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

What GAO Found

Our work on the outcomes of the CBP round 1 rebid found that the number of bidding suppliers and the number of contracts awarded in the CBP round 1 rebid were very similar to the CBP round 1 and about a third of the 1,011 suppliers that bid in the rebid were awarded at least one CBP contract. CMS made improvements to the bidding process for the CBP round 1 rebid—such as providing additional information about disqualification reasons—and significantly fewer bids were disqualified than in round 1. However, many suppliers still had difficulty meeting bid requirements. Of the bids that were disqualified during the initial bid review, 73 percent were disqualified because suppliers failed to provide the required financial documentation or did not meet CMS’s minimum financial standard threshold for suppliers. The number of bids disqualified for missing financial documentation in the CBP round 1 rebid would have been higher if many suppliers had not benefited from a MIPPA provision that required that CMS provide suppliers the opportunity to be notified of and to submit missing required financial documentation—a process not available during CBP round 1. As a result, 93 of the 321 suppliers—about 29 percent—that were notified by CMS that they had missing financial documentation, and subsequently provided correct documentation, were ultimately awarded one or more CBP contracts. In the CBP round 1 rebid, as in CBP round 1, CMS determined that some suppliers’ bids had been disqualified incorrectly. CMS told us it received bid inquiries from 99 suppliers that had bids disqualified in the CBP round 1 rebid and subsequently extended contracts to 7 of those suppliers that were found to have incorrectly disqualified bids.

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

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

Why GAO Did This Study

This testimony discusses the Medicare competitive bidding program for selected durable medical equipment (DME) and certain other items. This testimony is focused on our review of the Centers for Medicare & Medicaid Services (CMS) implementation of the competitive bidding program (CBP) round 1 rebid that began on January 1, 2011.

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

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

For more information, contact Kathleen King at (202) 512-7114 or kingk@gao.gov.