Medicare pays for most DMEPOS through fee schedules based on suppliers’ previous charges to Medicare. The fee schedule payment is generally equal to 80 percent of the lesser of either the supplier’s actual charge or the Medicare fee schedule for a particular item or service. In general, Medicare beneficiaries are responsible for paying the supplier To process all Medicare the remaining 20 percent—the coinsurance. DMEPOS payment claims including coverage and payment determinations, CMS contracts with four DME Medicare Administrative Contractors. CMS and its CBP implementation contractor—Palmetto GBA—administer and implement CBP and its bidding rounds. To be eligible to submit bids to furnish CBP-covered DME items in one or more product categories in one or more of the competitive bidding areas, suppliers must first meet several requirements. Specifically, suppliers must have an active National Supplier Clearinghouse (NSC) number that makes them eligible to bill Medicare for DME, have met Medicare enrollment and quality standards, have a surety bond, and be accredited. After the bid window closes, Palmetto GBA reviews bids to determine whether each supplier’s bid submission is complete and compliant with the bidding requirements, and whether the supplier’s financial score meets CMS’s minimum financial standard threshold to be eligible to compete on price. If the bid meets these requirements, it is considered a qualified bid and can then compete on price. Before comparing prices, Palmetto GBA reviews each qualified bid’s estimated capacity projections—the supplier’s anticipated ability to provide the volume of items claimed in the bid in light of the supplier’s historical capacity, expansion plans, and financial score. Palmetto GBA uses several steps to compare prices and identify the winning bids. First, Palmetto GBA reviews the DME bid item prices submitted by suppliers with qualified bids and uses a methodology to calculate what is known as a composite bid to allow for a comparison of prices submitted across bidding suppliers with qualified bids. A composite bid is determined by summing all of the weights assigned to each item in a product category—with each item weight calculated using national beneficiary utilization data for that item compared to the other items within that product category. Once the composite price has been calculated, the bids are ordered by the lowest to highest composite bid price in each product category in each competitive bidding area. When the bids have been ordered, Palmetto GBA calculates the cumulative projected capacity of the competing bids—which indicates the capacity that each supplier projects it could furnish throughout an entire competitive bidding area each year. Palmetto GBA begins with the lowest composite price and moves up the ordered list to identify the bid where the suppliers’ cumulative projected capacity meets or exceeds CMS’s estimated beneficiary demand, which is referred to as the pivotal bid. Although many bids can be qualified to compete on price, only those with composite prices that are equal to or less than the pivotal bid are determined to be winning suppliers, based on price, and are used to establish Medicare’s CBP single payment amounts for each item in a product category in a competitive bidding area. Specifically, for each item, the winning bids’ price offers are ordered from lowest to highest and the median bid price offered by these suppliers for that item becomes the single payment amount. To ensure there is a sufficient number of suppliers and to meet its target goal of awarding at least five contracts in CMS caps the each product category in each competitive bidding area,estimated projected capacity of any single supplier to 20 percent of the total projected beneficiary demand for each product category in each competitive bidding area, regardless of the capacity estimated by the supplier in its bid. The CBP single payment amounts are required to be less than or equal to the Medicare fee-for-service payments for the same items. The same DME item may have a different CBP single payment amount in each competitive bidding area. CMS offers the winning suppliers 3-year contracts to furnish items in the product categories and competitive bidding areas in which they won. All contract suppliers that accept the contract offers must maintain their Medicare billing privileges, state licensure, and accreditation throughout the contract period and accept CMS is required, assignment on all DME items under their contracts.under federal law, to conduct another bidding round to select contract suppliers no less often than once every three years. CBP round 1 was conducted in 2007 and 2008 for 10 competitive bidding areas. For the bidding, CMS chose certain DME items in 10 product categories—generally high-cost and high-volume items and services— that were most likely to result in Medicare savings if competitively acquired. The round 1 contract suppliers were announced in May 2008. However, round 1’s bid submission and contract award processes caused concerns about CMS’s CBP implementation. In our November 2009 report, we found problems with the bidding process, including poor timing and lack of clarity in bid submission information and CMS’s inability to inform suppliers of missing financial documentation. We also found that CMS did not provide suppliers with timely and clear bid submission information, used an inadequate electronic bid submission system, and did not have a process to inform bidders of missing financial documentation—42 percent of all submitted bids were disqualified due to incomplete financial documentation. In our report, we recommended that if CMS reviews suppliers’ disqualified bids during the round 1 rebid and future rounds, it should notify all suppliers of any such process, give suppliers equal opportunity for such reviews, and clearly indicate how suppliers can request a review. The enactment of MIPPA stopped CBP round 1 two weeks after it began operating and required CMS to repeat the competition for CBP round 1 in 2009. MIPPA also imposed additional criteria for how CMS should conduct later CBP rounds and expand the CBP to additional areas. In addition, MIPPA required that CMS notify bidding suppliers about any missing financial documentation if the suppliers submitted their documentation within a time period known as the covered document review date.acquisition ombudsman (CAO) to respond to inquiries and complaints made by DME suppliers and individuals concerning the CBP’s application. The CAO can work with Palmetto GBA and its local offices. In the CBP round 1 rebid, the product categories were revised to delete the negative pressure wound therapy category—pumps that apply controlled negative or subatmospheric pressure used to treat ulcers or wounds that have not responded to traditional wound treatment methods—and to exclude group 3 complex rehabilitative power wheelchairs (must meet the highest performance requirements, for example, be able to travel at least 12 miles on a single charge of batteries) from the entire CBP, and to delete San Juan (San Juan-Caguas-Guaynabo, Puerto Rico) as a competitive bidding area. provide DME items and services in nine DME product categories in nine competitive bidding areas. CMS has stated that the CBP round 1 rebid single payment amounts resulted in an average savings of 42 percent in 2011 compared to 2010 for the same items. In January 2012, CMS began CBP’s bidding process for round 2. Round 2 will cover 91 metropolitan statistical areas and CMS has determined the competitive bidding areas within those MSAs. The 60-day round 2 bid window was open from January 30, 2012, to March 30, 2012. CMS intends to announce the round 2 winning contract suppliers in spring 2013, and for the contracts and single payment amounts to become effective July 1, 2013. Round 2 will operate for 3 years and includes the same product categories as the round 1 rebid except for the addition of the negative pressure wound therapy category, the deletion of the complex power wheelchairs and mail-order diabetic supplies categories, and the expansion of the support surfaces category to all competitive bidding areas. A national mail-order diabetic supplies program competition will be conducted at the same time as round 2, and will require bidding suppliers to demonstrate that their bids cover at least 50 percent, by sales volume, of all types of diabetic testing strips on the market.for CBP’s legislative history and program implementation time line.) (See fig. 1 To ensure that small suppliers are considered when selecting contract suppliers, CMS set a target that 30 percent of the qualified suppliers in each product category in each competitive bidding area are small. CMS defines small suppliers as those that generate gross revenue of $3.5 million or less in annual receipts that include both Medicare and non- Medicare revenue. In cases where the small supplier target goal is not met, CMS can award additional CBP contracts to small suppliers after it determines the number of suppliers needed to meet or exceed CMS’s estimated beneficiary demand. Between 2 to 20 small suppliers are allowed to group together as a network to submit a bid as a single entity under CBP, and to provide services as a contract network if awarded a CBP contract. The suppliers involved must certify that they cannot independently furnish all the competitively bid items in the product category to beneficiaries throughout the entire competitive bidding area for which the network is submitting a bid. Some suppliers not awarded contracts have the option to choose to continue to furnish certain CBP-covered rental items to beneficiaries who were their customers when CBP began on January 1, 2011, and who are residing in the competitive bidding areas. These suppliers are referred to as grandfathered suppliers. It is the beneficiaries’ choice whether to remain with their grandfathered supplier or to select a CBP contract supplier. Many CBP-covered items that are rented can be grandfathered including, for example, oxygen and oxygen equipment, capped rental DME—such as hospital beds—and inexpensive and routinely purchased DME for the remaining rental months. Once the relevant rental periods expire or a beneficiary decides to select a contract supplier, the grandfathered supplier can no longer provide the CBP-covered items and services to the beneficiary. Subcontracting allows contract suppliers to work with suppliers that are Medicare-accredited to provide limited services to CBP-covered beneficiaries. A supplier that subcontracts may perform only three services: (1) purchase inventory and fill orders, fabricate or fit items from its own inventory or contract with other companies to purchase items necessary to fill an order, (2) deliver CBP-covered items to beneficiaries, and (3) repair rented equipment. For CBP, subcontracting suppliers may include suppliers that did not bid, that bid and lost, or that won contracts but subcontract with other contract suppliers for a product category not won. The contract suppliers are responsible for billing Medicare for any services that their subcontract suppliers perform since subcontract suppliers are not eligible to bill Medicare themselves. Contract suppliers are to disclose to CMS each subcontracting agreement and are also responsible for ensuring that their subcontractors are Medicare- accredited for the product categories covered by the subcontracting agreement. are the only Skilled nursing facilities (SNF) entities that can bid to win a CBP contract as a CBP specialty supplier. If such a facility wins a specialty supplier contract, the facility can only furnish the CBP enteral nutrients, equipment, and supplies product category to its own residents covered under Medicare Part B. The facilities may also choose to submit bids to win CBP contracts as a regular contract supplier. If they win a regular contract, they may then furnish the CBP-covered items in the product category they have won to beneficiaries throughout their competitive bidding area. and nursing facilities (NF) A SNF provides residents with restorative services such as physical or speech therapy. A SNF provides a level of care distinguishable from the intensive care furnished by a general hospital or the custodial or supportive care furnished by nursing homes primarily designed to provide daily services above the level of room and board. To assist beneficiaries in locating a contract supplier in their competitive bidding area, CMS maintains a CBP supplier locator tool on the Medicare website. The supplier locator contains the names of the contract suppliers in each competitive bidding area and the product categories for which they furnish CBP-covered items. The contract suppliers submit information to CMS each quarter on a form that lists the specific items they furnish—including the brand names and equipment models which CMS uses to update the supplier locator. Beneficiaries with CBP questions—referred to by CMS as inquiries—are directed to call 1-800-MEDICARE. Callers are assisted by CBP customer service representatives (CSR) trained to answer questions about CBP in general and to assist beneficiaries in finding CBP suppliers. Beneficiaries calling from area codes in competitive bidding areas hear a prompt at the beginning of their call, which takes them directly to a CBP CSR. Beneficiaries calling from an area code not in a competitive bidding area can also reach a CBP CSR through a series of prompts. CSRs use CBP scripts—written responses to commonly asked questions—when initially responding to CBP-related calls. CSRs read a response to the beneficiary either from a script about CBP in general, or from a script specific to one of the nine product categories. If the beneficiary’s inquiry cannot be addressed by the scripts, the CSR will forward it to an advanced-level CSR trained to research a CBP-related question and respond after completing research on the caller’s inquiry. For example, an advanced CSR might work with a beneficiary traveling outside a competitive bidding area to ensure the beneficiary continues to receive necessary DME. CMS defines a CBP complaint as a CBP inquiry that cannot be resolved by any CSR with 1-800-MEDICARE and is sent to another entity for resolution. The CBP-related entities include: Palmetto GBA, the CMS regional offices, and the CAO. Palmetto GBA investigates all beneficiary or supplier complaints related to alleged CBP contract violations, supplier or quality standard violations, and CBP and Medicare program violations, including fraud and abuse. CMS’s regional offices are the focal point for unresolved calls; for example, the offices may assist when a CSR is unable to help a beneficiary find a contract supplier. The CAO responds to other unresolved CBP questions from both suppliers and individuals. CMS conducts several monitoring activities to determine whether beneficiary access or satisfaction have been affected by the implementation of CBP. CMS monitors outcomes such as hospitalizations, physician visits, and deaths for beneficiaries in competitive bidding areas, because these outcomes may reflect issues with beneficiary access to necessary DME. CMS posts to its Web site monthly reports on these outcomes in competitive bidding areas and in comparison areas to demonstrate the effects of CBP on health outcomes. CMS also conducted a pre and post-implementation survey to measure beneficiary satisfaction with CBP. The pre-implementation survey was conducted from June 24 to August 3, 2010, and the post-implementation survey was conducted from August 29 to October 20, 2011. CMS surveyed beneficiaries in the nine CBP competitive bidding areas as well as nine comparison markets, chosen to allow a comparison with competitive bidding areas. CMS may also conduct secret shopping in response to complaints such as those concerning diabetic testing suppliers. The number of bidding suppliers and the number of contracts awarded in the CBP round 1 rebid were very similar to CBP round 1. Improvements were made to the bidding process for the CBP round 1 rebid, and significantly fewer bids were disqualified; nevertheless, many suppliers still had difficulty meeting bid requirements. As in round 1, some suppliers that requested that CMS review their disqualified bids were found to have been incorrectly disqualified and offered a contract. Nearly the same number of suppliers bid in both CBP round 1 (1,010 suppliers) and the CBP round 1 rebid (1,011 suppliers). About a third of all the suppliers that bid were awarded at least one CBP contract, and CMS generally met its target—that 30 percent of the suppliers awarded a contract for each product category in each competitive bidding area be small—by awarding contracts to 219 small suppliers of the 356 winning suppliers. (See table 1.) The number of bids that were disqualified in the initial bid review and, therefore, not eligible to compete on price was significantly less in CBP round 1 rebid than in CBP round 1. In CBP round 1 rebid, about 30 percent of bids submitted were disqualified for at least one or more reasons (1,854 of 6,215 submitted). Therefore, about 70 percent of all bids submitted were qualified and used to determine the pivotal bid, which was then used to establish single payment amounts for each item that was included in the CBP round 1 rebid.almost 50 percent of bids submitted were disqualified during the initial bid review (3,143 of 6,374 submitted) and only about half of all bids submitted were qualified to compete on price. In contrast, in CBP round 1, About 20 percent of bids submitted in the CBP round 1 rebid resulted in contracts between CMS and suppliers (1,217 out of 6,215)—which is comparable to 22 percent of bids that resulted in contracts between CMS and suppliers in CBP round 1 (1,372 out of 6,374.) (See table 2 for round 1 rebid results.) CMS made initial contract offers for CBP round 1 rebid within the 3-month period between July 1, 2010, and September 24, 2010, and announced the winning contract suppliers on November 3, 2010. Although CBP round 1 rebid contracts began on January 1, 2011, CMS made additional contract offers between December 17, 2010, and January 24, 2011. Fewer bids were disqualified in CBP round 1 rebid and CMS provided additional feedback to suppliers that had bids disqualified, indicating to suppliers all the reasons for disqualification. While CMS improved the CBP bidding process, many suppliers still had difficulty complying with bid submission requirements, and had particular difficulty with financial documentation requirements. Although the majority of suppliers with disqualified bids that contacted CMS with questions were found to have been correctly disqualified, some suppliers were later found to have incorrectly disqualified bids and were offered contracts. About 20 percent fewer bids were disqualified during the initial bid review of CBP round 1 rebid than in round 1. The number of bids disqualified in CBP round 1 rebid would have been higher if many suppliers had not benefited from a new process giving suppliers the opportunity to be notified of and submit missing required financial documentation—a process that was not available during CBP round 1. The term distinct is used to indicate a supplier that is not being double-counted. For example, if a supplier had multiple bids disqualified because the bids did not meet licensure requirements, the supplier is only counted one time for having bids disqualified for that reason. If a supplier had a bid disqualified for two or more reasons, the supplier would be counted as one distinct supplier for each reason that its bids were disqualified. either for that reason alone or in addition to another bid submission deficiency reason. Although fewer bids were disqualified in CBP round 1 rebid, many suppliers had difficulty meeting the bidding requirements. As occurred in CBP round 1, in which 88 percent of disqualified bids were disqualified because they failed to provide the required financial documentation or did not meet CMS’s minimum financial standard threshold for suppliers, the majority of CBP round 1 rebid bids (73 percent) that were disqualified on initial bid review were also disqualified for the same reasons. Specifically, 44 distinct suppliers (about 4 percent of all bidding suppliers) had 293 bids disqualified because the bidding suppliers did not meet CMS’s minimum supplier financial standards. Bidding suppliers that did not meet minimum financial standards would be unlikely for financial reasons to be able to fulfill their contract obligations, in CMS’s judgment. In addition, 162 distinct suppliers (about 16 percent of all bidding suppliers) submitted 834 bids that were disqualified because of unacceptable or inaccurate financial documentation, while 51 distinct suppliers (about 5 percent of all bidding suppliers) submitted 216 bids with missing financial documentation. The number of CBP round 1 rebid bids disqualified for missing financial documentation would have been higher without CMS’s implementation of the MIPPA provision for financial document review. Under this provision, CMS is required to determine if any suppliers’ financial documents that are submitted by a certain time in a CBP bid window—known as the covered document review date—are missing and to notify and provide suppliers the opportunity to submit them. In CBP round 1 rebid, 791 suppliers—or 78 percent of all bidding suppliers—submitted their financial documentation by the covered document review date. Of those eligible to have their financial documentation reviewed, 321 suppliers (about 41 percent) were notified that they had missing documentation— including 184 small suppliers. Of the 321 suppliers that were notified, 232 suppliers submitted the correct missing documentation, 14 did not provide missing documentation, and 75 resubmitted their documentation, but were ultimately disqualified for unacceptable (such as incomplete or inaccurate) documents. Ninety-three of the 321 suppliers—about 29 percent—that were notified by CMS that they had missing financial documentation, and subsequently provided correct documentation, were ultimately awarded one or more CBP contracts. In both CBP round 1 and the CBP round 1 rebid, the statement of cash flow was the most common reason that suppliers were disqualified for missing or unacceptable financial documentation. Although CMS provided an example of a statement of cash flow in the CBP round 1 rebid bidding instructions and suggested that financial statements be compiled by an independent accounting firm or prepared by the supplier, Palmetto GBA reported that it was obvious that many bidding suppliers still did not understand what constituted an acceptable statement of cash flow during the CBP round 1 rebid bid submission process. According to CMS, one reason that the statement of cash flow was the most difficult financial document to prepare in both CBP rounds is because it is prepared much less often than other types of financial documents—particularly by small suppliers. CMS reported that another obstacle in preparing acceptable statements of cash flow is that suppliers with very limited understanding of accounting practices and how to prepare financial statements compiled the statements of cash flow themselves and relied on results generated by inexpensive accounting software, which CMS told us was not sufficient. As a result, CMS provided additional information in its CBP round 2 bidding instructions, and strongly recommended that suppliers’ financial statements be compiled by an independent accounting firm to discourage suppliers from preparing their own financial documents. In the CBP round 1 rebid, as in CBP round 1, CMS determined that some suppliers’ bids had been incorrectly disqualified. During CBP round 1, we reported that CMS did not effectively communicate to suppliers that they had an opportunity to have their round 1 bids reviewed. CMS officials told us that they conducted a postbidding review process for suppliers which contacted the agency with questions or requested a review and subsequently found that 10 of the 357 round 1 suppliers that had bids reviewed had been incorrectly disqualified. After reviewing the language that CMS provided to suppliers during CBP round 1, we determined that CMS did not effectively communicate to suppliers that they had an opportunity to have disqualified round 1 bids reviewed. As a result, in 2009, we recommended, and CMS agreed, that if CMS chose to conduct a review of disqualification decisions during CBP round 1 rebid and future bids, CMS should notify and give all suppliers an equal opportunity for review, and clearly indicate how suppliers can request a review. Although the notification that CMS provided to suppliers during the CBP round 1 rebid provided more information than was provided during CBP round 1, CMS did not inform suppliers that a review of a disqualified bid could possibly result in reversal of the disqualification and extension of a contract offer. (See fig. 2.) In both CBP rounds, CMS determined that some suppliers that contacted Palmetto GBA and requested a review of their bids had been incorrectly disqualified. (See table 4.) CMS told us it received bid inquiries from 99 suppliers that had bids disqualified in CBP round 1 rebid and subsequently extended contracts to 7 of those suppliers—about 7 percent. In CBP round 1, 10 suppliers—or 3 percent of the 357 suppliers that contacted Palmetto GBA—were found to have bids that were incorrectly disqualified. Suppliers’ bids could have been incorrectly disqualified for various reasons, such as for issues regarding financial documentation, because they were thought not to have the required license in the state or product category in which bids were submitted, or because the bids were deemed not bona fide. Both contract and non-contract suppliers have been affected by the first year of the CBP round 1 rebid. In the first months of 2011, few CBP contract suppliers had their contracts terminated by CMS, voluntarily canceled their contracts, or were involved in ownership changes. Since the CBP round 1 rebid began, many non-contract suppliers have chosen to be grandfathered suppliers for certain CBP rental DME. Some contract and non-contract suppliers have entered into subcontracting agreements to provide certain services to beneficiaries in CBP competitive bidding areas. Some suppliers with no previous experience with the DME product category or no location in a competitive bidding area were awarded contracts as CBP allows. During the first 10 months of 2011, 16 of the original 356 contract suppliers—4 percent—left CBP due to CMS terminating contract suppliers (8), or from contract suppliers voluntarily canceling their CBP contracts (8). (See table 5.) The 16 contract suppliers had 28 affected CBP contracts—about 2 percent of the 1,217 original CBP contracts. Thirteen of the 16 contract suppliers were small suppliers. CBP contracts can be terminated by CMS when a contract supplier fails to meet CBP requirements, for example, when Medicare accreditation is not maintained. A contract supplier can end its CBP contracts by voluntarily withdrawing from Medicare. For example, one contract supplier testified at a CMS CBP Program Advisory and Oversight Committee (PAOC) meeting that it had bid on numerous product categories but won only one contract and would be closing its business due to lost revenue; the supplier withdrew from Medicare in May 2011. Twenty-one of the 28 contracts involved two competitive bidding areas— Miami (15) and Riverside (6). Eighteen contracts involved two product categories—oxygen (10) and standard power wheelchairs (8). The Riverside competitive bidding area had six of the eight standard power wheelchair contracts that were ended. Eight DME supplier ownership changes—about 2 percent of the original 356 contract suppliers—occurred from November 3, 2010, when the winning contract suppliers were first announced, through November 30, 2011. While contract suppliers can be sold, their CBP contracts cannot. If a contract supplier’s ownership changes, CMS decides whether the CBP contract can be assumed by the new purchasing supplier—which can be another contract supplier or a non-contract supplier—by determining if the purchasing supplier meets the CBP contract supplier standards. In all nine changes, CMS determined that the new owners would assume the CBP contracts involved. (See table 6.) The CBP provides a grandfathering option that temporarily benefits some non-contract suppliers while also temporarily disadvantaging some contract suppliers. For non-contract suppliers, grandfathering allows them to retain Medicare revenues for some CBP-covered capped rental DME items for the length of the items’ rental periods, if the beneficiary involved chooses to remain with the grandfathered supplier until the rental period expires. For contract suppliers that won CBP contracts for the same DME capped rental DME items, grandfathering may be a temporary disadvantage in both limiting the number of Medicare beneficiaries they can serve and the amount of Medicare revenue they can immediately try to gain. Unless the beneficiary served by a grandfathered supplier decides to choose a contract supplier, the contract suppliers cannot try to furnish items to the same beneficiary and thus cannot increase their CBP Medicare revenue as quickly as they may have anticipated. The degree of grandfathering varies among the allowed product categories and competitive bidding areas. In CBP’s first 11 months of 2011, the top three grandfathered product categories—both by the number of beneficiaries renting items and by the allowed Medicare payments to grandfathered suppliers—were CPAP/RAD, hospital beds, and oxygen. (See table 7.) The number of grandfathered suppliers has generally steadily declined during 2011 as rental periods expire or beneficiaries chose contract suppliers. In January 2011 when the CBP round 1 rebid began, there were 1,364 grandfathered suppliers or 58 percent of the 2,363 suppliers that billed for beneficiaries they had been serving as of December 31, 2010. In comparison, in December 2011, there were 575 grandfathering suppliers or 22 percent of the 2,594 suppliers that billed for beneficiaries they had been serving as of December 31, 2010. (See fig. 3.) At the end of July 2011, about 31 percent of contract suppliers had subcontracting agreements. There were 112 distinct contract suppliers that had at least one subcontracting agreement with one of 211 distinct subcontractor suppliers. Four contract suppliers had terminated some of their subcontracts, and three contract suppliers had subcontracting agreements pending CMS approval. Some contract suppliers that were new to the competitive bidding area where they won or were new to a product category they won have subcontracting agreements with non-contract suppliers. Among the 44 distinct contract suppliers that did not have a previous business location in the competitive bidding area where they won at least one contract, 30 percent (13 suppliers) had at least one subcontracting agreement with a non-contract supplier. For the 43 distinct contract suppliers that were new to a product category, 37 percent (16 suppliers) had at least one subcontracting agreement. Although CMS requires contract suppliers to notify it of their subcontracting agreements, contract suppliers do not have to provide CMS with copies of their subcontracting agreements or report what they pay their subcontract suppliers. Contract suppliers are free to negotiate their own subcontracting agreements as CMS does not have subcontracting guidelines or an agreement template. For example, one subcontract supplier told us it negotiated with a contract supplier for a flat rate for hospital bed deliveries of $60 and another subcontract supplier had a $75 rate; one also negotiated a $20 delivery fee for walkers. Two subcontract suppliers told us that they have a 30-day termination notice provision in their agreements with contract suppliers. As allowed under CBP, CMS awarded round 1 rebid contracts to some suppliers that at the time they bid had no previous experience in at least one product category, or were new to at least one competitive bidding area—did not have a prior business location in the area—or both. There were 43 distinct44 new to a competitive bidding area—each were about 12 percent of the 356 original contract suppliers awarded contracts. Nine distinct contract suppliers were new to both a product category and a competitive bidding area; four of these were small suppliers. contract suppliers new to a product category and Of the 43 distinct contract suppliers with no previous experience for a product category they won, 23 are small suppliers. The enteral nutritionproduct category had the most contract suppliers new to a product category—19; the complex power wheelchairs product category had none. (See table 8.) Additionally, 44 distinct contract suppliers were new to a competitive bidding area where they won at least one contract; 18 were small suppliers. While all of the competitive bidding areas had suppliers new to the area, the Cleveland competitive bidding area had the most (21), and the Miami area had the least (3). (See table 9.) CMS’s monitoring efforts reported declining inquiries and complaints over the first year of CBP implementation, high levels of beneficiary satisfaction, and no changes in health outcomes. Although some of these efforts have limitations, in the aggregate, they provide useful information to CMS regarding beneficiary access and satisfaction. Information collected from CMS’s monitoring of inquiries to 1-800-MEDICARE suggests that CBP has not adversely affected beneficiary access to or satisfaction with DME. Calls to 1-800-MEDICARE regarding CBP declined during the first year of CBP implementation, and 2 percent of calls were from beneficiaries with an urgent need for CBP- covered DME. CBP-related calls comprised a small fraction of all calls to 1-800-MEDICARE. In 2011, CMS classified 127,466 CBP-related calls to 1-800-MEDICARE as inquiries. (See fig. 4.) The total number of CBP-related inquiries to 1-800-MEDICARE declined from 19,887 in January 2011 to 4,501 in December 2011. In the first 3 months of CBP implementation, most inquiries were regarding CBP in general. In subsequent months, there were more inquiries about specific CBP-covered products than about CBP generally. Over 2 million beneficiaries were involved in CBP round 1 rebid; the ratio of inquiries to 1-800-MEDICARE compared with CBP beneficiaries is approximately 1 inquiry for every 16 beneficiaries. Inquiries to 1-800-MEDICARE regarding CBP comprise less than one-half of 1 percent of inquiries to 1-800-MEDICARE. On average, CBP-related calls to 1-800-MEDICARE comprise nearly 13 percent of all DMEPOS- related calls. The proportion of DME-related 1-800-MEDICARE inquiries pertaining to CBP fell in 2011 from 19 percent in the first quarter to less than 7 percent in the fourth quarter. (See fig. 5.) Inquiries and complaints to 1-800-MEDICARE regarding DMEPOS in general, including CBP- related calls, have remained fairly steady from 2010 to 2011. The majority of product-specific inquiries to 1-800-MEDICARE—over 40,000—were about mail-order diabetic supplies. There were approximately 5,000 inquiries regarding standard power wheelchairs, 4,000 inquiries regarding CPAP/RAD, and 3,000 regarding walkers. (See fig. 6.) CSRs at 1-800-MEDICARE may respond to beneficiaries with time- sensitive inquiries. In 2011, there were no life-threatening inquiries related to CBP and 2,539 immediate-needs inquiries—about 2 percent of all inquiries. Immediate needs inquiries are defined as situations in which beneficiaries have less than 2 days of life-sustaining DME, or in which beneficiaries’ medical condition will be worsened if they are unable to access DME. In the first year of CBP, CMS classified 151 calls as complaints. (See fig. 7.) Seventy-seven percent of these complaints—or 116 complaints— occurred in the first half of 2011. CMS’s definition of inquiry and complaint may be an optimistic characterization of beneficiary calls. According to CMS, all calls are first classified as inquiries and are only classified as complaints when they remain unresolved by CSRs. However, CSRs are able to address most beneficiary inquiries, so the definition of inquiry encompasses the majority of types of calls to 1-800-MEDICARE. Inquiries may be recorded as complaints because of their level of complexity, rather than as a reflection of beneficiary dissatisfaction. CMS officials told us CSRs may forward complex inquiries to another entity for response, and these inquiries would be classified as complaints regardless of whether the beneficiary intended to log a complaint. CMS has multiple ongoing monitoring efforts to ensure that CBP beneficiaries can access DME and are satisfied with the program. While these tools have limitations, CMS’s monitoring of the first year of CBP implementation does not show evidence that beneficiaries have been affected negatively by CBP. Some of these tools—such as the beneficiary satisfaction survey—finished collecting data at the end of 2011. CMS’s claims and health outcomes monitoring tool found no changes in health outcomes in competitive bidding areas in 2011, but this method may not fully capture the relationship between access to DME and health outcomes. Other tools—such as secret shopping—are limited in scope, so their data will not provide beneficiary access information on the program as a whole. The results of CMS’s beneficiary satisfaction survey were generally positive, although the survey had limitations. CMS obtained responses from at least 400 beneficiaries in each of the nine competitive bidding areas, and in each of nine non-CBP comparison markets—areas chosen to closely match the makeup of each of the competitive bidding areas. Responses were collected by telephone in these 18 locations both pre- CBP and post-CBP. The survey collected beneficiary satisfaction ratings on a five-point scale for six topic questions about the beneficiary’s initial interaction with DME suppliers, the training received regarding the DME item, the delivery of the DME item, the quality of service provided by the supplier, the customer service provided by the supplier, and the supplier’s overall complaint handling. Respondents answered these questions with Follow-up questions one of five options from “very poor” to “very good.”were not used to obtain more detailed information. The survey design did not capture responses from beneficiaries living in those locations who may have needed, but did not obtain, DME during the period; that is, if a beneficiary’s access problems resulted in his not receiving DME, that beneficiary would not be included in the survey. The survey’s sampling methodology also did not ensure that all socio- economic groups were represented, so it does not confirm that all beneficiaries within an area had equal access. CMS’s beneficiary satisfaction survey did not reveal systemic beneficiary access or satisfaction problems with CBP. For all six questions in the competitive bidding areas, approximately 67 percent of beneficiaries reported their services as being “very good”. Beneficiaries in competitive bidding areas rated as “good” or “very good” their initial interaction with the DME supplier (89 percent), the training received (86 percent), delivery (91 percent), quality (90 percent), customer service (88 percent), and complaint handling (84 percent). Results within competitive bidding areas show a drop of one to three percentage points on each of the six questions from pre-implementation to post-implementation. Beneficiaries in the comparison markets rated their experiences similarly to those in competitive bidding markets: these beneficiaries rated as “good” or “very good” their initial interaction with the DME supplier (93 percent), the training received (89 percent), delivery (93 percent), quality (93 percent), customer service (91 percent), and complaint handling (88 percent). CMS’s daily monitoring of national Medicare claims data in real time found no changes in health outcomes in competitive bidding areas in 2011, but this method may not fully capture the relationship between access to DME and health outcomes. CMS tracks health outcomes— such as hospitalizations, emergency room visits, physician visits, admissions to skilled nursing facilities, and deaths—for beneficiaries likely to use a CBP-covered product and who have used a CBP-covered product, in both competitive bidding areas and similar comparison areas. CMS reports that, in 2011, the rate of use of hospital services, emergency room visits, physician visits, and skilled nursing facility care for beneficiaries in competitive bidding areas remained consistent with national trends. While these results are reassuring, these measures do not show directly whether beneficiaries received the DME they needed on time, or whether health outcomes were caused by problems accessing CBP-covered DME. In the first 6 months of 2011, CMS’s online supplier locator tool may not have provided beneficiaries with up-to-date item availability for two reasons. First, CMS’s update of its requirements after the second quarter no longer required suppliers to list the brands and models they had made available to beneficiaries in the previous quarter.not have records of supplies actually furnished, only of the type of supplies that contract suppliers intended to furnish. Second, suppliers we spoke with reported problems submitting the required forms in the first quarter of 2011, which may have caused a delay in updating information on the online supplier locator tool. These suppliers reported that the online submission form was unavailable during the period they were required to submit their first quarter data. They told us they had to submit hard copies of the forms, a time-consuming process which may have caused delays in reporting. CMS data show that fewer distinct beneficiaries in competitive bidding areas received CBP-covered DME items in 2011 than in 2010 for the six However, we do not assume that product categories that we analyzed.the utilization in 2010 was the appropriate level of Medicare utilization and the decline in the number of beneficiaries served between 2010 and 2011 does not necessarily indicate that beneficiaries did not have access to needed DME. For example, the number of beneficiaries served in 2010 may have been inflated by suppliers billing for unnecessary items; and 2011 claims data may not yet be complete. Data on the utilization of mail- order diabetic testing supplies is limited because some beneficiaries used non-CBP retail suppliers. For the six CBP product categories we analyzed for CBP’s first 6 months of 2011, initial Medicare claim data trends generally indicate a decrease in the number of CBP-covered Medicare beneficiaries who were furnished certain CBP-covered items. The decrease is evident when comparing changes in the number of distinct CBP-covered beneficiaries served in 2011 compared to 2010 in both the nine competitive bidding areas and non-competitive bidding areas.beneficiaries served does not necessarily indicate beneficiaries do not have access to needed DME as CMS told us that possible reasons for the decline in utilization may be the result of: However, such decline in the number of CBP’s round 1 rebid competitive bidding areas were selected by CMS, in part because they had high utilization, implying that some utilization may have been unnecessary. CBP bidding requirements may have eliminated some suppliers that previously may have been involved in potentially fraudulent Medicare claims billing which could have inflated pre-CBP utilization. CBP Medicare claims can be more closely monitored for possible fraud because there are fewer suppliers furnishing items. Some suppliers may have increased their Medicare claims submissions prior to the CBP round 1 rebid’s start date, which could have inflated 2010 utilization. Because suppliers have up to 1 year from the date of service to submit claims, the 2011 claims data may not yet be complete. For the CPAP/RAD product category, the number of distinct CBP-covered beneficiaries who were furnished these items in the nine CBP competitive bidding areas was smaller in each of the first 6 months of 2011 than in the same months of 2010. For example, in May 2010, 21,382 beneficiaries residing in the competitive bidding areas were furnished one or more CPAP/RAD product category items, while in May 2011, the number of beneficiaries furnished these items had declined by about 8 percent to 19,572. In contrast, in non-CBP competitive bidding areas, more beneficiaries were served in each of the first 6 months of 2011 compared to the same months in 2010. For example, in May 2010, 308,728 beneficiaries not residing in competitive bidding areas were furnished one or more CPAP/RAD product category items, while in May 2011, the number of beneficiaries furnished these items had risen to 333,746—for an increase of about 8 percent. (See fig. 8.) For the enteral product category, there were fewer beneficiaries served in both the nine CBP competitive bidding areas and the non-competitive bidding areas in the first 6 months of 2011 compared to the same months of 2010. However, for every month between January and June, the number of beneficiaries served in competitive bidding areas showed a larger decrease from 2010 to 2011 than occurred in the same month for non-competitive bidding areas. For example, in May 2010, 5,378 beneficiaries residing in the competitive bidding areas were furnished one or more enteral product category items, while in May 2011, the number of beneficiaries furnished these items had decreased by almost 15 percent to 4,576. Similarly, in May 2010, 62,298 beneficiaries not residing in competitive bidding areas were furnished one or more enteral product category items, while in May 2011, the number of beneficiaries furnished these items decreased by about 9 percent to 56,680. Although both CBP competitive bidding areas and the non-competitive bidding areas showed a decrease in the number of beneficiaries served in May 2011 as compared to May 2010, the competitive bidding areas had an additional 6 percent decrease than the non-competitive bidding areas. (See fig.9.) For the hospital beds product category, the number of distinct CBP- covered beneficiaries who were served these items was smaller in each of the first 6 months of 2011 than in the same months of 2010. (See fig. 10.) In non-CBP competitive bidding areas, more beneficiaries were served in the first 3 months of 2011 than in the first 3 months of 2010 but progressively fewer beneficiaries were served in April, May, and June of 2011 than in the same months of 2010. For the oxygen product category, the number of distinct CBP-covered beneficiaries who were served these items in the nine CBP competitive bidding areas was smaller in each of the first 6 months of 2011 than in the same months of 2010. (See fig. 11.) Similar to what occurred for the hospital bed category, in non-CBP competitive bidding areas, more beneficiaries were served in the first 3 months of 2011 than in the first 3 months of 2010, but progressively fewer beneficiaries were served in April, May, and June of 2011 than in the same months of 2010. For the standard power wheelchair product category, the number of distinct CBP-covered beneficiaries who were served these items in the nine CBP competitive bidding areas was also smaller in the first 6 months of 2011 than in the same months of 2010. While we included information about changes in utilization of the standard power wheelchair product category in competitive bidding areas, we did not include like information for non-competitive bidding areas because CMS changed the payment policy for standard power wheelchairs in non-competitive bidding areas only, making comparison to non-competitive bidding areas difficult. The payment policy change, effective January 1, 2011, eliminated the option for the lump sum purchase payment for standard power wheelchairs in all non-competitive bidding areas. (See fig. 12.) We also did not include utilization data for the complex wheelchair product category as it is unreliable due to suppliers’ inconsistent use of Medicare claims payment modifiers. For the walkers product category, the number of distinct CBP-covered beneficiaries who were furnished these items in the nine CBP competitive bidding areas was smaller in each of the first 6 months of 2011 than in the same months of 2010. While more beneficiaries were served in non- CBP competitive bidding areas in January 2011 than in January 2010, fewer beneficiaries were served in February through June of 2011 compared to the same months of 2010. (See fig. 13.) Although CBP-covered beneficiaries pay less for their diabetic testing supplies if they choose a CBP mail-order contract supplier, CMS has determined that some CBP-covered beneficiaries who had been receiving their supplies by mail-order in 2010 have been switching to non-mail- order sources in 2011. This switching would decrease both CBP’s mail- order utilization and its anticipated Medicare savings. CBP’s diabetic testing supplies product category is the only category that allows CBP-covered beneficiaries to choose how to receive their supplies—delivered by mail-order from a CBP contract supplier or furnished by a non-mail-order retail or storefront supplier. The beneficiary’s choice determines whether the CBP-covered supplies are paid at the CBP single payment amounts or at the Medicare fee schedule payments, and whether the beneficiary’s coinsurance is based on the lower CBP payment or the higher fee schedule payment. The HHS OIG is studying the extent to which and why beneficiaries have switched from mail-order to non-mail-order suppliers between 2010 (the year prior to CBP) and 2011 (the first year of CBP). There are concerns that suppliers may be providing testing supplies by mail-order but billing at the non-mail-order fee schedule payments, or may be incentivizing beneficiaries to choose non-mail-order instead of mail-order. The HHS OIG has stated that either of these activities could affect CBP mail-order utilization and projected CBP Medicare savings. Both CMS and suppliers incurred costs related to CBP. However, CMS estimates that CBP savings to Medicare and to beneficiaries are greater than its costs. CMS told us that it spent nearly $20 million on pre-implementation costs for the CBP round 1 rebid from May 2009 through December 2010. In August 2009, CMS began the suppliers’ bidding education campaign, and the round 1 rebid bid window opened on October 21, 2009. The CBP costs incurred during this time included outreach materials for beneficiaries, referral agents, and others, an IT contract, and other implementation costs. (See table 10.) In its 2007 CBP Final Rule, CMS estimated that a bidding supplier spends an average of $2,303.16 to prepare bids for CBP, and in May 2011, CMS officials told us that this estimate had not changed. Suppliers and supplier organizations told us they incurred varying costs when preparing a bid, including fees for legal and financial services. For example, one supplier hired a new staff member to oversee the bidding process, and some suppliers reported paying for assistance in compiling the required financial documentation. Some suppliers reported additional legal services to prepare their bids. Contract suppliers also incurred expenses for participating in the program. Winning suppliers may incur additional expenses to fulfill their contractual obligations—for example, one supplier told us that it paid up to $1,500 for updates to a software program in order to provide CMS the data required under CBP. Suppliers that subcontract with contract suppliers stated that they also incur expenses, such as the costs involved in negotiating an agreement with the contract supplier. CMS’s estimated savings to both the Medicare program and beneficiaries is significantly higher than its costs. In a 2012 report, CMS estimated the CBP saved Medicare approximately $202.1 million in its first year of implementation, a decrease in expenditures of over 42 percent in the nine competitive bidding areas. This estimate is larger than the CMS’s 2011 estimate, which did not include possible reductions in claims due to a decline in utilization. According to CMS, most savings come from the oxygen, mail-order diabetic supplies, and standard power wheelchair product categories. CMS also reported that CBP resulted in savings for beneficiaries. HHS reviewed a draft of this report and provided written comments which are reprinted in appendix II. HHS also provided technical comments, which we incorporated as appropriate. HHS made several general comments. First, HHS noted that the CBP round 1 rebid resulted in savings of more than $200 million in its first year, and that the Department anticipates additional savings of more than $25 billion to the Medicare program between 2013 and 2022 as CBP expands in round 2. Second, HHS commented that we had not fully accounted for the robust nature of CMS’s real-time claims monitoring system that measures the health status of Medicare beneficiaries using DME in both CBP and comparison areas, which HHS said indicates that CBP-covered beneficiaries have not been adversely affected by CBP . We revised the report to incorporate more details about the monitoring program, but we believe that our original description of the program was accurate. We concluded that, in the aggregate, CMS’s monitoring efforts provide useful information about beneficiary access and satisfaction. Third, HHS stated that we agreed with its view that the CBP round 1 rebid had reduced unnecessary utilization of DME. We noted that the CBP may have successfully reduced unnecessary DME utilization, because utilization has been reduced and CMS has not detected adverse health consequences, but our analysis does not allow us to conclude definitively that unnecessary utilization has been reduced. Moreover, we concluded that more experience with DME competitive bidding is needed to assess the program’s full effects. Fourth, HHS suggested that January 2011 was not an appropriate month to use in our examples of utilization changes associated with the round 1 rebid because it was the first month of the rebid. We agree and have changed our examples to May 2011. Finally, HHS discussed differences between CMS’s methods for measuring DME utilization changes associated with the CBP and our methodology, and noted disparities between CMS’s results and our findings. HHS noted that CMS monitors all DME claims in real-time in both CBP and matched comparison areas, and that its analyses are comparisons between the types of areas. As HHS noted, we analyzed claims data for DME items accounting for 80 percent of DME costs and utilization, not all items. We compared DME utilization in CBP round 1 rebid areas to the rest of the country, not to specific comparator areas. In addition, we analyzed claims for services provided in the months January through June in 2011 and compared them to the same months in 2010. Because the process of filing and processing Medicare claims can be lengthy, we used data for claims that had been processed by CMS’s payment contractors as of February 2012. We believe that our methods are valid. Further, our results are similar to results that CMS reported to us in its technical comments. For example, CMS found that 14 percent fewer beneficiaries had claims for hospital bed product category items in CBP areas in 2011 than in 2010. We found that about 13 percent fewer beneficiaries had claims for these items in May 2011 than in May 2010 in the CBP areas. Although the first year of the CBP round 1 rebid’s contracts has been completed, it is important to continue to closely monitor the CBP as the program expands into 91 additional areas in round 2. Our findings are based on the limited evidence available at the time we did our work. It is too soon to determine the full effects the CBP may have on Medicare beneficiaries and DME suppliers. We found that, in general, the round 1 rebid was successfully implemented. Nearly the same number of suppliers participated in the round 1 rebid as in CBP round 1. Few contract suppliers left Medicare during CBP’s first year. CMS’s beneficiary satisfaction survey and other monitoring activities, although limited, does not show evidence that beneficiaries have been affected negatively by CBP. Utilization of selected DME items declined in the round 1 rebid competitive bidding areas; however, we do not assume that all pre-CBP utilization was appropriate and CBP may have reduced unnecessary utilization of DME, particularly because CMS chose to implement the CBP round 1 rebid in areas with what it suspected were relatively high levels of unnecessary utilization. More experience with DME competitive bidding is needed, particularly to see if evidence of beneficiary access problems emerges. In the program’s first year, the prevalence of grandfathered suppliers for rental items may have ameliorated beneficiary access concerns. The number of grandfathered suppliers will continue to decrease as rental periods expire. Further, it is not known if the number of subcontracting suppliers will remain consistent or whether any change in subcontracting may affect beneficiary access to DME. While few contract suppliers voluntarily withdrew from CBP or were terminated by CMS in the first contract year, an increase in either outcome throughout the remaining contract period could have implications for beneficiary access and the CBP itself. Additionally, it will be important to determine if DME utilization trends similar to those in the round 1 rebid occur as the program expands into round 2’s competitive bidding areas. We are sending copies of this report to the Secretary of Health and Human Services. The report will also be available at no charge on our website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. Full face mask used with positive airway pressure device (each) Nasal interface (mask or cannula type) used with positive airway pressure device, with or without head strap Tubing used with positive airway pressure device Respiratory assist device, bi-level pressure capability, without backup rate feature, used with noninvasive interface, e.g., nasal or facial mask (intermittent assist device with continuous positive airway pressure device) Stationary compressed gaseous oxygen system, rental; includes container, contents, regulator, flowmeter, humidifier, nebulizer, cannula or mask, and tubing Stationary liquid oxygen system, rental; includes container, contents, regulator, flowmeter, humidifier, nebulizer, cannula or mask, and tubing Oxygen concentrator, single delivery port, capable of delivering 85 percent or greater oxygen concentration at the prescribed flow rate Oxygen concentrator, dual delivery port, capable of delivering 85 percent or greater oxygen concentration at the prescribed flow rate (each) In addition to the contact named above, key contributors to this report were Martin T. Gahart, Assistant Director; Krister Friday, Dan Lee, Lisa Motley, Michelle Paluga, Katherine Perry, Hemi Tewarson, and Opal Winebrenner. Medicare: Issues for Manufacturer-level Competitive Bidding for Durable Medical Equipment, GAO-11-337R. Washington, D.C.: May 31, 2011. Medicare: CMS Has Addressed Some Implementation Problems from Round 1 of the Durable Medical Equipment Competitive Bidding Program for the Round 1 Rebid, GAO-10-1057T. Washington, D.C.: September 15, 2010. Medicare: CMS Working to Address Problems from Round 1 of the Durable Medical Equipment Competitive Bidding Program. GAO-10-27. Washington, D.C.: November 6, 2009. Medicare: Covert Testing Exposes Weaknesses in the Durable Medical Equipment Supplier Screening Process. GAO-08-955. Washington, D.C.: July 3, 2008. Medicare: Competitive Bidding for Medical Equipment and Supplies Could Reduce Program Payments, but Adequate Oversight Is Critical. GAO-08-767T. Washington, D.C.: May 6, 2008. Medicare: Improvements Needed to Address Improper Payments for Medical Equipment and Supplies. GAO-07-59. Washington, D.C.: January 31, 2007. Medicare Payment: CMS Methodology Adequate to Estimate National Error Rate. GAO-06-300. Washington, D.C.: March 24, 2006. Medicare Durable Medical Equipment: Class III Devices Do Not Warrant a Distinct Annual Payment Update. GAO-06-62. Washington, D.C.: March 1, 2006. Medicare: More Effective Screening and Stronger Enrollment Standards Needed for Medical Equipment Suppliers. GAO-05-656. Washington, D.C.: September 22, 2005. Medicare: CMS’s Program Safeguards Did Not Deter Growth in Spending for Power Wheelchairs. GAO-05-43. Washington, D.C.: November 17, 2004. Medicare: Past Experience Can Guide Future Competitive Bidding for Medical Equipment and Supplies. GAO-04-765. Washington, D.C.: September 7, 2004. Medicare: CMS Did Not Control Rising Power Wheelchair Spending. GAO-04-716T. Washington, D.C.: April 28, 2004.

Summary: To achieve Medicare savings for DME, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) required that CMS implement the CBP for certain DME. In 2008, the Medicare Improvements for Patients and Providers Act (MIPPA) terminated the first round of supplier contracts and required CMS to repeat the CBP round 1referred to as the round 1 rebid, resulting in the award of contracts to suppliers with payments that began January 1, 2011. CMS has estimated that the rebid will lead to significant savings for Medicare. MIPPA requires GAO to examine certain aspects of the CBP. In this report, GAO reviews (1) the outcomes of the CBP round 1 rebid process; (2) the effect of the CBP round 1 rebid on DME suppliers; (3) how the CBP round 1 rebid has affected Medicare beneficiary access to and satisfaction with selected DME; and (4) the extent to which the CBP round 1 rebid has affected the utilization of selected DME items. To examine CBP outcomes and effects, GAO analyzed data from CMS and its feedback provided to bidding suppliers, analyzed 2011 CBP data about different types of suppliers, and interviewed CMS and CBP contractor officials, DME industry groups, and suppliers. To examine CBPs effects on beneficiary access, GAO analyzed Medicare claims data for the first six months of 2011 because the data for those months were the most complete, and compared it to the same months in 2010. The Centers for Medicare and Medicaid Services (CMS), within the Department of Health and Human Services (HHS), implemented the durable medical equipment (DME) competitive bidding programs (CBP) bidding process for the round 1 rebid. Nearly the same number of suppliers submitted a similar number of bids for both the CBP round 1 rebid and round 1. Many suppliers continued to have difficulty complying with financial documentation requirements; however, the number of bids disqualified in the round 1 rebid was significantly less than for round 1. After being notified of their bid results, some suppliers were found to have bids that were disqualified incorrectly and were subsequently offered round 1 rebid contracts. About one-third of the bidding suppliers were awarded CBP contracts. Relatively few CBP contract suppliers (those awarded CBP contracts) had their contracts terminated by CMS, voluntarily canceled their contracts, or were involved in ownership changes. Under the CBP, non-contract suppliers (those not awarded CBP contracts) can grandfather certain rental DME for beneficiaries they were servicing prior to the implementation of CBP until CBP-covered beneficiaries rental periods expire. Also, some CBP contract suppliers entered into subcontracting agreements with non-contract suppliers to furnish certain services to CBP-covered beneficiaries in the round 1 rebid. CMSs ongoing multiple monitoring activities generally indicate that beneficiary DME access and satisfaction have not been affected by CBP. Although some of these efforts have limitations, in the aggregate, they provide useful information to CMS regarding beneficiary access and satisfaction. Early data indicate that utilization has decreased in some CBP-covered DME categories. GAOs review of Medicare claims data found that fewer beneficiaries in competitive bidding areas received some CBP-covered items in any of the first six months of 2011 than in the same month of 2010. Although the first year of the CBP round 1 rebid has been completed, it is too soon to determine its full effects on Medicare beneficiaries and DME suppliers. GAO found that, in general, the round 1 rebid was successfully implemented. GAO also found that utilization of selected DME declined in the CBP areas; while there are many possible reasons for this, it does not necessarily indicate that beneficiaries have not had access to needed DME. GAO does not assume that all pre-CBP utilization was appropriate and the CBP may have reduced unnecessary utilization of DME. More experience with DME competitive bidding is needed, particularly to see if evidence of beneficiary access problems emerges. For that reason, it is important to continue monitoring changes in the number of suppliers serving CBP-covered beneficiaries. In commenting on a draft of this report, HHS noted that the CBP round 1 rebid resulted in savings of more than $200 million in its first year. HHS also cited the results of CMSs monitoring of beneficiaries access to DME in CBP areas as evidence that the CBP did not affect beneficiaries adversely.