This is the accessible text file for GAO report number GAO-12-693 
entitled 'Medicare: Review of the First Year of CMS's Durable Medical 
Equipment Competitive Bidding Program's Round 1 Rebid' which was 
released on May 9, 2012. 

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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

May 2012: 

Medicare: 

Review of the First Year of CMS's Durable Medical Equipment 
Competitive Bidding Program's Round 1 Rebid: 

GAO-12-693: 

GAO Highlights: 

Highlights of GAO-12-693, a report to congressional committees. 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-12-693]. For more 
information, contact Kathleen M. King at (202) 512-7114 or 
kingk@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Outcomes of CMS's Implementation of the CBP Round 1 Rebid: 

Effects on Suppliers of the First Year of the CBP Round 1 Rebid: 

Although CMS's Monitoring Activities Have Limitations, They Indicate 
that Beneficiary Access and Satisfaction Have Not Been Affected by CBP: 

Early Data Indicate Some Decreases in DME Utilization: 

Both CMS and DME Suppliers Incurred Costs During the CBP Round 1 
Rebid, but CMS Estimates Significant Medicare Savings: 

Agency Comments and Our Evaluation: 

Concluding Observations: 

Appendix I: HCPCS Codes that CMS Determined Are the Top 80 Percent 
Highest Cost and Utilization for CBP Round 1 Rebid: 

Appendix II: Comments from the Department of Health and Human Services: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: CBP Round 1 Rebid Contract Awards by Supplier Size as of 
November 3, 2010: 

Table 2: CBP Round 1 Rebid Bid Counts by Process Step as of November 
3, 2010: 

Table 3: Number and Percentage of CBP Round 1 Rebid Disqualified Bids 
by Reason for Disqualification as of November 3, 2010: 

Table 4: Results of CMS's Post-Bid Review Process in CBP Round 1 and 
CBP Round 1 Rebid: 

Table 5: CBP Round 1 Rebid Contract Supplier Terminations and 
Cancellations, January 1 through October 31, 2011: 

Table 6: Eight Ownership Changes Involving CBP Contract Suppliers, 
November 3, 2010, through November 3, 2011: 

Table 7: Top Three Grandfathered Product Categories, CBP Round 1 
Rebid, January 2011 and November 2011 Compared: 

Table 8: Contract Suppliers New to a Product Category, CBP Round 1 
Rebid: 

Table 9: Contract Suppliers New to a Competitive Bidding Area, CBP 
Round 1 Rebid: 

Table 10: CMS Operational Costs for CBP, May 2009 through December 
2010: 

Figures: 

Figure 1: CBP Timeline, 1997-2013: 

Figure 2: Excerpts from the Letters CMS Sent Bidding Suppliers 
Regarding the Opportunity for Postbid Review of Disqualified Bids in 
CBP Round 1 and CBP Round 1 Rebid: 

Figure 3: Percentage of DME Suppliers that Grandfathered in CBP Round 
1 Rebid by Month, 2011: 

Figure 4: Number of CBP Inquiries to 1-800-MEDICARE by Month, 2011: 

Figure 5: Percent of CBP-related Inquiries to 1-800-MEDICARE Compared 
to All DMEPOS-related Inquiries by Quarter, 2011: 

Figure 6: Number of CBP Inquiries to 1-800-MEDICARE by CBP Round 1 
Rebid Product Category by Quarter, 2011: 

Figure 7: CBP Complaints to 1-800-MEDICARE by Quarter, 2011: 

Figure 8: Change in the Number of Distinct Medicare Beneficiaries 
Furnished Selected CBP-covered CPAP/RAD Product Category Items; Round 
1 Rebid's First 6 Months 2011: 

Figure 9: Change in the Number of Distinct Medicare Beneficiaries 
Furnished Selected CBP-covered Enteral Product Category Items; Round 1 
Rebid's First 6 Months 2011: 

Figure 10: Change in the Number of Distinct Medicare Beneficiaries 
Furnished Selected CBP-covered Hospital Bed Product Category Items; 
Round 1 Rebid's First 6 Months 2011: 

Figure 11: Change in the Number of Distinct Medicare Beneficiaries 
Furnished Selected CBP-covered Oxygen Product Category Items; Round 1 
Rebid's First 6 Months 2011: 

Figure 12: Change in the Number of Distinct Medicare Beneficiaries 
Furnished Selected CBP-covered Standard Power Wheelchair Product 
Category Items; Round 1 Rebid's First 6 Months 2011: 

Figure 13: Change in the Number of Distinct Medicare Beneficiaries 
Furnished Selected CBP-covered Walkers Product Category Items; Round 1 
Rebid's First 6 Months 2011: 

Abbreviations: 

CBP: competitive bidding program: 

CMS: Centers for Medicare & Medicaid Services: 

CAO: competitive acquisition ombudsman: 

CPAP/RAD: continuous positive airway pressure devices and respiratory 
assist devices: 

CSR: customer service representative: 

DBidS: Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 
Bidding System: 

DME: durable medical equipment: 

DMEPOS: durable medical equipment, prosthetics, orthotics, and 
supplies: 

HCPCS: Healthcare Common Procedure Coding System: 

HHS: Department of Health and Human Services: 

MIPPA: Medicare Improvements for Patients and Providers Act of 2008: 

MMA: Medicare Prescription Drug, Improvement, and Modernization Act of 
2003: 

NSC: National Supplier Clearinghouse: 

NF: nursing facilities: 

OIG: Office of Inspector General: 

PAOC: Program Advisory and Oversight Committee: 

PTAN: provider transaction access number: 

SNF: skilled nursing facilities: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

May 9, 2012: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Orrin Hatch: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Fred Upton: 
Chairman: 
The Honorable Henry Waxman: 
Ranking Member: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Dave Camp: 
Chairman: 
The Honorable Sander Levin: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

In 2010, Medicare--a federal health insurance program[Footnote 1]--
spent $8.1 billion on durable medical equipment (DME), prosthetics, 
orthotics, and related supplies for beneficiaries.[Footnote 2] The 
Medicare program is administered by the Centers for Medicare and 
Medicaid (CMS) within the Department of Health and Human Services 
(HHS). Most Medicare beneficiaries participate in Medicare Part B, 
[Footnote 3] which helps pay for DMEPOS items and supplies, such as 
oxygen, wheelchairs, hospital beds, walkers, orthotics, prosthetics, 
and supplies if they are medically necessary and prescribed by a 
physician. Medicare beneficiaries typically obtain DMEPOS items from 
suppliers, which submit claims for payment to Medicare on behalf of 
beneficiaries. Both we and the HHS Office of Inspector General (OIG) 
have reported that Medicare and its beneficiaries have sometimes paid 
higher-than-market rates for various medical equipment and supply 
items.[Footnote 4] These overpayments increase costs to both Medicare 
and its beneficiaries. 

To achieve Medicare savings for DMEPOS and to address DMEPOS fraud 
concerns, Congress, through the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA),[Footnote 5] required 
CMS to phase in a competitive bidding program (CBP). Under CBP, DME 
suppliers are competitively selected to furnish certain DME product 
categories[Footnote 6] to Medicare beneficiaries in designated 
competitive bidding areas.[Footnote 7] On January 1, 2011, CMS began 
operating the CBP--referred to as the CBP round 1 rebid--in nine 
competitive bidding areas[Footnote 8] for selected DME items in nine 
product categories.[Footnote 9] The DME suppliers that won CBP 
contracts--contract suppliers--are paid at the competitively 
determined payments for the CBP-covered DME items[Footnote 10] which 
must be less than or equal to Medicare's fee schedule[Footnote 11] 
payments for the same items. Of the estimated 47 million Medicare 
beneficiaries, about 2 million CBP-covered beneficiaries reside in the 
nine competitive bidding areas.[Footnote 12] 

CMS began implementing CBP in 2007 and 2008--referred to as round 1. 
[Footnote 13] However, the Medicare Improvements for Patient and 
Providers Act of 2008 (MIPPA)[Footnote 14] terminated the CBP round 1 
supplier contracts on July 15, 2008, and required CMS to repeat the 
CBP round 1--referred to as the round 1 rebid. To compensate for the 
loss of the projected Medicare savings due to the termination of CBP 
round 1 and delay of CBP and to ensure budget neutrality, MIPPA 
reduced the Medicare payments for the DME items that had been included 
in round 1 by 9.5 percent nationally.[Footnote 15] In 2009, CMS began 
the CBP round 1 rebid bidding process, and in January 2011, the CBP 
round 1 rebid began. 

MIPPA requires us to examine particular issues regarding early results 
from the ongoing CBP round 1 rebid.[Footnote 16] In this report, we 
review (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; (4) the extent to which the CBP round 1 rebid has affected the 
utilization of selected DME items; and (5) the costs for CMS to 
implement, and for DME suppliers to participate, in CBP. 

To examine the outcomes of the CBP round 1 rebid, we analyzed data 
from CMS and reviewed feedback that CMS provided to suppliers to 
explain bid deficiencies. We also reviewed CMS's notification to 
suppliers that did not win a contract describing the opportunity to 
have their bids reviewed. To examine the effect of the CBP round 1 
rebid on DME suppliers, we analyzed 2011 CMS data on contract 
suppliers including those that were terminated by CMS or voluntarily 
withdrew from CBP, grandfathered suppliers, subcontracting suppliers, 
and suppliers' ownership changes, and interviewed CMS and CBP 
contractor officials, DME industry groups, and selected suppliers. 

To examine how the CBP round 1 rebid has affected Medicare beneficiary 
access to and satisfaction with selected DME items, we analyzed 2011 
CMS data, including CBP inquiry data from the 1-800-MEDICARE 
beneficiary help line, CBP complaint data, and interviewed CMS and CBP 
contractor officials and Medicare beneficiary advocacy groups. To 
examine the extent to which the CBP round 1 rebid has affected the 
beneficiary utilization of certain DME items, we obtained and analyzed 
the first six months of Medicare claims data both pre-CBP (2010) and 
post-CBP (2011) because data for those months are the most complete. 
We used these data to determine whether the number of CBP-covered 
beneficiaries utilizing CBP-covered items and services increased or 
decreased in the first 6 months of 2011 when the CBP round 1 began 
compared to the same time period in 2010. We compared the number of 
Medicare beneficiaries using selected CBP-covered items--chosen by CMS 
as the top 80 percent highest cost and highest utilization items--in 
the nine competitive bidding areas to non-competitive bidding areas 
(see appendix I for the DME items included in our analysis).[Footnote 
17] In submitting claims for Medicare payments, suppliers use a 
standardized coding system--the Healthcare Common Procedure Coding 
System (HCPCS). Since HCPCS codes identify a category of like DMEPOS 
items, for example, hospital beds, individual HCPCS codes can include 
a broad range of items that serve the same general purpose but that 
vary in price and characteristics and do not identify an item's 
manufacturer, or brand or trade name, we determined that an analysis 
to compare utilization of items included in the same HCPCS code would 
not be meaningful. 

To describe the costs for CMS to implement and for DME suppliers to 
participate in CBP, we reported the CBP round 1 rebid pre-
implementation costs provided to us by CMS. We also interviewed CMS 
officials, DME supplier trade groups, and selected DME suppliers to 
obtain descriptions and estimates of CBP-related administrative costs 
and suppliers' participation expenses. 

To assess the reliability for all the data we received from CMS, we 
reviewed and identified outliers in data, and interviewed CMS and 
other appropriate officials to clarify and resolve any discrepancies. 
We assessed the reliability of the Medicare claims data from the 100 
Percent Standard Analytic Files from CMS by reviewing existing 
information about the data and the systems that produced them, 
performing appropriate electronic data checks, and interviewing 
individuals from CMS, CMS's Pricing, Data Analysis and Coding 
Contractor, and two DME Medicare Administrative Contractors. We 
determined that these data were sufficiently reliable for the purposes 
of this report. 

Our findings are based on the limited evidence available at the time 
we did our work, and more data will become available as CBP continues. 
We conducted this performance audit from May 2011 through May 2012 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings based on our 
audit objectives. 

Background: 

Medicare Payments: 

Medicare pays for most DMEPOS through fee schedules based on 
suppliers' previous charges to Medicare.[Footnote 18] 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 the remaining 20 percent--the coinsurance. 
[Footnote 19] To process all Medicare DMEPOS payment claims including 
coverage and payment determinations, CMS contracts with four DME 
Medicare Administrative Contractors. 

The CBP: 

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)[Footnote 20] 
number that makes them eligible to bill Medicare for DME, have met 
Medicare enrollment and quality standards,[Footnote 21] have a surety 
bond,[Footnote 22] 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[Footnote 23] 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.[Footnote 24] 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 each product category in each competitive bidding area, 
[Footnote 25] CMS caps the 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.[Footnote 26] 

The CBP single payment amounts are required to be less than or equal 
to the Medicare fee-for-service payments for the same items.[Footnote 
27] 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.[Footnote 28] All contract 
suppliers that accept the contract offers must maintain their Medicare 
billing privileges, state licensure, and accreditation throughout the 
contract period and accept assignment on all DME items under their 
contracts.[Footnote 29] CMS is required, under federal law, to conduct 
another bidding round to select contract suppliers no less often than 
once every three years. 

CBP Round 1: 

CBP round 1 was conducted in 2007 and 2008 for 10 competitive bidding 
areas.[Footnote 30] 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.[Footnote 31] 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.[Footnote 32] MIPPA also required CMS to create a 
competitive 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. 

CBP Round 1 Rebid: 

In October 2009, CMS began the CBP round 1 rebid process;[Footnote 33] 
its 60-day bid window closed in December 2009. In July 2010, CMS 
announced the competitively determined DME single payment amounts. On 
January 1, 2011, CBP began with 356 contract suppliers awarded 
contracts to provide DME items and services in nine DME product 
categories in nine competitive bidding areas.[Footnote 34] 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. 

CBP Round 2: 

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[Footnote 35] to all 
competitive bidding areas. A national mail-order diabetic supplies 
program[Footnote 36] 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.[Footnote 37] (See figure 1 for 
CBP's legislative history and program implementation time line.) 

Figure 1: CBP Timeline, 1997-2013: 

[Refer to PDF for image: timeline] 

1997: 
Balanced Budget Act of 1997 required CMS to test competitive bidding 
as a way to set payments for certain Medicare Part B services and 
supplies selected by CMS.[A] 

1999-2002: 
CMS conducted three demonstration projects.  

2003: 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
required CMS to implement competitive bidding for DME and certain 
other items.[B] 

CBP Round 1: 

2007: 
April 2: CMS announced round l's 10 product categories and 10 
competitive bidding areas.  

May 15: CMS opened the original 60-day bid window and issued 
instructions to suppliers on how to submit bids.  

June 11: CMS Final Rule to govern the implementation of CBP becomes 
effective.[C] 

August 31: Original supplier accreditation deadline; extended for two 
months to October 31. 

September 25: Bid window closed; was open for 134 days.  

October 31: Suppliers had to have received their accreditation for 
their bids to be considered.  

2008: 
March 20: CMS notified all bidding suppliers—-by letter-—whether they 
had won a bid and were being offered a contract. 

May 19: 329 contract suppliers announced. 

July 1: CBP round 1 began operation in 10 competitive bidding areas. 

[End CBP Round 1] 
          
2008:
July 15: Medicare Improvements for Patients and Providers Act of 2008 
enacted; round 1 stopped and contracts were terminated; round 1 rebid 
postponed until 2009.[D] 

CBP Round 1 Rebid: 

2009: 
March 3: CMS Final Rule to implement a statutory requirement that 
certain DMEPOS suppliers post a surety bond becomes effective.[E] 

August 3: CMS began an outreach and education campaign to guide 
suppliers through the bidding process. 

September 30: Supplier accreditation deadline. 

October 2: Supplier surety bond deadline. 

October 21: CMS opened the round 1 rebid 60-day bid window. 

November 21: Deadline for bidders to submit financial documents to be 
eligible for review under the Covered Document Review Date.  

December 21: 60-day bid window closed. 

2010: 
July: CBP single payment amounts announced. CMS began the contract 
award process. 

November 3: 356 contract suppliers announced. 

2011: 
January 1: CBP round 1 rebid contracts and single payment amounts 
effective in 9 competitive bidding areas. 

[End CBP Round 1 Rebid] 

CBP Round 2: 

2011: 
August 19: CMS announced round 2's nine product categories and 91 
areas. 

2012: 
January 30: CMS opened the 60-day bid window.  

February 29: Deadline for bidders to submit financial documents to be 
eligible for review under the Covered Document Review Date.[F] 

March 30: 60-day bid window closed. 

Fall: CMS intends to announce round 2 single payment amounts. CMS 
intends to begin the contract award process.  

2013: 
Spring: CMS intends to announce contract suppliers. 

July 1: Intended date for round 2 contracts and single payments 
amounts to become effective in 91 additional areas. 

Source: GAO analysis of CMS data. 

[A] Pub. L. No. 105-33, § 4319(a), 111 Stat. 251, 392-4 (1997) 
(codified, as amended, at 42 U.S.C. § 1395w-3). 

[B] Pub. L. No. 108-173, § 302(b), 117 Stat. 2066, 2224-30 (2003) 
(codified, as amended, at 42 U.S.C. § 1395w-3). Items and services 
covered by the competition were DME and related supplies, off-the-
shelf orthotics, and enteral nutrients and related equipment and 
supplies. 

[C] CMS, Medicare Program; Competitive Acquisition for Certain Durable 
Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) and 
Other Issues; Final Rule, 72 Fed. Reg. 17,992 (Apr. 10, 2007). 

[D] Medicare Improvements for Patients and Providers Act of 2008. Pub. 
L. No. 110-275, § 154(a)(2), 122 Stat. 2494, 2560-3 (2008) (codified, 
as amended, at 42 U.S.C. § 1395w-3). 

[E] CMS, Medicare Program: Surety Bond Requirement for Suppliers of 
DMEPOS, Final Rule, 74 Fed. Reg. 166 (Jan. 2, 2009). 

[F] CMS must notify suppliers of missing financial documentation if 
their financial documents are submitted within the covered document 
review date, which is the later of: (1) 30 days before the final date 
for the close of the bid window; or (2) 30 days after the bid window 
opens. 

[End of figure] 

Types of CBP Suppliers: 

The CBP makes specific provisions for certain types of individual DME 
suppliers that can bill Medicare. CBP contract suppliers[Footnote 38] 
are suppliers that bid and won a CBP contract for at least one product 
category in at least one competitive bidding area. Non-contract 
suppliers[Footnote 39] that do not have a CBP contract may continue to 
furnish certain DME to beneficiaries in the CBP competitive bidding 
areas as grandfathered suppliers for existing rental agreements or as 
subcontractors to contract suppliers. 

Small Suppliers and Networks: 

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. 

Grandfathered Suppliers: 

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.[Footnote 40] It is the 
beneficiaries' choice whether to remain with their grandfathered 
supplier or to select a CBP contract supplier.[Footnote 41] Many CBP-
covered items that are rented can be grandfathered including, for 
example, oxygen and oxygen equipment,[Footnote 42] capped rental DME 
[Footnote 43]--such as hospital beds--and inexpensive and routinely 
purchased DME for the remaining rental months.[Footnote 44] 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. 

Subcontractor Suppliers: 

Subcontracting allows contract suppliers to work with suppliers that 
are Medicare-accredited to provide limited services to CBP-covered 
beneficiaries.[Footnote 45] 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. 

Specialty Suppliers: 

Skilled nursing facilities (SNF)[Footnote 46] and nursing facilities 
(NF)[Footnote 47] are the only 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. 

CBP Online Contract Supplier Locator: 

To assist beneficiaries in locating a contract supplier in their 
competitive bidding area, CMS maintains a CBP supplier locator tool on 
the Medicare website.[Footnote 48] 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. 

CBP Beneficiary Assistance through 1-800-MEDICARE: 

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.[Footnote 49] 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.[Footnote 50] 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.[Footnote 51] 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's CBP Monitoring Activities: 

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.[Footnote 52] 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.[Footnote 53] CMS may also conduct secret shopping in 
response to complaints such as those concerning diabetic testing 
suppliers.[Footnote 54] 

Outcomes of CMS's Implementation of the CBP Round 1 Rebid: 

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 As in Round 1, and About the 
Same Percentage of Submitted Bids Resulted in Contracts: 

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.[Footnote 55],[Footnote 56] (See table 1.) 

Table 1: CBP Round 1 Rebid Contract Awards by Supplier Size as of 
November 3, 2010: 

Size of bidders: Small suppliers; 
Number of bidders: 619; 
Percentage of bidders: 61; 
Number of bidders awarded contracts: 219; 
Percentage of bidders awarded contracts: 62[A]. 

Size of bidders: Large suppliers; 
Number of bidders: 340; 
Percentage of bidders: 34; 
Number of bidders awarded contracts: 137; 
Percentage of bidders awarded contracts: 38. 

Size of bidders: Unknown; 
Number of bidders: 52; 
Percentage of bidders: 5; 
Number of bidders awarded contracts: 0; 
Percentage of bidders awarded contracts: 0. 

Size of bidders: Total; 
Number of bidders: 1,011; 
Percentage of bidders: 100; 
Number of bidders awarded contracts: 356; 
Percentage of bidders awarded contracts: 100. 

Source: CMS and Palmetto GBA data as of November 3, 2010. 

Notes: Categories characterizing size are based on revenue reported on 
suppliers' financial documents. Small suppliers reported gross 
revenues of $3.5 million or less in both Medicare and non-Medicare 
revenues and large suppliers reported more than $3.5 million in both 
Medicare and non-Medicare revenues. Bidders that did not report this 
information or submitted bid packages with missing financial documents 
are categorized as unknown. 

[A] According to CMS, 219 small suppliers--or 62 percent of all 
winning suppliers--received 51 percent of the total 1,217 contracts 
awarded as of November 3, 2010. 

[End of table] 

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.[Footnote 57] 
In contrast, in CBP round 1, 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. 

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.) 

Table 2: CBP Round 1 Rebid Bid Counts by Process Step as of November 
3, 2010: 

Process step: 1. Bid review: 

Process step: Bids reviewed; 
Number of round 1 rebid bids: 6,215; 
Percentage of total bids reviewed: 100%. 

Process step: Bids disqualified on initial review[A]; 
Number of round 1 rebid bids: (1,854); 
Percentage of total bids reviewed: 29.8. 

Process step: 2. Winner selection: 

Process step: Qualified bids used to determine pivotal bids; 
Number of round 1 rebid bids: 4,361; 
Percentage of total bids reviewed: 70.2. 

Process step: Bids that lost only on price; 
Number of round 1 rebid bids: (3,074); 
Percentage of total bids reviewed: 49.5. 

Process step: Bids that won on price, were contracts with small 
suppliers added to meet 30 percent target, or both; 
Number of round 1 rebid bids: 1,287; 
Percentage of total bids reviewed: 20.7. 

Process step: 3. Contract offers: 

Process step: Initial round of contract offers; 
Number of round 1 rebid bids: 1,287; 
Percentage of total bids reviewed: 20.7. 

Process step: Contract offers rescinded by CMS after initial round[B]; 
Number of round 1 rebid bids: (11); 
Percentage of total bids reviewed: 0.2. 

Process step: Additional contract offers extended[C]; 
Number of round 1 rebid bids: 48; 
Percentage of total bids reviewed: 0.8. 

Process step: 4. Contract outcomes: 

Process step: Total contract offers made; 
Number of round 1 rebid bids: 1,324; 
Percentage of total bids reviewed: 21.3. 

Process step: Contract offers rejected by suppliers[D]; 
Number of round 1 rebid bids: (107); 
Percentage of total bids reviewed: 1.7. 

Process step: Final contracts; 
Number of round 1 rebid bids: 1,217; 
Percentage of total bids reviewed: 19.6. 

Source: GAO analysis of CMS data as of November 3, 2010. 

Notes: Numbers in parentheses are decreases. The number of bids 
submitted is higher than the number of bidding suppliers because 
suppliers could submit bids in multiple product categories and 
multiple competitive bidding areas. 

[A] Some of the bids that were disqualified during the initial bid 
review would have lost on price had they not been disqualified for at 
least one other reason. Some bids that were disqualified during the 
initial bid review were later found to have been incorrectly 
disqualified. 

[B] CMS made these contract offers, but later rescinded them because 
CMS found that commonly-controlled or owned suppliers had submitted 
separate bids for the same product category in the same competitive 
bidding area. These suppliers were disqualified because suppliers are 
prohibited by CMS from bidding against themselves for the same product 
category in the same competitive bidding area. 

[C] After 107 contract offers were rejected, CMS extended additional 
contract offers to small suppliers in specific product categories and 
competitive bidding areas to meet CMS's 30 percent target for small 
supplier participation. 

[D] CMS extended these contract offers, but suppliers did not accept 
them. 

[End of table] 

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. 

Despite Improvements and Fewer Bid Disqualifications, Many Suppliers 
Still Had Difficulty Meeting Bid Requirements: 

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. 

Fewer Bids Were Disqualified in CBP Round 1 Rebid: 

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[Footnote 58]--a process that was not available during 
CBP round 1. 

Suppliers had bids disqualified for one or more reasons, and for the 
CBP round 1 rebid CMS increased its feedback to suppliers by using 11 
general reason codes--four more than were used in CBP round 1--to 
provide feedback to suppliers that had bids disqualified. For example, 
109 distinct[Footnote 59] suppliers had 356 bids disqualified because 
they did not meet all state licensure requirements in every state of 
the competitive bidding areas for the product category in which they 
submitted bids. (See table 3.) In November 2010, CMS sent a letter to 
suppliers that were not offered a CBP contract notifying them of all 
the reasons that their bids were disqualified, including whether their 
bids would have lost on price--either for that reason alone or in 
addition to another bid submission deficiency reason.[Footnote 60] 

Table 3: Number and Percentage of CBP Round 1 Rebid Disqualified Bids 
by Reason for Disqualification as of November 3, 2010: 

Reason for bid disqualification: Unacceptable (incomplete or 
inaccurate) financial documentation (Suppliers failed to submit 
hardcopy financial documentation as required); 
Bids disqualified during initial bid review: 834; 
Percentage of bids disqualified[A]: 45%. 

Reason for bid disqualification: Did not meet all state licensure 
requirements (Suppliers were responsible for meeting all applicable 
state licensure requirements for the product category in every state 
of a competitive bidding areas they submitted a bid); 
Bids disqualified during initial bid review: 356; 
Percentage of bids disqualified[A]: 19%. 

Reason for bid disqualification: Did not meet supplier financial 
standards (Supplier financial standards indicated that CMS believed 
that the supplier was unlikely for financial reasons to be able to 
fulfill its contract obligations); 
Bids disqualified during initial bid review: 293; 
Percentage of bids disqualified[A]: 16%. 

Reason for bid disqualification: Missing required hardcopy 
documentation (Suppliers must submit financial documentation in 
hardcopy); 
Bids disqualified during initial bid review: 216; 
Percentage of bids disqualified[A]: 12%. 

Reason for bid disqualification: Bid price for one or more item was 
deemed not bona fide (All bid prices could not be higher than the 
Medicare fee schedule but not lower than the cost to the supplier); 
Bids disqualified during initial bid review: 169; 
Percentage of bids disqualified[A]: 9%. 

Reason for bid disqualification: Did not meet accreditation 
requirements (Suppliers must have been accredited by a CMS-approved 
accreditation organization for the product categories in which they 
submitted bids); 
Bids disqualified during initial bid review: 71; 
Percentage of bids disqualified[A]: 4%. 

Reason for bid disqualification: National Supplier Clearinghouse (NSC) 
number was revoked or inactive (Suppliers must have had an active NSC 
number to be eligible to bill Medicare for DME); 
Bids disqualified during initial bid review: 65; 
Percentage of bids disqualified[A]: 4%. 

Reason for bid disqualification: Did not meet common ownership 
rules[B[(COMMONLY-OWNED OR CONTROLLED SUPPLIERS WERE REQUIRED TO 
SUBMIT A SINGLE BID TO FURNISH A] a product category in a competitive 
bidding area); 
Bids disqualified during initial bid review: 16; 
Percentage of bids disqualified[A]: less than 1%. 

Reason for bid disqualification: Did not meet network criteria (A 
network is a group of between two to 20 small suppliers that 
collectively submit a bid as a single entity and must meet certain 
criteria--including that they cannot independently furnish all of the 
items in the product category for which the network is submitting a 
bid to beneficiaries throughout the entire geographic area of the 
competitive bidding area); 
Bids disqualified during initial bid review: 12; 
Percentage of bids disqualified[A]: less than 1%. 

Reason for bid disqualification: Did not meet eligibility requirements 
to bid as a specialty supplier (A specialty supplier is a skilled 
nursing facility or nursing facility that is awarded a competitive 
bidding contract to furnish competitively bid items only to its own 
residents to whom it would otherwise furnish Medicare Part B services); 
Bids disqualified during initial bid review: 0; 
Percentage of bids disqualified[A]: 0. 

Source: GAO analysis of CMS data as of November 3, 2010. 

Notes: CMS issued CBP round 1 rebid bid instructions to inform 
suppliers about bid submission requirements. 

In addition to the reasons for bid disqualification above, CMS also 
established a "lost on price" category. According to CMS, 1,273 of the 
1,854 total bids disqualified--69 percent--would also have lost on 
price had the bid not been disqualified for at least one other reason. 

[A] Percentages add to more than 100 because a bid could be 
disqualified for more than one reason. 

[B] Two or more suppliers are commonly-owned if one or more of them 
has an ownership interest totaling at least five percent of the other 
supplier. A supplier controls another supplier if one or more of its 
owners is an officer, director, or partner in the other. 

[End of table] 

Despite Improvements, Many Suppliers Had Difficulty with Financial 
Documentation Requirements: 

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.[Footnote 61] 

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[Footnote 62]--are 
missing and to notify and provide suppliers the opportunity to submit 
them.[Footnote 63] 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[Footnote 64] 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. 

As in Round 1, CMS Found through Its Clarified Postbidding Review 
Process That Some Suppliers' Round 1 Rebid Bids Were Incorrectly 
Disqualified: 

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.[Footnote 65] 

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 figure 2.) 

Figure 2: Excerpts from the Letters CMS Sent Bidding Suppliers 
Regarding the Opportunity for Postbid Review of Disqualified Bids in 
CBP Round 1 and CBP Round 1 Rebid: 

[Refer to PDF for image: excerpts] 

CBP round 1: 
If you have any questions, please contact the customer service center 
at 877-577-5331.[A] 

CBP round 1 rebid: 
CMS believes that suppliers should have the opportunity to raise 
questions or concerns about the competitive bidding process, including 
disqualification decisions. Therefore, we are providing a targeted 
period for suppliers to ask questions or express concerns about the 
reasons(s) why they were not awarded a contract. If you have any 
questions or concerns regarding your bid(s), please contact the 
customer service center at 877-577-5331 by November 19, 2010.[B] 

Source: CMS. 

[A] In CBP round 1, CMS sent a separate letter to suppliers that lost 
on price and suppliers that had bids disqualified for at least one 
other reason. 

[B] In the CBP round 1 rebid, CMS sent the same letter to suppliers 
that lost on price and had disqualified bids, and indicated all the 
reasons a supplier's bid was disqualified--including whether the bid 
would have lost on price. CMS announced winning suppliers on November 
3, 2010, so suppliers were given about 2 weeks to call the customer 
service center with questions or concerns regarding their losing bids. 
However, Palmetto GBA reported that it was continuing to receive 
inquiries from suppliers that had bids disqualified in CBP round 1 
rebid as of June 17, 2011. 

[End of figure] 

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.[Footnote 66] 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. 
[Footnote 67] 

Table 4: Results of CMS's Post-Bid Review Process in CBP Round 1 and 
CBP Round 1 Rebid: 

Postbid review: Total number of bids submitted; 
CBP round 1: 6,374; 
CBP round 1 rebid: 6,215. 

Postbid review: Total number of bidding suppliers; 
CBP round 1: 1,010; 
CBP round 1 rebid: 1,011. 

Postbid review: Total number of suppliers that requested a review; 
CBP round 1: 357; 
CBP round 1 rebid: 99[A]. 

Postbid review: Total number of suppliers that were found to have bids 
that were incorrectly disqualified; 
CBP round 1: 10[B]; 
CBP round 1 rebid: 7. 

Postbid review: Percentage of suppliers that were offered a contract 
as a result of the post-bid review; 
CBP round 1: 3%; 
CBP round 1 rebid: 7%. 

Source: GAO analysis of CMS and Palmetto GBA data. 

[A] Palmetto GBA reported that the decrease in the number of 
disqualified suppliers that requested a post-bid review during CBP 
round 1 rebid can be partly attributed to CMS indicating which 
disqualified bids would have lost on price if not disqualified for at 
least one other reason. 

[B] Ten suppliers were found to have been incorrectly disqualified, 
and 7 suppliers were offered contracts because they had bids equal to 
or less than the pivotal bid or were needed to meet CMS's target for 
small supplier participation. 

[End of table] 

Effects on Suppliers of the First Year of the CBP Round 1 Rebid: 

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. 

Four Percent of the Original Contract Suppliers Had Contracts 
Terminated or Canceled in CBP's First 10 Months of 2011: 

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. 

Table 5: CBP Round 1 Rebid Contract Supplier Terminations and 
Cancellations, January 1 through October 31, 2011: 

CMS terminations: 

Termination and cancellation reasons: 
National Supplier Clearinghouse (NSC)[A] revoked supplier's PTAN 
(provider transaction access number); 
Number of CBP contract suppliers: 3; 
Number of CBP contracts: 5. 

Termination and cancellation reasons: 
Contract supplier non-operational and not accredited; 
Number of CBP contract suppliers: 1; 
Number of CBP contracts: 5. 

Termination and cancellation reasons: 
Contract supplier losing accreditation; 
Number of CBP contract suppliers: 2; 
Number of CBP contracts: 3. 

Termination and cancellation reasons: 
Contract supplier being inactivated or non-operational; 
Number of CBP contract suppliers: 2; 
Number of CBP contracts: 3. 

Contract supplier Cancellations[B]: 

Termination and cancellation reasons: 
Contract supplier being inactive and voluntarily withdrew from 
Medicare; 
Number of CBP contract suppliers: 7; 
Number of CBP contracts: 8. 

Termination and cancellation reasons: 
Contract supplier had a change of ownership and voluntarily withdrew 
from Medicare; 
Number of CBP contract suppliers: 1; 
Number of CBP contracts: 4. 

Termination and cancellation reasons: Total; 
Number of CBP contract suppliers: 16; 
Number of CBP contracts: 28. 

Source: GAO analysis of CMS data. 

[A] The NSC is a CMS contractor responsible for DMEPOS supplier 
enrollment in Medicare and may revoke a supplier's enrollment, for 
example, if a supplier loses its Medicare accreditation. 

[B] Effective July 1, 2011, CMS decided to report contracts as 
canceled rather than terminated when the contract supplier voluntarily 
withdrew from Medicare through the NSC. 

[End of table] 

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 Contract Supplier Ownership Changes Occurred in CBP's First 
11 Months: 

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.[Footnote 68] 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.) 

Table 6: Eight Ownership Changes Involving CBP Contract Suppliers, 
November 3, 2010, through November 3, 2011: 

Supplier ownership change transaction: Non-contract supplier purchases 
a contract supplier; 
Which supplier assumes the involved CBP contract: CMS allows the 
purchasing non-contract supplier to assume the purchased contract 
supplier's contract or contracts; 
Total: 4. 

Supplier ownership change transaction: Contract supplier purchases 
another contract supplier; 
Which supplier assumes the involved CBP contract: CMS allows the 
purchasing contract supplier to assume the purchased contract 
supplier's contract or contracts; 
Total: 4. 

Source: GAO analysis of CMS data. 

[End of table] 

CBP Grandfathering Option Temporarily Affects Medicare Revenues for 
Some Suppliers: 

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.[Footnote 69] 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,[Footnote 
70] hospital beds, and oxygen.[Footnote 71] (See table 7.) 

Table 7: Top Three Grandfathered Product Categories, CBP Round 1 
Rebid, January 2011 and November 2011 Compared: 

Product category (rental items only): Oxygen; 
Beneficiaries continuing to rent from the same supplier as before CBP: 
January: 16,732; 
November: 4,952; 
Allowed Medicare payments to grandfathered non-contract suppliers: 
January: $2,167,352; 
November: $627,069. 

Product category (rental items only): Hospital beds; 
Beneficiaries continuing to rent from the same supplier as before CBP: 
January: 9,462; 
November: 850; 
Allowed Medicare payments to grandfathered non-contract suppliers: 
January: $976,108; 
November: $81,289. 

Product category (rental items only): CPAP/RAD; 
Beneficiaries continuing to rent from the same supplier as before CBP: 
January: 8,558; 
November: 1,294; 
Allowed Medicare payments to grandfathered non-contract suppliers: 
January: $903,996; 
November: $105,791. 

Product category (rental items only): Total; 
Beneficiaries continuing to rent from the same supplier as before CBP: 
January: 34,752; 
November: 7,096; 
Allowed Medicare payments to grandfathered non-contract suppliers: 
January: $4,047,456; 
November: $814,149. 

Source: GAO analysis of CMS and CMS's Pricing, Data Analysis and 
Coding contractor data as of November 30, 2011. 

[End of table] 

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 figure 3.) 

Figure 3: Percentage of DME Suppliers that Grandfathered in CBP Round 
1 Rebid by Month, 2011: 

[Refer to PDF for image: vertical bar graph] 

January: 58%. 

February: 54%. 

March: 50%. 

April: 52%. 

May: 50%. 

June:  45%. 

July: 39%. 

August: 38%. 

September: 35%. 

October: 31%. 

November: 25%. 

December: 22%. 

Source: GAO analysis of data from CMS and CMS's Pricing, Data Analysis 
and Coding contractor. 

Notes: There were 2,363 DME suppliers that submitted Medicare claims 
in December 2010 for CBP-covered items in the nine CBP competitive 
bidding areas before CBP began on January 1, 2011. The percentage 
figure entry for each month is calculated using the number of 
grandfathering suppliers that submitted eligible Medicare claims that 
month. The 2011 monthly numbers of grandfathering suppliers fluctuate 
each month based on when suppliers submitted their Medicare claims. 

[End of figure] 

About 31 Percent of CBP Contract Suppliers Reported They Had 
Subcontracts with Other Suppliers in CBP's First 8 Months: 

At the end of July 2011, about 31 percent of contract suppliers had 
subcontracting agreements. There were 112 distinct[Footnote 72] 
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.[Footnote 73] 

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 CBP Allows, Some Suppliers with No Previous Experience in a Product 
Category or with No Location in a Competitive Bidding Area Were 
Awarded Contracts: 

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.[Footnote 74] There were 43 distinct[Footnote 75] contract 
suppliers new to a product category and 44 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. 

Of the 43 distinct contract suppliers with no previous experience for 
a product category they won, 23 are small suppliers. The enteral 
nutrition[Footnote 76] product category had the most contract 
suppliers new to a product category--19; the complex power wheelchairs 
product category had none. (See table 8.) 

Table 8: Contract Suppliers New to a Product Category, CBP Round 1 
Rebid: 

1. Product category: Enteral nutrients; 
Contract suppliers new to the product category: 19; 
Percentage of contract suppliers new to the product category compared 
to all contract suppliers in the product category: 13%. 

2. Product category: Oxygen and oxygen equipment; 
Contract suppliers new to the product category: 10; 
Percentage of contract suppliers new to the product category compared 
to all contract suppliers in the product category: 5%. 

3. Product category: Walkers; 
Contract suppliers new to the product category: 10; 
Percentage of contract suppliers new to the product category compared 
to all contract suppliers in the product category: 8%. 

4. Product category: Hospital beds; 
Contract suppliers new to the product category: 9; 
Percentage of contract suppliers new to the product category compared 
to all contract suppliers in the product category: 9%. 

5. Product category: CPAP/RAD; 
Contract suppliers new to the product category: 6; 
Percentage of contract suppliers new to the product category compared 
to all contract suppliers in the product category: 6%. 

6. Product category: Mail-order diabetic supplies; 
Contract suppliers new to the product category: 6; 
Percentage of contract suppliers new to the product category compared 
to all contract suppliers in the product category: 29%. 

7. Product category: Standard power wheelchairs; 
Contract suppliers new to the product category: 5; 
Percentage of contract suppliers new to the product category compared 
to all contract suppliers in the product category: 4%. 

8. Product category: Support surfaces (Miami only); 
Contract suppliers new to the product category: 3; 
Percentage of contract suppliers new to the product category compared 
to all contract suppliers in the product category: 21%. 

9. Product category: Complex power wheelchairs; 
Contract suppliers new to the product category: 0; 
Percentage of contract suppliers new to the product category compared 
to all contract suppliers in the product category: 0. 

Product category: Total; 
Contract suppliers new to the product category: Contract suppliers new 
to the product category: 68. 

Source: GAO analysis of CMS data. 

Notes: Since contract suppliers may be new to more than one product 
category, some suppliers are counted more than once. Among the 68 
contract suppliers new to a product category, there are 43 distinct 
contract suppliers among the nine product categories. The entries in 
the percentage column are based on the percentage of contract 
suppliers that are new to the product category as compared to all 
contract suppliers in the same product category; the percentage 
column's entries do not, therefore, add up to 100 percent. 

[End of table] 

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.) 

Table 9: Contract Suppliers New to a Competitive Bidding Area, CBP 
Round 1 Rebid: 

1. Competitive bidding area: Cleveland; 
Distinct contract suppliers new to the competitive bidding area: 21; 
Percentage of distinct contract suppliers new to the competitive 
bidding area compared to all distinct contract suppliers for the area: 
34%. 

2. Competitive bidding area: Pittsburgh; 
Distinct contract suppliers new to the competitive bidding area: 16; 
Percentage of distinct contract suppliers new to the competitive 
bidding area compared to all distinct contract suppliers for the area: 
26%. 

3. Competitive bidding area: Cincinnati; 
Distinct contract suppliers new to the competitive bidding area: 13; 
Percentage of distinct contract suppliers new to the competitive 
bidding area compared to all distinct contract suppliers for the area: 
20%. 

4. Competitive bidding area: Charlotte; 
Distinct contract suppliers new to the competitive bidding area: 11; 
Percentage of distinct contract suppliers new to the competitive 
bidding area compared to all distinct contract suppliers for the area: 
19%. 

5. Competitive bidding area: Kansas City; 
Distinct contract suppliers new to the competitive bidding area: 11; 
Percentage of distinct contract suppliers new to the competitive 
bidding area compared to all distinct contract suppliers for the area: 
21%. 

6. Competitive bidding area: Orlando; 
Distinct contract suppliers new to the competitive bidding area: 10; 
Percentage of distinct contract suppliers new to the competitive 
bidding area compared to all distinct contract suppliers for the area: 
15%. 

7. Competitive bidding area: Riverside; 
Distinct contract suppliers new to the competitive bidding area: 8; 
Percentage of distinct contract suppliers new to the competitive 
bidding area compared to all distinct contract suppliers for the area: 
12%. 

8. Competitive bidding area: Dallas; 
Distinct contract suppliers new to the competitive bidding area: 4; 
Percentage of distinct contract suppliers new to the competitive 
bidding area compared to all distinct contract suppliers for the area: 
5%. 

9. Competitive bidding area: Miami; 
Distinct contract suppliers new to the competitive bidding area: 3; 
Percentage of distinct contract suppliers new to the competitive 
bidding area compared to all distinct contract suppliers for the area: 
3%. 

Competitive bidding area: Total; 
Distinct contract suppliers new to the competitive bidding area: 97. 

Source: GAO analysis of CMS data. 

Notes: Since contract suppliers may be new to more than one 
competitive bidding area, some suppliers are counted more than once. 
Among the nine competitive bidding areas, there are 97 suppliers new 
to areas--44 are distinct contract suppliers. The entries in the 
percentage column are based on the percentage of contract suppliers 
that are new to a competitive bidding area as compared to all contract 
suppliers in the same competitive bidding area; the percentage 
column's entries do not, therefore, add up to 100 percent. 

[End of table] 

Although CMS's Monitoring Activities Have Limitations, They Indicate 
that Beneficiary Access and Satisfaction Have Not Been Affected by CBP: 

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. 

CBP Inquiries and Complaints Decreased During CBP's First Year 2011: 

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 figure 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. 
[Footnote 77] 

Figure 4: Number of CBP Inquiries to 1-800-MEDICARE by Month, 2011: 

[Refer to PDF for image: line graph] 

Month: January; 
General CBP inquiries: 15,085; 
Product-related inquiries: 4,802. 

Month: February; 
General CBP inquiries: 12,662; 
Product-related inquiries: 5,983. 

Month: March; 
General CBP inquiries: 11,522; 
Product-related inquiries: 6,887. 

Month: April; 
General CBP inquiries: 5,693; 
Product-related inquiries: 7,323. 

Month: May; 
General CBP inquiries: 4,983; 
Product-related inquiries: 6,517. 

Month: June; 
General CBP inquiries: 3,961; 
Product-related inquiries: 5,390. 

Month: July; 
General CBP inquiries: 3,198; 
Product-related inquiries: 4,200. 

Month: August; 
General CBP inquiries: 3,073; 
Product-related inquiries: 4,301. 

Month: September; 
General CBP inquiries: 2,785; 
Product-related inquiries: 3,703. 

Month: October; 
General CBP inquiries: 2,439; 
Product-related inquiries: 3,392. 

Month: November; 
General CBP inquiries: 2,118; 
Product-related inquiries: 2,948. 

Month: December; 
General CBP inquiries: 1,873; 
Product-related inquiries: 2,628. 

Source: GAO analysis of CMS data. 

[End of figure] 

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 figure 5.) Inquiries 
and complaints to 1-800-MEDICARE regarding DMEPOS in general, 
including CBP-related calls, have remained fairly steady from 2010 to 
2011. 

Figure 5: Percent of CBP-related Inquiries to 1-800-MEDICARE Compared 
to All DMEPOS-related Inquiries by Quarter, 2011: 

[Refer to PDF for image: vertical bar graph] 

First quarter: 19.5%. 

Second quarter: 13.4%. 

Third quarter: 8.8%. 

Fourth quarter: 6.8%. 

Source: GAO analysis of CMS data. 

Note: DMEPOS-related inquiries include CBP inquiries. 

[End of figure] 

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 
figure 6.) 

Figure 6: Number of CBP Inquiries to 1-800-MEDICARE by CBP Round 1 
Rebid Product Category by Quarter, 2011: 

[Refer to PDF for image: vertical bar graph] 

Product category: Oxygen; 
First Quarter: 660; 
Second Quarter: 521; 
Third Quarter: 357; 
Fourth Quarter: 318. 

Product category: Complex power wheelchairs; 
First Quarter: 203; 
Second Quarter: 191; 
Third Quarter: 140; 
Fourth Quarter: 112. 

Product category: Standard power wheelchairs; 
First Quarter: 986; 
Second Quarter: 1,564; 
Third Quarter: 1,550; 
Fourth Quarter: 1,177. 

Product category: Mail-order diabetic supplies; 
First Quarter: 13,524; 
Second Quarter: 14,280; 
Third Quarter: 7,923; 
Fourth Quarter: 5,475. 

Product category: Enteral nutrients; 
First Quarter: 142; 
Second Quarter: 99; 
Third Quarter: 47; 
Fourth Quarter: 31. 

Product category: CPAP/RAD; 
First Quarter: 1,138; 
Second Quarter: 1,259; 
Third Quarter: 922; 
Fourth Quarter: 850. 

Product category: Hospital beds; 
First Quarter: 367; 
Second Quarter: 399; 
Third Quarter: 418; 
Fourth Quarter: 327. 

Product category: Walkers; 
First Quarter: 619; 
Second Quarter: 889; 
Third Quarter: 819; 
Fourth Quarter: 644. 

Product category: Support surfaces; 
First Quarter: 33; 
Second Quarter: 28; 
Third Quarter: 28; 
Fourth Quarter: 34. 

Source: CMS data. 

[End of figure] 

CSRs at 1-800-MEDICARE may respond to beneficiaries with time-
sensitive inquiries. In 2011, there were no life-threatening inquiries 
related to CBP[Footnote 78] 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. 

CBP Complaints Decreased During 2011, But CMS's Definition of 
Complaint May Not Reveal Beneficiary Access Problems: 

In the first year of CBP, CMS classified 151 calls as complaints. (See 
figure 7.) Seventy-seven percent of these complaints--or 116 
complaints--occurred in the first half of 2011. 

Figure 7: CBP Complaints to 1-800-MEDICARE by Quarter, 2011: 

[Refer to PDF for image: line graph] 

First Quarter: 43; 
Second Quarter: 73; 
Third Quarter: 29; 
Fourth Quarter: 6. 

Source: GAO analysis of CMS data. 

[End of figure] 

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 Monitored Beneficiary Satisfaction and Health Outcomes During the 
First Year of Implementation: 

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 one of five 
options from "very poor" to "very good."[Footnote 79] Follow-up 
questions 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.[Footnote 80] Therefore, CMS did 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. 

Early Data Indicate Some Decreases in DME Utilization: 

CMS data show that fewer distinct beneficiaries[Footnote 81] in 
competitive bidding areas received CBP-covered DME items in 2011 than 
in 2010 for the six product categories that we analyzed.[Footnote 82] 
However, we do not assume that 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. 

Early Data Generally Indicate Utilization Decreases for Six CBP 
Product Categories: 

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.[Footnote 83] 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.[Footnote 
84] However, such decline in the number of 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: 

* 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 figure 8.) 

Figure 8: Change in the Number of Distinct Medicare Beneficiaries 
Furnished Selected CBP-covered CPAP/RAD Product Category Items; Round 
1 Rebid's First 6 Months 2011: 

[Refer to PDF for image: vertical bar graph] 

Post-CBP 2011 compared to pre-CBP 2010, by month: 

Percentage difference (Calculated by dividing post by pre and 
subtracting 1) Percentage difference (see calculation in each cell. 
Calculated by dividing post by pre and subtracting 1) 

Month: January; 
Beneficiaries in CBP competitive bidding areas (2011): -11.9%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 10.7%. 

Month: February; 
Beneficiaries in CBP competitive bidding areas (2011): -11.7%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 9.5%. 

Month: March; 
Beneficiaries in CBP competitive bidding areas (2011): -11.8%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 9.8%. 

Month: April; 
Beneficiaries in CBP competitive bidding areas (2011): -14.0%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 6.1%. 

Month: May; 
Beneficiaries in CBP competitive bidding areas (2011): -8.5%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 8.1%. 

Month: June; 
Beneficiaries in CBP competitive bidding areas (2011): -8.1%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 5.7%. 

Source: GAO analysis of CMS data. 

Notes: This analysis was based on Medicare claims data for the first 6 
months of 2011, processed as of February 17, 2012. Our analysis is 
based on the 6 HCPCS codes related to this product category that are 
among the 34 HCPCS codes across all CBP product categories that CMS 
determined are the top 80 percent highest cost and highest utilization 
codes. (See appendix 1.) 

[End of figure] 

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 figure9.) 

Figure 9: Change in the Number of Distinct Medicare Beneficiaries 
Furnished Selected CBP-covered Enteral Product Category Items; Round 1 
Rebid's First 6 Months 2011: 

[Refer to PDF for image: vertical bar graph] 

Month: January; 
Beneficiaries in CBP competitive bidding areas (2011): -20.5%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -9.5%. 

Month: February; 
Beneficiaries in CBP competitive bidding areas (2011): -21.6%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -4.9%. 

Month: March; 
Beneficiaries in CBP competitive bidding areas (2011): -17.1%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -4.9%. 

Month: April; 
Beneficiaries in CBP competitive bidding areas (2011): -13.1%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -6.7%. 

Month: May; 
Beneficiaries in CBP competitive bidding areas (2011): -14.9%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -9.0%. 

Month: June; 
Beneficiaries in CBP competitive bidding areas (2011): -14.3%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -9.1%. 

Source: GAO analysis of CMS data. 

Notes: This analysis was based on Medicare claims data for the first 6 
months of 2011, processed as of February 17, 2012. Our analysis is 
based on the 4 HCPCS codes related to this product category that are 
among the 34 HCPCS codes across all CBP product categories that CMS 
determined are the top 80 percent highest cost and highest utilization 
codes. (See appendix 1.) 

[End of figure] 

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 
figure 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. 

Figure 10: Change in the Number of Distinct Medicare Beneficiaries 
Furnished Selected CBP-covered Hospital Bed Product Category Items; 
Round 1 Rebid's First 6 Months 2011: 

[Refer to PDF for image: vertical bar graph] 

Month: January; 
Beneficiaries in CBP competitive bidding areas (2011): -7.1%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 2.2%. 

Month: February; 
Beneficiaries in CBP competitive bidding areas (2011): -8.5%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 1.6%. 

Month: March; 
Beneficiaries in CBP competitive bidding areas (2011): -9.9%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 0.7%. 

Month: April; 
Beneficiaries in CBP competitive bidding areas (2011): -12.2%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -1.2%. 

Month: May; 
Beneficiaries in CBP competitive bidding areas (2011): -13.3%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -2.0%. 

Month: June; 
Beneficiaries in CBP competitive bidding areas (2011): -12.7%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -2.4%. 

Source: GAO analysis of CMS data. 

Notes: This analysis was based on Medicare claims data for the first 6 
months of 2011, processed as of February 17, 2012. Our analysis is 
based on the 3 HCPCS codes related to this product category that are 
among the 34 HCPCS codes across all CBP product categories that CMS 
determined are the top 80 percent highest cost and highest utilization 
codes. (See appendix 1.) 

[End of figure] 

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 figure 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. 

Figure 11: Change in the Number of Distinct Medicare Beneficiaries 
Furnished Selected CBP-covered Oxygen Product Category Items; Round 1 
Rebid's First 6 Months 2011: 

[Refer to PDF for image: vertical bar graph] 

Month: January; 
Beneficiaries in CBP competitive bidding areas (2011): -6.4%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 1.9%. 

Month: February; 
Beneficiaries in CBP competitive bidding areas (2011): -6.8%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 1.6%. 

Month: March; 
Beneficiaries in CBP competitive bidding areas (2011): -7.9%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 0.4%. 

Month: April; 
Beneficiaries in CBP competitive bidding areas (2011): -9.3%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -0.6%. 

Month: May; 
Beneficiaries in CBP competitive bidding areas (2011): -10.6%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -1.3%. 

Month: June; 
Beneficiaries in CBP competitive bidding areas (2011): -11.4%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -2.1%. 

Source: GAO analysis of CMS data. 

Notes: This analysis was based on Medicare claims data for the first 6 
months of 2011, processed as of February 17, 2012. Our analysis is 
based on the 6 HCPCS codes related to this product category that are 
among the 34 HCPCS codes across all CBP product categories that CMS 
determined are the top 80 percent highest cost and highest utilization 
codes. (See appendix 1.) 

[End of figure] 

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.[Footnote 85] 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 
figure 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.[Footnote 86] 

Figure 12: Change in the Number of Distinct Medicare Beneficiaries 
Furnished Selected CBP-covered Standard Power Wheelchair Product 
Category Items; Round 1 Rebid's First 6 Months 2011: 

[Refer to PDF for image: vertical bar graph] 

Month: January; 
Beneficiaries in CBP competitive bidding areas (2011): -43.1%. 

Month: February; 
Beneficiaries in CBP competitive bidding areas (2011): -32.9%. 

Month: March; 
Beneficiaries in CBP competitive bidding areas (2011): -32.6%. 

Month: April; 
Beneficiaries in CBP competitive bidding areas (2011): -29.8%. 

Month: May; 
Beneficiaries in CBP competitive bidding areas (2011): -12.1%. 

Month: June; 
Beneficiaries in CBP competitive bidding areas (2011): -13.5%. 

Source: GAO analysis of CMS data. 

Notes: This analysis was based on Medicare claims data for the first 6 
months of 2011, processed as of February 17, 2012. Our analysis is 
based on the 3 HCPCS codes related to this product category that are 
among the 34 HCPCS codes across all CBP product categories that CMS 
determined are the top 80 percent highest cost and highest utilization 
codes. (See appendix 1.) 

[End of figure] 

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.[Footnote 87] 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 figure 13.) 

Figure 13: Change in the Number of Distinct Medicare Beneficiaries 
Furnished Selected CBP-covered Walkers Product Category Items; Round 1 
Rebid's First 6 Months 2011: 

[Refer to PDF for image: vertical bar graph] 

Month: January; 
Beneficiaries in CBP competitive bidding areas (2011): -33.7%; 
Beneficiaries in non-CBP competitive bidding areas (2011): 1.1%. 

Month: February; 
Beneficiaries in CBP competitive bidding areas (2011): -31.6%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -0.8%. 

Month: March; 
Beneficiaries in CBP competitive bidding areas (2011): -30.6%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -1.4%. 

Month: April; 
Beneficiaries in CBP competitive bidding areas (2011): -35.0%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -6.6%. 

Month: May; 
Beneficiaries in CBP competitive bidding areas (2011): -29.2%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -4.3%. 

Month: June; 
Beneficiaries in CBP competitive bidding areas (2011): -30.6%; 
Beneficiaries in non-CBP competitive bidding areas (2011): -4.1%. 

Source: GAO analysis of CMS data. 

Notes: This analysis was based on Medicare claims data for the first 6 
months of 2011, processed as of February 17, 2012. Our analysis is 
based on the 3 HCPCS codes related to this product category that are 
among the 34 HCPCS codes across all CBP product categories that CMS 
determined are the top 80 percent highest cost and highest utilization 
codes. (See appendix 1.) 

[End of figure] 

CBP's Mail-order Diabetic Testing Supplies Utilization Data Affected 
by Some CBP-covered Beneficiaries Choosing Higher Cost Non-CBP Non-
mail-order Retail Suppliers: 

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).[Footnote 88] 
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 DME Suppliers Incurred Costs During the CBP Round 1 
Rebid, but CMS Estimates Significant 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 Reported Costs of Nearly $20 Million in the 18 Months Prior to the 
Round 1 Rebid Start, and Contract Suppliers Reported Varying Costs to 
Participate: 

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.) 

Table 10: CMS Operational Costs for CBP, May 2009 through December 
2010: 

Cost description: Palmetto GBA contract to implement CBP; 
Cost to CMS: $11,466,333; 
Percentage of total cost: 58.24%. 

Cost description: CMS CBP-related administrative costs[A]; 
Cost to CMS: $3,002,000; 
Percentage of total cost: 15.25%. 

Cost description: Public outreach materials related to CBP; 
Cost to CMS: $2,516,294; 
Percentage of total cost: 12.78%. 

Cost description: IT contract for CBP bid submission system[B]; 
Cost to CMS: $1,597,614; 
Percentage of total cost: 8.11%. 

Cost description: CAO and office to respond to CBP-related questions 
and complaints[C]; 
Cost to CMS: $1,000,666; 
Percentage of total cost: 5.08%. 

Cost description: PAOC meetings[D]; 
Cost to CMS: $105,000; 
Percentage of total cost: 0.53%. 

Cost description: Total; 
Cost to CMS: $19,687,907; 
Percentage of total cost: 100%. 

Source: GAO analysis of information provided by CMS. 

Notes: This table does not include training and salaries for 1-800-
MEDICARE phone workers, script answer development, or CMS regional 
office caseworkers. While CMS trained CSRs to respond solely to CBP-
related calls, CMS did not provide cost information for these CSRs. 

[A] CMS's internal administrative costs include 12 CMS staff that 
primarily work on CBP in the Division of DMEPOS Policy or the Division 
of DMEPOS Competitive Bidding, using average salary and other 
employment costs of $158,000 per employee. 

[B] CMS developed the Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies bidding system (DBidS) to correct the 
operational problems identified in the previous system. 

[C] Costs for the CAO and her office include four employees using 
average salary and other employment costs of $158,000 per employee. 

[D] PAOC members are appointed by the HHS Secretary to advise CMS on 
implementing the CBP. One PAOC meeting was held during this time 
period on April 5, 2011. 

[End of table] 

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 Estimates that CBP Round 1 Rebid Will Result in Significant 
Savings for Both the Medicare Program and Beneficiaries: 

CMS's estimated savings to both the Medicare program and beneficiaries 
is significantly higher than its costs. In a 2012 report,[Footnote 89] 
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. 

Agency Comments and Our Evaluation: 

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. 

Concluding Observations: 

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 [hyperlink, 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. 

Signed by: 

Kathleen M. King: 
Director, Health Care: 

[End of section] 

Appendix I: HCPCS Codes that CMS Determined Are the Top 80 Percent 
Highest Cost and Utilization for CBP Round 1 Rebid: 

Product Category: Complex Rehabilitative Power Wheelchairs and Related 
Accessories (Group 2); 

HCPCS Code: K0835; 
Description: Power wheelchair, group 2 standard, single power option, 
sling/solid seat/back, patient weight capacity up to and including 300 
pounds. 

HCPCS Code: K0836; 
Description: Power wheelchair, group 2 standard, single power option, 
captains chair, patient weight capacity up to and including 300 pounds. 

HCPCS Code: K0843; 
Description: Power wheelchair, group 2 heavy duty, multiple power 
option, sling/solid seat/back, patient weight capacity 301 to 450 
pounds. 

Product Category: Continuous Positive Airway Pressure Devices, 
Respiratory Assist Devices, and Related Supplies and Accessories 
(CPAP/RAD); 

HCPCS Code: A7030; 
Description: Full face mask used with positive airway pressure device 
(each). 

HCPCS Code: A7034; 
Description: Nasal interface (mask or cannula type) used with positive 
airway pressure device, with or without head strap. 

HCPCS Code: A7037; 
Description: Tubing used with positive airway pressure device. 

HCPCS Code: E0470; 
Description: 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). 

HCPCS Code: E0562; 
Description: Humidifier, heated, used with positive airway pressure 
device. 

HCPCS Code: E0601; 
Description: Continuous airway pressure (CPAP) device. 

Product Category: Enteral Nutrients, Equipment, and Supplies; 

HCPCS Code: B4035; 
Description: Enteral feeding supply kit; 
pump fed, per day; 
includes but not limited to feeding/flushing syringe, administration 
set tubing, dressings, tape. 

HCPCS Code: B4150; 
Description: Enteral formula, nutritionally complete with intact 
nutrients, includes proteins, fats, carbohydrates, vitamins and 
minerals, may include fiber, administered through an enteral feeding 
tube, 100 calories =1 unit. 

HCPCS Code: B4152; 
Description: Enteral formula, nutritionally complete, calorically 
dense (equal to or greater than 1.5 kcal/ml) with intact nutrients, 
includes proteins, fats, carbohydrates, vitamins and minerals, may 
Include fiber, administered through an enteral feeding tube, 100 
calories =1 unit. 

HCPCS Code: B4154; 
Description: Enteral formula, nutritionally complete, for special 
metabolic needs, excludes inherited disease of metabolism, includes 
altered composition of proteins, fats, carbohydrates, vitamins and/or 
minerals, may include fiber, administered through an enteral feeding 
tube, 100 calories =1 unit. 

Product Category: Hospital Beds and Related Accessories; 

HCPCS Code: E0260; 
Description: Hospital bed, semi-electric (head and foot adjustment), 
with any type side rails, with mattress. 

HCPCS Code: E0261; 
Description: Hospital bed, semi-electric (head and foot adjustment), 
with any type side rails, without mattress. 

HCPCS Code: E0303; 
Description: Hospital bed, heavy duty, extra wide, with weight 
capacity greater than 350 pounds, but less than or equal to 600 
pounds, with any type side rails, with mattress. 

Product Category: Mail-Order Diabetic Supplies[A]; 

HCPCS Code: A4253; 
Description: Blood glucose test or reagent strips for home blood 
glucose monitor, per 50 strips: item delivered via mail. 

HCPCS Code: Product Category: A4259; 
Description: Product Category: Lancets, per box of 100: item delivered 
via mail. 

HCPCS Code: A4256; 
Description: Normal, low and high calibrator solution/chips: item 
delivered via mail. 

Product Category: Oxygen Supplies and Equipment; 
HCPCS Code: E0424; 
Description: Stationary compressed gaseous oxygen system, rental; 
includes container, contents, regulator, flowmeter, humidifier, 
nebulizer, cannula or mask, and tubing. 

HCPCS Code: E0439; 
Description: Stationary liquid oxygen system, rental; 
includes container, contents, regulator, flowmeter, humidifier, 
nebulizer, cannula or mask, and tubing. 

HCPCS Code: E1390; 
Description: Oxygen concentrator, single delivery port, capable of 
delivering 85 percent or greater oxygen concentration at the 
prescribed flow rate. 

HCPCS Code: E1391; 
Description: Oxygen concentrator, dual delivery port, capable of 
delivering 85 percent or greater oxygen concentration at the 
prescribed flow rate (each). 

HCPCS Code: E0431; 
Description: Portable gaseous oxygen system, rental; 
includes portable container, regulator, flowmeter, humidifier, cannula 
or mask, and tubing. 

HCPCS Code: E0434; 
Description: Portable liquid oxygen system, rental; 
includes portable container, supply reservoir, humidifier, flowmeter, 
refill adaptor, contents gauge, cannula or mask, and tubing. 

Product Category: Standard Power Wheelchairs, Scooters, and Related 
Accessories; 

HCPCS Code: K0823; 
Description: Power wheelchair, group 2 standard, captains chair, 
patient weight capacity up to and including 300 pounds. 

HCPCS Code: K0822; 
Description: Power wheelchair, group 2 standard, sling/solid 
seat/back, patient weight capacity up to and including 300 pounds. 

HCPCS Code: K0825; 
Description: Power wheelchair, group 2 heavy duty, captains chair, 
patient weight capacity 301 to 450 pounds. 

Product Category: Support Surfaces (Group 2 Mattresses and Overlays); 

HCPCS Code: E0277; 
Description: Powered pressure reducing air mattress. 

HCPCS Code: E0372; 
Description: Powered air overlay for mattress, standard mattress 
length and width. 

HCPCS Code: E0373; 
Description: Non-powered advanced pressure reducing mattress. 

Product Category: Walkers and Related Accessories; 
HCPCS Code: E0135; 
Description: Walker, folding (pickup), adjustable or fixed height. 

HCPCS Code: E0143; 
Description: Walker, folding, wheeled, adjustable or fixed height. 

HCPCS Code: E0156; 
Description: Seat attachment, walker. 

Source: GAO analysis of CMS and Palmetto GBA information. 

[A] The three HCPCS codes under the mail-order diabetic supplies 
product category must also include the modifier "KL" at the end to 
indicate that these supplies were furnished by mail-order. 

[End of table] 

Appendix II: Comments from the Department of Health and Human Services: 

Department of Health & Human Services: 
Office of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

May 8, 2012: 

Kathleen King: 
Director, Health Care: 
U.S. Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Ms. King: 

Attached are comments on the U.S. Government Accountability Office's 
(GAO) report entitled: "Medicare: Review of the First Year of CMS's 
Durable Medical Equipment Competitive Bidding Program's Round 1 Rebid" 
(GAO-12-693). 

The Department appreciates the opportunity to review this draft 
section of the report prior to publication. 

Sincerely, 

Signed by: 

Jim R. Esquea: 
Assistant Secretary for Legislation: 

Attachment: 

[End of letter] 

General Comments Of The Department Of Health And Human Services (HHS) 
On The Government Accountability Office's (GAO) Draft Report Entitled, 
"Medicare: Review Of The First Year Of CMS's Durable Medical Equipment 
Competitive Bidding Programs' Round 1 Rebid" (GAO-12-693): 

The Department appreciates the opportunity to review and comment on 
this draft report. 

The Department recently released a report documenting the Medicare 
Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 
(DMEPOS) Competitive Bidding Program's first year results, which 
include savings to Medicare of approximately $202.1 million and 
preservation of beneficiary access and health status 
outcomes.[Footnote 1] We are pleased that the GAO also found that the 
program was implemented successfully. 

As briefly mentioned in the draft report, CMS implemented a variety of 
operational improvements to the program prior to the Round 1 Rebid 
based on statutory changes, an evaluation of the 2008 bidding process, 
feedback from stakeholders, and advice from the Program Advisory and 
Oversight Committee for the Competitive Acquisition Program. Some 
examples of these key operational improvements include: a process 
under which suppliers could qualify to be notified of missing 
financial bid documents; an upgraded bidder education program 
completed prior to the opening of the bid window; a new and improved 
online bidding system; and enhanced bid evaluation processes such as a 
comprehensive upfront licensing verification process; a more rigorous 
bona fide bid evaluation process; and increased scrutiny of expansion 
plans for suppliers new to an area or product category. We believe 
these operational modifications to the program resulted in a bidding 
process that was easier for suppliers to navigate and that ultimately 
benefited Medicare beneficiaries. 

While we appreciate GAO's general findings of successful 
implementation, we believe that the GAO analysis did not fully account 
for the robustness of CMS's real-time claims monitoring system. This 
sophisticated new system analyzes 100 percent of Medicare claims using 
over 3,400 indicators, including potential changes in key secondary 
indicators such as hospital admissions, emergency room visits, 
physician visits, and admissions to skilled nursing facilities before 
and after the implementation of the new payment model. The monitoring 
system looks at three comparison groups of beneficiaries over time: 1) 
all Medicare beneficiaries living in one of the nine areas compared to 
beneficiaries living in a similar geographic area not yet subject to 
competitive bidding (e.g., Orlando vs. Tampa); 2) beneficiaries in one 
of the nine areas most likely to use a particular item compared to 
beneficiaries in a similar geographic area most likely to use the 
item; and 3) beneficiaries actually using an item living in one of the 
nine areas compared to beneficiaries actually using an item living in 
a similar geographic area. 

The real-time claims monitoring system has consistently demonstrated 
that there have been no changes to beneficiary health status outcomes 
resulting from the competitive bidding program.[Footnote 2] For 
example, the rate of use of hospital services, emergency room visits, 
physician visits, and skilled nursing facility care in competitive 
bidding areas has remained consistent with the patterns and trends 
seen throughout the rest of the country. CMS has also used this system 
to monitor utilization of DMEPOS and follow up with additional 
investigation as needed. For example, monitoring revealed declines in 
the use of mail-order diabetes test strips and continuous positive 
airway pressure supplies in the competitive bidding areas. In response 
to these declines, CMS conducted outreach to beneficiaries with claims 
in 2010. CMS found that, in virtually every case, the beneficiary 
reported having more than enough supplies on hand, often multiple 
months worth, and therefore, did not need to obtain additional 
supplies when the program began. 

HHS agrees with GAO's finding that the program curbed unnecessary 
utilization, We believe GAO's analysis in this regard could have been 
enhanced through use of CMS real-time claims monitoring data. For 
example, by examining trends over time and comparing changes in 
competitive bidding areas to comparable areas, CMS found spikes in 
claims submission that occurred immediately before program 
implementation. CMS also found that declines in utilization were often 
more common in fraud-prone areas. Both of these findings provide 
further evidence that beneficiary access to medically necessary items 
has been preserved under the program. 

As indicated in the draft report, the DMEPOS competitive bidding 
program will expand substantially in 2013 with the implementation of 
Round 2 and the National Mail-Order Program to furnish diabetic 
testing supplies. This expansion is expected to yield significant 
savings for taxpayers and Medicare beneficiaries. CMS estimates that 
the program will save the Medicare Part B Trust Fund $25.7 billion and 
beneficiaries $17.1 billion between 2013 and 2022. CMS will continue 
to monitor the program carefully through all phases of implementation 
to ensure that Medicare savings are achieved without negative 
consequences to Medicare beneficiaries. 

HHS is concerned that the description of CMS's real-time claims 
monitoring system does not accurately convey the sophistication, 
robustness, and usefulness of this new system to track and prevent any 
potential problems for patients. We believe this should be reevaluated 
in the final report. We would be pleased to provide a briefing to 
explain this system in more detail. 

Finally, FIBS has compared the utilization figures in the draft report 
to real time-claims monitoring system data and has the following 
comments: 

* GAO included several specific counts that do not directly track with 
the monitoring data we are reviewing internally. There are disparities 
between GAO's utilization data compared to the real-time claims 
monitoring data used by CMS for internal review. 

* GAO restricted its analyses to the top 80 percent of HCPCS over six 
months, whereas CMS observed all claims longitudinally from 2008 
through 2011. Our methodologies also differed with respect to CMS' use 
of comparison regions, versus GAO's comparisons to nationally observed 
data. Finally, while not clear from the report, it is also possible 
that GAO and CMS applied different methodologies to the assignment of 
claims to specific beneficiary months, or to the use of paid versus 
unpaid claims. 

* GAO frequently cites January 2011 data in this report. We believe 
the focus on January 2011 data casts a misleading story with respect 
to utilization, since we observed increased utilization for several 
product categories and in several Competitive Bidding Areas' (CBAs) 
prior to the start of the Competitive Bidding Program (CBP). 

* GAO identified several product categories that experienced a 
decrease in utilization. We have conducted a detailed analysis of 
declines in utilization, and we identified that decreases in 
utilization were frequently more prominent in one or two CBAs. As GAO 
correctly states, 2010 utilization data for CBAs may have been 
elevated due to inappropriate utilization of CBP products and supplies. 

* CMS generally compares utilization and health outcomes for CBAs to 
comparator regions, rather than the rest of the nation. CMS identified 
comparator regions based on regional and demographic similarities 
which may or may not be present in a national cohort. Despite some 
changes in utilization, we have observed no changes in health outcomes 
in the total population, beneficiaries actually using competitively 
hid items, or in access groups of beneficiaries more likely to use 
competitively bid products. 

Appendix II Footnotes: 

[1] Competitive Bidding Update—One Year Implementation Update, April 
17, 2012. [hyperlink, 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/DMEPOSCompetitiveBid/Downloads/Competitive-Bidding-Update-One-
Year-Implementation.pdf]. 

[2] Examples of real-time claims monitoring tracking can be found on 
the CMS website at [hyperlink, http://www.cms.gov/Medicare/Medicare-
Fee-for-Service-Payment/DMEPOSCompetitiveBid/Monitoring.html]. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Kathleen M. King, (202) 512-7114 or kingk@gao.gov: 

Staff Acknowledgments: 

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. 

[End of section] 

Related GAO Products: 

Medicare: Issues for Manufacturer-level Competitive Bidding for 
Durable Medical Equipment, [hyperlink, 
http://www.gao.gov/products/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, [hyperlink, http://www.gao.gov/products/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. [hyperlink, 
http://www.gao.gov/products/GAO-10-27]. Washington, D.C.: November 6, 
2009. 

Medicare: Covert Testing Exposes Weaknesses in the Durable Medical 
Equipment Supplier Screening Process. [hyperlink, 
http://www.gao.gov/products/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. 
[hyperlink, http://www.gao.gov/products/GAO-08-767T]. Washington, 
D.C.: May 6, 2008. 

Medicare: Improvements Needed to Address Improper Payments for Medical 
Equipment and Supplies. [hyperlink, 
http://www.gao.gov/products/GAO-07-59]. Washington, D.C.: January 31, 
2007. 

Medicare Payment: CMS Methodology Adequate to Estimate National Error 
Rate. [hyperlink, http://www.gao.gov/products/GAO-06-300]. Washington, 
D.C.: March 24, 2006. 

Medicare Durable Medical Equipment: Class III Devices Do Not Warrant a 
Distinct Annual Payment Update. [hyperlink, 
http://www.gao.gov/products/GAO-06-62]. Washington, D.C.: March 1, 
2006. 

Medicare: More Effective Screening and Stronger Enrollment Standards 
Needed for Medical Equipment Suppliers. [hyperlink, 
http://www.gao.gov/products/GAO-05-656]. Washington, D.C.: September 
22, 2005. 

Medicare: CMS's Program Safeguards Did Not Deter Growth in Spending 
for Power Wheelchairs. [hyperlink, 
http://www.gao.gov/products/GAO-05-43]. Washington, D.C.: November 17, 
2004. 

Medicare: Past Experience Can Guide Future Competitive Bidding for 
Medical Equipment and Supplies. [hyperlink, 
http://www.gao.gov/products/GAO-04-765]. Washington, D.C.: September 
7, 2004. 

Medicare: CMS Did Not Control Rising Power Wheelchair Spending. 
[hyperlink, http://www.gao.gov/products/GAO-04-716T]. Washington, 
D.C.: April 28, 2004. 

[End of section] 

Footnotes: 

[1] Medicare is for people age 65 and older, individuals under age 65 
with certain disabilities, and individuals diagnosed with end-stage 
renal disease. 

[2] DME is equipment that serves a medical purpose, can withstand 
repeated use, is generally not useful in the absence of an illness or 
injury, and is appropriate for use in the home including, for example, 
wheelchairs and hospital beds. Prosthetic devices (other than dental) 
are defined as devices needed to replace body parts or functions such 
as artificial limbs, enteral nutrition, and cardiac pacemakers. 
Orthotic devices are defined as providing rigid or semi-rigid support 
for weak or deformed body parts or restricting or eliminating motion 
in a diseased or injured part of the body, such as leg, arm, back, and 
neck braces. Medicare-reimbursed supplies are items that are used and 
consumed with DME, such as drugs used for inhalation therapy, or that 
need to be replaced frequently (usually daily), such as surgical 
dressings. Collectively DME, prosthetics, and orthotics are referred 
to as DMEPOS. For this report, the term DME refers to all DMEPOS items 
included in the CBP. 

[3] Medicare Part B helps pay for certain physician, outpatient 
hospital, laboratory, and other services, and medical equipment and 
supplies--DMEPOS. 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 DMEPOS 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 DMEPOS. 

[4] GAO, Medicare: CMS Has Addressed Some Implementation Problems from 
Round 1 of the Durable Medical Equipment Competitive Bidding Program 
for the Round 1 Rebid, [hyperlink, 
http://www.gao.gov/products/GAO-10-1057T] (Washington, D.C.: Sept. 15, 
2010); Medicare: CMS Working to Address Problems from Round 1 of the 
Durable Medical Equipment Competitive Bidding Program, [hyperlink, 
http://www.gao.gov/products/GAO-10-27] (Washington, D.C.: Nov. 6, 
2009); Medicare: Competitive Bidding for Medical Equipment and 
Supplies Could Reduce Program Payments, but Adequate Oversight Is 
Critical, [hyperlink, http://www.gao.gov/products/GAO-08-767T] 
(Washington, D.C.: May 6, 2008); Medicare: Past Experience Can Guide 
Future Competitive Bidding for Medical Equipment and Supplies, 
[hyperlink, http://www.gao.gov/products/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. 

[5] Medicare Prescription Drug, Improvement, and Modernization Act of 
2003, Pub. L. No. 108-173, § 302(b), 117 Stat. 2066, 2224-30 (2003) 
(codified as amended at 42 U.S.C. § 1395w-3). 

[6] A product category is a grouping of related items used to treat a 
similar medical condition. 

[7] A competitive bidding area is either a metropolitan statistical 
area or a part thereof. Metropolitan statistical areas are designated 
by the Office of Management and Budget and include major cities and 
the suburban areas surrounding them. 

[8] 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, California). 

[9] 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.) 

[10] The terms CBP-covered items and CBP-covered beneficiaries are 
used since not all Medicare-covered DME items are included in the CBP 
and not all beneficiaries residing in a CBP competitive bidding area 
are covered by CBP. 

[11] In general, DME fee schedule rates are subject to national floor 
and ceiling limits, and may be updated by the consumer price index for 
all urban consumers. Medicare payment for DME 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. 

[12] Beneficiaries who reside in the CBP competitive bidding areas and 
are enrolled in Medicare Advantage health plans, which are operated by 
private companies, are not subject to CBP. 

[13] CMS conducted demonstrations from 1999 to 2002 that showed that 
DME competitive bidding would save money for both the Medicare program 
and for Medicare beneficiaries in lower coinsurance. 

[14] Pub. L. No. 110-275, § 154(a)(1), 122 Stat. 2494, 2560-3 (2008) 
(codified, as amended, at 42 U.S.C. § 1395w-3). 

[15] Pub. L. No. 110-275, § 154(a)(2), 122 Stat. at 2563 (2008) 
(codified, as amended, at 42 U.S.C. § 1395m(a)(14)). 

[16] Pub. L. No. 110-275, § 154(c), 122 Stat. at 2565-6. 

[17] Contract suppliers submit the HCPCS codes for the CBP-covered 
items they plan to furnish each quarter to CMS through the Palmetto 
GBA website [hyperlink, 
https://www.dmecompetitivebid.com/secure/cbicsecure.nsf/FormC], which 
also provides a listing by product category of the top HCPCS codes. 

[18] Medicare adjusts fee schedules for DMEPOS for each state, 
reflecting geographic price differences that are subject to national 
floor and ceiling limits. The applicable state fee schedule is 
determined by the Medicare beneficiary's residence, not the supplier's 
location. 

[19] For suppliers, Medicare assignment--accepting Medicare's 
reimbursement amount for an item as payment in full and limiting the 
amount the beneficiary can be billed for that item--is optional. If a 
supplier agrees to assignment, then Medicare generally pays 80 percent 
of the amount to the supplier and the Medicare beneficiary is 
responsible for paying the supplier the remaining 20 percent--referred 
to as the coinsurance payment, once the beneficiary's annual 
deductible has been met. If the supplier does not accept assignment, 
the supplier is not limited to charging the beneficiary 20 percent of 
the Medicare reimbursement for that item or service and the 
beneficiary can be billed for whatever balance is due. For CBP-covered 
items, Medicare assignment is mandatory for suppliers. 

[20] The National Supplier Clearinghouse is the CMS contractor 
responsible for processing Medicare enrollment applications for DMEPOS 
suppliers and may revoke a supplier's enrollment if, for example, a 
supplier loses its Medicare accreditation. Beginning in 2012, CMS has 
a new contractor to conduct automated screening of Medicare enrollment 
for all providers and suppliers including DMEPOS suppliers. CMS also 
has a new contractor to conduct site visits to ensure that enrolled 
suppliers have a physical facility on an appropriate site, but the NSC 
continues to conduct site visits for DMEPOS suppliers. 

[21] For a list of Medicare enrollment standards applying to all 
DMEPOS suppliers, see 42 C.F.R. § 424.57(c). For a list of Medicare 
quality standards applying to all DMEPOS suppliers, see [hyperlink, 
https://www.cms.gov/medicareprovidersupenroll/10_DMEPOSsupplierstandards
.asp] (accessed on April 20, 2012). 

[22] Certain DMEPOS suppliers are required to post a $50,000 surety 
bond for each business location. Surety bonds are designed to reduce 
the amount of money that is lost due to fraudulent or abusive billing 
schemes by suppliers. 

[23] The financial score is used to determine a supplier's financial 
viability and is calculated using the bidding supplier's credit score 
and 10 financial measures that CMS describes as standard accounting 
measures. 

[24] For a figure indicating the CBP process steps used to identify 
winning bids, see page 10 of [hyperlink, 
http://www.gao.gov/products/GAO-10-27]. 

[25] If there are five suppliers with qualified bids, CMS will award 
at least five contracts in each product category in each competitive 
bidding area. If there are less than five suppliers with qualified 
bids, CMS must award contracts to at least two suppliers if the 
suppliers have sufficient capacity to satisfy beneficiary demand in 
the product category in the competitive bidding area. 

[26] CMS's cap of a supplier's estimated projected capacity to 20 
percent does not limit the number of items a supplier can furnish if 
awarded a contract and suppliers may be able to furnish more than 20 
percent of the beneficiary demand in a product category in a 
competitive bidding area. 

[27] The single payment amount is the median of the winning supplier 
bids for an individual DME item within each product category in each 
competitive bidding area. The use of the median in setting an item's 
single payment amount means that the CBP payment may be less than or 
more than a particular winning supplier's bid price for the item. 

[28] The contract period for the CBP round 1 rebid's mail-order 
diabetic supplies product category is two years. 

[29] Medicare assignment is mandatory for CBP contract suppliers and 
means that a supplier accepts the CBP single payment amount as payment-
in-full from Medicare, and can only bill a beneficiary 20 percent of 
the payment amount. 

[30] To begin the program's national phase-in, the CBP round 1's 10 
competitive bidding areas were chosen from the largest metropolitan 
statistical areas. The competitive bidding areas for round 1 and the 
round 1 rebid were the same except that round 1 included the San Juan 
(San Juan-Caguas-Guaynabo, Puerto Rico) area. 

[31] See [hyperlink, http://www.gao.gov/products/GAO-10-27]. 

[32] MIPPA provided that this process only applies to the timely 
submission of financial documentation and does not apply to any 
determination by CMS as to the accuracy or completeness of the 
documentation submitted or whether the documents meet applicable 
requirements. 

[33] 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. 

[34] The CBP round 1 rebid 3-year contracts expire on December 31, 
2013. On April 17, 2012, CMS announced that it planned to begin the 
bidding process for the second round of contracts in fall 2012. 

[35] Support surfaces are pressure reducing support surfaces for 
persons with or at high risk for pressure ulcers. 

[36] The national mail-order competition includes all 50 states, 
District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, and 
American Samoa. 

[37] To indicate the testing strip brands they intend to furnish to 
meet the 50 percent requirement, bidding suppliers complete a National 
Mail-Order 50 Percent Compliance form as part of their CBP bid 
submission. 

[38] A contract supplier may be a small or large supplier, a member of 
a small supplier network, a grandfathering supplier for certain CBP 
product categories not won, a subcontractor for another contract 
supplier, or a combination thereof. 

[39] A non-contract supplier operating in a competitive bidding area 
may also be a grandfathering supplier for certain CBP product 
categories, a subcontractor for another contract supplier, or a 
combination. 

[40] Where a beneficiary permanently resides determines whether they 
are a CBP-covered beneficiary; a beneficiary's residence is the 
address used for Social Security. 

[41] If a non-contract supplier chooses not to grandfather, or the 
beneficiary chooses to select a contract supplier, the beneficiary's 
current and new supplier must coordinate the pick-up and delivery of 
the affected DME equipment, and CMS requires certain beneficiary 
notifications be made. 

[42] Suppliers that furnished oxygen and oxygen equipment to a 
beneficiary during the 36TH month of continuous use are required to 
continue to furnish the equipment after the 36 months for any period 
of medical need during the remainder of the reasonable useful lifetime 
of the equipment; this obligation cannot be transferred to a contract 
supplier or any other suppliers. 

[43] Capped rental DME items have a limited time period during which 
they can be rented and paid for by Medicare. 

[44] CBP's mail-order diabetic testing supplies and enteral nutrition 
product categories cannot be grandfathered. CMS announced in December 
2011 that Medicare claims submitted for maintenance and servicing of 
enteral nutrition pumps during 2011 would be paid if the non-contract 
supplier furnished the pump to a beneficiary in a competitive bidding 
area and the pump had been rented for at least 15 continuous months at 
the time of CBP's implementation on January 1, 2011. The supplier that 
provided the pump in the 15THmonth of the rental period is responsible 
for furnishing, maintaining, and servicing the pump--whether it is a 
contract supplier or not--until the pump is no longer medically 
necessary for the beneficiary or reaches the end of its reasonable 
useful lifetime. 

[45] Subcontracting is not limited to CBP; any enrolled DME supplier 
that bills Medicare for the item it furnishes may subcontract certain 
services consistent with the DME supplier standards. 

[46] 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. 

[47] A NF provides residents with skilled nursing care and related 
services for those who require medical or nursing care, rehabilitation 
of injured, disabled, or sick persons, or on a regular basis, health-
related care and services to individuals who because of their mental 
or physical condition require care and services above the level of 
room and board. Neither a SNF nor a NF can be a facility that 
primarily cares for and treats mental diseases. 

[48] The tool is located at [hyperlink, 
http://www.medicare.gov/supplier/]. 

[49] Scripts address topics that may arise during a beneficiary call 
to 1-800-MEDICARE regarding CBP, and cover issues such as urgent needs 
for new supplies, and beneficiaries who are unable to locate a 
contract supplier in their area. The scripts instruct CSRs how to 
assist beneficiaries; for example, when a CSR conducts a three-way 
call with a beneficiary and a contract supplier, the CSR will read a 
script that says, "My name is [CSR NAME] from 1-800-MEDICARE. I have a 
beneficiary on the line who is looking for [NAME THE SUPPLY]. His/her 
name is [BENEFICIARY NAME] and he/she called us because [REASON]. We 
are calling you because [EXPLAIN THE ISSUE AND WHAT THE SUPPLIER CAN 
DO TO HELP]." 

[50] A single encounter between a caller and a CSR may be counted as 
more than one inquiry, since an inquiry is counted by the number of 
scripts which the CSR uses to respond to the call. The number of 
inquiries does not reflect the number of unique beneficiaries who 
called. 

[51] The CAO program is within the Office of the Medicare Beneficiary 
Ombudsman, which is responsible for resolving inquiries and complaints 
for all aspects of the Medicare program. 

[52] CMS publicizes health status monitoring results publicly 
available on its website at [hyperlink, 
http://www.cms.gov/DMEPOSCompetitiveBid/01A3_Monitoring.asp#TopOfPage]. 

[53] For example, for the Cincinnati competitive bidding area, CMS 
chose Indianapolis, Indiana as the comparison market. 

[54] In secret shopping, individuals posing as beneficiaries request 
items such as specific diabetic supplies from contract suppliers to 
determine whether the suppliers offer the supplies they say they 
furnish. 

[55] To meet CMS's 30 percent target for small supplier participation, 
small suppliers with bids that originally lost on price could be 
offered a contract if there were an insufficient number of small 
suppliers that won on price alone for each product category in each 
competitive bidding area. CMS's inclusion of small suppliers that 
originally lost on price did not affect the original single payment 
amounts. 

[56] In CBP round 1, 63 percent of the total number of suppliers that 
bid and were awarded at least one contract were small. 

[57] Because the median price of all bids equal or less than the 
pivotal bid was used to set single payment amounts for all 
competitively bid items, Medicare's CBP payment amount could be less 
or more than a particular winning supplier's actual bid for an item. 

[58] Financial documentation means a financial, tax, or other document 
required to be submitted in order to meet CMS's financial standards 
for CBP. 

[59] 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. 

[60] A CMS official told us CMS changed the way it reported bid 
disqualifications for CBP round 1 rebid by establishing a CBP bid 
disqualification hierarchy that ranks a supplier's bid 
disqualifications on the basis of the reason codes. Although a 
supplier that had a bid disqualified for more than one reason was 
notified of all reasons, the CMS official told us that CMS only 
counted a bid that was disqualified for more than one reason code 
once--under the highest reason code of the hierarchy. If a bid was 
disqualified for any reason, but would have also lost on price, CMS 
included it under the "lost on price" reason code--the highest code of 
its hierarchy. 

[61] These bids may also have been disqualified for one or more other 
reasons. 

[62] MIPPA and implementing regulations define the covered document 
review date as the later of: (1) 30 days before the final date for the 
close of the bid window; or (2) 30 days after the bid window opens. 
For CBP round 1 rebid, CMS was required to notify eligible suppliers 
of missing financial documentation within 45 days after the end of the 
covered document review date. For future rounds, CMS must notify 
eligible suppliers of missing financial documentation within 90 days 
after the end of the covered document review date. MIPPA provided that 
the covered document review date only applies to the timely submission 
of financial documentation and does not apply to any determination by 
CMS as to the accuracy or completeness of the documentation submitted 
or whether the documents meet applicable financial requirements. 

[63] Once notified, suppliers have 10 business days to submit missing 
financial documentation. 

[64] The statement of cash flow contains 1 year of information for 
operating, financing, and investing activities and the beginning and 
ending cash balances. 

[65] Specifically, we recommended that to improve future rounds of the 
CBP, and if CMS decided to conduct a review of disqualification 
decisions during the CBP round 1 rebid and future rounds, CMS should 
notify all suppliers of any such process, give suppliers equal 
opportunity for such reviews, and clearly indicate how they can 
request a review. CMS responded that it agreed that all suppliers 
should receive notice about all aspects of the CBP and noted that all 
CBP round 1 bidders were specifically advised in writing of the 
opportunity to ask questions about their bid results. CMS also stated 
that it continues to believe that suppliers should have the 
opportunity to raise questions or concerns about the CBP, including 
disqualification decisions. Further, CMS stated that it continues to 
believe that the competitive bidding statute and regulations permit 
CMS to conduct quality assurance checks during the course of 
responding to bidders' questions as part of CMS's other extensive 
quality assurance efforts and that CMS remained committed to answering 
suppliers' questions and will continue to ensure that all suppliers 
are sufficiently informed about opportunities for the CBP round 1 
rebid and future rounds. See [hyperlink, 
http://www.gao.gov/products/GAO-10-27]. 

[66] Of the 10 suppliers that were incorrectly disqualified in CBP 
round 1, 7 suppliers were offered contracts for 27 bids because they 
had bids equal to or less than the pivotal bid or were needed to meet 
CMS's small supplier participation goal. 

[67] All bids must be bona fide, meaning that they cannot be higher 
than the Medicare fee schedule or lower than the supplier's cost. 

[68] A change in ownership results in either (a) a new entity or 
company that did not exist before the merger or acquisition 
transaction; or (b) a successor entity or company that exists before 
the transaction, merges or acquires a contract supplier, and continues 
to exist as it did before the transaction. For this discussion, we use 
the terms purchase or bought to include both acquisitions and mergers. 

[69] CMS determines the grandfathered suppliers by whether they are 
submitting Medicare claims for furnishing CBP-covered DME items to the 
same beneficiary they were before CBP began on January 1, 2011. 

[70] CPAP/RAD means continuous positive airway pressure devices and 
respiratory assist devices; CPAP may be used, for example, to treat 
sleep apnea. 

[71] Since oxygen is rented for a much longer time period than the 13-
month capped rental period, CMS decided grandfathered suppliers for 
oxygen would be paid at CBP single payment amounts; grandfathering 
suppliers furnishing capped rental items and inexpensive and routinely 
purchased DME are paid at the Medicare fee schedule. 

[72] The term distinct is used to indicate that a supplier is not 
being double-counted. For example, if the same contract supplier has 
numerous subcontractors, it is counted as one distinct contract 
supplier that is subcontracting. 

[73] Although these contract suppliers have subcontracts, it is not 
known whether the subcontracts are related to the contract supplier 
not having had prior experience in a product category or not having 
had a prior business location in the competitive bidding area. 

[74] All suppliers offered a CBP contract must be accredited and 
licensed. 

[75] We determined the number of distinct suppliers, since contract 
suppliers can be counted more than once if they are new to more than 
one product category or more than one competitive bidding area. 

[76] Enteral nutrition equipment and supplies are used to provide 
enteral nutrients through a tube into the stomach or small intestine 
commonly referred to as tube feeding. 

[77] According to CMS, each beneficiary may make more than one call to 
1-800-MEDICARE, and each call would be classified as at least one 
inquiry. The ratio does not represent the percentage of beneficiaries 
who called 1-800-MEDICARE. 

[78] Life-threatening inquiries are defined as situations in which 
without assistance, beneficiaries would be unable to access equipment 
needed immediately to sustain life. In life-threatening situations, 
CSRs instruct beneficiaries to call 911. 

[79] Respondents could also answer "not applicable." 

[80] Initially, CMS required contract suppliers to submit a "form c" 
including information on both the brands supplied in the prior quarter 
and the brands they expected to furnish for the upcoming quarter. CMS 
issued a notice on September 28, 2011, stating that for the third 
quarter of 2011, contract suppliers only need to submit information on 
the brands and models they plan to offer during the next quarter, and 
are no longer required to provide information on items furnished 
during the previous quarter. 

[81] 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. 

[82] 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. 

[83] Medicare claims for the first 6 months of 2011 are based on data 
from claims processed as of February 17, 2012. Our analysis compares 
the change in the number of distinct Medicare beneficiaries furnished 
certain CBP-covered items in each product category--those among the 
top 34 HCPCS codes items that CMS determined represent the top 80 
percent highest cost and highest utilization--in the nine competitive 
bidding areas and in non-competitive bidding areas. DME items included 
in our analysis are included in appendix I. 

[84] Our analysis used the 2010 utilization data for comparison 
because it was the year immediately prior to CBP beginning in January 
2011, and does not assume that 2010's utilization is the appropriate 
level for any of the CBP product categories. 

[85] CMS told us that it found a noticeable spike in the number of 
standard power wheelchairs furnished in December 2010 for several 
competitive bidding areas. CMS said that there were 44 percent more 
claims in December 2010 than the average month in 2010 across all 
competitive bidding areas for this product category. 

[86] Through its Pricing, Data Analysis and Coding Contractor-
generated CBP monitoring reports, CMS has determined that some 
contract suppliers have been inconsistently using the Medicare claim 
payment modifiers for some items' HCPCS codes that are included in 
both the CBP standard and complex power wheelchair product categories. 
Because the two product categories have different CBP payments for the 
same items, the payment modifiers distinguish whether the item is for 
a standard or a complex power wheelchair. 

[87] CMS told us that the Medicare claims data for walkers may not 
capture a CBP exemption that allows physicians and other practitioners 
to furnish certain items, such as walkers, to their own patients as 
part of their professional service and hospitals to furnish certain 
items to the hospital's own patients during an admission or on the 
date of discharge. 

[88] In order to not duplicate efforts, we consulted with the HHS OIG 
about its work and agreed to focus our work on the aggregate CBP mail-
order utilization. Since these data are affected by beneficiaries 
switching from mail or non-mail-order, and the reasons for the 
switching are being studied by the OIG, we determined that, at this 
point in the CBP, the utilization data were unreliable for our 
purposes. 

[89] CMS's April 17, 2012 Competitive Bidding One Year Implementation 
Update can be found at [hyperlink, 
http://www.cms.gov/MEDICARE/MEDICARE-FEE-FOR-ERVICE-
PAYMENT/DMEPOSCOMPETITIVEBID/INDEX.HTML]. 

[End of section] 

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