Fact Sheets

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

COMPETITIVE BIDDING PROGRAM FOR CERTAIN DURABLE MEDICAL EQUIPMENT, PROSTHETICS, ORTHOTICS, AND SUPPLIES
FINAL RULE (CMS 1270-F)

Overview:

            The Centers for Medicare & Medicaid Services today issued a final rule establishing a competitive bidding program for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) furnished to Medicare beneficiaries under Medicare Part B.  Initially, the program will operate in competitive bidding areas (CBAs) that include ten of the largest Metropolitan Statistical Areas (MSAs), excluding the New York, Los Angeles, and Chicago MSAs.  The program will apply initially to ten categories of DMEPOS, chosen for a variety of factors, including high price and high utilization.

            Under the Medicare DMEPOS Competitive Bidding Program, Medicare will use bids submitted by DMEPOS suppliers to establish single payment amounts for each CBA.  The program will be phased in over several years beginning in calendar year 2007 and payment under the competitive bidding program will go into effect in April, 2008.  CMS will announce on the CMS website the CBAs and the ten categories of items and services subject to the first round of competitive bidding shortly after the rule is issued.

The new competitive bidding program will offer beneficiaries in the designated CBAs access to quality DMEPOS products and services and will lower out-of-pocket costs.  The final rule also provides opportunities for small suppliers to participate in a competitive market.  When fully implemented by 2010, the program is projected to save Medicare about $1 billion annually.

Medicare expects to begin the bidding process in late April, and bidding will close 60 days later.  Suppliers must register in advance in order to receive a user ID and password that will allow them to submit bids electronically/on-line.  Suppliers must also be accredited or have accreditation pending before they can submit bids.  CMS expects to announce winning suppliers in early December and single payment amounts derived from the bidding process will go into effect in the CBAs in April, 2008.

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”), after demonstration projects in Texas and Florida that produced significant savings for beneficiaries and taxpayers without hindering access to DMEPOS and related services.  In designing the competitive bidding program CMS is announcing today, CMS built on the experiences with those demonstrations.  In response to comments on the proposed rule, CMS added new protections for physicians and other treating professionals, as well as for small suppliers.

 

Improvements for Beneficiaries:

            The new competitive bidding program will ensure beneficiary access to 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 will improve beneficiary access to quality suppliers and is will  reduce their out-of-pocket costs.  Out-of-pocket savings for beneficiaries who use DME will come from lower coinsurance, since beneficiaries pay 20 percent of the Medicare allowed payment amount for equipment, supplies and services. 

 

The program is also designed to be user friendly for beneficiaries.  For example, a beneficiary who maintains a permanent residence in a CBA and travels to or spends part of the year in another geographic area could obtain items in those areas.  If a beneficiary is traveling in a CBA when he or she needs an item of DMEPOS that is included in the competitive bidding program for that CBA, Medicare will pay for the item only if obtained from a contract supplier in the CBA, thus ensuring that the beneficiary receives high quality at the best price.

 

A beneficiary who owns a competitively bid item would be allowed to obtain repairs for that equipment from any supplier with a valid supplier number, not just a contract supplier.  Medicare rules for servicing and maintenance of DMEPOS equipment remain unchanged in this final rule.  However, if the equipment meets Medicare standards for replacement, the beneficiary would need to obtain the replacement from a contract supplier.

 

Recognizing the many new features of the program, CMS is preparing extensive educational materials – with specific targeting of the 10 initial MSA’s – to explain competitive bidding.

 

Preserving the Physician-Patient Relationship

            CMS recognizes that 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. .  Therefore, the final rule allows physicians, physician assistants (PAs), clinical nurse specialists (CNSs), nurse practitioners (NPs), occupational therapists (OTs) in private practice, and physical therapists (PTs) in private practice to continue furnishing certain types of competitively bid items to their own patients when furnished as part of their professional services without participating in the bidding process. .  Physicians and other treating professionals would be paid the single payment amount established for the item of DMEPOS in the CBA.

            The final rule allows a physician or treating practitioner to prescribe a specific item or brand, or mode of delivery when necessary to avoid an adverse medical outcome.  When this occurs, the contract supplier must take the following steps in this order:

 

1. Make a reasonable effort to furnish the particular brand or mode of delivery as prescribed by the physician or treating practitioner;

 

2. Consult with the physician or treating practitioner  to find a suitable alternative product for the beneficiary; and

 

3. Assist the beneficiary in finding another contract supplier in the CBA who can provide that particular brand or mode of delivery.

 

            Contract suppliers should include the cost of identifying alternate contract suppliers or appropriate substitute items in their bids.   Contract suppliers would be paid based on the single payment amount regardless of whether a particular brand or mode of delivery is ordered.

 

Protecting Small Suppliers

            The final rule implements a number of provisions to ensure small supplier participation and access to the competitive bidding market.  For purposes of the Medicare DMEPOS Competitive Bidding 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 new definition of small suppliers that is reflective of this area of the health care industry.  The use of this new definition, in conjunction with policies established in the final regulation, will enhance the ability of small suppliers to participate in the competitive bidding program.  Small suppliers account for approximately 85 percent of DMEPOS suppliers enrolled in the Medicare program.

These provisions 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 “winning” suppliers or 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 or greater than the target number CMS has computed for that product category.

 

If the number of small suppliers is lower 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 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 small suppliers that submitted a bid for the product category.

 

• Allowing small suppliers to form networks if they cannot service the entire CBA independently.  Suppliers that do not meet the definition of a small supplier or small suppliers that can service the entire CBA independently may not form networks.  Any network must comply with all applicable laws, including the federal antitrust laws.  The small suppliers forming the network must have market shares at the time of bidding, when totaled, that 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.

 

Bidding by Skilled Nursing Facilities and Nursing Facilities

The final rule allows Skilled Nursing Facilities (SNFs) and Nursing Facilities (NFs) to compete for a contract that would permit them to furnish items only to their own residents, without having to meet the general requirement of being able to serve the entire CBA.

 

• SNFs and NFs electing this option would be required to submit bids that are in the competitive range.

 

• SNFs and NFs bids would be included in the calculation of the single payment amount for the product category.

 

• SNFs and NFs would be required to submit a full response to the request for bids.

 

• SNFs and NFs who 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.

 

Suppliers of Rental Equipment

            To allow for a smooth transition, the final rule allows a beneficiary who is using oxygen or rented durable medical equipment to continue to receive services from an existing supplier, even if the supplier is not a contract supplier (called a “noncontract 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.

 

Winning Supplier Selection Process:

            The rule adopts the following approach for  selecting contract suppliers: (1) establish 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); (2) composite bids are ranked in order from lowest to highest; and  (3) one of the composite bids is selected to be the pivotal bid (the pivotal bid is the lowest composite bid based on bids submitted by suppliers for a product category that will include a sufficient number of suppliers to meet beneficiary demand for the items in that product category).  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 determine the number of contract suppliers.

 

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

 

CMS anticipates that suppliers with multiple locations will be among the contract suppliers.  If they win, 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 for each item in each CBA would be based on 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 area 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

            If a successor entity to a merger or acquisition meets all program requirements, and submits a novation agreement to CMS, Medicare will enter into a new contract with the successor entity.

 

Supplier Appeal Rights for Contract Terminations:

In the event that a contract supplier breaches its contract, CMS may take a variety of actions, including terminating the contract supplier’s contract or revoking the supplier’s billing number.  The supplier will be able to appeal this action through a process to be developed by 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 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 while potentially producing significant savings for the Medicare program.

 

            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. 

            The MMA also required the Secretary of HHS to establish a Program Advisory and Oversight Committee (PAOC) to provide advice and assistance to the Secretary in carrying out the Medicare DMEPOS Competitive Bidding Program as the Secretary may specify.  The PAOC members were appointed by the Secretary of Health and Human Services 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.

 

Note: More information about the Medicare Competitive Acquisition Program for Certain Durable Medical Equipment, Prosthetics, Orthotics, and Supplies Regulation (CMS 1270-F) can be accessed at the CMS Website: (www.cms.hhs.gov/CompetitiveAcqforDMEPOS/.  

 

The website also includes information regarding the PAOC, Competitive Bidding Independent Contractor (CBIC), the MSAs that are being selected for the initial competitive bidding programs, all the items and product categories that are being selected for the programs, and the quality standards/accreditation organizations.