EXPANSION OF COMPETITIVE BIDDING PROGRAM FOR DURABLE MEDICAL EQUIPMENT, PROSTHETICS, ORTHOTICS, AND SUPPLIES

EXPANSION OF COMPETITIVE BIDDING PROGRAM FOR DURABLE MEDICAL EQUIPMENT, PROSTHETICS, ORTHOTICS, AND SUPPLIES

Overview:

The Centers for Medicare & Medicaid Services (CMS) today announced the 70 Metropolitan Statistical Areas (MSAs) and eight product categories that will be part of the second phase of competitive bidding for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) furnished to Medicare beneficiaries under Medicare Part B.  The 70 MSAs, plus the 10 MSAs included in the first phase of competitive bidding, will bring the total number of MSAs in the competitive bidding program to 80.  The expanded program will include the three largest MSAs ‑ New York , Los Angeles , and Chicago . These MSAs were excluded from the initial list of 10 MSAs in order to simplify the first phase of DMEPOS competitive bidding program in 2008.

Under the Medicare DMEPOS Competitive Bidding Program, Medicare will use bids submitted by DMEPOS suppliers for specified items to establish single payment amounts for each competitive bidding area (CBA).  The 10 CBAs and 10 product categories for the first phase of competitive bidding were announced in April 2007. The program will be phased in over several years. Payment rates for the first phase of competitive bidding will go into effect in July, 2008.

The Medicare DMEPOS competitive bidding program offers beneficiaries in the designated CBAs access to certain DMEPOS, quality services and lower out-of-pocket costs.  It also provides significant protection for beneficiaries and taxpayers against unscrupulous suppliers.  When fully implemented, the program is projected to save Medicare about $1 billion annually.

Background:

The Medicare DMEPOS Competitive Bidding Program was mandated by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“Medicare Modernization Act” or “MMA”).  The new program builds on the experience CMS gained through demonstration projects in Texas and Florida that produced significant savings for beneficiaries and taxpayers without hindering access to quality DMEPOS and related services.  In the final competitive bidding rule, published in April 2007, CMS included special considerations for physicians and other treating professionals, as well as for small suppliers.

Improvements for Beneficiaries:

The competitive bidding program ensures beneficiary access to certain quality medical equipment and DMEPOS supplier services.  Although some beneficiaries may have to switch from their current supplier to a contract supplier for some items of DMEPOS, the program improves beneficiary access to certain suppliers as well as reduces the out-of-pocket costs incurred by beneficiaries who are liable for 20 percent of the Medicare payment rate as coinsurance.

Obtaining Competitively Bid Items While Traveling:

If a beneficiary who maintains a permanent residence in a CBA travels to or spends part of the year in an area in which competitive bidding has not been implemented, the beneficiary may obtain DMEPOS items from any supplier with a valid Medicare billing number. The payment amount will be the single payment amounts established under the competitive bidding program. Conversely, a beneficiary who does not live in a CBA, but is traveling in a CBA when the need for a DMEPOS item arises, must obtain that item from a contract supplier based on the existing fee schedule rate for the non-CBA in which the beneficiary resides.

Obtaining Repairs for Beneficiary-owned Items:

Beneficiaries who maintain a permanent residence in a CBA can obtain repairs for equipment they own from any supplier with a valid supplier number, not just a contract supplier.  Medicare rules for servicing and maintenance of DMEPOS equipment remain unchanged under the program.   However, if the equipment meets Medicare standards for replacement, the beneficiary must obtain the replacement of an entire item from a contract supplier as opposed to the replacement of a part for repair purposes.

Obtaining Services for  Equipment for which Rental Began Prior to Competitive Bidding Implementation:

A beneficiary who is renting oxygen or other durable medical equipment may continue to receive rental items from his/her existing supplier, even if the supplier is not a contract supplier (called a “grandfathered supplier”).  If the beneficiary chooses to switch to a contract supplier, or if the noncontract supplier declines to continue providing services, Medicare will reimburse the contract supplier who assumes responsibility for services to the beneficiary as follows:

•    For oxygen equipment that continues to be medically necessary, Medicare will make at least 10 months of payment based on the single payment amount for that area, regardless of the number of months already paid.
•    For a capped rental item that continues to be medically necessary, contract suppliers will receive 13 months of payments based on the single payment amount for that area, regardless of the number of months already paid.
Preserving the Physician-Patient Relationship

Under existing Medicare law and policies, physicians and other treating professionals sometimes supply certain items of DMEPOS to their patients as part of their professional service.  Under the competitive bidding program, physicians can still furnish certain types of competitively bid items to their own patients as part of their professional services without participating in the bidding process.  The same rule applies to physician assistants (PAs), clinical nurse specialists (CNSs), nurse practitioners (NPs), and occupational and physical therapists in private practice.  Medicare will pay for these items at the single payment amount established by the bidding process.

Physicians and treating practitioners may prescribe a specific brand of an item or mode of delivery when necessary to avoid an adverse medical outcome.  When this occurs, the contract supplier must either: make a reasonable effort to furnish the particular brand or mode of delivery as prescribed by the physician or treating practitioner; consult with the physician or treating practitioner to find a suitable alternative product for the beneficiary and obtain a revised written prescription; or help the beneficiary find another contract supplier in the CBA who can provide that particular brand or mode of delivery.

Skilled Nursing Facilities and Nursing Facilities Serving Their Own Residents

Skilled Nursing Facilities (SNFs) and Nursing Facilities (NFs) may compete for a contract to furnish items only to their own residents, without having to be able to serve the entire CBA.

•    SNFs and NFs electing this option must have bids that are in the competitive range and meet all applicable competitive bidding requirements to be awarded a contract.
•    Eligible SNFs and NFs bids will be included in the calculation of the single payment amount for items in the competitive bidding product categories.
•    SNFs and NFs will be required to submit a full response to the request for bids.
•    SNFs and NFs that elect to submit bids for furnishing items only to their own residents may not furnish these items to any other beneficiary in the CBA if they are awarded contracts under the program.

Protecting Small Suppliers

The competitive bidding program contains a number of protections to allow small suppliers to participate in the competitive bidding program.  For purposes of the program, a “small supplier” is defined as a supplier that generates gross revenue of $3.5 million or less in annual receipts, including Medicare and non-Medicare revenue.  CMS worked closely with the Small Business Administration to establish a definition of small supplier that reflects the composition of the DMEPOS industry.  Under this definition, approximately 85 percent of DMEPOS suppliers enrolled in the Medicare program will be eligible to participate as small suppliers.

The small supplier protections include:

•    Establishing a methodology to set a target number for small supplier participation.  The target number is equal to 30 percent of the number of suppliers that have met the bidding requirements and whose composite bids are at or lower than the pivotal bid for each product category in each CBA .  The number resulting from this determination represents the goal for small supplier participation for that product category.  CMS will then count to see if the number of small suppliers whose composite bids are at or below the pivotal bid is equal to or greater than the target number CMS has computed for that product category.
If the number of small suppliers is less than the target number, CMS will give the small supplier whose composite bid is above the pivotal bid, but closest to it of all the small suppliers whose composite bids are above the pivotal bid for the product category, the option of accepting a contract to furnish items in the product category at the single payment amounts.  If the target number is still not met, CMS will offer a contract to the small supplier whose composite bid is the next closest to, but above, the pivotal bid, and will use this methodology until the target number is reached or there are no additional qualified small suppliers that submitted a bid for the product category.

•    Allowing small suppliers to form networks if they cannot independently furnish all of the items in the product category for beneficiaries throughout the entire CBA. Suppliers that do not meet the definition of a small supplier or small suppliers that can furnish services throughout the entire CBA independently may not form networks.  Any network must comply with all applicable laws, including the federal antitrust laws.  Each member of the network must meet all the competitive bidding eligibility requirements. The small suppliers forming the network must have market shares at the time of bidding that, when totaled, do not exceed 20 percent of the expected beneficiary demand for the product category.  No more than 20 small suppliers may participate in a network.  A small supplier may join more than one network but cannot submit an individual bid to furnish the same product category in the same CBA as any network in which it is a member.  A small supplier may not be a member of more than one network if those networks submit bids for the same product category in the same CBA.

Winning Supplier Selection Process:

Using the bid evaluation process established in the final rule, CMS determines a composite bid for each supplier (a composite bid is the sum of a supplier’s weighted bids for all items within a product category).Composite bids of qualified suppliers are ranked in order from lowest to highest and   the lowest composite bid based on bids submitted by qualified suppliers for a product category that will include a sufficient number of suppliers to meet beneficiary demand for the items in that product category is selected as the pivotal bid.  The rule establishes a capacity limit for purposes of calculating the pivotal bid such that no supplier’s capacity can be considered to meet more than 20 percent of the total beneficiary need.  Suppliers whose composite bids are less than or equal to the pivotal bid are selected as winning suppliers if they meet all other program requirements.  Thus, selection of the pivotal bid is used to ensure that the number of contract suppliers selected to furnish items for a product category in a CBA will have sufficient cumulative capacity to meet beneficiary demand.

Suppliers need not be physically located in a CBA to be awarded a contract in that CBA.  However, they will be required to service the entire CBA regardless of where the beneficiary is located, unless they are a member of a network.

CMS anticipates that some suppliers that furnish items within a product category and chosen to be contract suppliers will have multiple locations in that CBA.  If the contract suppliers with multiple locations win for any product category, all of their locations within the CBA would be considered contract suppliers.  This should provide local presence and ensure beneficiary access.  All winning suppliers must generally service the entire CBA, either through home delivery, mail-order or storefront.

Suppliers will be required to submit documentation to allow Medicare to evaluate their financial stability as part of the bid evaluation process.

The single payment amount in each CBA will be the median of the winning suppliers’ bids for individual items in each product category.  Medicare will pay 80 percent of the single payment amount less any unmet Part B deductible.

Suppliers Sharing a Common Ownership or Interest:

All suppliers that share a common ownership or control interest will be considered one supplier and Medicare will accept only one bid per product category per CBA on behalf of those suppliers.  If this bid is selected, all of the commonly owned suppliers will become contract suppliers.

Mergers or Acquisitions Involving Contract Suppliers

When there is a change of ownership because an entity merges with, or acquires, a contract supplier that furnishes items from a product category, Medicare may permit the new owner to be a contract supplier if the new owner meet all program requirements, including, but not limited to, the submission of a novation agreement to CMS.

Legislative Authorities

Section 302(b)(1) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) amended section 1847 of the Social Security Act to require the Secretary of Health and Human Services to establish and implement programs under which competitive bidding areas are established throughout the United States for contract award purposes for the furnishing of certain competitively priced items for which payment is made under Medicare Part B (the “Medicare DMEPOS Competitive Bidding Program”).  Competitive bidding provides a way to harness marketplace dynamics to create incentives for suppliers to provide quality items in an efficient manner, at a reasonable cost to the Medicare beneficiaries with expected savings for Medicare.

The MMA requires that competitive bidding programs be established and implemented in areas throughout the United States .  Section 1847(a)(1)(B) of the Act mandates that the programs be phased in so that competition under the programs occurs in 10 of the largest MSAs in 2007; 80 of the largest MSAs in 2009; and additional areas after 2009.

Section 302 of MMA also required the Secretary to establish quality standards for Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) suppliers.  This means that all suppliers that furnish these items and supplies must meet the quality standards to receive and retain their supplier billing numbers and to receive Medicare Part B payments.  This requires all suppliers that are competitively bidding to be accredited by one of the ten CMS-deemed DME accrediting organizations on or before the deadlines.

In addition, the MMA also requires the Secretary to establish a Program Advisory and Oversight Committee (PAOC) to provide advice to the Secretary in carrying out the Medicare DMEPOS Competitive Bidding Program.  The PAOC members were appointed by the Secretary and represent a broad mix of relevant industry, consumer, and government parties.  The representatives have expertise in a variety of subject matter areas, including DMEPOS, competitive bidding methodologies and processes, and rural and urban marketplace dynamics.

Selected Metropolitan Statistical Areas

Note: More information about the Medicare DMEPOS Competitive Bidding Program can be found at www.cms.hhs.gov/CompetitiveAcqforDMEPOS/

The Web site also includes information regarding the PAOC and the Competitive Bidding Implementation Contractor.