Medicare traditionally has paid DMEPOS suppliers through fee schedule amounts based on suppliers’ historical charges to Medicare. The purpose of CBP is to improve how Medicare payment amounts are set by paying only competitively selected contract suppliers amounts based on competitive bids, thereby providing Medicare program savings and reducing Medicare beneficiaries’ out-of-pocket expenses for DMEPOS items and services. CMS and its CBP implementation contractor—Palmetto GBA—administer and implement the CBP and its bidding rounds. In each competitive bidding area included in a CBP bidding round, suppliers can bid for one or more product categories’ CBP-covered items.evaluated based on the supplier’s eligibility, financial status, and bid prices. From this evaluation, the CBP payments—referred to as single payment amounts—are determined for each CBP-covered item in each The suppliers’ bids are competitive bidding area, and the winning suppliers are selected. Winning suppliers are then offered CBP contracts. If the supplier accepts its contract offer, it agrees to accept Medicare assignment on the CBP- covered items for the product category and in the competitive bidding area involved,amounts. and to be paid the relevant CBP single payment CMS was also required to take steps to ensure that small suppliers could be awarded CBP contracts, and accordingly set a target that 30 percent of the qualified suppliers in each product category in each competitive bidding area would be small suppliers as defined for CBP. where the small supplier target is not initially met, CMS may award additional small suppliers CBP contracts after the agency has determined the number of suppliers needed to meet or exceed CMS’s estimated beneficiary demand. To help ensure beneficiary access and choice, CMS tries to award at least five contracts in each product category in each CMS is required by law to recompete the CBP competitive bidding area.contracts at least once every three years. (See fig. 1 for CBP’s legislative history and program implementation timeline.) For CBP, CMS has defined a small supplier as one that generates gross revenue of $3.5 million or less in annual receipts including both Medicare and non-Medicare revenue. A qualified supplier is a bidder that has met certain requirements, including having been found financially sound, and its bids will be used to determine the single payment amounts and to select the contract suppliers. Pub. L. No. 105-33, § 4319(a), 111 Stat. 251, 392-4 (1997) (codified, as amended, at 42 U.S.C. § 1395w-3). Pub. L. No. 108-173 § (302)(b), 117 Stat. 2066, 2224-30 (2003) (codified, as amended, at 42 U.S.C. § 1395w-3). Items and services covered by the competition were durable medical equipment (DME) and related supplies, off-the-shelf orthotics, and enteral nutrients and related equipment and supplies. Pub. L. No. 110-275, § 154(a)(2), 122 Stat. 2494, 2560-3 (2008) (codified, as amended, at 42 U.S.C. § 1395w-3). The Medicare Improvements for Patients and Providers Act of 2008 and implementing regulations require CMS to notify suppliers of missing financial documentation if their bids are submitted within the covered document review date, which is the later of: (1) 30 days before the final date for the close of the bid window; or (2) 30 days after the bid window opens. For the round 1 rebid, CMS was required to notify eligible suppliers of missing financial documentation within 45 days after the end of the covered document review date. For other competitive bidding program (CBP) rounds, CMS is required to notify eligible suppliers of missing financial documentation within 90 days after the end of the covered document review date. The national mail-order competition includes all parts of the United States, including the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa. The CBP rounds include: Round 1 rebid. CMS awarded contracts to 356 contract suppliers for the provision of DME items and services in nine product categories in nine competitive bidding areas. The contracts took effect on January 1, 2011 and expired after three years on December 31, 2013, except for the mail-order diabetic testing supplies contracts, which expired on December 31, 2012. Round 2. Round 2 expands CBP to another 100 competitive bidding areas in 91 metropolitan statistical areas. The single payment amounts for covered items were effective July 1, 2013 under round 2 contracts. The round 2 product categories are the same as the round 1 rebid except for the addition of the negative pressure wound therapy (NPWT) category, the deletion of the complex power wheelchairs and mail-order diabetic supplies categories, and the extension of the support surfaces category to all round 2 competitive bidding areas.The round 2 contracts are for a term of 3 years. National mail-order diabetic testing supplies program. The CBP national mail-order diabetic testing supplies program competition was conducted at the same time as round 2, and its competitively determined single payment amounts were effective July 1, 2013. Unlike in the round 1 rebid, suppliers bidding for the national program had to demonstrate that their bids would cover at least 50 percent, by sales volume, of all types of diabetic testing strips on the market. These contracts are for a term of 3 years. Non-mail order Medicare payments are the same as the mail-order single payment amounts for the CBP-covered items. Round 1 recompete. In anticipation of the expiration of the round 1 rebid contracts, in 2012 CMS recompeted contracts for the nine round 1 rebid competitive bidding areas, referred to as the round 1 recompete. The round 1 recompete’s six product categories differ from the round 1 rebid categories by adding infusion pumps, NPWT pumps, deleting complex wheelchairs, and creating a new category that includes home equipment, such as hospital beds and commode chairs. The recompete contracts have a 3-year term, with an effective date of January 1, 2014. A contract supplier may no longer participate in CBP if CMS terminates its contract, if it voluntarily withdraws from Medicare, or if it has experienced a certain type of change of ownership. CMS can terminate a contract supplier’s CBP contract if a supplier fails to meet its contractual obligations. In that case, CMS may request that the supplier submit a corrective action plan, suspend or terminate the contract, preclude it from participating in CBP, or revoke its billing number. A contract supplier that has its CBP contract terminated may continue to operate as a Medicare supplier and submit Medicare claims for non-CBP covered items and services. Contract suppliers may choose to voluntarily withdraw from Medicare, and thus no longer be a Medicare supplier. Contract suppliers may also have a change in ownership that impacts their participation in CBP, but their CBP contracts may be transferred only under certain circumstances. A change in ownership, also referred to as a CHOW, may result in either (1) a new entity or company that did not exist before the merger or acquisition transaction; or (2) a successor entity or company that exists before the transaction, merges or acquires a contract supplier, and continues to exist as it did before the transaction. If a contract supplier is negotiating an ownership change, the supplier must notify CMS in advance and CMS may award the CBP contract to the entity that merges with or acquires the contract supplier in certain circumstances. These circumstances include when the successor entity is acquiring the assets of the contract supplier and submits a signed agreement to CMS in advance of the acquisition stating that it will assume all obligations under the contract. Medicare beneficiaries residing in competitive bidding areas have several sources available to help them locate contract suppliers and receive assistance for CBP-related issues. CBP Online Contract Supplier Locator. To locate a CBP contract supplier, beneficiaries can use the CMS online supplier locator tool on CMS’s Medicare website. The contract locator tool 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 regarding the specific brands of items they furnish in the upcoming quarter, and CMS uses this information to update the supplier locator. 1-800-MEDICARE Inquiries. CMS has directed beneficiaries to call its 1-800-MEDICARE beneficiary help line with CBP questions— referred to by CMS as inquiries. Callers are assisted by trained CBP customer service representatives (CSR) who use several scripts to answer general questions about CBP and specific product categories and assist beneficiaries in finding CBP suppliers. If a beneficiary’s inquiry cannot be addressed by the scripts, the CSR will forward the inquiry to an advanced-level CSR who will research the issue and respond to the beneficiary’s inquiry. Palmetto GBA and CMS regional offices. Palmetto GBA, the CBP implementation contractor, investigates all beneficiary or supplier complaints related to alleged CBP contract violations. In addition, Palmetto GBA provides CBP-related information and updates through its website. Local Palmetto GBA staff are stationed in the competitive bidding areas and work with CMS regional staff to monitor CBP activities and identify and address any emerging issues. CMS also uses its regional offices as the focal point for calls that cannot be resolved by 1-800-MEDICARE; for example, the offices may assist when a CSR is unable to help a beneficiary find a contract supplier. Competitive Acquisition Ombudsman (CAO). The CMS CAO 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. The CAO is required to submit an annual report detailing CBP-related activities to Congress. CMS has implemented several activities to monitor whether beneficiary access or satisfaction have been affected by the implementation of CBP. 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 CSR and is elevated to another entity, such as Palmetto GBA, CMS’s regional offices, or the CAO for resolution. Beneficiary Satisfaction Surveys. CMS conducted pre and post- implementation surveys to measure beneficiary satisfaction with CBP’s round 1 rebid. The pre-implementation survey was conducted from June to August 2010, the first post-implementation survey was conducted from August to October 2011, and the second post- implementation survey was conducted in June 2013. CMS surveyed beneficiaries in the nine round 1 rebid competitive bidding areas, as well as the nine comparator areas. National Claims History. CMS conducts daily monitoring of national Medicare claims data to identify utilization trends, monitor beneficiary access, address aberrations in services, and target potential fraud and abuse. 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 comparator areas to determine whether health outcomes in the competitive bidding areas remain consistent with national trends. CMS posts quarterly reports of these health outcomes on its website. Form C. Each quarter, CMS requires contract suppliers to submit a Form C that lists the specific CBP-covered DME items they plan to furnish the following quarter—including the brand names and equipment models. According to Palmetto GBA, this information is used to update the Medicare supplier directory tool and to evaluate beneficiary access to competitively bid items, as well as the quality of items and services. Secret shopping. CMS has conducted secret shopping calls in which individuals posed as beneficiaries and requested items, such as specific diabetic supplies from contract suppliers to determine whether the suppliers offer the supplies they claim to furnish. Secret shopping is conducted on a limited ad-hoc basis and may be done in response to specific complaints received, or to evaluate certain contract suppliers and monitor their performance and compliance with the terms of their CBP contracts. Our analysis of Medicare claims data found that for five of the six product categories we examined, the number of distinct beneficiaries furnished CBP-covered items generally decreased more in the competitive bidding areas than in the comparator areas in each month of 2011 and 2012 compared to the same month of 2010. CMS continued several ongoing monitoring activities and reported that the CBP round 1 rebid did not affect beneficiary access and satisfaction in its second year. In addition, several Medicare beneficiary advocacy groups that we interviewed did not report widespread access issues among their members. Our analysis of Medicare claims data found that the number of distinct beneficiaries furnished CBP-covered items generally decreased more in the nine competitive bidding areas than in the nine comparator areas in each month of 2011 and 2012 compared to the same month of 2010 for five of the six product categories we analyzed. However, the larger decreases in the number of beneficiaries furnished CBP-covered items in the competitive bidding areas do not necessarily indicate that CBP- covered beneficiaries did not receive needed DME. As CMS has reported, the CBP may have curbed previous inappropriate distribution of some CBP-covered items in competitive bidding areas. Our analysis found that fewer beneficiaries received one or more enteral product category items in each month of 2011 and 2012 compared to the same month of 2010. In 2012, the declines were roughly equivalent in the competitive bidding areas and the comparator areas. (See fig. 2.) For example, in the competitive bidding areas, the number of CBP-covered beneficiaries who received one or more items in May 2012 decreased by about 4 percent compared to May 2010. In the comparator areas, the number of beneficiaries who received one or more items was about 6 percent lower in May 2012 compared to May 2010. Our analysis found that fewer beneficiaries received one or more hospital bed product category items in all months of 2011 and 2012 compared to the same month of 2010 in the competitive bidding areas, with consistently lesser declines in the comparator areas over the same period. (See fig 3.) Our analysis of Medicare claims data found that the number of beneficiaries who received one or more oxygen product category items each month of 2011 and 2012 compared to the same month of 2010 decreased more in the competitive bidding areas than in the comparator areas, although there were substantial declines in both types of areas. (See fig. 4.) For example, compared to May 2010, the number of beneficiaries furnished one or more oxygen product category items decreased by about 9 percent in May 2011 and by about 22 percent in May 2012 in the competitive bidding areas. For the comparator areas, the number of beneficiaries furnished one or more items decreased by about 5 percent in May 2011 and by about 16 percent in May 2012. Our analysis found that substantially fewer beneficiaries in the competitive bidding areas received one or more walkers product category items in each month of 2011 and 2012 compared to the same month of 2010, although there were also declines in the comparator areas. (See fig. 5.) For example, compared to May 2010, the number of CBP-covered beneficiaries who received one or more walkers product category items was about 26 percent lower in May 2011 and about 24 percent lower in May 2012. In the comparator areas, compared to May 2010, 6 percent fewer beneficiaries received one or more walkers product category items in May 2011 and about 5 percent fewer beneficiaries received one or more of these items in May 2012. We found that fewer beneficiaries in the competitive bidding areas received one or more standard power wheelchair product category items each month of 2011 and 2012 compared to the same month of 2010. (See fig. 6.) For example, compared to May 2010, about 16 percent fewer beneficiaries in the competitive bidding areas received one or more standard power wheelchair product category items in May 2011 and about 15 percent fewer in May 2012. We did not include like information for the comparator areas because CMS changed the payment policy for standard power wheelchairs in non-competitive bidding areas only, making a comparison to the competitive bidding areas difficult. This change in payment policy, which was effective January 1, 2011, eliminated the option for the lump sum purchase payment for standard power wheelchairs in all non-competitive bidding areas. As it did in 2011, CMS continued several ongoing activities to monitor CBP’s effects on beneficiaries in 2012. CMS’s activities included monitoring the number of CBP-related inquiries and complaints made to 1-800-MEDICARE and the health outcomes of CBP-covered beneficiaries in competitive bidding areas. CMS reported that the implementation of the CBP round 1 rebid did not result in beneficiary access issues in the first two years of the program. In addition, representatives of several Medicare beneficiary advocacy groups that we interviewed did not report that widespread access issues occurred. According to data provided by CMS, 1-800-MEDICARE received a total of 44,249 CBP-related questions—referred to by CMS as inquiries—in 2012, which was fewer than the 127,466 CBP-related inquiries reported in 2011. The total number of quarterly CBP-related inquiries to 1-800-MEDICARE ranged from a high of 56,941 in the first quarter of 2011 (17,672 product- related inquiries plus 39,269 general CBP inquiries) to a low of 7,969 in the fourth quarter of 2012 (4,119 product-related inquiries plus 3,850 general CBP inquiries). (See fig. 8.) The majority of total inquiries for both 2011 and 2012 were general in nature; for example, CMS officials told us that inquiries were related to questions about the program or finding a contract supplier. About 2 million beneficiaries reside in CBP round 1 rebid competitive bidding areas; the ratio of inquiries to 1-800-MEDICARE compared with CBP beneficiaries is approximately 1 inquiry for every 45 beneficiaries. As was also the case in 2011, CMS data showed that the majority of all CBP product-category specific inquiries to 1-800-MEDICARE—over 13,000 in 2012—were related to mail-order diabetic supplies. The enteral product category and support surfaces product category received the fewest number of inquiries. (See fig. 9.) All calls to 1-800-MEDICARE are initially classified as inquiries and only recorded as complaints if they cannot be resolved by a CSR. In 2012, CMS classified 43 CBP-related calls to 1-800-MEDICARE as complaints, which was a decline from 151 complaints in 2011. Among the 43 complaints, 13 complaints were specific to the walkers product category, which was almost more than twice the number of complaints associated with any of the other product categories. Twelve of the 13 complaints were related to a specific walker brand and model that can be billed under HCPCS code E0147, which has the highest single payment amount of all CBP-covered HCPCS codes included in the walkers product category. Some complainants reported that contract suppliers would not provide the specific walker brand and model prescribed by beneficiaries’ physicians because the CBP single payment amount is lower than the cost of the item. According to Palmetto GBA data, in response to one complaint, it conducted secret shopping calls to two contract suppliers and was told by both that they did not carry the specific walker brand and model and could not obtain it. After Palmetto GBA explained the terms of their contracts, both contract suppliers then agreed to provide it. Half of these 12 complaints originated in the Miami competitive bidding area, where there was a decline in utilization for these walkers. According to CMS, the agency continues to monitor national Medicare claims data to identify utilization trends, monitor health outcomes and beneficiary access, address aberrations in services, and target potential fraud and abuse. As part of this effort, CMS monitors a range of health outcomes—including deaths, hospitalizations, emergency room visits, physician visits, and admissions to skilled nursing facilities—for beneficiaries likely to use a CBP-covered item or who have used a CBP- covered item, in both competitive bidding areas and their comparator areas. In both 2011 and 2012, CMS’s monitoring of health outcomes from national claims data indicated that CBP-covered beneficiaries continued to have access to necessary and appropriate CBP-covered items and supplies, and that health outcomes in the competitive bidding areas were consistent with national trends. However, as we previously reported,while these outcomes are reassuring, they may not reflect other outcomes that did not require physician, hospital, or emergency room visits, such as whether beneficiaries received the DME item they needed on time, or whether health outcomes were caused by problems accessing CBP-covered DME. CMS data show that the agency monitored beneficiary access by conducting more secret shopping calls in 2012 than it did in 2011—300 versus 32. According to that data, the highest number of secret shopping calls in 2012 involved the oxygen product category (109) and the second highest number of calls involved the walker product category (58). According to CMS officials, secret shopping calls were prompted by beneficiary and industry concerns expressed to CMS. For example, CMS officials told us that the agency received complaints that contract suppliers were not providing liquid oxygen equipment and specific walker models. According to these officials, when conducting secret shopper calls, CMS provides contract suppliers additional education on competitive bidding program and supplier quality standard requirements. CMS then conducts subsequent secret shopper calls to verify that the contract suppliers are adhering to the requirements. CMS conducted a pre-CBP implementation survey in 2010 and post-CBP implementation survey in 2011 to measure beneficiary satisfaction with the CBP round 1 rebid’s first year. According to CMS data, the agency obtained responses from at least 400 beneficiaries in each of the nine competitive bidding areas and nine comparator areas to collect beneficiary satisfaction ratings for six questions related to the beneficiary’s initial interaction with DME suppliers, the training received regarding DME items, 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. According to CMS data, results of the pre-2010 and post-CBP 2011 implementation surveys showed that responses from beneficiaries were similar and generally positive in both the competitive bidding areas and comparator areas.CMS officials told us that CMS conducted a follow-up beneficiary satisfaction survey in June 2013 using the original survey questions and methodology, but as of November 20, 2013, survey results were not yet available. We interviewed representatives from several beneficiary advocacy groups about their members’ experiences with CBP, and whether they were aware of any CBP-related beneficiary access and choice issues that may have occurred among their members. The beneficiary groups represent beneficiaries with specific issues, such as those with diabetes and disabilities requiring wheelchairs. In general, these representatives either reported no or few concerns, or provided anecdotal examples of beneficiary access issues, such as difficulty obtaining wheelchair repairs, or difficulty locating contract suppliers. They did not indicate that their CBP-covered beneficiary members had been negatively affected by widespread access issues or concerns in the first two years of the CBP round 1 rebid. For the round 1 rebid product categories we examined, a small number of contract suppliers accounted for a large portion of Medicare total allowed charges across 2011 and 2012. One contract supplier had a high percentage of the total market share for the standard power wheelchair product category across 2011 and 2012, but was terminated as a contract supplier in 2013. Few contract suppliers left the CBP through contract terminations, voluntarily withdrawing from Medicare, or having had a change in ownership. We examined the contract supplier market share development for six product categories in 2011 and 2012 and found that the trends for each product category were relatively consistent across the nine competitive bidding areas. For each product category, we illustrate typical market share development trends by showing examples from two competitive bidding areas. (See fig. 10 through fig. 21.) For five of the six product categories, we found that, in general, the top 4 suppliers—those with the highest individual Medicare total allowed charges across all quarters of 2011 and 2012—accounted for a large portion of the market in all competitive bidding areas, although the top 4 suppliers for each product In our examples, the category could vary by competitive bidding area.top 4 suppliers’ combined market share in the fourth quarter of 2012 ranged from 50 percent for the enteral product category in the Dallas competitive bidding area to 86 percent for the walkers product category in the Orlando competitive bidding area. Our analysis of Medicare claims data for the CPAP/RAD product category indicates that, in general, the market share among the top 4 contract suppliers increased steadily, the combined market share for the other contract suppliers’ remained relatively consistent with some small increases, and the non-contract suppliers’ combined market share decreased throughout 2011 and 2012. For example, in the Pittsburgh competitive bidding area, by the fourth quarter of 2012, the top 4 contract suppliers combined had about 63 percent of the market, while the other 10 contract suppliers combined had 35 percent of the market. (See fig. 10.) This is fairly similar to the contract supplier market share trend in the Cleveland competitive bidding area, where the top 4 contract suppliers combined had about 73 percent of the market and the other 8 contract suppliers combined had about 26 percent in the fourth quarter of 2012. (See fig. 11.) Our analysis of Medicare claims data for the enteral product category indicates that, in general, the market share of the top 4 contract suppliers and all other contract suppliers combined remained relatively consistent or increased throughout 2011 and 2012. For example, in the Cincinnati competitive bidding area, the top 4 contract suppliers combined had about 70 percent or more of the market share throughout 2011 and 2012. For that same time period, the other 10 contract suppliers combined generally had about 20 percent of the market in that area. (See fig. 12.) In the Dallas competitive bidding area, the top 4 contract suppliers combined had less of the market share—between about 43 to 55 percent each quarter of 2011 and 2012—while the other 20 contract suppliers had more of the market share each quarter. (See fig. 13.) Our analysis of Medicare claims data for the hospital bed product category indicates that contract suppliers’ percentages of Medicare total allowed charges increased steadily throughout 2011 and 2012 as non- contract suppliers’ percentages of Medicare total allowed charges substantially decreased. In both the Riverside and Orlando competitive bidding areas, the top 4 contract suppliers accounted for more than 80 percent of the market by the fourth quarter of 2012, with the other contract suppliers totaling about 10 percent of Medicare total allowed charges in each of the areas. (See fig.14 and fig. 15.) Our analysis of Medicare claims data for the oxygen product category indicates that the market share of the top 4 contract suppliers and all other contract suppliers combined remained relatively consistent or increased from the first quarter of 2011 to the fourth quarter of 2012. For example, in the Cleveland competitive bidding area, the top 4 suppliers had about 65 percent of the market in the first quarter of 2011 and about 71 percent of the market in the fourth quarter of 2012. (See fig. 16.) In the Kansas City competitive bidding area, the top 4 suppliers had about 71 percent of the market in the first quarter of 2011 and about 83 percent of the market in the fourth quarter of 2012. (See fig. 17.) Our analysis of Medicare claims data for the walkers product category indicates that the market share of the top 4 contract suppliers and all other contract suppliers combined remained relatively consistent throughout 2011 and 2012. For example, in the Pittsburgh competitive bidding area, the top 4 contract suppliers combined had at least 65 percent of the total market share each quarter of 2011 and 2012. The other 11 contract suppliers combined had between about 20 to 30 percent of the market share each quarter over that time period. (See fig. 18.) The Orlando competitive bidding area showed a similar market share trend where the top 4 contract suppliers combined maintained at least 72 percent of the total market share each quarter of 2011 and 2012. The other 13 contract suppliers combined consistently had about 20 percent each quarter. (See fig. 19.) Our analysis of Medicare claims data for the standard power wheelchair product category indicates that the market share for the top contract supplier, The Scooter Store’s Alliance Seating & Mobility Division (The Scooter Store), was very high in all quarters of 2011 and 2012 across all competitive bidding areas. Specifically, The Scooter Store had the highest individual supplier percent of all CBP-covered Medicare total allowed charges across all quarters of 2011 and 2012 combined for the standard power wheelchair product category in eight of the nine competitive bidding areas, and the second highest in the ninth competitive bidding area. The Scooter Store’s individual percentages of all Medicare total allowed charges in the fourth quarter of 2012 were: Pittsburgh (82 percent), Orlando (81 percent), Miami (75 percent), Riverside (72 percent), Cleveland (62 percent), Dallas (60 percent), Charlotte (48 percent), Kansas City (41 percent), and Cincinnati (37 percent). In the Miami competitive bidding area, Medicare claims data show that The Scooter Store’s highest individual percentage of all Medicare total allowed charges was about 84 percent in the second quarter of 2011. (See fig. 20.) In the Riverside competitive bidding area, The Scooter Store’s highest individual percentage of all Medicare total allowed charges was about 72 percent in the fourth quarter of 2012. (See fig. 21.) In September 2013, CMS issued a termination notice, with an effective date of October 26, 2013, for The Scooter Store’s CBP round 1 rebid contract in all competitive bidding areas. Prior to issuing the termination notice, CMS removed all references to both The Scooter Store and its Alliance Seating & Mobility Division from all CBP round 1 rebid contract supplier lists on its website in March 2013. A CMS official told us that the removal occurred because of compliance issues identified with The Scooter Store’s round 1 rebid contract and that CMS began initiating the contract termination process at that time. According to CMS, it carefully scrutinizes CBP bidders to ensure that only qualified suppliers are selected to participate in the program; however, The Scooter Store had been the subject of allegations of fraud prior to being awarded a contract in both CBP’s round 1 and round 1 rebid. Specifically, in 2007, The Scooter Store entered into a civil settlement agreement with the U.S. Government to resolve several lawsuits and agreed to pay $4 million and relinquish its right to receive reimbursement for pending Medicare claims.violated the civil False Claims Act and defrauded the United States by, among other things, enticing some beneficiaries to obtain power scooters covered by Medicare and Medicaid and then supplying more costly power wheelchairs that beneficiaries did not want, did not need, or could not use. In one of the lawsuits, the Government alleged that the company Although too soon to determine the full effects, The Scooter Store’s 2013 termination as a contract supplier could potentially result in access issues for beneficiaries residing in the CBP round 1 rebid competitive bidding areas. For example, one round 1 rebid contract supplier we interviewed told us that her company received calls from some of The Scooter Store’s beneficiaries seeking wheelchair repairs. However, this contract supplier and two others told us that some contract suppliers are reluctant or unwilling to repair a wheelchair that they did not originally provide because if the contract suppliers did the repairs, and CMS later determined that The Scooter Store had furnished a wheelchair that did not meet documentation requirements, CMS could recover payments made to the repairing contract suppliers. In the round 1 rebid’s second year, a few contract suppliers—8 percent— had their contracts terminated by CMS or voluntarily withdrew from Medicare, and some had an ownership change. Contract suppliers continued to use subcontractors to provide certain services to beneficiaries in the round 1 rebid competitive bidding areas, but no new agreements were disclosed in 2012. The number of grandfathered suppliers decreased in 2012 to the point that CMS discontinued its monitoring as rental agreements expired. By the end of the CBP’s second year, 27 of the original 356 contract suppliers—about 8 percent—had been terminated by CMS or had voluntarily withdrawn from Medicare, according to CMS data. Eleven contract suppliers were terminated—4 in 2012 and 7 in 2011. Nine terminated suppliers were small suppliers as defined for CBP. One terminated supplier was not experienced in one of its competitive bidding areas; all were experienced in their product categories. The 11 terminated contract suppliers had a total of 22 round 1 rebid product category and competitive bidding area combinations. (See table 1.) The oxygen product category and the Miami competitive bidding area were the most affected. Sixteen contract suppliers withdrew voluntarily from Medicare, 7 in 2012 and 9 in 2011. Of these 16 withdrawn suppliers, 13 were small suppliers. Two suppliers that withdrew had no experience in 1 of their product categories; and all 16 were experienced in their competitive bidding areas. The 16 suppliers that withdrew had a total of 37 round 1 rebid product category and competitive bidding area combinations. (See table 2.) The oxygen product category and the Miami competitive bidding area were the most affected. During the round 1 rebid’s first two years, 12 of the original 356 round 1 rebid contract suppliers—3 percent—had a change in ownership. (See table 3.) For 11 of the 12 changes, CMS awarded the round 1 rebid contracts to the acquiring entity as the entity assumed the obligations under these contracts. In 2012, the only ownership change involved a contract supplier that purchased another contract supplier, but did not assume the purchased supplier’s CBP contracts. In this ownership change, the purchasing contract supplier already had CBP contracts in the same competitive bidding areas for the same product categories, and began serving the purchased contract supplier’s Medicare beneficiaries including its grandfathered beneficiaries. While contract suppliers have continued to use subcontractor suppliers to assist them in furnishing items to CBP-covered beneficiaries, CMS officials told us no contract suppliers disclosed any new subcontracting agreements in 2012 or during the first three months of 2013. As of April 2013, CMS data indicated that 116 distinct contract suppliers have had at least one subcontracting agreement; in total, there were 730 agreements involving 228 distinct subcontractor suppliers. Forty-seven percent (55) of the 116 contract suppliers had one subcontract agreement. The other 61 contract suppliers had multiple subcontracts, including one contract supplier with 50 agreements. Eight of the 116 contract suppliers had subcontract agreements that ended in 2011, 2012, or early 2013. CMS officials also told us that the number of grandfathered suppliers had so diminished that the agency was no longer monitoring them after the second quarter 2012. As we previously reported, the number of grandfathered suppliers had declined steadily during the rebid’s first year (2011); in December 2011, 22 percent (575 of 2,594) of the grandfathered suppliers were still billing Medicare for CBP-covered beneficiaries they had at the end of December 2010, the year before the CBP began. Comparing the third quarters of 2010, before the rebid began, and 2012, the rebid’s second year, both the number of suppliers and their Medicare allowed charges generally decreased more in the competitive bidding areas than in the comparator areas. (See app. I.) The number of suppliers with Medicare allowed charge amounts of $2,500 or more per quarter decreased an average of 27 percent in the competitive bidding areas, and 5 percent in the comparator areas. (See table 4.) All nine competitive bidding areas and six of the nine comparator areas experienced decreases in those supplier numbers. The Miami competitive bidding area experienced the greatest change in suppliers—decreasing by 227 suppliers—a 32 percent change. The number of large suppliers, which we define as having quarterly allowed Medicare charges of $100,000 or more, decreased an average of 18 percent in the competitive bidding areas, while there was essentially no change in the average number of large suppliers in the comparator areas. All nine competitive bidding areas and three of the nine comparator areas had decreases in these large suppliers. The Cincinnati competitive bidding area had the greatest percentage decrease in suppliers at this level—32 percent. The total Medicare allowed charges for the same time period also decreased for all nine competitive bidding areas and all nine comparator areas. (See app. II.) The average decrease for the competitive bidding areas was 28 percent, and 7 percent for the comparator areas. (See table 5.) There were three competitive bidding areas with the highest total charge decrease of 32 percent, including for example, the Cincinnati area’s charges that decreased about $4.2 million from third quarter 2010 ($12.9 million) to third quarter 2012 ($8.7 million). The Orlando competitive bidding area had the lowest percentage decrease change— 22 percent—a decrease in total charges of about $3.3 million. Among the comparator areas, the highest total charge decrease was San Diego— 15 percent—a decrease of about $2 million (from $13.7 million to $11.6 million), while Virginia Beach had the lowest decrease— 0.1 percent—or $17,077 (from $12,603,542 to $12,586,465). The CBP round 1 rebid’s savings for both the Medicare program and the rebid-covered beneficiaries continued in the second year, with CMS reporting total savings of more than $400 million in the rebid’s first two years due to its lower payments, decreased utilization, and lower beneficiary coinsurance. In the rebid’s second year, beneficiary utilization of CBP-covered DME items continued to decrease—more in the rebid’s competitive bidding areas than the comparator areas. CMS’s monitoring activities, however, did not indicate beneficiary access issues. As we reported in 2012, we do not assume that all pre-CBP utilization was appropriate, and CBP may be continuing to reduce unnecessary utilization. CMS’s fraud prevention efforts may also be affecting DME utilization. Continued monitoring of CBP experience is important to determine the full effects it may have on Medicare beneficiaries and DME suppliers. It will be important to determine whether the DME utilization trends in the round 1 rebid’s first two years are similar to those in CBP’s other rounds. With the CBP’s 3-year round 1 rebid complete, the CBP’s 2013 round 2 expansion into an additional 100 competitive bidding areas, the 2013 implementation of the national mail-order diabetic testing supplies program, and the 2013 selection of the new contract suppliers in the original nine areas for the next 3-year contracts beginning in 2014, significant new data will soon be available to further assess the impact of the program. HHS reviewed a draft of this report and provided written comments which are reprinted in appendix III. HHS also provided technical comments, which we incorporated as appropriate. In its general comments, HHS stated that CMS will continue monitoring the CBP to ensure Medicare beneficiaries are not adversely affected by the program, including continuing to use its real-time claims monitoring system. The monitoring activities are important as the CBP has expanded to include 100 additional competitive bidding areas and a national mail-order program for diabetic testing supplies. HHS also stated that it anticipates CBP will provide substantial savings for both the Medicare Part B Trust Fund and Medicare beneficiaries. As agreed with your office, 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 staff 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 IV. In addition to the contact named above, key contributors to this report were Martin T. Gahart, Assistant Director; Yesook Merrill, Assistant Director; Todd Anderson; Dan Lee; Drew Long; Michelle Paluga; Hemi Tewarson; and Opal Winebrenner. 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.: Sept. 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.: Nov. 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.: Jan. 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.: Sept. 22, 2005. Medicare: CMS’s Program Safeguards Did Not Deter Growth in Spending for Power Wheelchairs. GAO-05-43. Washington, D.C.: Nov. 17, 2004. Medicare: Past Experience Can Guide Future Competitive Bidding for Medical Equipment and Supplies. GAO-04-765. Washington, D.C.: Sept. 7, 2004. Medicare: CMS Did Not Control Rising Power Wheelchair Spending. GAO-04-716T. Washington, D.C.: April 28, 2004.

Summary: 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. In 2008, the Medicare Improvements for Patients and Providers Act 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 CBP payments that began January 1, 2011. GAO was asked to review issues concerning the rebid's second year of operation—2012. This report reviews the round 1 rebid's effects on (1) Medicare beneficiaries, (2) the market share of contract suppliers, and (3) all suppliers, including both contract and non-contract suppliers (the suppliers not awarded rebid contracts.) To examine the effects on Medicare beneficiaries, GAO compared Medicare claims data for 2011 and 2012 with that for 2010, the year before the round 1 rebid. GAO also examined other information about CMS's efforts to monitor the effects of the CBP, and interviewed DME industry representatives and officials from Medicare beneficiary organizations. To examine the effects on both contract and non-contract suppliers, GAO compared Medicare claims data for 2012 with that for 2010 and analyzed other data provided by CMS. The Medicare competitive bidding program (CBP) for durable medical equipment (DME) is administered by the Centers for Medicare & Medicaid Services (CMS) within the Department of Health and Human Services. Under the CBP, only competitively selected contract suppliers can furnish certain DME product categories (such as oxygen supplies and hospital beds) at competitively determined prices to Medicare beneficiaries in designated competitive bidding areas. The CBP's round 1 rebid was in effect for a 3-year period, from 2011 through 2013. It included nine DME product categories in nine geographic areas. For CBP monitoring purposes, CMS also selected nine comparator areas that were demographically similar to the rebid areas. GAO's analysis found that in 2012, the second year of the round 1 rebid: The number of beneficiaries furnished DME items included in the CBP generally decreased more in the CBP areas than in the comparator areas. For example, the number of beneficiaries furnished oxygen supplies decreased by about 22 percent in the CBP areas and by about 16 percent in the comparator areas. According to CMS, CBP may have reduced inappropriate usage of DME and these decreases do not necessarily reflect beneficiary access issues. Based on its monitoring tools, which include comparing changes in the health outcomes of beneficiaries in the CBP areas to those in the comparator areas, CMS has concluded that beneficiaries have not been affected adversely by the CBP. In general, a small number of contract suppliers had a large proportion of the market share in the nine competitive bidding areas. The top four contract suppliers generally accounted for a large proportion of the market in all CBP areas, although the top four suppliers for each product category were not the same in every competitive bidding area. CMS has reported that few contract suppliers had contracts terminated by the agency or voluntarily withdrew from Medicare. The total number of DME suppliers and Medicare allowed charges decreased more in the CBP areas than in the comparator areas. For example, the number of suppliers in the CBP areas with Medicare allowed charges of $2,500 or more decreased, on average, 27 percent. In the comparator areas, supplier numbers decreased by 5 percent. The decreases in supplier numbers may reflect other factors, such as CMS's efforts to reduce Medicare DME fraud. The round 1 rebid's first 2 years achieved Medicare cost savings of about $400 million as estimated by CMS, and did not appear to have adversely affected beneficiary access to CBP-covered items. However, with CBP's national mail-order diabetic testing supplies program and expansion into an additional 100 bidding areas in July 2013, it will be important for CMS to continue its efforts to monitor the effects of the CBP. In commenting on a draft of this report, HHS cited the results of CMS's monitoring of beneficiaries' access to CBP items as evidence that CBP has not adversely affected beneficiaries.