as appropriate.

HHS made several general comments. First, HHS noted that the CBP  round 1 rebid resulted in savings of more than $200 million in its first year,  and that the Department anticipates additional savings of more than   $25 billion to the Medicare program between 2013 and 2022 as CBP  expands in round 2. Second, HHS commented that we had not fully  accounted for the robust nature of CMS’s real-time claims monitoring  system that measures the health status of Medicare beneficiaries using  DME in both CBP and comparison areas, which HHS said indicates that  CBP-covered beneficiaries have not been adversely affected by CBP .  We revised the report to incorporate more details about the monitoring  program, but we believe that our original description of the program was  accurate. We concluded that, in the aggregate, CMS’s monitoring efforts  provide useful information about beneficiary access and satisfaction.  Third, HHS stated that we agreed with its view that the CBP round 1 rebid  had reduced unnecessary utilization of DME. We noted that the CBP may  have successfully reduced unnecessary DME utilization, because  utilization has been reduced and CMS has not detected adverse health  consequences, but our analysis does not allow us to conclude definitively  that unnecessary utilization has been reduced. Moreover, we concluded  that more experience with DME competitive bidding is needed to assess  the program’s full effects. Fourth, HHS suggested that January 2011 was  not an appropriate month to use in our examples of utilization changes  associated with the round 1 rebid because it was the first month of the  rebid. We agree and have changed our examples to May 2011.

Finally, HHS discussed differences between CMS’s methods for  measuring DME utilization changes associated with the CBP and our  methodology, and noted disparities between CMS’s results and our  findings. HHS noted that CMS monitors all DME claims in real-time in  both CBP and matched comparison areas, and that its analyses are  comparisons between the types of areas. As HHS noted, we analyzed  claims data for DME items accounting for 80 percent of DME costs and  utilization, not all items. We compared DME utilization in CBP round 1  rebid areas to the rest of the country, not to specific comparator areas. In  addition, we analyzed claims for services provided in the months January  through June in 2011 and compared them to the same months in 2010.  Because the process of filing and processing Medicare claims can be  lengthy, we used data for claims that had been processed by CMS’s  payment contractors as of February 2012. We believe that our methods  are valid. Further, our results are similar to results that CMS reported to  us in its technical comments. For example, CMS found that 14 percent  fewer beneficiaries had claims for hospital bed product category items in  CBP areas in 2011 than in 2010. We found that about 13 percent fewer  beneficiaries had claims for these items in May 2011 than in May 2010 in  the CBP areas.

section_title: Concluding Observations
paragraphs: Although the first year of the CBP round 1 rebid’s contracts has been  completed, it is important to continue to closely monitor the CBP as the  program expands into 91 additional areas in round 2. Our findings are  based on the limited evidence available at the time we did our work. It is  too soon to determine the full effects the CBP may have on Medicare  beneficiaries and DME suppliers.

We found that, in general, the round 1 rebid was successfully  implemented. Nearly the same number of suppliers participated in the  round 1 rebid as in CBP round 1. Few contract suppliers left Medicare  during CBP’s first year. CMS’s beneficiary satisfaction survey and other  monitoring activities, although limited, does not show evidence that  beneficiaries have been affected negatively by CBP. Utilization of  selected DME items declined in the round 1 rebid competitive bidding  areas; however, we do not assume that all pre-CBP utilization was  appropriate and CBP may have reduced unnecessary utilization of DME,  particularly because CMS chose to implement the CBP round 1 rebid in  areas with what it suspected were relatively high levels of unnecessary  utilization.

More experience with DME competitive bidding is needed, particularly to  see if evidence of beneficiary access problems emerges. In the program’s  first year, the prevalence of grandfathered suppliers for rental items may  have ameliorated beneficiary access concerns. The number of  grandfathered suppliers will continue to decrease as rental periods expire.  Further, it is not known if the number of subcontracting suppliers will  remain consistent or whether any change in subcontracting may affect  beneficiary access to DME. While few contract suppliers voluntarily  withdrew from CBP or were terminated by CMS in the first contract year,  an increase in either outcome throughout the remaining contract period  could have implications for beneficiary access and the CBP itself.  Additionally, it will be important to determine if DME utilization trends  similar to those in the round 1 rebid occur as the program expands into  round 2’s competitive bidding areas.

We are sending copies of this report to the Secretary of Health and  Human Services. The report will also be available at no charge on our  website at http://www.gao.gov.

If you or your staffs have any questions about this report, 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 report. GAO staff who made major contributions to this report are  listed in appendix III.

section_title: Appendix I: HCPCS Codes that CMS Determined Are the Top 80 Percent Highest Cost and Utilization for CBP Round 1 Rebid
subsections: section_title: Product Category Complex Rehabilitative Power Wheelchairs and Related Accessories (Group 2)

section_title: Continuous Positive Airway Pressure Devices, Respiratory Assist Devices, and Related Supplies and Accessories (CPAP/RAD)
paragraphs: Full face mask used with positive airway pressure device (each)

Nasal interface (mask or cannula type) used with positive airway pressure  device, with or without head strap  Tubing used with positive airway pressure device  Respiratory assist device, bi-level pressure capability, without backup rate  feature, used with noninvasive interface, e.g., nasal or facial mask  (intermittent assist device with continuous positive airway pressure device)

section_title: Enteral Nutrients, Equipment, and Supplies

section_title: Hospital Beds and Related Accessories

section_title: Mail-Order Diabetic Supplies

section_title: Product Category Oxygen Supplies and Equipment
paragraphs: Stationary compressed gaseous oxygen system, rental; includes container,  contents, regulator, flowmeter, humidifier, nebulizer, cannula or mask, and  tubing  Stationary liquid oxygen system, rental; includes container, contents,  regulator, flowmeter, humidifier, nebulizer, cannula or mask, and tubing   Oxygen concentrator, single delivery port, capable of delivering 85 percent  or greater oxygen concentration at the prescribed flow rate  Oxygen concentrator, dual delivery port, capable of delivering 85 percent or  greater oxygen concentration at the prescribed flow rate (each)

section_title: Standard Power Wheelchairs, Scooters, and Related Accessories

section_title: Support Surfaces (Group 2 Mattresses and Overlays)

section_title: Walkers and Related Accessories

section_title: Appendix II: Comments from the Department of Health and Human Services

section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, key contributors to this report  were Martin T. Gahart, Assistant Director; Krister Friday, Dan Lee, Lisa  Motley, Michelle Paluga, Katherine Perry, Hemi Tewarson, and Opal  Winebrenner.

section_title: Related GAO Products
paragraphs: Medicare: Issues for Manufacturer-level Competitive Bidding for Durable  Medical Equipment, GAO-11-337R. Washington, D.C.: May 31, 2011.

Medicare: CMS Has Addressed Some Implementation Problems from  Round 1 of the Durable Medical Equipment Competitive Bidding Program  for the Round 1 Rebid, GAO-10-1057T. Washington, D.C.: September 15,  2010.

Medicare: CMS Working to Address Problems from Round 1 of the  Durable Medical Equipment Competitive Bidding Program. GAO-10-27.  Washington, D.C.: November 6, 2009.

Medicare: Covert Testing Exposes Weaknesses in the Durable Medical  Equipment Supplier Screening Process. GAO-08-955. Washington, D.C.:  July 3, 2008.

Medicare: Competitive Bidding for Medical Equipment and Supplies  Could Reduce Program Payments, but Adequate Oversight Is Critical.  GAO-08-767T. Washington, D.C.: May 6, 2008.

Medicare: Improvements Needed to Address Improper Payments for  Medical Equipment and Supplies. GAO-07-59. Washington, D.C.:  January 31, 2007.

Medicare Payment: CMS Methodology Adequate to Estimate National  Error Rate. GAO-06-300. Washington, D.C.: March 24, 2006.

Medicare Durable Medical Equipment: Class III Devices Do Not Warrant  a Distinct Annual Payment Update. GAO-06-62. Washington, D.C.:   March 1, 2006.

Medicare: More Effective Screening and Stronger Enrollment Standards  Needed for Medical Equipment Suppliers. GAO-05-656. Washington,  D.C.: September 22, 2005.

Medicare: CMS’s Program Safeguards Did Not Deter Growth in Spending  for Power Wheelchairs. GAO-05-43. Washington, D.C.: November 17,  2004.

Medicare: Past Experience Can Guide Future Competitive Bidding for  Medical Equipment and Supplies. GAO-04-765. Washington, D.C.:  September 7, 2004.

Medicare: CMS Did Not Control Rising Power Wheelchair Spending.  GAO-04-716T. Washington, D.C.: April 28, 2004.


Question-summary annotations: questions: question: What did CMS within HHS implement?
answer: The Centers for Medicare and Medicaid Services (CMS), within the Department of Health and Human Services (HHS), implemented the durable medical equipment (DME) competitive bidding program’s (CBP) bidding process for the round 1 rebid.
child_questions: question: How did the number of bids compare between CBP round 1 rebid and round 1?
answer: Nearly the same number of suppliers submitted a similar number of bids for both the CBP round 1 rebid and round 1.

question: What did suppliers have difficulty with?
answer: Many suppliers continued to have difficulty complying with financial documentation requirements; however, the number of bids disqualified in the round 1 rebid was significantly less than for round 1.
child_questions: question: What did some suppliers find after being notified of bid results?
answer: After being notified of their bid results, some suppliers were found to have bids that were disqualified incorrectly and were subsequently offered round 1 rebid contracts.

question: What portion of bidding suppliers received contracts?
answer: About one-third of the bidding suppliers were awarded CBP contracts.

questions: question: What did few CBP contract suppliers have?
answer: Relatively few CBP contract suppliers (those awarded CBP contracts) had their contracts terminated by CMS, voluntarily canceled their contracts, or were involved in ownership changes.

question: What can non-contract suppliers do?
answer: Under the CBP, non-contract suppliers (those not awarded CBP contracts) can grandfather certain rental DME for beneficiaries they were servicing prior to the implementation of CBP until CBP-covered beneficiaries’ rental periods expire.
child_questions: question: How can non-contract suppliers interact with CBP contract suppliers?
answer: Also, some CBP contract suppliers entered into subcontracting agreements with non-contract suppliers to furnish certain services to CBP-covered beneficiaries in the round 1 rebid.

questions: question: How was the first year of CBP round 1 rebid?
answer: 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.
child_questions: question: What did GAO find about round 1 rebid?
answer: GAO found that, in general, the round 1 rebid was successfully implemented. GAO also found that utilization of selected DME declined in the CBP areas; while there are many possible reasons for this, it does not necessarily indicate that beneficiaries have not had access to needed DME.
child_questions: question: What did GAO not assume?
answer: GAO does not assume that all pre-CBP utilization was appropriate and the CBP may have reduced unnecessary utilization of DME.

question: Why is it important to continue monitoring changes in the number of suppliers serving CBP covered beneficiaries?
answer: 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 monitoring changes in the number of suppliers serving CBP-covered beneficiaries.

questions: question: Why did CMS need to implement CBP for certain DME?
answer: To achieve Medicare savings for DME, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) required that CMS implement the CBP for certain DME.

question: What was required of CMS as a result of MIPPA?
answer: In 2008, the Medicare Improvements for Patients and Providers Act (MIPPA) terminated the first round of supplier contracts and required CMS to repeat the CBP round 1—referred to as the round 1 rebid, resulting in the award of contracts to suppliers with payments that began January 1, 2011.
child_questions: question: What does CMS estimate as a result of its required action?
answer: CMS has estimated that the rebid will lead to significant savings for Medicare.