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.