Medicare: The First Year of the Durable Medical Equipment Competitive Bidding Program Round 1 Rebid

Published by the Government Accountability Office on 2012-05-09.

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                             United States Government Accountability Office

GAO                          Testimony
                             Before the Subcommittee on Health,
                             Committee on Ways and Means, House of

For Release on Delivery
Expected at 9:00 a.m. EDT
Wednesday, May 9, 2012

                             The First Year of the
                             Durable Medical Equipment
                             Competitive Bidding
                             Program Round 1 Rebid
                             Statement of Kathleen M. King
                             Director, Health Care

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Chairman Herger, Ranking Member Stark, and Members of the

I am pleased to be here today to discuss the Medicare 1 competitive
bidding program for selected durable medical equipment (DME) and
certain other items. My testimony today is focused on our review of the
Centers for Medicare & Medicaid Services (CMS) 2 implementation of
the competitive bidding program (CBP) round 1 rebid that began on
January 1, 2011.

Most Medicare beneficiaries participate in Medicare Part B, 3 which helps
pay for DME items, such as oxygen, wheelchairs, hospital beds, walkers,
as well as prosthetics, orthotics, and related supplies. Medicare
beneficiaries typically obtain DME items from suppliers, which submit
claims for payment to Medicare on behalf of beneficiaries. Both we and
the Department of Health and Human Services (HHS) Office of Inspector
General (OIG) have reported that Medicare and its beneficiaries have
sometimes paid higher-than-market rates for various medical equipment

 Medicare is a federal health insurance program for people age 65 and older, individuals
under age 65 with certain disabilities, and individuals diagnosed with end-stage renal
 CMS is an agency within the Department of Health and Human Services that has
responsibility for administering the Medicare program.
 Medicare Part B helps pay for certain physician, outpatient hospital, laboratory and other
services, and medical equipment and supplies—DME. Beneficiaries are required to pay a
monthly premium for Part B coverage, an annual deductible, and coinsurance. In general,
Medicare beneficiaries pay 20 percent—the coinsurance—of the Medicare fee schedule
payment rate for the DME item after reaching their annual Medicare Part B deductible. In
2010, CMS reported that Medicare Part B and beneficiaries paid approximately $14.3
billion for DME and related items.

Page 1                                                                         GAO-12-733T
and supply items. 4 These overpayments increase costs to both Medicare
and its beneficiaries.

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. CMS began implementing the first
round of the CBP in 2007 and 2008—but 2 weeks after the round 1
began, the Medicare Improvements for Patients and Providers Act of
2008 (MIPPA) terminated the first round of supplier contracts and
required CMS to repeat the CBP round 1—the round 1 rebid. In 2009,
CMS began implementing the round 1 rebid, which resulted in the award
of contracts to suppliers with payments that began on January 1, 2011.
Nine competitive bidding areas 5 and nine product categories 6 for selected

 GAO, Medicare: CMS Has Addressed Some Implementation Problems from Round 1 of
the Durable Medical Equipment Competitive Bidding Program for the Round 1 Rebid,
GAO-10-1057T (Washington, D.C.: Sept. 15, 2010); GAO, Medicare: CMS Working to
Address Problems from Round 1 of the Durable Medical Equipment Competitive Bidding
Program, GAO-10-27 (Washington, D.C.: Nov. 6, 2009); GAO, 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); GAO,
Medicare: Past Experience Can Guide Future Competitive Bidding for Medical Equipment
and Supplies, GAO-04-765 (Washington, D.C.: Sept. 7, 2004); Department of Health and
Human Services Office of Inspector General, A Comparison of Prices for Power
Wheelchairs in the Medicare Program, OEI-03-03-00460 (Washington, D.C.: April 2004);
and Janet Rehnquist, Inspector General, Department of Health and Human Services,
Medicare Reimbursement for Medical Equipment and Supplies, testimony before the
Senate Committee on Appropriations, Subcommittee on Labor, Health and Human
Services, and Education, 107th Cong., 2nd sess., June 12, 2002.
 The nine CBP round 1 rebid competitive bidding areas are: Charlotte (Charlotte-
Gastonia-Concord, North Carolina and South Carolina); Cincinnati (Cincinnati-Middletown,
Ohio, Kentucky, and Indiana); Cleveland (Cleveland-Elyria-Mentor, Ohio); Dallas (Dallas-
Fort Worth-Arlington, Texas); Kansas City (Kansas City, Missouri and Kansas); Miami
(Miami-Fort Lauderdale-Pompano Beach, Florida); Orlando (Orlando-Kissimmee, Florida);
Pittsburgh (Pittsburgh, Pennsylvania); and Riverside (Riverside-San Bernardino-Ontario,
 The CBP round 1 rebid’s nine product categories are: complex power wheelchairs
(complex rehabilitative power wheelchairs and related accessories—limited to group 2—
power wheelchairs with power options); CPAP/RAD (continuous positive airway pressure
devices, respiratory assist devices, and related supplies and accessories); enteral (enteral
nutrients, equipment, and supplies); hospital beds (hospital beds and related accessories);
mail-order diabetic supplies; oxygen (oxygen supplies and equipment); standard power
wheelchairs (standard power wheelchairs, scooters, and related accessories); walkers
(walkers and related accessories); and support surfaces (support surfaces limited to group
2 mattresses and overlays—pressure reducing support surfaces for persons with or at
high risk for pressure ulcers—in the Miami competitive bidding area only).

Page 2                                                                         GAO-12-733T
DME items were included in the CBP round 1 rebid. CMS has estimated
that the rebid will lead to significant savings for Medicare.

MIPPA also required us to examine particular issues regarding early
results from the ongoing CBP round 1 rebid. 7 We reviewed (1) the
outcomes of the CBP round 1 rebid process including bid disqualifications
and contracts awarded; (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.

My remarks today are based on our report, released today, Medicare:
Review of the First Year of CMS’s Durable Medical Equipment
Competitive Bidding Program’s Round 1 Rebid. 8 In that report, to
examine CBP outcomes and effects, we 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 the CBP’s
effects on beneficiary access, we analyzed Medicare claims data for the
first 6 months of 2011, because claims data for those months were the
most complete, and compared that data to the same months in 2010. Our
findings on the first year of the round 1 rebid are based on the limited
evidence available at the time we did our work; more data will become
available as the CBP continues. CMS officials commented on a draft of
our report. Our work was performed in accordance with generally
accepted government auditing standards from May 2011 through May
2012 for both the report and for this statement.

Our work on the outcomes of the CBP round 1 rebid found that the
number of bidding suppliers and the number of contracts awarded in the
CBP round 1 rebid were very similar to the CBP round 1 and about a third
of the 1,011 suppliers that bid in the rebid were awarded at least one CBP
contract. CMS made improvements to the bidding process for the CBP
round 1 rebid—such as providing additional information about
disqualification reasons—and significantly fewer bids were disqualified
than in round 1. However, many suppliers still had difficulty meeting bid

Pub. L. No. 110-275, § 154(c), 122 Stat. at 2565-6.
GAO-12-683 (Washington, D.C.: May 9, 2012).

Page 3                                                         GAO-12-733T
requirements. Of the bids that were disqualified during the initial bid
review, 73 percent were disqualified because suppliers failed to provide
the required financial documentation or did not meet CMS’s minimum
financial standard threshold for suppliers. 9 The number of bids
disqualified for missing financial documentation in the CBP round 1 rebid
would have been higher if many suppliers had not benefited from a
MIPPA provision that required that CMS provide suppliers the opportunity
to be notified of and to submit missing required financial documentation—
a process not available during CBP round 1. As a result, 93 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
the CBP round 1 rebid, as in CBP round 1, CMS determined that some
suppliers’ bids had been disqualified incorrectly. CMS told us it received
bid inquiries from 99 suppliers that had bids disqualified in the CBP round
1 rebid and subsequently extended contracts to 7 of those suppliers that
were found to have incorrectly disqualified bids.

During CBP’s first year, few 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,
many non-contract suppliers—those that were not awarded CBP
contracts—exercised the option to grandfather certain CBP-covered
rental DME items for beneficiaries they were furnishing prior to the
implementation of the CBP. Many grandfathered suppliers, for example,
continued to furnish the CBP-covered oxygen product category to their
beneficiaries. The number of these suppliers generally decreased steadily
throughout the first year as CBP-covered beneficiaries’ rental periods
expired or as beneficiaries chose contract suppliers. Some contract
suppliers entered into subcontracting agreements with non-contract
suppliers to furnish certain services to CBP-covered beneficiaries. As the
CBP allows, some contract suppliers were awarded contracts for product
categories that they did not have prior experience in, or for competitive
bidding areas where they did not have a prior business location.

CMS’s on-going monitoring activities generally indicate that beneficiary
DME access and satisfaction have not been affected by the CBP.
Although some of these efforts have limitations, in the aggregate, they

These bids may also have been disqualified for other reasons.

Page 4                                                          GAO-12-733T
provide useful information to CMS regarding beneficiary access and
satisfaction. CBP-related calls to 1-800-MEDICARE declined during the
first year of CBP implementation. Two percent of calls were from
beneficiaries with an urgent need for CBP-covered DME. Of
127,466 inquiries in 2011, CMS classified 151 as complaints. 10 Seventy-
seven percent of CBP complaints—or 116 complaints—occurred in the
first half of 2011. CMS’s pre-and post-implementation beneficiary
satisfaction survey did not reveal systemic beneficiary access or
satisfaction problems with the CBP, although the survey’s questions were
limited. For all six questions regarding the CBP, nearly 90 percent of
beneficiaries reported their service as being “good” or “very good”.
Beneficiary satisfaction survey results within competitive bidding areas
show a drop of one to three percentage points on each of the six
questions from pre-implementation in 2010 to post-implementation in
2011. CMS tracks health outcomes including, for example,
hospitalizations, physician visits, and deaths, for beneficiaries potentially
affected by the CBP. While the data do not show directly whether
outcomes were caused by problems accessing CBP-covered DME, CMS
reports no changes in health outcomes for beneficiaries living in
competitive bidding areas in 2011.

Medicare claims data from the first 6 months of the CBP round 1 rebid
show that fewer distinct CBP-covered beneficiaries 11 in competitive
bidding areas received DME items in 2011 than in 2010 for the six CBP
product categories that we analyzed. 12 For example, the number of
distinct beneficiaries receiving hospital bed product category items in the
CBP areas was about 13 percent lower in May 2011 than the distinct
beneficiaries receiving these items in May 2010. However, we do not

  CMS defines a CBP complaint as a CBP inquiry that cannot be resolved by any
customer service representative with 1-800-MEDICARE and is sent to another entity—
such as a CMS regional office—for resolution.
  Each distinct Medicare beneficiary is only counted once in each of the 6 months
analyzed in 2010 and 2011 for each product category in a competitive bidding area,
regardless of how many items that beneficiary received.
  We did not include these round 1 rebid product categories: (1) the mail-order diabetic
testing supplies category due to some beneficiaries switching to non-mail-order sources, a
concern being studied by the HHS OIG; (2) the complex power wheelchair category due to
potential data reliability concerns reported by a CMS contractor; and (3) the support
surfaces category because it is limited to only the Miami competitive bidding area in the
round 1 rebid.

Page 5                                                                       GAO-12-733T
assume that 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.

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. Although we found that the round 1 rebid was, in general,
successfully implemented, our findings are based on the limited data
available at the time we did our study and for only the first year of the
rebid’s contract period. While the prevalence of grandfathered suppliers
for some CBP rental items may have ameliorated beneficiary access
concerns during the first year, the number of grandfathered suppliers will
continue to decrease as rental agreements expire. Likewise, it is not yet
known whether any change in the number of subcontracting suppliers will
affect beneficiary access. Therefore, 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 to monitor changes in the number of suppliers serving CBP-
covered beneficiaries and trends in utilization of the CBP-covered DME.

Chairman Herger, Ranking Member Stark, and Members of the
Subcommittee, this completes my prepared statement. I would be
pleased to respond to any questions that you may have at this time.

If you or your staff have any questions about this testimony, 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 statement. GAO staff who made key contributions to
this testimony are listed in appendix I.

Page 6                                                          GAO-12-733T
Appendix I: GAO Contact and Staff
                  Appendix I: GAO Contact and Staff


                  Kathleen M. King, (202) 512-7114 or kingk@gao.gov
GAO Contact
                  In addition to the contact named above, Martin T. Gahart, Assistant
Staff             Director; Michelle Paluga; Katherine Perry; and Opal Winebrenner were
Acknowledgments   key contributors to this statement.

                  Page 7                                                       GAO-12-733T
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