CMS and Palmetto GBA administer and implement the CBP and its bidding phases. In each CBP bidding phase, suppliers that want to participate in the CBP may submit a bid in one or more product categories in one or more designated competitive bidding areas. To be offered a CBP contract, suppliers must be qualified, meaning they have met general Medicare enrollment and quality standards as well as CBP’s financial and applicable licensing standards; be eligible to bill Medicare for DME items; have a DME surety bond; and be accredited and licensed. After CMS and Palmetto GBA review qualified suppliers’ bids, the bids are ordered by lowest to highest price, and CMS then makes offers to all those needed to meet or exceed CMS’s estimated beneficiary demand who submitted the lowest prices. If a bidding supplier accepts an offer to furnish a specific product category in a specific competitive bidding area, it must agree to furnish all of the items included in the product category to all eligible Medicare beneficiaries residing in the competitive bidding area at the applicable single payment amounts. Because the single payment amount is the median of the winning bid price offers for each DME item in a product category for each competitive bidding area, the payment can be less or more than a particular winning supplier’s actual bid for an item. Furthermore, because each competitive bidding area and product category combination is a separate competition, the same DME item may have a different single payment amount in each area. For example, the round 2 single payment amounts for a new foam rubber mattress ranged between $111.38 in the Palm Bay and Deltona, Florida, competitive bidding areas to $178.62 in the Honolulu, Hawaii, competitive bidding area. Contracts are generally awarded for 3 years and can include one or many competitions. While generally only contract suppliers that accepted a contract for a given product category and competitive bidding area are eligible to furnish those items, there are circumstances in which suppliers not awarded a CBP contract—referred to as non-contract suppliers—may be grandfathered to continue to furnish some CBP-covered items to certain beneficiaries for a limited time. In addition, physicians, treating practitioners, and hospitals can furnish walkers, folding manual wheelchairs, or external infusion pumps to their own patients as part of their professional services or during hospital admission or discharge without a CBP contract. When offering contracts, CMS takes steps that it believes will ensure beneficiary access and choice. For example, CMS’s goal is to award at least five contracts for each product category and competitive bidding area competition. To help meet this goal, CMS caps the estimated projected capacity of any single supplier at 20 percent of the total projected beneficiary demand for each product category, in each competitive bidding area, regardless of the capacity estimated by the supplier in its bid submission. CMS also tries to ensure that small suppliers are awarded CBP contracts by setting a target that 30 percent of the qualified suppliers awarded a contract in each product category and competitive bidding area competition are small. CMS is required by the MMA to conduct a new CBP phase at least once every 3 years, and begins the bid submission and award process for the new contracts before the current contracts expire. Beginning with the first round of CBP in 2008, CMS and Palmetto GBA have continued to phase- in CBP through additional rounds and programs. (See fig. 1 for a timeline summarizing the phase-in of the CBP and app. II for additional information about the CBP phases.) As of October 2015, there were 822 round 2 contract suppliers—520 of which were small suppliers—to furnish DME items and services in eight product categories and 100 competitive bidding areas. (See table 1 for a list of round 2 product categories and app. I for a list of the 100 competitive bidding areas.) Contracts were effective beginning July 1, 2013, and expired June 30, 2016. There were 19 national mail-order contract suppliers as of October 2015—6 of which were small suppliers—to furnish the eight mail-order diabetes testing supply HCPCS codes included in the national mail-order program. Contracts were effective beginning July 1, 2013, and expired June 30, 2016. The program operates in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa, and includes the same eight mail-order diabetes testing supply HCPCS codes as the round 1 rebid. For this round and future national mail-order program rounds, a supplier’s diabetes testing supply bid must demonstrate that the supplier’s bid would cover at least 50 percent, by sales volume, of all types of diabetes test strips on the market. Medicare payments for items included in the national mail-order program are the same regardless of whether they are furnished via mail order or by retail, though out-of-pocket costs for beneficiaries may be higher when they receive these supplies through retail outlets. Medicare beneficiaries residing in competitive bidding areas have several sources available to help them locate contract suppliers and receive assistance for CBP-related issues, questions, or complaints. Medicare Supplier Directory. To locate a CBP contract supplier, beneficiaries can use the CMS online supplier directory tool on CMS’s Medicare website. The Medicare Supplier Directory contains the names of the contract suppliers in each competitive bidding area as well as the product categories for which they furnish CBP-covered items. Contract suppliers are responsible for submitting information to CMS each quarter regarding the specific brands of items they plan to furnish in the upcoming quarter, and CMS uses this information to update the supplier directory tool. 1-800-MEDICARE inquiries. CMS directs beneficiaries to call its 1- 800-MEDICARE beneficiary help line for assistance with CBP-related questions. Customer service representatives are trained to assist CBP beneficiaries and use several scripts to respond to questions and assist beneficiaries in locating contract suppliers. If a beneficiary’s inquiry cannot be addressed by the customer service representatives, the inquiry is forwarded to an advanced-level customer service representative, who researches and responds to the beneficiary’s inquiry. Palmetto GBA and CMS regional offices. Palmetto GBA provides CBP-related information and updates through its website and works with CMS regional office staff to monitor CBP activities and provide educational outreach. Competitive Acquisition Ombudsman. The Competitive Acquisition Ombudsman was created to respond to CBP-related complaints and inquiries made by suppliers and individuals, and works with CMS officials and contractors and Palmetto GBA to resolve them. CMS has implemented several activities to monitor whether beneficiary access or satisfaction have been affected by the implementation of CBP and to ensure that contract suppliers are meeting their contract obligations. Inquiries and complaints to 1-800-MEDICARE. CMS tracks all CBP-related inquiries to 1-800-MEDICARE. All calls are first classified as inquiries, and CMS defines as a CBP complaint only those inquiries that cannot be resolved by any 1-800-MEDICARE customer service representative and are elevated to another entity, such as Palmetto GBA, CMS’s regional offices, or the Competitive Acquisition Ombudsman for resolution. Secret shopping calls. According to CMS officials, CMS utilizes shopping calls, in which Palmetto GBA representatives pose as referral agents or family members acting on behalf of beneficiaries and call contract suppliers to request items, such as specific diabetes testing supplies, to determine whether the suppliers offer the supplies covered under their contracts. Some calls are conducted on a random basis and are intended to reach contract suppliers from across all product categories and competitive bidding areas, while others are directed at particular suppliers. According to CMS officials, the agency uses both random and targeted calls to monitor contract suppliers that have not billed for items included in their contracts over a period of time. In addition, CMS officials said that a third type of secret shopping call, focused calls, is used to investigate specific complaints and verify contract supplier compliance with contract requirements after any necessary education to the supplier(s) is provided. According to CMS, if contract suppliers remain noncompliant following education, the agency will start the contract termination process. Beneficiary satisfaction surveys. CMS conducted both pre- and post-round 2 and national mail-order program surveys to measure beneficiary satisfaction with CBP. The round 2 pre-implementation survey was conducted January 3 through March 18, 2013, and the post-implementation survey was conducted from March 5 through April 10, 2014. The national mail-order program pre-implementation survey was conducted April 10 through April 24, 2013, and the post- implementation survey was conducted April 17 through April 27, 2014. Health Status Monitoring Tool. CMS analyzes Medicare claims data to monitor health measures, including encounters with the health care system (such as hospitalizations, emergency room visits, and physician visits) and one outcome (death) for beneficiaries in both CBP-covered areas and non-CBP areas for both round 2 and the national mail-order program. CMS posts quarterly reports on its website to show historical and regional trends in health measures for specific groups of beneficiaries. The number of beneficiaries receiving DME items covered under CBP round 2 generally decreased after the implementation of round 2, and these utilization decreases generally were larger than the decreases for items or areas that were not included in CBP. The number of beneficiaries receiving diabetes testing supplies covered under the national mail-order program also generally decreased after the implementation of the program, although there was an increase in the utilization of some items through retail outlets. The number of beneficiaries receiving at least one DME item included in CBP round 2 decreased after the implementation of round 2, and these decreases were larger than those for items or areas that were not included in CBP. That is, the decrease was largest among items and areas for which CMS established competitively set rates beginning in July 2013. Specifically, the percentage decrease in the number of beneficiaries receiving at least one round 2 DME item between 2012 and 2014 was 17 percent. In contrast, the decreases in utilization were 6 to 7 percent for the same items in non-CBP areas and for non-CBP items. (See fig. 2.) Numerous factors could have contributed to the decrease in the number of beneficiaries receiving DME, and the decreases do not necessarily indicate that beneficiaries did not receive needed DME. Some stakeholders have expressed concern that lower payment rates and a smaller number of suppliers may have caused some beneficiaries to not receive needed DME. However, CMS stated that CBP has helped limit fraud and abuse and may have curbed unnecessary utilization of some CBP-covered items in competitive bidding areas. Additionally, in recent years CMS began implementing several broader antifraud efforts that were not limited to CBP-covered items or areas, such as taking additional steps to identify aberrant or suspicious billing patterns among all Medicare FFS claims before making payments, and implementing new safeguards to better screen existing and new Medicare suppliers. Looking at each of the eight product categories individually, the number of beneficiaries receiving covered items generally decreased after implementation of round 2, and these decreases were generally larger than those for the same items in non-CBP areas. Specifically, utilization of seven of the eight round 2 product categories decreased between 2012 and 2014, with decreases that were larger than in non-CBP areas for six of these seven categories. While there was substantial variation in the magnitude of the decrease in beneficiaries receiving these items, the percentage decreases in the number of beneficiaries receiving items and in the number of items received were generally similar, indicating that the average number of items beneficiaries received was relatively constant. Continuous positive airway pressure (CPAP) was the only product category for which the number of beneficiaries receiving items increased between 2012 and 2014, as well as the category with the largest difference between the percentage change in beneficiaries and in items. (See fig. 3.) Similarly, almost all round 2 areas experienced a decrease in the number of beneficiaries receiving CBP round 2 items after the implementation of round 2, though the magnitude of the decrease varied. Specifically, 95 of the 100 round 2 areas experienced a decrease between 2012 and 2014 in the number of beneficiaries receiving CBP round 2 items, ranging from 2 to 42 percent. Of the 15 areas with the largest percentage decreases in the number of beneficiaries receiving these items, 12 were in California and Texas. Nine of these 12 areas also had the largest relative decreases in the number of beneficiaries receiving round 2 items compared with the number receiving non-CBP-covered DME items. CMS officials told us that the relatively large decreases in California and Texas attributed to the implementation of CBP round 2 were likely because these states historically had high rates of potential fraud and abuse. (See fig. 4.) The total number of beneficiaries receiving at least one diabetes testing supply item covered under the national mail-order program decreased after implementation of the program, although there was an increase in the number of beneficiaries receiving some of these items through retail outlets. Specifically, there was an overall 12 percent decrease between 2012 and 2014 in the number of beneficiaries receiving at least one diabetes testing supply item through any acquisition method. However, during the same time period there was a 39 percent decrease in the number of beneficiaries receiving these items through mail order and a 13 percent increase in the number of beneficiaries receiving these items through retail outlets such as stores or pharmacies. The net result was a switch from a majority of beneficiaries (57 percent) receiving these supplies through mail order in 2012 to a majority receiving supplies through retail in 2014 (63 percent). (See fig. 5.) These utilization results were driven by changes in the two most commonly received items covered under the national mail-order program: diabetes test strips and lancets. For the other six covered diabetes testing supplies, the number of beneficiaries receiving these items through retail outlets decreased. Although CMS officials said that they could not speculate about reasons for this switch, a diabetes advocacy group we interviewed speculated that beneficiaries may have decided to switch to retail because they had difficulty finding contract suppliers that would provide the specific brand of test strips they requested. The use of retail outlets could result in higher out-of-pocket payments for beneficiaries because unlike mail-order contract suppliers, retail outlets are not required to accept assignment for diabetes testing supplies covered under the national mail-order program. Based on its monitoring of health measures, CMS reported that the implementation of the CBP has not resulted in widespread beneficiary access issues. The number of round 2 and national mail-order program inquiries and complaints to 1-800-MEDICARE generally decreased throughout the first 2 years of the programs’ implementation. CMS told us that it investigates complaints using secret shopping calls and that its post-implementation beneficiary satisfaction surveys remained positive. Nevertheless, several stakeholder groups we interviewed reported specific concerns such as delays in delivery of CBP-covered DME items and beneficiaries having difficulty locating a contract supplier. CMS reported that its health status monitoring tool showed similar trends in health measures in both CBP and non-CBP areas, both before and after the implementation of round 2. CMS has reported no changes in health measures attributable to the implementation of any CBP round since the agency began monitoring measures in 2011, which CMS officials told us is an indication that the CBP has not caused widespread problems with beneficiary access. Officials told us that CMS investigated aberrant trends in health measures identified by the monitoring tool and concluded that all such trends were the result of issues unrelated to CBP. For example, CMS officials told us that they investigated an increased mortality rate in one competitive bidding area and concluded it was due to an influenza outbreak. Similarly, they found that other issues resulted from changes in DME policy not specific to CBP, such as new requirements regarding prior authorization for wheelchairs. CMS’s health status monitoring tool uses Medicare claims data to track seven health measures—deaths, hospitalizations, emergency room visits, physician visits, admissions to skilled nursing facilities, average number of days spent hospitalized in a month, and average number of days in a skilled nursing facility in a month. CMS monitors these health measures for three groups of Medicare FFS beneficiaries residing in both CBP and non-CBP areas: (1) all beneficiaries enrolled in FFS, (2) beneficiaries likely to use one of the competitively bid products on the basis of related health conditions, and (3) beneficiaries for whom Medicare has paid a claim for one of the competitively bid products. CMS’s tool considers historical and regional trends in health status to monitor health measures in all CBP and non-CBP areas. CMS publishes aggregated results for four U.S. geographic regions quarterly on its website. CMS uses the tool to review Medicare claims data on a bi-weekly basis. According to a monitoring tool user guide that CMS provided us, the tool uses a statistical scoring algorithm to identify potential changes in health measures in every competition. The goal of the scoring algorithm is to identify persistent aberrant trends in health measures in individual competitive bidding area and product category competitions that are not mirrored in other regions. These aberrant trends can then be investigated further, through steps such as beneficiary and supplier outreach and contract compliance reviews. Based on our analysis, CMS’s methodologies and scoring algorithm used to evaluate health measure trends among CBP areas appear to be sound. However, we did not examine individual investigations that CMS conducted to assess aberrant changes in trends in particular competitive bidding areas and product categories and whether these trends could be attributed to CBP. The number of inquiries and complaints to 1-800-MEDICARE regarding CBP round 2 or the national mail-order program represented less than 1 percent of all calls to 1-800-MEDICARE, and inquiries and complaints generally decreased throughout the programs’ first 2 years of implementation. During the first quarter of implementation (July 1, 2013, to September 30, 2013), 1-800-MEDICARE received almost 100,000 inquiries—including almost 300 complaints—related to CBP round 2 or the national mail-order program. However, the number of inquiries and complaints dropped sharply during the second quarter of implementation, and then generally continued to decrease slowly or remained relatively consistent over subsequent quarters. (See fig. 6.) After implementation of the CBP, CMS began to track CBP-related inquiries to 1-800-MEDICARE and to classify them as either general CBP inquiries, such as requests for general information, or assistance determining whether a beneficiary resided in a competitive bidding area and whether the inquiries were about a specific product category. The highest number of general CBP inquiries occurred in the first quarter after implementation—61,457—which decreased to 8,741 by the last quarter of the 2-year period. The number of category-specific inquiries for each product category generally decreased from the first quarter to the last quarter. The mail-order diabetes testing supplies product category had the highest number of specific inquiries during the first quarter—15,953— which fell to 1,610 inquiries in the last quarter. The standard wheelchairs product category had the next-highest number of inquiries during the first quarter—6,438—which fell to 2,967 inquiries in the last quarter. The total number of complaints was small compared to the total number of inquiries. However, the number of complaints may not fully capture the number of people who expressed problems or dissatisfaction with the CBP program, because CMS defines a complaint as an inquiry to 1-800- MEDICARE that needs to be referred to an outside entity for resolution, such as Palmetto GBA. The 1,156 complaints recorded in the first 2 years occurred across multiple round 2 product categories, rather than being concentrated in a few specific categories. The complaints varied, but included complaints that contract suppliers refused to serve beneficiaries residing in their competitive bidding areas or had provided poor customer service, that beneficiaries had experienced delays in receiving DME or had received the wrong DME, and that beneficiaries had difficulty obtaining specific brands and models of DME items that had been prescribed by their physicians. For example, Palmetto GBA received several complaints indicating that contract suppliers refused to provide the U-Step walker, a specific brand of walker, furnished under a specific HCPCS code. According to CMS, U-Step walkers are infrequently prescribed, and Palmetto GBA worked with beneficiaries on a case-by- case basis to obtain them from contract suppliers. CMS told us that in every instance in which Palmetto GBA intervened, Palmetto GBA was able to locate a contract supplier to provide the item for each beneficiary with a prescription for the U-Step walker. CMS officials told us that the agency monitors contract suppliers to ensure that they are complying with the terms of their contracts, such as servicing all beneficiaries that reside in their competitive bidding areas and furnishing the same items to Medicare beneficiaries that they make available to other customers. Officials told us that when CMS receives complaints regarding contract suppliers’ noncompliance with contract terms, CMS may contact the supplier and/or beneficiary to obtain information necessary for investigation and may also work with other CMS contractors or deploy secret shopper calls, if deemed appropriate to do so. CMS told us that the reason for the secret shopping call helps the agency determine the strategy chosen—that is, whether it is appropriate to conduct the secret shopping calls with one or multiple supplier locations, or with multiple contract suppliers for particular competitive bidding areas or product category competitions. According to CMS, Palmetto GBA may conduct dozens or hundreds of focused secret shopping calls to investigate a single complaint to thoroughly investigate an allegation or verify contract supplier compliance. CMS told us that during secret shopping calls, Palmetto GBA representatives may pose as referral agents on behalf of beneficiaries and request items, such as specific diabetes testing supplies from contract suppliers, to determine whether the suppliers offer the supplies they claim to furnish. According to CMS, if those calls find that the contract supplier refused to provide DME items according to the terms of its CBP contract, Palmetto GBA describes the results of the call to the supplier’s representative and sends an educational letter reiterating contract obligations. Officials said that for a contract supplier who remains noncompliant, CMS sends a letter terminating the supplier’s CBP contract, and suppliers can submit a corrective action plan, accept the termination, or request a hearing. According to CMS, between July 2013 and June 2015, Palmetto GBA made a total of 3,953 focused secret shopping calls related to round 2 complaints and a total of 254 focused secret shopping calls related to the national mail-order program. CMS officials told us that as a result of those secret shopping calls, the agency issued 43 termination notices to contract suppliers during this time frame. Of those, 37 contract suppliers came into compliance and 6 suppliers’ contracts were terminated. CMS reported that its pre- and post-CBP implementation beneficiary satisfaction surveys found that the majority of respondents rated their experiences positively in both time periods. For both the pre- and post- implementation surveys, CMS obtained telephone responses from a random sample of approximately 400 beneficiaries in each of the 100 competitive bidding areas who received at least one CBP-covered DME item. The surveys asked beneficiaries to record their satisfaction ratings on a five-point scale for six questions: the beneficiary’s initial interaction with DME suppliers, the training received regarding the DME item, the delivery of the DME item, the quality of the item provided by the supplier, the customer service provided by the supplier, and the supplier’s overall complaint handling. In both the pre- and post-implementation surveys, a majority of the beneficiaries who responded to each of the six questions rated their experiences as either “good” or “very good,” although there were slightly fewer positive responses in the post-implementation survey. The percentage of positive responses after implementation decreased for each question, ranging between 85 and 92 percent for pre- implementation questions, and between 84 and 89 percent for the same questions post-implementation. (See fig. 7.) CMS also conducted pre- and post-implementation surveys for the national mail-order program using the same methodology. Those surveys also found that post-implementation satisfaction levels remained high. CMS obtained responses from a random sample of 2,086 beneficiaries for the 2013 pre-implementation survey and 2,000 for the 2014 post- implementation survey. For each of the six questions in both surveys, results indicated that between 82 and 92 percent of beneficiaries surveyed rated their experiences as either “good” or “very good,” although the exact percentage decreased slightly for some questions and increased slightly for others. (See fig. 8.) As we reported previously, CMS’s survey design has some limitations. For example, the survey design did not capture responses from beneficiaries who may have needed, but did not obtain, DME during the period. That is, if a beneficiary did not receive a DME item, the beneficiary’s response regarding his or her potential access issue to the DME item would not be included in the survey. Additionally, the distribution of beneficiaries who received items across the different product categories could have changed between the pre- and post- implementation surveys, and the results were not analyzed separately by product category. The stakeholders we interviewed reported varied experiences with CBP and the national mail-order program. Some stakeholders reported that they had no beneficiary access issues following the implementation of round 2 and the national mail-order program and others reported numerous beneficiary access concerns. In general, stakeholders from one of the five beneficiary advocacy groups and one of four state hospital associations (California, Florida, Illinois, and New York) reported no or very few specific concerns with CBP beneficiary access. However, stakeholders from four beneficiary advocacy groups reported that their members experienced several access issues with the implementation of CBP round 2 and the national mail-order program. These issues included delays in delivery of CBP-covered DME items, such as walkers, and trouble locating contract suppliers to provide specific DME items, such as liquid oxygen and specific brands of diabetes testing strips, or to repair wheelchairs. In addition, discharge planners and other stakeholders from three state hospital associations reported that beneficiaries also experienced delays in delivery of CBP-covered items, such as walkers and wheelchairs, and had difficulty locating contract suppliers to provide oxygen or service DME items when the beneficiaries were visiting in a competitive bidding area but resided elsewhere. Discharge planners and referral agents from the Florida and California hospital associations told us that the delays in delivery of needed DME resulted in an increase in the length of hospital stays for some beneficiaries. For example, individuals we spoke with from the Florida Hospital Association told us that prior to CBP, DME suppliers typically delivered DME within 24 hours of the request, 7 days a week. However, since CBP round 2 was implemented, contract suppliers in Florida’s competitive bidding areas no longer delivered on weekends and also delivered only during certain hours Monday through Friday. The planners and agents from the Florida Hospital Association told us that delays in delivery can extend the length of beneficiaries’ hospital stays when the DME is necessary prior to discharge, such as DME for orthopedic-related injuries. In some cases, they told us that the hospital loans or provides certain DME, such as walkers, in order to discharge beneficiaries on time. As previously described, CMS’s health status monitoring tool did not indicate changes in the average length of hospital stays resulting from the implementation of CBP. We conducted a limited analysis to compare the length of hospital stays in 2012 (pre-CBP) and 2014 (post-CBP) for beneficiaries who had a hip or knee replacement, both nationally and in California and Florida. We found that the average length of stay was slightly lower in 2014 than in 2012, both for the two selected states and nationally. This was true for both beneficiaries who received DME within a day of discharge and those who did not, within as well as outside competitive bidding areas. (See fig. 9.) This limited analysis did not indicate an increase in the average length of stay among beneficiaries as a result of the implementation of CBP, although we did not expand our analysis to determine if results were consistent across other reasons for hospitalization. Most round 2 and national mail-order program competitions had at least five active contract suppliers in 2014, but other competitions had just one or a few active suppliers. In addition, some competitions had a single contract supplier that accounted for the majority of the market share. Eleven percent of contract suppliers were inactive during 2014 in all the competitions in which they were awarded and accepted a contract, and about half of contract suppliers were inactive in at least one of the competitions in their contract. CMS told us that it monitors the contract supplier market and has its contractor conduct secret shopping calls of inactive suppliers on a quarterly basis to confirm that the suppliers are not in breach of their contracts. A large majority of the possible 801 individual competitions in which a contract supplier could be awarded a contract had at least five contract suppliers that were active in 2014, which we defined as having furnished at least one covered item during 2014 in at least one of the competitive bidding areas and product category competitions in which they were awarded and accepted a contract. We found that 84 percent of the competitions had at least five active contract suppliers; however, 11 percent of competitions had three or fewer active suppliers and 1 percent had just one active supplier. (See table 2.) During the bid evaluation and contract award processes, CMS tries to ensure beneficiary access and choice by awarding contracts to at least five contract suppliers in each competition. To ensure that there is sufficient capacity to satisfy beneficiary demand, CMS considers a competition with only one qualified supplier to be nonviable. According to CMS officials, once contracts are awarded, contract suppliers are required to furnish items and services upon request, but are not otherwise required to furnish a certain amount of DME items as part of their contract obligations. The number of active contract suppliers across the 800 round 2 competitions varied substantially by product category. The round 2 product category with the largest number of active contract suppliers was oxygen, in which 352 suppliers accounted for over $362 million in charges during 2014. Furthermore, the majority (86) of the 100 competitions for the oxygen product category had at least 11 active suppliers. In contrast, the product category with the fewest active contract suppliers was negative pressure wound therapy (NPWT), with 60 suppliers that accounted for over $48 million in charges. Over half (69) of the 100 competitions for NPWT had 4 or fewer active contract suppliers and 4 had a single active supplier. For the national mail-order program, all 19 contract suppliers were active in 2014. While multiple suppliers had substantial shares of the market for most competitions, in some competitions a single supplier had a majority. In 72 percent of the 801 competitions, no contract supplier had more than half of the market. However, in 14 percent (113) of the competitions, a single contract supplier had at least three quarters of the market, and in 6 percent (48) of the competitions, one contract supplier had 90 percent or more of the market. (See table 3.) Market concentration varied substantially by product category. The round 2 product category with the least market concentration was wheelchairs, for which the top contract supplier had less than 25 percent of the market in 43 of the 100 total competitions. One reason for this was the relatively high market share of non-contract suppliers, as physicians and hospitals are allowed to provide folding manual wheelchairs to their patients directly in certain circumstances. In addition, other suppliers chose to be grandfathered and continued furnishing capped rental wheelchairs to beneficiaries who were their customers when CBP round 2 began. For example, we found that non-contract suppliers had at least 25 percent of the market share in 56 of the 100 total wheelchair competitions. In contrast, the product category with the largest market concentration was NPWT, for which the top contract supplier had at least 90 percent of the market in 47 of the 100 competitions. NPWT was also the only round 2 product category for which non-contract suppliers accounted for less than 10 percent of market share in all 100 competitions. In addition, some contract suppliers had a substantial proportion of the total round 2 and national mail-order program market—which was over $1 billion in 2014—as well as even higher market share for individual product categories. For example, the contract supplier with the highest market share based on charges for CBP-covered items, Lincare, had $157 million in charges, or 13 percent of the round 2 and mail-order program market in 2014. It also had 25 percent of the oxygen market and the highest market share in three other product categories (CPAP, hospital beds, and walkers). Arriva, the contract supplier with the second highest overall market share, had $85 million in charges, or 7 percent of total 2014 charges. However, these charges were for mail-order diabetes testing supplies only; Arriva had 50 percent of the $170 million national mail-order program market. Apria, the contract supplier with the third highest overall market share, had $68 million in charges, or 6 percent of the total market, and accounted for over 10 percent of the CPAP and oxygen markets. KCI, with the fourth highest market share, was only active in the NPWT category, and had $42 million in charges during 2014, which accounted for 86 percent of the NPWT market. Eleven percent of contract suppliers (94 of 834) were inactive during 2014 in all of the competitions in their contract—that is, they did not furnish any CBP-covered items during 2014 in any of the competitive bidding areas and product categories in which they were awarded and accepted a contract. The completely inactive suppliers varied in their categories, areas, and duration of participation in CBP. The 94 completely inactive suppliers’ contracts included over half of all competitions (446 of 801), and spanned all 8 round 2 product categories and 99 of the 100 round 2 areas. In addition, about half of the 94 completely inactive contract suppliers stopped participating in CBP prior to the end of 2014—19 were terminated by CMS and 23 closed or otherwise voluntarily withdrew from the CBP. However, the majority of completely inactive contract suppliers had higher composite bids than other contract suppliers. Specifically, 82 of the 94 completely inactive contract suppliers’ bids (estimates of the price at which they could profitably provide those items) were above the median bid of all suppliers in the same competition, on average, and for 56 of the contract suppliers this difference was more than 10 percent. In addition, 61 of the 94 completely inactive contract suppliers were designated as small bidders by CMS, and 59 had only one or two competitions in their contract. In 2014, an additional 39 percent of contract suppliers (324 suppliers) were inactive in at least one of the competitions in their contract, and 3 percent (28) had less than $1,000 in total Medicare charges for CBP- covered items. These partially inactive suppliers included contract suppliers that were very active in other markets. For example, Lincare, the supplier with the largest overall market share, was inactive in 144 of the 689 competitions in its contract. Similar to the completely inactive suppliers, the 28 barely active contract suppliers’ contracts spanned all eight round 2 product categories and 96 of the 100 round 2 areas, and 24 of the 28 barely active contract suppliers bid above the median bid, on average. To help ensure beneficiary access and choice, CMS officials said that CMS monitors all competitions, but applies greater focus to those where there is just one or a few active contract suppliers and assesses whether there is a need for CMS to award subsequent contract offers to existing contract suppliers. CMS officials told us that the agency does not believe that having competitions with just one or a few active contract suppliers has decreased beneficiary access and choice because its routine monitoring of beneficiary access has not identified access issues. CMS also told us that the agency monitors suppliers that are inactive by having Palmetto GBA conduct secret shopping calls quarterly. According to CMS, most of the secret shopping calls to contract suppliers that were inactive resulted in finding that the suppliers were not in breach of contract, and in some instances, they reported that they had not received requests from beneficiaries or referral agents for CBP-covered items. However, CMS reported that Palmetto GBA found that eight inactive contract suppliers were in breach of their contracts because they were not providing items that had been requested. Of those, three contract suppliers were brought into compliance and the other five contract suppliers’ contracts were terminated. In addition, CMS officials told us that the agency also works with the Competitive Acquisition Ombudsman and uses local competitive bidding liaisons to provide an on-the-ground physical presence and investigate and address any potential issues. We provided a draft of this product to HHS for comment. HHS provided technical comments, which were incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Health and Human Services and appropriate congressional committees. The report will also be available at no charge on our website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. Appendix I: The 100 Competitive Bidding Areas Included in the Centers for Medicare & Medicaid Services’ Competitive Bidding Program Round 2 by specific ZIP codes related to a metropolitan statistical area, and they may be the same size as, larger than, or smaller than the related metropolitan statistical area, depending on a variety of considerations. The competitive bidding area is the area wherein only contract suppliers may furnish competitively bid items to beneficiaries unless an exception is permitted by law. Metropolitan statistical areas with populations over 8 million may be subdivided into multiple competitive bidding areas. Most round 2 metropolitan statistical areas have only one competitive bidding area. However, the three largest metropolitan statistical areas (Chicago, Los Angeles, and New York) are subdivided into multiple competitive bidding areas, so there are a total of 100 competitive bidding areas. Since the durable medical equipment (DME) competitive bidding program (CBP) was implemented in 2008, the Centers for Medicare & Medicaid Services (CMS) has phased in several additional CBP rounds and programs. Round 1. CMS awarded contracts to 329 contract suppliers—208 of which were designated by CMS as small suppliers—to furnish DME items and services in 10 product categories in 10 competitive bidding areas. According to CMS, the round 1 competitive bidding areas were selected, in part, because they may have had prior instances of unnecessary DME utilization. Contracts were intended to be effective for a 3-year period, July 1, 2008, through June 30, 2011; however, round 1 was stopped on July 15, 2008, through the enactment of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). Among other provisions, MIPPA terminated the contracts already awarded by CMS to suppliers in round 1 and required CMS to repeat the competition for round 1—referred to as the CBP round 1 rebid. Round 1 rebid. CMS awarded contracts to 356 contract suppliers—219 of which were small suppliers—to furnish DME items and services in nine product categories in nine competitive bidding areas. Contracts were effective January 1, 2011, and expired after 3 years on December 31, 2013, except for the contracts for the mail-order diabetes testing supplies product category, which expired on December 31, 2012. Round 1 recompete. CMS awarded contracts to 282 contract suppliers— 163 of which were small suppliers—to furnish DME items and services in six product categories and nine competitive bidding areas. The recompete contracts were effective January 1, 2014, and expire December 31, 2016. Round 1 2017. Round 1 2017 will include seven product categories, with the same items as were bid in the round 1 recompete except for the external infusion pumps and supplies product category, which is not included in round 1 2017. Round 1 2017 will be implemented in the same 9 competitive bidding areas as the round 1 rebid and round 1 recompete, but because competitive bidding areas that included more than one state have been redefined so that there are no longer any multistate areas, the total number of competitive bidding areas is 13. These contracts become effective January 1, 2017, and expire December 31, 2018. Round 2 and national mail-order program. CMS awarded contracts to 822 contract suppliers—520 of which were small suppliers—to furnish DME items and services in eight product categories and 100 competitive bidding areas. CMS also awarded 19 contracts—6 of which were to small suppliers—to furnish mail-order diabetes testing supplies included in the national mail-order program. The round 2 and national mail-order program contracts were effective July 1, 2013, and expired June 30, 2016. Round 2 recompete and national mail-order program recompete. According to CMS officials, the agency awarded contracts to 586 contract suppliers—334 of which were small suppliers—to furnish DME items for seven product categories with most of the same items bid in other rounds, although CMS grouped certain items into different product categories. Round 2 recompete will be implemented in the same 100 competitive bidding areas as round 2, but because competitive bidding areas that included more than one state have been redefined so that there are no longer any multistate areas, the total number of competitive bidding areas is 117. CMS officials told us that the agency also awarded contracts to 9 contract suppliers—2 of which were small suppliers—to furnish the same diabetes testing supplies in the same areas that were included in the first national mail-order program. The round 2 recompete and national mail- order program recompete contracts were effective July 1, 2016, and expire December 31, 2018. Kathleen M. King, (202) 512-7114 or kingk@gao.gov. In addition to the contact named above, Martin T. Gahart, Assistant Director; Michelle Paluga, Analyst-in-Charge; Todd Anderson; Alison Binkowski; Elizabeth T. Morrison; and Emily Wilson made key contributions to this report. Medicare: Bidding Results from CMS’s Durable Medical Equipment Competitive Bidding Program. GAO-15-63. Washington, D.C.: November 7, 2014. Medicare: Second Year Update for CMS’s Durable Medical Equipment Competitive Bidding Program Round 1 Rebid. GAO-14-156. Washington, D.C.: March 7, 2014. Medicare: Review of the First Year of CMS’s Durable Medical Equipment Competitive Bidding Program’s Round 1 Rebid. GAO-12-693. Washington, D.C.: May 9, 2012. Medicare: The First Year of the Durable Medical Equipment Competitive Bidding Program Round 1 Rebid. GAO-12-733T. Washington, D.C.: May 9, 2012. Medicare: Issues for Manufacturer-level Competitive Bidding for Durable Medical Equipment. GAO-11-337R. Washington, D.C.: May 31, 2011. Medicare: CMS Has Addressed Some Implementation Problems from Round 1 of the Durable Medical Equipment Competitive Bidding Program for the Round 1 Rebid. GAO-10-1057T. Washington, D.C.: September 15, 2010. Medicare: CMS Working to Address Problems from Round 1 of the Durable Medical Equipment Competitive Bidding Program. GAO-10-27. Washington, D.C.: November 6, 2009. Medicare: Covert Testing Exposes Weaknesses in the Durable Medical Equipment Supplier Screening Process. GAO-08-955. Washington, D.C.: July 3, 2008. Medicare: Competitive Bidding for Medical Equipment and Supplies Could Reduce Program Payments, but Adequate Oversight Is Critical. GAO-08-767T. Washington, D.C.: May 6, 2008. Medicare: Improvements Needed to Address Improper Payments for Medical Equipment and Supplies. GAO-07-59. Washington, D.C.: January 31, 2007. Medicare Payment: CMS Methodology Adequate to Estimate National Error Rate. GAO-06-300. Washington, D.C.: March 24, 2006. Medicare Durable Medical Equipment: Class III Devices Do Not Warrant a Distinct Annual Payment Update. GAO-06-62. Washington, D.C.: March 1, 2006. Medicare: More Effective Screening and Stronger Enrollment Standards Needed for Medical Equipment Suppliers. GAO-05-656. Washington, D.C.: September 22, 2005. Medicare: CMS’s Program Safeguards Did Not Deter Growth in Spending for Power Wheelchairs. GAO-05-43. Washington, D.C.: November 17, 2004. Medicare: Past Experience Can Guide Future Competitive Bidding for Medical Equipment and Supplies. GAO-04-765. Washington, D.C.: September 7, 2004.

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, such as wheelchairs and oxygen, in phases, or rounds. Round 1 started in 2008, and round 2 and the national mail-order program started in 2013. CMS estimated that the first 2 years of round 2 and the national mail-order program saved Medicare approximately $3.6 billion. GAO has reported on several prior CBP rounds. GAO was asked to continue to review the implementation of the CBP. In this report, GAO examines the extent to which round 2 and the national mail-order program have affected (1) utilization of CBP-covered DME items, and (2) beneficiaries' access to DME items. This report also (3) describes the number and market shares of the round 2 and mail-order program suppliers. To examine the effect of CBP on utilization, GAO used Medicare DME claims data from 2012 and 2014—the year before and the year after implementation of round 2—to compare the number of beneficiaries who received CBP-covered DME items. To examine the effect of CBP on beneficiary access, GAO reviewed information about CMS's efforts to monitor the effects of the CBP, and interviewed selected Medicare beneficiary organizations and state hospital associations. To describe the supplier markets, GAO analyzed 2014 Medicare claims data, the latest year with complete available data when GAO began this engagement. The number of beneficiaries receiving durable medical equipment (DME) items covered under the competitive bidding program (CBP) generally decreased after implementation of two CBP phases that began July 1, 2013—round 2 and the national mail-order program for diabetes testing supplies. Under the CBP, (administered by the Centers for Medicare & Medicaid Services (CMS)), only competitively selected contract suppliers can furnish certain DME items at competitively determined prices to beneficiaries in designated competitive bidding areas. From the year before (2012) to the year after (2014) implementation, the number of beneficiaries receiving covered items in round 2 areas decreased 17 percent, compared with a 6 percent decrease for beneficiaries in non-CBP areas. The number of beneficiaries that received diabetes testing supplies through the national mail-order program also decreased 39 percent between 2012 and 2014, with a corresponding 13 percent increase in the number of beneficiaries receiving these items through retail outlets. CMS officials stated that CBP has helped limit fraud and abuse and may have curbed unnecessary utilization of some CBP-covered items in competitive bidding areas. CMS reports that available evidence from the agency's monitoring efforts indicates that the implementation of round 2 and the national mail-order program have had no widespread effects on beneficiary access. In particular, CMS has reported that its health status monitoring tool has not detected any changes in health measures attributable to the CBP, and the results of its 2014 post-CBP beneficiary satisfaction surveys remained positive. In addition, the number of CBP inquiries and complaints generally decreased throughout the first 2 years of round 2 and the national mail-order program. CMS officials told GAO that CMS took measures to ensure that contract suppliers met their contract obligations, such as investigating complaints using secret shopping calls, and terminating contracts of suppliers that remained noncompliant after receiving targeted education. However, some beneficiary advocacy groups and state hospital associations reported specific access issues, such as difficulty locating contract suppliers that will furnish certain items and delays in delivery of DME items. Round 2 and the national mail-order program included 801 separate competitive bidding area and product category competitions. Most of these competitions had at least five active contract suppliers in 2014. However, 11 percent of the competitions had three or fewer active contract suppliers and 1 percent had just one active contract supplier. In addition, while multiple suppliers had substantial shares of the market for most competitions, in some competitions a single supplier had a majority. For example, in 6 percent of the competitions, one contract supplier had at least 90 percent of the market. Conversely, 11 percent of contract suppliers did not furnish any CBP-covered items for any competitions in their contract. CMS officials told GAO that CMS monitors these suppliers to help ensure that they are meeting their contractual obligations, such as being willing to service all beneficiaries in their areas and to furnish the same items to Medicare beneficiaries that they make available to other customers. The Department of Health and Human Services provided technical comments on a draft of this report, which were incorporated as appropriate.