Medicare: CMS's Round 2 Durable Medical Equipment and National Mail-order Diabetes Testing Supplies Competitive Bidding Programs
Released: 2016-10-17T00:00:00


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 required that CMS implement the CBP for certain DME, such as wheelchairs and oxygen, in phases, or rounds. Round 1 started in 2008, and round 2 and the national mail-order program started in 2013. CMS estimated that the first 2 years of round 2 and the national mail-order program saved Medicare approximately $3.6 billion. GAO has reported on several prior CBP rounds.

GAO was asked to continue to review the implementation of the CBP. In this report, GAO examines the extent to which round 2 and the national mail-order program have affected (1) utilization of CBP-covered DME items, and (2) beneficiaries' access to DME items. This report also (3) describes the number and market shares of the round 2 and mail-order program suppliers.

To examine the effect of CBP on utilization, GAO used Medicare DME claims data from 2012 and 2014—the year before and the year after implementation of round 2—to compare the number of beneficiaries who received CBP-covered DME items. To examine the effect of CBP on beneficiary access, GAO reviewed information about CMS's efforts to monitor the effects of the CBP, and interviewed selected Medicare beneficiary organizations and state hospital associations. To describe the supplier markets, GAO analyzed 2014 Medicare claims data, the latest year with complete available data when GAO began this engagement.

section_title: What GAO Found
paragraphs: The number of beneficiaries receiving durable medical equipment (DME) items covered under the competitive bidding program (CBP) generally decreased after implementation of two CBP phases that began July 1, 2013—round 2 and the national mail-order program for diabetes testing supplies. Under the CBP, (administered by the Centers for Medicare & Medicaid Services (CMS)), only competitively selected contract suppliers can furnish certain DME items at competitively determined prices to beneficiaries in designated competitive bidding areas. From the year before (2012) to the year after (2014) implementation, the number of beneficiaries receiving covered items in round 2 areas decreased 17 percent, compared with a 6 percent decrease for beneficiaries in non-CBP areas. The number of beneficiaries that received diabetes testing supplies through the national mail-order program also decreased 39 percent between 2012 and 2014, with a corresponding 13 percent increase in the number of beneficiaries receiving these items through retail outlets. CMS officials stated that CBP has helped limit fraud and abuse and may have curbed unnecessary utilization of some CBP-covered items in competitive bidding areas.

CMS reports that available evidence from the agency's monitoring efforts indicates that the implementation of round 2 and the national mail-order program have had no widespread effects on beneficiary access. In particular, CMS has reported that its health status monitoring tool has not detected any changes in health measures attributable to the CBP, and the results of its 2014 post-CBP beneficiary satisfaction surveys remained positive. In addition, the number of CBP inquiries and complaints generally decreased throughout the first 2 years of round 2 and the national mail-order program. CMS officials told GAO that CMS took measures to ensure that contract suppliers met their contract obligations, such as investigating complaints using secret shopping calls, and terminating contracts of suppliers that remained noncompliant after receiving targeted education. However, some beneficiary advocacy groups and state hospital associations reported specific access issues, such as difficulty locating contract suppliers that will furnish certain items and delays in delivery of DME items.

Round 2 and the national mail-order program included 801 separate competitive bidding area and product category competitions. Most of these competitions had at least five active contract suppliers in 2014. However, 11 percent of the competitions had three or fewer active contract suppliers and 1 percent had just one active contract supplier. In addition, while multiple suppliers had substantial shares of the market for most competitions, in some competitions a single supplier had a majority. For example, in 6 percent of the competitions, one contract supplier had at least 90 percent of the market. Conversely, 11 percent of contract suppliers did not furnish any CBP-covered items for any competitions in their contract. CMS officials told GAO that CMS monitors these suppliers to help ensure that they are meeting their contractual obligations, such as being willing to service all beneficiaries in their areas and to furnish the same items to Medicare beneficiaries that they make available to other customers.

The Department of Health and Human Services provided technical comments on a draft of this report, which were incorporated as appropriate.

section_title: Letter
paragraphs: Medicare, a federal health insurance program administered by the  Centers for Medicare & Medicaid Services (CMS), within the Department  of Health and Human Services (HHS), spent $6.7 billion in 2015 on fee- for-service (FFS) payments for durable medical equipment (DME),  including prosthetics, orthotics, and related supplies for beneficiaries.  Most Medicare beneficiaries enroll in Medicare Part B, which helps pay  for DME items, such as oxygen, wheelchairs, hospital beds, and walkers,  if they are medically necessary and prescribed by a physician. Medicare  beneficiaries typically obtain DME items from suppliers, who then submit  claims for payment to Medicare on behalf of beneficiaries.

Historically, Medicare paid for DME items by using a fee schedule  generally based on what suppliers charged for the items and services  during the 1980s, and these amounts were increased annually. However,  both we and the HHS Office of Inspector General reported that Medicare  and its beneficiaries sometimes paid higher than market rates for various  DME items, and there were long-standing concerns about the high rates  of improper payments related to DME. To achieve savings and address  improper payment concerns, Congress, through the Medicare  Prescription Drug, Improvement, and Modernization Act of 2003 (MMA),  directed that CMS change the way it pays for DME and other items by  implementing a competitive bidding program (CBP). The CBP changed a  long-standing policy that any qualified provider could enroll in Medicare  and furnish DME items to instead having CMS conduct a competitive  process to select suppliers eligible to provide certain DME product  categories to Medicare beneficiaries in designated competitive bidding  areas. The CBP also based DME payments on competitive bids, rather  than on the fee schedule. DME suppliers that win competitions, called  contract suppliers, are awarded contracts based on their bid amounts and  are paid at the competitively determined payments for CBP-covered DME  items. These payments, referred to as single payment amounts, are  calculated for each DME item included in the CBP and must be equal to  or lower than Medicare’s traditional FFS payments for the same items.

CMS and its competitive bidding implementation contractor, Palmetto  GBA, have implemented the CBP in several phases—referred to as CBP  rounds or programs. The first phase, round 1, initially included 10  competitive bidding areas, but following the termination of round 1, it was  subsequently rebid in 9 of the 10 same areas. Round 2 began July 1,  2013, and expanded the CBP to an additional 100 competitive bidding  areas for 8 product categories. At the same time, CMS also began  another phase of the CBP, called the national mail-order program, which  included diabetes testing supplies received through mail-order. CMS also  announced that it will implement additional phases of the CBP in 2016  and 2017. In addition, beginning January 1, 2016, as required by law,  CMS began using CBP rates to adjust FFS payments in areas where  CBP had not been implemented.

According to CMS, the competitive bidding process has produced savings  through lower payment rates and has decreased unnecessary utilization.  Specifically, CMS estimated that the first 2 years of round 2 and the  national mail-order program (July 1, 2013-June 30, 2015) saved Medicare  approximately $3.6 billion. CMS reported that round 2 single payment  amounts were, on average, 45 percent less than Medicare’s current FFS  payments, and the national mail-order program payments for diabetes  testing supplies were, on average, 72 percent less than the FFS  payments at the time the programs began. In addition to these savings,  CMS has also reported that CBP has helped limit fraud and abuse and  may have curbed unnecessary utilization of some CBP-covered items in  competitive bidding areas. For example, CMS reported that by bringing  Medicare payments for DME items more in line with the prices paid by  others, CBP-covered items are a less profitable target area for suppliers  involved with fraudulent billing practices. However, some stakeholder  groups have raised concerns that the lower payment rates and smaller  number of suppliers in CBP have disrupted beneficiary access to quality  DME items, and may have led to increased adverse health outcomes.

We previously reported that the CBP round 1 rebid was generally  implemented successfully, but that it was important to continue monitoring  CBP to determine effects that CBP may have on Medicare beneficiaries  and DME suppliers as CMS expands the program into additional areas  and product categories. You asked us to continue monitoring the CBP by  examining the possible effects of round 2 and the national mail-order  program on beneficiaries and DME suppliers. In this report, we examine  changes in utilization of CBP-covered DME items after the  implementation of round 2 and the national mail-order program,  the extent to which round 2 and the national mail-order program may  have affected Medicare beneficiaries’ access to covered DME items,  and  the number and market share of contract suppliers in round 2 and  national mail-order program competitions.

To examine changes in utilization of DME items after the implementation  of round 2 and the national mail-order program, we used Medicare claims  data and other CMS data to calculate the percentage change in the  number of beneficiaries receiving CBP-covered items and in the number  of items received in 2012 and 2014—the years before and after  implementation. For the round 2 analysis, we examined changes in  beneficiary utilization and how these changes varied for items across  each of the 8 product categories—which included a total of 202  Healthcare Common Procedure Coding System (HCPCS) codes—and  100 areas. We also compared these changes in utilization to those for  items and areas not included in round 2—non-CBP items and areas.  For the national mail-order program analysis, we examined changes in  beneficiary utilization for all 8 HCPCS codes included in the program, and  whether beneficiaries received the items through mail order or a retail  location.

To examine the extent to which round 2 and the national mail-order  program may have affected Medicare beneficiary access to covered DME  items, we analyzed CMS data from the first 2 years of implementation,  July 2013 through June 2015, including both CBP inquiry data from the 1- 800-MEDICARE beneficiary help line and CBP complaint data. We also  examined CMS’s health status monitoring tool that tracks health  measures in both CBP and non-CBP areas as well as pre- and post-CBP  round 2 and national mail-order program beneficiary satisfaction survey  results. We interviewed CMS and CBP contractor officials, and CMS’s  Competitive Acquisition Ombudsman. In addition, we also interviewed five  beneficiary advocacy groups representing Medicare beneficiaries that  may have specific conditions requiring DME items, such as diabetes and  disabilities requiring wheelchairs. Specifically, we asked about their  experiences with CBP round 2 and the national mail-order program and  the extent to which their members had reported issues related to access  and choice of DME items. We also contacted four state hospital  associations from states with several competitive bidding areas. These  associations provided us contact information to speak with stakeholders  such as referral agents, discharge planners, case managers, and other  staff who assist CBP-covered beneficiaries in obtaining DME items. In  response to concerns raised by some stakeholders we contacted, we also  reviewed the national average length of stay in hospitals for beneficiaries  who underwent a hip or knee replacement. We selected hip or knee  replacements because beneficiaries would likely need DME items  following this surgery and because CMS reported it was the most  frequently occurring FFS discharge code in the year that round 2 was  implemented. We reviewed the length of stay for those beneficiaries who  both did and did not receive a DME item between one day before and  after the date of discharge from the hospital in 2014 as compared to 2012  in both CBP and non-CBP areas.

To examine the number and market shares of contract suppliers in round  2 and national mail-order program competitions, we used 2014 Medicare  claims data, the latest year with complete available data when we began  this engagement, and a list of contract suppliers from CMS. We defined  a contract supplier as active in a given market during 2014 if it furnished  at least one item in that competition and defined a contract supplier’s  market share as its Medicare allowed charges in a competition as a  percentage of the total charges in that competition across all suppliers  (including non-contract suppliers). For each competition, we calculated  the market share of the top contract supplier, which is a measure of the  extent to which the market is competitive. We also examined the extent to  which this measure varied by product category. Additionally, we  calculated each contract supplier’s market shares across all competitions  included in its contract, as well as the number of suppliers that did not  furnish any items in one or more of the competitions included in their  contract.

We assessed the reliability of Medicare claims data, which we obtained  from CMS’s 100 Percent Standard Analytic Files, by reviewing existing  information about the data and the systems that produced them,  performing appropriate electronic data checks, and interviewing CMS  officials. To assess the reliability of the data we received from CMS and  Palmetto GBA, we reviewed relevant documentation, performed  electronic data checks, and interviewed CMS officials. We determined  that these data were sufficiently reliable for the purposes of this report.

We conducted this performance audit from June 2015 to September 2016  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: CBP Contract Supplier Bidding and Award Process
paragraphs: CMS and Palmetto GBA administer and implement the CBP and its  bidding phases. In each CBP bidding phase, suppliers that want to  participate in the CBP may submit a bid in one or more product  categories in one or more designated competitive bidding areas. To be  offered a CBP contract, suppliers must be qualified, meaning they have  met general Medicare enrollment and quality standards as well as CBP’s  financial and applicable licensing standards; be eligible to bill Medicare  for DME items; have a DME surety bond; and be accredited and  licensed.

After CMS and Palmetto GBA review qualified suppliers’ bids, the bids  are ordered by lowest to highest price, and CMS then makes offers to all  those needed to meet or exceed CMS’s estimated beneficiary demand  who submitted the lowest prices. If a bidding supplier accepts an offer to  furnish a specific product category in a specific competitive bidding area,  it must agree to furnish all of the items included in the product category to  all eligible Medicare beneficiaries residing in the competitive bidding area  at the applicable single payment amounts. Because the single payment  amount is the median of the winning bid price offers for each DME item in  a product category for each competitive bidding area, the payment can be  less or more than a particular winning supplier’s actual bid for an item.  Furthermore, because each competitive bidding area and product  category combination is a separate competition, the same DME item may  have a different single payment amount in each area. For example, the  round 2 single payment amounts for a new foam rubber mattress ranged  between $111.38 in the Palm Bay and Deltona, Florida, competitive  bidding areas to $178.62 in the Honolulu, Hawaii, competitive bidding  area. Contracts are generally awarded for 3 years and can include one or  many competitions. While generally only contract suppliers that accepted  a contract for a given product category and competitive bidding area are  eligible to furnish those items, there are circumstances in which suppliers  not awarded a CBP contract—referred to as non-contract suppliers—may  be grandfathered to continue to furnish some CBP-covered items to  certain beneficiaries for a limited time. In addition, physicians, treating  practitioners, and hospitals can furnish walkers, folding manual  wheelchairs, or external infusion pumps to their own patients as part of  their professional services or during hospital admission or discharge  without a CBP contract.

When offering contracts, CMS takes steps that it believes will ensure  beneficiary access and choice. For example, CMS’s goal is to award at  least five contracts for each product category and competitive bidding  area competition. To help meet this goal, CMS caps the estimated  projected capacity of any single supplier at 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 submission. CMS also tries to ensure that small  suppliers are awarded CBP contracts by setting a target that 30 percent  of the qualified suppliers awarded a contract in each product category  and competitive bidding area competition are small.

section_title: Phase-In of the CBP
paragraphs: CMS is required by the MMA to conduct a new CBP phase at least once  every 3 years, and begins the bid submission and award process for the  new contracts before the current contracts expire. Beginning with the first  round of CBP in 2008, CMS and Palmetto GBA have continued to phase- in CBP through additional rounds and programs. (See fig. 1 for a timeline  summarizing the phase-in of the CBP and app. II for additional  information about the CBP phases.)

section_title: Number of Contract Suppliers and Product Categories in Round 2
paragraphs: As of October 2015, there were 822 round 2 contract suppliers—520 of  which were small suppliers—to furnish DME items and services in eight  product categories and 100 competitive bidding areas. (See table 1 for a  list of round 2 product categories and app. I for a list of the 100  competitive bidding areas.) Contracts were effective beginning July 1,  2013, and expired June 30, 2016.

section_title: National Mail-Order Program Contract Suppliers and Covered Items
paragraphs: There were 19 national mail-order contract suppliers as of October  2015—6 of which were small suppliers—to furnish the eight mail-order  diabetes testing supply HCPCS codes included in the national mail-order  program. Contracts were effective beginning July 1, 2013, and expired  June 30, 2016. The program operates in the 50 states, the District of  Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American  Samoa, and includes the same eight mail-order diabetes testing supply  HCPCS codes as the round 1 rebid. For this round and future national  mail-order program rounds, a supplier’s diabetes testing supply bid must  demonstrate that the supplier’s bid would cover at least 50 percent, by  sales volume, of all types of diabetes test strips on the market. Medicare  payments for items included in the national mail-order program are the  same regardless of whether they are furnished via mail order or by retail,  though out-of-pocket costs for beneficiaries may be higher when they  receive these supplies through retail outlets.

section_title: Sources for CBP-Related Beneficiary Assistance
paragraphs: Medicare beneficiaries residing in competitive bidding areas have several  sources available to help them locate contract suppliers and receive  assistance for CBP-related issues, questions, or complaints.

Medicare Supplier Directory. To locate a CBP contract supplier,  beneficiaries can use the CMS online supplier directory tool on CMS’s  Medicare website. The Medicare Supplier Directory contains the  names of the contract suppliers in each competitive bidding area as  well as the product categories for which they furnish CBP-covered  items. Contract suppliers are responsible for submitting information to  CMS each quarter regarding the specific brands of items they plan to  furnish in the upcoming quarter, and CMS uses this information to  update the supplier directory tool.

1-800-MEDICARE inquiries. CMS directs beneficiaries to call its 1- 800-MEDICARE beneficiary help line for assistance with CBP-related  questions. Customer service representatives are trained to assist CBP  beneficiaries and use several scripts to respond to questions and  assist beneficiaries in locating contract suppliers. If a beneficiary’s  inquiry cannot be addressed by the customer service representatives,  the inquiry is forwarded to an advanced-level customer service  representative, who researches and responds to the beneficiary’s  inquiry.

Palmetto GBA and CMS regional offices. Palmetto GBA provides  CBP-related information and updates through its website and works  with CMS regional office staff to monitor CBP activities and provide  educational outreach.

Competitive Acquisition Ombudsman. The Competitive Acquisition  Ombudsman was created to respond to CBP-related complaints and  inquiries made by suppliers and individuals, and works with CMS  officials and contractors and Palmetto GBA to resolve them.

section_title: CMS’s CBP-related Monitoring Activities
paragraphs: CMS has implemented several activities to monitor whether beneficiary  access or satisfaction have been affected by the implementation of CBP  and to ensure that contract suppliers are meeting their contract  obligations.

Inquiries and complaints to 1-800-MEDICARE. CMS tracks all  CBP-related inquiries to 1-800-MEDICARE. All calls are first classified  as inquiries, and CMS defines as a CBP complaint only those  inquiries that cannot be resolved by any 1-800-MEDICARE customer  service representative and are elevated to another entity, such as  Palmetto GBA, CMS’s regional offices, or the Competitive Acquisition  Ombudsman for resolution.

Secret shopping calls. According to CMS officials, CMS utilizes  shopping calls, in which Palmetto GBA representatives pose as  referral agents or family members acting on behalf of beneficiaries  and call contract suppliers to request items, such as specific diabetes  testing supplies, to determine whether the suppliers offer the supplies  covered under their contracts. Some calls are conducted on a random  basis and are intended to reach contract suppliers from across all  product categories and competitive bidding areas, while others are  directed at particular suppliers. According to CMS officials, the agency  uses both random and targeted calls to monitor contract suppliers that  have not billed for items included in their contracts over a period of  time. In addition, CMS officials said that a third type of secret  shopping call, focused calls, is used to investigate specific complaints  and verify contract supplier compliance with contract requirements  after any necessary education to the supplier(s) is provided.  According to CMS, if contract suppliers remain noncompliant following  education, the agency will start the contract termination process.

Beneficiary satisfaction surveys. CMS conducted both pre- and  post-round 2 and national mail-order program surveys to measure  beneficiary satisfaction with CBP. The round 2 pre-implementation  survey was conducted January 3 through March 18, 2013, and the  post-implementation survey was conducted from March 5 through  April 10, 2014. The national mail-order program pre-implementation  survey was conducted April 10 through April 24, 2013, and the post- implementation survey was conducted April 17 through April 27, 2014.

Health Status Monitoring Tool. CMS analyzes Medicare claims data  to monitor health measures, including encounters with the health care  system (such as hospitalizations, emergency room visits, and  physician visits) and one outcome (death) for beneficiaries in both  CBP-covered areas and non-CBP areas for both round 2 and the  national mail-order program. CMS posts quarterly reports on its  website to show historical and regional trends in health measures for  specific groups of beneficiaries.

section_title: Number of Beneficiaries Receiving CBP- covered Items Generally Decreased after Implementation of Round 2 and the National Mail-Order Program
paragraphs: The number of beneficiaries receiving DME items covered under CBP  round 2 generally decreased after the implementation of round 2, and  these utilization decreases generally were larger than the decreases for  items or areas that were not included in CBP. The number of  beneficiaries receiving diabetes testing supplies covered under the  national mail-order program also generally decreased after the  implementation of the program, although there was an increase in the  utilization of some items through retail outlets.
subsections: section_title: Number of Beneficiaries Receiving CBP-Covered Items Generally Decreased after Implementation of Round 2, with Larger Decreases Than Those for Items and Areas Not in CBP
paragraphs: The number of beneficiaries receiving at least one DME item included in  CBP round 2 decreased after the implementation of round 2, and these  decreases were larger than those for items or areas that were not  included in CBP. That is, the decrease was largest among items and  areas for which CMS established competitively set rates beginning in July  2013. Specifically, the percentage decrease in the number of  beneficiaries receiving at least one round 2 DME item between 2012 and  2014 was 17 percent. In contrast, the decreases in utilization were 6 to 7  percent for the same items in non-CBP areas and for non-CBP items.  (See fig. 2.)

Numerous factors could have contributed to the decrease in the number  of beneficiaries receiving DME, and the decreases do not necessarily  indicate that beneficiaries did not receive needed DME. Some  stakeholders have expressed concern that lower payment rates and a  smaller number of suppliers may have caused some beneficiaries to not  receive needed DME. However, CMS stated that CBP has helped limit  fraud and abuse and may have curbed unnecessary utilization of some  CBP-covered items in competitive bidding areas. Additionally, in recent  years CMS began implementing several broader antifraud efforts that  were not limited to CBP-covered items or areas, such as taking additional  steps to identify aberrant or suspicious billing patterns among all  Medicare FFS claims before making payments, and implementing new  safeguards to better screen existing and new Medicare suppliers.

Looking at each of the eight product categories individually, the number of  beneficiaries receiving covered items generally decreased after  implementation of round 2, and these decreases were generally larger  than those for the same items in non-CBP areas. Specifically, utilization  of seven of the eight round 2 product categories decreased between 2012  and 2014, with decreases that were larger than in non-CBP areas for six  of these seven categories. While there was substantial variation in the  magnitude of the decrease in beneficiaries receiving these items, the  percentage decreases in the number of beneficiaries receiving items and  in the number of items received were generally similar, indicating that the  average number of items beneficiaries received was relatively constant.  Continuous positive airway pressure (CPAP) was the only product  category for which the number of beneficiaries receiving items increased  between 2012 and 2014, as well as the category with the largest  difference between the percentage change in beneficiaries and in items.  (See fig. 3.)

Similarly, almost all round 2 areas experienced a decrease in the number  of beneficiaries receiving CBP round 2 items after the implementation of  round 2, though the magnitude of the decrease varied. Specifically, 95 of  the 100 round 2 areas experienced a decrease between 2012 and 2014  in the number of beneficiaries receiving CBP round 2 items, ranging from  2 to 42 percent. Of the 15 areas with the largest percentage decreases in  the number of beneficiaries receiving these items, 12 were in California  and Texas. Nine of these 12 areas also had the largest relative decreases  in the number of beneficiaries receiving round 2 items compared with the  number receiving non-CBP-covered DME items. CMS officials told us that  the relatively large decreases in California and Texas attributed to the  implementation of CBP round 2 were likely because these states  historically had high rates of potential fraud and abuse. (See fig. 4.)

section_title: Number of Beneficiaries Receiving National Mail- Order Program Items Generally Decreased after Implementation, Though Utilization Increased for Some Items Acquired through Retail Outlets
paragraphs: The total number of beneficiaries receiving at least one diabetes testing  supply item covered under the national mail-order program decreased  after implementation of the program, although there was an increase in  the number of beneficiaries receiving some of these items through retail  outlets. Specifically, there was an overall 12 percent decrease between  2012 and 2014 in the number of beneficiaries receiving at least one  diabetes testing supply item through any acquisition method. However,  during the same time period there was a 39 percent decrease in the  number of beneficiaries receiving these items through mail order and a 13  percent increase in the number of beneficiaries receiving these items  through retail outlets such as stores or pharmacies. The net result was a  switch from a majority of beneficiaries (57 percent) receiving these  supplies through mail order in 2012 to a majority receiving supplies  through retail in 2014 (63 percent). (See fig. 5.) These utilization results  were driven by changes in the two most commonly received items  covered under the national mail-order program: diabetes test strips and  lancets. For the other six covered diabetes testing supplies, the number  of beneficiaries receiving these items through retail outlets decreased.

Although CMS officials said that they could not speculate about reasons  for this switch, a diabetes advocacy group we interviewed speculated that  beneficiaries may have decided to switch to retail because they had  difficulty finding contract suppliers that would provide the specific brand of  test strips they requested. The use of retail outlets could result in higher  out-of-pocket payments for beneficiaries because unlike mail-order  contract suppliers, retail outlets are not required to accept assignment for  diabetes testing supplies covered under the national mail-order program.

section_title: CMS Reports That Available Evidence Indicates No Widespread Effects of Round 2 and the National Mail-Order Program on Beneficiary Access
paragraphs: Based on its monitoring of health measures, CMS reported that the  implementation of the CBP has not resulted in widespread beneficiary  access issues. The number of round 2 and national mail-order program  inquiries and complaints to 1-800-MEDICARE generally decreased  throughout the first 2 years of the programs’ implementation. CMS told us  that it investigates complaints using secret shopping calls and that its  post-implementation beneficiary satisfaction surveys remained positive.  Nevertheless, several stakeholder groups we interviewed reported  specific concerns such as delays in delivery of CBP-covered DME items  and beneficiaries having difficulty locating a contract supplier.
subsections: section_title: CMS’s Health Status Monitoring Indicates the CBP Has Not Affected Health Measures
paragraphs: CMS reported that its health status monitoring tool showed similar trends  in health measures in both CBP and non-CBP areas, both before and  after the implementation of round 2. CMS has reported no changes in  health measures attributable to the implementation of any CBP round  since the agency began monitoring measures in 2011, which CMS  officials told us is an indication that the CBP has not caused widespread  problems with beneficiary access. Officials told us that CMS investigated  aberrant trends in health measures identified by the monitoring tool and  concluded that all such trends were the result of issues unrelated to CBP.  For example, CMS officials told us that they investigated an increased  mortality rate in one competitive bidding area and concluded it was due to  an influenza outbreak. Similarly, they found that other issues resulted  from changes in DME policy not specific to CBP, such as new  requirements regarding prior authorization for wheelchairs.

CMS’s health status monitoring tool uses Medicare claims data to track  seven health measures—deaths, hospitalizations, emergency room visits,  physician visits, admissions to skilled nursing facilities, average number  of days spent hospitalized in a month, and average number of days in a  skilled nursing facility in a month. CMS monitors these health measures  for three groups of Medicare FFS beneficiaries residing in both CBP and  non-CBP areas: (1) all beneficiaries enrolled in FFS, (2) beneficiaries  likely to use one of the competitively bid products on the basis of related  health conditions, and (3) beneficiaries for whom Medicare has paid a  claim for one of the competitively bid products. CMS’s tool considers  historical and regional trends in health status to monitor health measures  in all CBP and non-CBP areas. CMS publishes aggregated results for  four U.S. geographic regions quarterly on its website. CMS uses the tool  to review Medicare claims data on a bi-weekly basis. According to a  monitoring tool user guide that CMS provided us, the tool uses a  statistical scoring algorithm to identify potential changes in health  measures in every competition. The goal of the scoring algorithm is to  identify persistent aberrant trends in health measures in individual  competitive bidding area and product category competitions that are not  mirrored in other regions. These aberrant trends can then be investigated  further, through steps such as beneficiary and supplier outreach and  contract compliance reviews.

Based on our analysis, CMS’s methodologies and scoring algorithm used  to evaluate health measure trends among CBP areas appear to be  sound. However, we did not examine individual investigations that CMS  conducted to assess aberrant changes in trends in particular competitive  bidding areas and product categories and whether these trends could be  attributed to CBP.

section_title: Number of Round 2 and National Mail-Order Program Inquiries and Complaints to 1-800- MEDICARE Generally Decreased throughout the First 2 Years
paragraphs: The number of inquiries and complaints to 1-800-MEDICARE regarding  CBP round 2 or the national mail-order program represented less than 1  percent of all calls to 1-800-MEDICARE, and inquiries and complaints  generally decreased throughout the programs’ first 2 years of  implementation. During the first quarter of implementation (July 1, 2013,  to September 30, 2013), 1-800-MEDICARE received almost 100,000  inquiries—including almost 300 complaints—related to CBP round 2 or  the national mail-order program. However, the number of inquiries and  complaints dropped sharply during the second quarter of implementation,  and then generally continued to decrease slowly or remained relatively  consistent over subsequent quarters. (See fig. 6.)

After implementation of the CBP, CMS began to track CBP-related  inquiries to 1-800-MEDICARE and to classify them as either general CBP  inquiries, such as requests for general information, or assistance  determining whether a beneficiary resided in a competitive bidding area  and whether the inquiries were about a specific product category. The  highest number of general CBP inquiries occurred in the first quarter after  implementation—61,457—which decreased to 8,741 by the last quarter of  the 2-year period. The number of category-specific inquiries for each  product category generally decreased from the first quarter to the last  quarter. The mail-order diabetes testing supplies product category had  the highest number of specific inquiries during the first quarter—15,953— which fell to 1,610 inquiries in the last quarter. The standard wheelchairs  product category had the next-highest number of inquiries during the first  quarter—6,438—which fell to 2,967 inquiries in the last quarter.

The total number of complaints was small compared to the total number  of inquiries. However, the number of complaints may not fully capture the  number of people who expressed problems or dissatisfaction with the  CBP program, because CMS defines a complaint as an inquiry to 1-800- MEDICARE that needs to be referred to an outside entity for resolution,  such as Palmetto GBA. The 1,156 complaints recorded in the first 2 years  occurred across multiple round 2 product categories, rather than being  concentrated in a few specific categories. The complaints varied, but  included complaints that contract suppliers refused to serve beneficiaries  residing in their competitive bidding areas or had provided poor customer  service, that beneficiaries had experienced delays in receiving DME or  had received the wrong DME, and that beneficiaries had difficulty  obtaining specific brands and models of DME items that had been  prescribed by their physicians. For example, Palmetto GBA received  several complaints indicating that contract suppliers refused to provide  the U-Step walker, a specific brand of walker, furnished under a specific  HCPCS code. According to CMS, U-Step walkers are infrequently  prescribed, and Palmetto GBA worked with beneficiaries on a case-by- case basis to obtain them from contract suppliers. CMS told us that in  every instance in which Palmetto GBA intervened, Palmetto GBA was  able to locate a contract supplier to provide the item for each beneficiary  with a prescription for the U-Step walker.

section_title: CMS Investigates CBP Complaints Using Secret Shopping Calls, and Terminates Contracts of Suppliers That Remain Noncompliant after Targeted Education
paragraphs: CMS officials told us that the agency monitors contract suppliers to  ensure that they are complying with the terms of their contracts, such as  servicing all beneficiaries that reside in their competitive bidding areas  and furnishing the same items to Medicare beneficiaries that they make  available to other customers. Officials told us that when CMS receives  complaints regarding contract suppliers’ noncompliance with contract  terms, CMS may contact the supplier and/or beneficiary to obtain  information necessary for investigation and may also work with other  CMS contractors or deploy secret shopper calls, if deemed appropriate to  do so. CMS told us that the reason for the secret shopping call helps the  agency determine the strategy chosen—that is, whether it is appropriate  to conduct the secret shopping calls with one or multiple supplier  locations, or with multiple contract suppliers for particular competitive  bidding areas or product category competitions. According to CMS,  Palmetto GBA may conduct dozens or hundreds of focused secret  shopping calls to investigate a single complaint to thoroughly investigate  an allegation or verify contract supplier compliance. CMS told us that  during secret shopping calls, Palmetto GBA representatives may pose as  referral agents on behalf of beneficiaries and request items, such as  specific diabetes testing supplies from contract suppliers, to determine  whether the suppliers offer the supplies they claim to furnish. According  to CMS, if those calls find that the contract supplier refused to provide  DME items according to the terms of its CBP contract, Palmetto GBA  describes the results of the call to the supplier’s representative and sends  an educational letter reiterating contract obligations. Officials said that for  a contract supplier who remains noncompliant, CMS sends a letter  terminating the supplier’s CBP contract, and suppliers can submit a  corrective action plan, accept the termination, or request a hearing.

According to CMS, between July 2013 and June 2015, Palmetto GBA  made a total of 3,953 focused secret shopping calls related to round 2  complaints and a total of 254 focused secret shopping calls related to the  national mail-order program. CMS officials told us that as a result of those  secret shopping calls, the agency issued 43 termination notices to  contract suppliers during this time frame. Of those, 37 contract suppliers  came into compliance and 6 suppliers’ contracts were terminated.

section_title: CMS’s Post- Implementation Beneficiary Satisfaction Survey Results Remained Positive
paragraphs: CMS reported that its pre- and post-CBP implementation beneficiary  satisfaction surveys found that the majority of respondents rated their  experiences positively in both time periods. For both the pre- and post- implementation surveys, CMS obtained telephone responses from a  random sample of approximately 400 beneficiaries in each of the 100  competitive bidding areas who received at least one CBP-covered DME  item. The surveys asked beneficiaries to record their satisfaction ratings  on a five-point scale for six questions: the beneficiary’s initial interaction  with DME suppliers, the training received regarding the DME item, the  delivery of the DME item, the quality of the item provided by the supplier,  the customer service provided by the supplier, and the supplier’s overall  complaint handling. In both the pre- and post-implementation surveys, a  majority of the beneficiaries who responded to each of the six questions  rated their experiences as either “good” or “very good,” although there  were slightly fewer positive responses in the post-implementation survey.  The percentage of positive responses after implementation decreased for  each question, ranging between 85 and 92 percent for pre- implementation questions, and between 84 and 89 percent for the same  questions post-implementation. (See fig. 7.)

CMS also conducted pre- and post-implementation surveys for the  national mail-order program using the same methodology. Those surveys  also found that post-implementation satisfaction levels remained high.  CMS obtained responses from a random sample of 2,086 beneficiaries  for the 2013 pre-implementation survey and 2,000 for the 2014 post- implementation survey. For each of the six questions in both surveys,  results indicated that between 82 and 92 percent of beneficiaries  surveyed rated their experiences as either “good” or “very good,” although  the exact percentage decreased slightly for some questions and  increased slightly for others. (See fig. 8.)

As we reported previously, CMS’s survey design has some limitations.  For example, the survey design did not capture responses from  beneficiaries who may have needed, but did not obtain, DME during the  period. That is, if a beneficiary did not receive a DME item, the  beneficiary’s response regarding his or her potential access issue to the  DME item would not be included in the survey. Additionally, the  distribution of beneficiaries who received items across the different  product categories could have changed between the pre- and post- implementation surveys, and the results were not analyzed separately by  product category.

section_title: Some Stakeholders Reported Specific Beneficiary Access Concerns
paragraphs: The stakeholders we interviewed reported varied experiences with CBP  and the national mail-order program. Some stakeholders reported that  they had no beneficiary access issues following the implementation of  round 2 and the national mail-order program and others reported  numerous beneficiary access concerns. In general, stakeholders from  one of the five beneficiary advocacy groups and one of four state hospital  associations (California, Florida, Illinois, and New York) reported no or  very few specific concerns with CBP beneficiary access. However,  stakeholders from four beneficiary advocacy groups reported that their  members experienced several access issues with the implementation of  CBP round 2 and the national mail-order program. These issues included  delays in delivery of CBP-covered DME items, such as walkers, and  trouble locating contract suppliers to provide specific DME items, such as  liquid oxygen and specific brands of diabetes testing strips, or to repair  wheelchairs. In addition, discharge planners and other stakeholders from  three state hospital associations reported that beneficiaries also  experienced delays in delivery of CBP-covered items, such as walkers  and wheelchairs, and had difficulty locating contract suppliers to provide  oxygen or service DME items when the beneficiaries were visiting in a  competitive bidding area but resided elsewhere.

Discharge planners and referral agents from the Florida and California  hospital associations told us that the delays in delivery of needed DME  resulted in an increase in the length of hospital stays for some  beneficiaries. For example, individuals we spoke with from the Florida  Hospital Association told us that prior to CBP, DME suppliers typically  delivered DME within 24 hours of the request, 7 days a week. However,  since CBP round 2 was implemented, contract suppliers in Florida’s  competitive bidding areas no longer delivered on weekends and also  delivered only during certain hours Monday through Friday. The planners  and agents from the Florida Hospital Association told us that delays in  delivery can extend the length of beneficiaries’ hospital stays when the  DME is necessary prior to discharge, such as DME for orthopedic-related  injuries. In some cases, they told us that the hospital loans or provides  certain DME, such as walkers, in order to discharge beneficiaries on time.

As previously described, CMS’s health status monitoring tool did not  indicate changes in the average length of hospital stays resulting from the  implementation of CBP. We conducted a limited analysis to compare  the length of hospital stays in 2012 (pre-CBP) and 2014 (post-CBP) for  beneficiaries who had a hip or knee replacement, both nationally and in  California and Florida. We found that the average length of stay was  slightly lower in 2014 than in 2012, both for the two selected states and  nationally. This was true for both beneficiaries who received DME within a  day of discharge and those who did not, within as well as outside  competitive bidding areas. (See fig. 9.) This limited analysis did not  indicate an increase in the average length of stay among beneficiaries as  a result of the implementation of CBP, although we did not expand our  analysis to determine if results were consistent across other reasons for  hospitalization.

section_title: Most Competitions Had Several Active Contract Suppliers, Although Some Competitions Had a Single Active Supplier or a Single Supplier with a Large Market Share
paragraphs: Most round 2 and national mail-order program competitions had at least  five active contract suppliers in 2014, but other competitions had just one  or a few active suppliers. In addition, some competitions had a single  contract supplier that accounted for the majority of the market share.  Eleven percent of contract suppliers were inactive during 2014 in all the  competitions in which they were awarded and accepted a contract, and  about half of contract suppliers were inactive in at least one of the  competitions in their contract. CMS told us that it monitors the contract  supplier market and has its contractor conduct secret shopping calls of  inactive suppliers on a quarterly basis to confirm that the suppliers are not  in breach of their contracts.
subsections: section_title: Most Round 2 and National Mail-Order Program Competitions Had Several Active Contract Suppliers in 2014, but Others Had Just One or a Few Active Suppliers
paragraphs: A large majority of the possible 801 individual competitions in which a  contract supplier could be awarded a contract had at least five contract  suppliers that were active in 2014, which we defined as having furnished  at least one covered item during 2014 in at least one of the competitive  bidding areas and product category competitions in which they were  awarded and accepted a contract. We found that 84 percent of the  competitions had at least five active contract suppliers; however, 11  percent of competitions had three or fewer active suppliers and 1 percent  had just one active supplier. (See table 2.) During the bid evaluation and  contract award processes, CMS tries to ensure beneficiary access and  choice by awarding contracts to at least five contract suppliers in each  competition. To ensure that there is sufficient capacity to satisfy  beneficiary demand, CMS considers a competition with only one qualified  supplier to be nonviable. According to CMS officials, once contracts are  awarded, contract suppliers are required to furnish items and services  upon request, but are not otherwise required to furnish a certain amount  of DME items as part of their contract obligations.

The number of active contract suppliers across the 800 round 2  competitions varied substantially by product category. The round 2  product category with the largest number of active contract suppliers was  oxygen, in which 352 suppliers accounted for over $362 million in charges  during 2014. Furthermore, the majority (86) of the 100 competitions for  the oxygen product category had at least 11 active suppliers. In contrast,  the product category with the fewest active contract suppliers was  negative pressure wound therapy (NPWT), with 60 suppliers that  accounted for over $48 million in charges. Over half (69) of the 100  competitions for NPWT had 4 or fewer active contract suppliers and 4 had  a single active supplier. For the national mail-order program, all 19  contract suppliers were active in 2014.

section_title: Some Competitions Had a Single Supplier with a Large Market Share
paragraphs: While multiple suppliers had substantial shares of the market for most  competitions, in some competitions a single supplier had a majority. In 72  percent of the 801 competitions, no contract supplier had more than half  of the market. However, in 14 percent (113) of the competitions, a single  contract supplier had at least three quarters of the market, and in 6  percent (48) of the competitions, one contract supplier had 90 percent or  more of the market. (See table 3.)

Market concentration varied substantially by product category. The round  2 product category with the least market concentration was wheelchairs,  for which the top contract supplier had less than 25 percent of the market  in 43 of the 100 total competitions. One reason for this was the relatively  high market share of non-contract suppliers, as physicians and hospitals  are allowed to provide folding manual wheelchairs to their patients directly  in certain circumstances. In addition, other suppliers chose to be  grandfathered and continued furnishing capped rental wheelchairs to  beneficiaries who were their customers when CBP round 2 began. For  example, we found that non-contract suppliers had at least 25 percent of  the market share in 56 of the 100 total wheelchair competitions. In  contrast, the product category with the largest market concentration was  NPWT, for which the top contract supplier had at least 90 percent of the  market in 47 of the 100 competitions. NPWT was also the only round 2  product category for which non-contract suppliers accounted for less than  10 percent of market share in all 100 competitions.

In addition, some contract suppliers had a substantial proportion of the  total round 2 and national mail-order program market—which was over $1  billion in 2014—as well as even higher market share for individual product  categories. For example, the contract supplier with the highest market  share based on charges for CBP-covered items, Lincare, had $157  million in charges, or 13 percent of the round 2 and mail-order program  market in 2014. It also had 25 percent of the oxygen market and the  highest market share in three other product categories (CPAP, hospital  beds, and walkers). Arriva, the contract supplier with the second highest  overall market share, had $85 million in charges, or 7 percent of total  2014 charges. However, these charges were for mail-order diabetes  testing supplies only; Arriva had 50 percent of the $170 million national  mail-order program market. Apria, the contract supplier with the third  highest overall market share, had $68 million in charges, or 6 percent of  the total market, and accounted for over 10 percent of the CPAP and  oxygen markets. KCI, with the fourth highest market share, was only  active in the NPWT category, and had $42 million in charges during 2014,  which accounted for 86 percent of the NPWT market.

section_title: Eleven Percent of Suppliers Were Inactive in All Competitions in their Contracts, and Others Were Inactive in at Least One Competition or Barely Active
paragraphs: Eleven percent of contract suppliers (94 of 834) were inactive during 2014  in all of the competitions in their contract—that is, they did not furnish any  CBP-covered items during 2014 in any of the competitive bidding areas  and product categories in which they were awarded and accepted a  contract. The completely inactive suppliers varied in their categories,  areas, and duration of participation in CBP. The 94 completely inactive  suppliers’ contracts included over half of all competitions (446 of 801),  and spanned all 8 round 2 product categories and 99 of the 100 round 2  areas. In addition, about half of the 94 completely inactive contract  suppliers stopped participating in CBP prior to the end of 2014—19 were  terminated by CMS and 23 closed or otherwise voluntarily withdrew from  the CBP. However, the majority of completely inactive contract suppliers  had higher composite bids than other contract suppliers. Specifically, 82  of the 94 completely inactive contract suppliers’ bids (estimates of the  price at which they could profitably provide those items) were above the  median bid of all suppliers in the same competition, on average, and for  56 of the contract suppliers this difference was more than 10 percent. In  addition, 61 of the 94 completely inactive contract suppliers were  designated as small bidders by CMS, and 59 had only one or two  competitions in their contract.

In 2014, an additional 39 percent of contract suppliers (324 suppliers)  were inactive in at least one of the competitions in their contract, and 3  percent (28) had less than $1,000 in total Medicare charges for CBP- covered items. These partially inactive suppliers included contract  suppliers that were very active in other markets. For example, Lincare,  the supplier with the largest overall market share, was inactive in 144 of  the 689 competitions in its contract. Similar to the completely inactive  suppliers, the 28 barely active contract suppliers’ contracts spanned all  eight round 2 product categories and 96 of the 100 round 2 areas, and 24  of the 28 barely active contract suppliers bid above the median bid, on  average.

section_title: CMS Monitors CBP Competitions, Including Making Secret Shopping Calls to Inactive Suppliers
paragraphs: To help ensure beneficiary access and choice, CMS officials said that  CMS monitors all competitions, but applies greater focus to those where  there is just one or a few active contract suppliers and assesses whether  there is a need for CMS to award subsequent contract offers to existing  contract suppliers. CMS officials told us that the agency does not  believe that having competitions with just one or a few active contract  suppliers has decreased beneficiary access and choice because its  routine monitoring of beneficiary access has not identified access issues.  CMS also told us that the agency monitors suppliers that are inactive by  having Palmetto GBA conduct secret shopping calls quarterly. According  to CMS, most of the secret shopping calls to contract suppliers that were  inactive resulted in finding that the suppliers were not in breach of  contract, and in some instances, they reported that they had not received  requests from beneficiaries or referral agents for CBP-covered items.

However, CMS reported that Palmetto GBA found that eight inactive  contract suppliers were in breach of their contracts because they were not  providing items that had been requested. Of those, three contract  suppliers were brought into compliance and the other five contract  suppliers’ contracts were terminated. In addition, CMS officials told us  that the agency also works with the Competitive Acquisition Ombudsman  and uses local competitive bidding liaisons to provide an on-the-ground  physical presence and investigate and address any potential issues.

section_title: Agency Comments
paragraphs: We provided a draft of this product to HHS for comment. HHS provided  technical comments, which were incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the  Secretary of Health and Human Services and appropriate congressional  committees. 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: The 100 Competitive Bidding Areas Included in the Centers for Medicare & Medicaid Services’ Competitive Bidding Program Round 2
paragraphs: Appendix I: The 100 Competitive Bidding  Areas Included in the Centers for Medicare &  Medicaid Services’ Competitive Bidding  Program Round 2 by specific ZIP codes related to a metropolitan statistical area, and they may be the same size as,  larger than, or smaller than the related metropolitan statistical area, depending on a variety of  considerations. The competitive bidding area is the area wherein only contract suppliers may furnish  competitively bid items to beneficiaries unless an exception is permitted by law. Metropolitan  statistical areas with populations over 8 million may be subdivided into multiple competitive bidding  areas. Most round 2 metropolitan statistical areas have only one competitive bidding area. However,  the three largest metropolitan statistical areas (Chicago, Los Angeles, and New York) are subdivided  into multiple competitive bidding areas, so there are a total of 100 competitive bidding areas.

section_title: Appendix II: Description of the Centers for Medicare & Medicaid Services’ Phase-In of the Competitive Bidding Program
paragraphs: Since the durable medical equipment (DME) competitive bidding program  (CBP) was implemented in 2008, the Centers for Medicare & Medicaid  Services (CMS) has phased in several additional CBP rounds and  programs.
subsections: section_title: CBP Rounds in the Original Competitive Bidding Areas
paragraphs: Round 1. CMS awarded contracts to 329 contract suppliers—208 of  which were designated by CMS as small suppliers—to furnish DME items  and services in 10 product categories in 10 competitive bidding areas.  According to CMS, the round 1 competitive bidding areas were selected,  in part, because they may have had prior instances of unnecessary DME  utilization. Contracts were intended to be effective for a 3-year period,  July 1, 2008, through June 30, 2011; however, round 1 was stopped on  July 15, 2008, through the enactment of the Medicare Improvements for  Patients and Providers Act of 2008 (MIPPA). Among other provisions,  MIPPA terminated the contracts already awarded by CMS to suppliers in  round 1 and required CMS to repeat the competition for round 1—referred  to as the CBP round 1 rebid.

Round 1 rebid. CMS awarded contracts to 356 contract suppliers—219 of  which were small suppliers—to furnish DME items and services in nine  product categories in nine competitive bidding areas. Contracts were  effective January 1, 2011, and expired after 3 years on December 31,  2013, except for the contracts for the mail-order diabetes testing supplies  product category, which expired on December 31, 2012.

Round 1 recompete. CMS awarded contracts to 282 contract suppliers— 163 of which were small suppliers—to furnish DME items and services in  six product categories and nine competitive bidding areas. The  recompete contracts were effective January 1, 2014, and expire  December 31, 2016.

Round 1 2017. Round 1 2017 will include seven product categories, with  the same items as were bid in the round 1 recompete except for the  external infusion pumps and supplies product category, which is not  included in round 1 2017. Round 1 2017 will be implemented in the same  9 competitive bidding areas as the round 1 rebid and round 1 recompete,  but because competitive bidding areas that included more than one state  have been redefined so that there are no longer any multistate areas, the  total number of competitive bidding areas is 13. These contracts become  effective January 1, 2017, and expire December 31, 2018.

section_title: CBP Rounds Included in the Expanded Competitive Bidding Areas
paragraphs: Round 2 and national mail-order program. CMS awarded contracts to 822  contract suppliers—520 of which were small suppliers—to furnish DME  items and services in eight product categories and 100 competitive  bidding areas. CMS also awarded 19 contracts—6 of which were to  small suppliers—to furnish mail-order diabetes testing supplies included  in the national mail-order program. The round 2 and national mail-order  program contracts were effective July 1, 2013, and expired June 30,  2016.

Round 2 recompete and national mail-order program recompete.  According to CMS officials, the agency awarded contracts to 586 contract  suppliers—334 of which were small suppliers—to furnish DME items for  seven product categories with most of the same items bid in other rounds,  although CMS grouped certain items into different product categories.  Round 2 recompete will be implemented in the same 100 competitive  bidding areas as round 2, but because competitive bidding areas that  included more than one state have been redefined so that there are no  longer any multistate areas, the total number of competitive bidding areas  is 117. CMS officials told us that the agency also awarded contracts to 9  contract suppliers—2 of which were small suppliers—to furnish the same  diabetes testing supplies in the same areas that were included in the first  national mail-order program. The round 2 recompete and national mail- order program recompete contracts were effective July 1, 2016, and  expire December 31, 2018.

section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Kathleen M. King, (202) 512-7114 or kingk@gao.gov.

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Martin T. Gahart, Assistant  Director; Michelle Paluga, Analyst-in-Charge; Todd Anderson; Alison  Binkowski; Elizabeth T. Morrison; and Emily Wilson made key  contributions to this report.

section_title: Related GAO Products
paragraphs: Medicare: Bidding Results from CMS’s Durable Medical Equipment  Competitive Bidding Program. GAO-15-63. Washington, D.C.:   November 7, 2014.

Medicare: Second Year Update for CMS’s Durable Medical Equipment  Competitive Bidding Program Round 1 Rebid. GAO-14-156. Washington,  D.C.: March 7, 2014.

Medicare: Review of the First Year of CMS’s Durable Medical Equipment  Competitive Bidding Program’s Round 1 Rebid. GAO-12-693.  Washington, D.C.: May 9, 2012.

Medicare: The First Year of the Durable Medical Equipment Competitive  Bidding Program Round 1 Rebid. GAO-12-733T. Washington, D.C.:   May 9, 2012.

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.

Fast facts: Medicare is changing how it determines how much to pay for certain durable medical equipment items, such as oxygen, wheelchairs, and walkers. These ongoing changes helps Medicare (and its beneficiaries) pay less for these items—saving Medicare about $3.6 billion between mid-2013 and 2015, according to its estimates. It also limits the number of suppliers that are eligible to furnish these items to Medicare beneficiaries. Our report takes a look at the effects of the change on beneficiaries' access to and use of the relevant items.

Question-summary annotations: questions: question: What happened when two CBP phases were implemented?
answer: The number of beneficiaries receiving durable medical equipment (DME) items covered under the competitive bidding program (CBP) generally decreased after implementation of two CBP phases that began July 1, 2013—round 2 and the national mail-order program for diabetes testing supplies.

question: What did the CBP specify?
answer: Under the CBP, (administered by the Centers for Medicare & Medicaid Services (CMS)), only competitively selected contract suppliers can furnish certain DME items at competitively determined prices to beneficiaries in designated competitive bidding areas.
child_questions: question: What has CBP helped do?
answer: CMS officials stated that CBP has helped limit fraud and abuse and may have curbed unnecessary utilization of some CBP-covered items in competitive bidding areas.

question: How did the number of beneficiaries receiving items change from before 2012 to after 2014?
answer: From the year before (2012) to the year after (2014) implementation, the number of beneficiaries receiving covered items in round 2 areas decreased 17 percent, compared with a 6 percent decrease for beneficiaries in non-CBP areas. The number of beneficiaries that received diabetes testing supplies through the national mail-order program also decreased 39 percent between 2012 and 2014, with a corresponding 13 percent increase in the number of beneficiaries receiving these items through retail outlets.

questions: question: What has CMS reported about round 2 and national mail-order program?
answer: CMS reports that available evidence from the agency's monitoring efforts indicates that the implementation of round 2 and the national mail-order program have had no widespread effects on beneficiary access. In particular, CMS has reported that its health status monitoring tool has not detected any changes in health measures attributable to the CBP, and the results of its 2014 post-CBP beneficiary satisfaction surveys remained positive.
child_questions: question: What did CMS officials tell GAO?
answer: CMS officials told GAO that CMS took measures to ensure that contract suppliers met their contract obligations, such as investigating complaints using secret shopping calls, and terminating contracts of suppliers that remained noncompliant after receiving targeted education.

question: How did the number of CBP inquiries and complaints change during the first two years of implementation?
answer: In addition, the number of CBP inquiries and complaints generally decreased throughout the first 2 years of round 2 and the national mail-order program.

question: What did beneficiary advocacy groups and state hospital associations report?
answer: However, some beneficiary advocacy groups and state hospital associations reported specific access issues, such as difficulty locating contract suppliers that will furnish certain items and delays in delivery of DME items.

questions: question: What did round 2 and the national mail-order program include?
answer: Round 2 and the national mail-order program included 801 separate competitive bidding area and product category competitions.
child_questions: question: What contract suppliers did these competitions have?
answer: Most of these competitions had at least five active contract suppliers in 2014. However, 11 percent of the competitions had three or fewer active contract suppliers and 1 percent had just one active contract supplier.
child_questions: question: What characterized these suppliers?
answer: In addition, while multiple suppliers had substantial shares of the market for most competitions, in some competitions a single supplier had a majority. For example, in 6 percent of the competitions, one contract supplier had at least 90 percent of the market. Conversely, 11 percent of contract suppliers did not furnish any CBP-covered items for any competitions in their contract.

question: What did CMS tell GAO?
answer: CMS officials told GAO that CMS monitors these suppliers to help ensure that they are meeting their contractual obligations, such as being willing to service all beneficiaries in their areas and to furnish the same items to Medicare beneficiaries that they make available to other customers.

questions: question: What did the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 require?
answer: To achieve Medicare savings for DME, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 required that CMS implement the CBP for certain DME, such as wheelchairs and oxygen, in phases, or rounds. Round 1 started in 2008, and round 2 and the national mail-order program started in 2013.
child_questions: question: How beneficial were the first 2 years of round 2 and the national mail-order program?
answer: CMS estimated that the first 2 years of round 2 and the national mail-order program saved Medicare approximately $3.6 billion.

question: How has GAO been involved with CBP?
answer: GAO has reported on several prior CBP rounds.

questions: question: What was GAO asked to do?
answer: GAO was asked to continue to review the implementation of the CBP.

question: What did GAO examine in its report?
answer: In this report, GAO examines the extent to which round 2 and the national mail-order program have affected (1) utilization of CBP-covered DME items, and (2) beneficiaries' access to DME items.
child_questions: question: What does the GAO report describe?
answer: This report also (3) describes the number and market shares of the round 2 and mail-order program suppliers.

questions: question: How did GAO examine the effect of CBP on utilization?
answer: To examine the effect of CBP on utilization, GAO used Medicare DME claims data from 2012 and 2014—the year before and the year after implementation of round 2—to compare the number of beneficiaries who received CBP-covered DME items.
child_questions: question: How did GAO examine the effect of CBP on beneficiary access?
answer: To examine the effect of CBP on beneficiary access, GAO reviewed information about CMS's efforts to monitor the effects of the CBP, and interviewed selected Medicare beneficiary organizations and state hospital associations.

question: How did GAO describe supplier markets?
answer: To describe the supplier markets, GAO analyzed 2014 Medicare claims data, the latest year with complete available data when GAO began this engagement.