Medicare
CMS Has Addressed Some Implementation Problems from Round 1 of the Durable Medical Equipment Competitive Bidding Program for the Round 1 Rebid Gao ID: GAO-10-1057T September 15, 2010To reduce spending on durable medical equipment (DME) and related items, under federal law the Centers for Medicare & Medicaid Services (CMS) is phasing in, with several rounds of bidding, a competitive bidding program (CBP) for certain DME and other items. Because of numerous concerns, the Medicare Improvements for Patient and Providers Act of 2008 (MIPPA) terminated the CBP round 1 supplier contracts and required CMS to repeat the CBP round 1, the rebid that began in 2009. In November 2009, GAO issued the report Medicare: CMS Working to Address Problems from Round 1 of the Durable Medical Equipment Competitive Bidding Program (GAO-10-27) that documented problems in CMS's implementation of CBP round 1. This statement discusses some of the problems GAO identified and how CMS has or plans to address them in the ongoing CBP rebid bidding process, particularly (1) the bid submission information provided to suppliers, (2) the electronic bid submission system, and (3) the bid disqualification notification process. For the 2009 report, GAO reviewed data provided by CMS and relevant laws and regulations, and interviewed CMS officials. For this statement, GAO also obtained select information on how CMS addressed the CBP round 1 problems identified in GAO's report by reviewing agency documents and interviewing CMS officials in August and September 2010.
In the November 2009 report on CBP round 1, GAO noted that problems with the bidding process included poor timing and lack of clarity in bid submission information and the inability to inform suppliers of missing financial documentation. Several times after the CBP round 1 bid window opened, CMS provided new bidding information and clarified other bidding information. The bid window was also extended beyond the initial deadline. These changes made it more difficult for suppliers to submit correct bids. CMS improved implementation of these steps in the bidding process for the CBP round 1 rebid. For example, for the CBP round 1 rebid, CMS provided bidding information to suppliers prior to the bid window opening, including the rebid's request-for-bid instructions, which were available to potential bidding suppliers for over 2 months before the bid window opening. CMS also provided clearer financial documentation instructions and additional financial documentation tools to guide suppliers in the CBP round 1 rebid. For example, the request-for-bid instructions included a chart that more clearly explained which documents were to be submitted by the supplier's business type, for example, a sole proprietorship. CMS also conducted a financial document review during the round 1 rebid, which informed suppliers whether their bid submission was missing required financial documents. Of the 321 suppliers that were notified they had missing documentation, only 14 did not subsequently submit the missing documents. As CMS acknowledged, suppliers had difficulty entering bidding information in the bid submission system used in CBP round 1 and its user guide was not sufficiently detailed. CMS developed a new electronic bid submission system for the CBP round 1 rebid. CMS officials told us that the new system did not have significant operational issues and only a few suppliers experienced minor problems. GAO found that CMS had not effectively notified all suppliers about the opportunity for a postbidding review process in CBP round 1. To address GAO's 2009 recommendation that the agency effectively notify all suppliers of all aspects of the CBP round 1 rebid and future rounds, including any process to review disqualifications, CMS officials stated that the agency plans to notify the losing suppliers of the disqualification reasons by sending each of these suppliers a letter that will explain the process for asking questions or expressing concerns. Officials also stated that in the course of responding to suppliers' questions or concerns, if CMS determines an error was made, it is possible that the supplier may be offered a contract. In commenting on the information presented in this testimony, CMS officials stated they appreciated GAO noting the administrative improvements to the competitive bidding process the agency made for the round 1 rebid. The officials further stated that they believe that CMS made many improvements to the CBP.
GAO-10-1057T, Medicare: CMS Has Addressed Some Implementation Problems from Round 1 of the Durable Medical Equipment Competitive Bidding Program for the Round 1 Rebid
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Testimony:
Before the Subcommittee on Health, Committee on Energy and Commerce,
House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EDT:
Wednesday, September 15, 2010:
Medicare:
CMS Has Addressed Some Implementation Problems from Round 1 of the
Durable Medical Equipment Competitive Bidding Program for the Round 1
Rebid:
Statement of Kathleen M. King:
Director, Health Care:
GAO-10-1057T:
GAO Highlights:
Highlights of GAO-10-1057T, a testimony before the Subcommittee on
Health, Committee on Energy and Commerce, House of Representatives.
Why GAO Did This Study:
To reduce spending on durable medical equipment (DME) and related
items, under federal law the Centers for Medicare & Medicaid Services
(CMS) is phasing in, with several rounds of bidding, a competitive
bidding program (CBP) for certain DME and other items. Because of
numerous concerns, the Medicare Improvements for Patient and Providers
Act of 2008 (MIPPA) terminated the CBP round 1 supplier contracts and
required CMS to repeat the CBP round 1, the rebid that began in 2009.
In November 2009, GAO issued the report Medicare: CMS Working to
Address Problems from Round 1 of the Durable Medical Equipment
Competitive Bidding Program (GAO-10-27) that documented problems in
CMS‘s implementation of CBP round 1. This statement discusses some of
the problems GAO identified and how CMS has or plans to address them
in the ongoing CBP rebid bidding process, particularly (1) the bid
submission information provided to suppliers, (2) the electronic bid
submission system, and (3) the bid disqualification notification
process.
For the 2009 report, GAO reviewed data provided by CMS and relevant
laws and regulations, and interviewed CMS officials. For this
statement, GAO also obtained select information on how CMS addressed
the CBP round 1 problems identified in GAO‘s report by reviewing
agency documents and interviewing CMS officials in August and
September 2010.
What GAO Found:
In the November 2009 report on CBP round 1, GAO noted that problems
with the bidding process included poor timing and lack of clarity in
bid submission information and the inability to inform suppliers of
missing financial documentation. Several times after the CBP round 1
bid window opened, CMS provided new bidding information and clarified
other bidding information. The bid window was also extended beyond the
initial deadline. These changes made it more difficult for suppliers
to submit correct bids. CMS improved implementation of these steps in
the bidding process for the CBP round 1 rebid. For example, for the
CBP round 1 rebid, CMS provided bidding information to suppliers prior
to the bid window opening, including the rebid‘s request-for-bid
instructions, which were available to potential bidding suppliers for
over 2 months before the bid window opening. CMS also provided clearer
financial documentation instructions and additional financial
documentation tools to guide suppliers in the CBP round 1 rebid. For
example, the request-for-bid instructions included a chart that more
clearly explained which documents were to be submitted by the
supplier‘s business type, for example, a sole proprietorship. CMS also
conducted a financial document review during the round 1 rebid, which
informed suppliers whether their bid submission was missing required
financial documents. Of the 321 suppliers that were notified they had
missing documentation, only 14 did not subsequently submit the missing
documents.
As CMS acknowledged, suppliers had difficulty entering bidding
information in the bid submission system used in CBP round 1 and its
user guide was not sufficiently detailed. CMS developed a new
electronic bid submission system for the CBP round 1 rebid. CMS
officials told us that the new system did not have significant
operational issues and only a few suppliers experienced minor problems.
GAO found that CMS had not effectively notified all suppliers about
the opportunity for a postbidding review process in CBP round 1. To
address GAO‘s 2009 recommendation that the agency effectively notify
all suppliers of all aspects of the CBP round 1 rebid and future
rounds, including any process to review disqualifications, CMS
officials stated that the agency plans to notify the losing suppliers
of the disqualification reasons by sending each of these suppliers a
letter that will explain the process for asking questions or
expressing concerns. Officials also stated that in the course of
responding to suppliers‘ questions or concerns, if CMS determines an
error was made, it is possible that the supplier may be offered a
contract.
In commenting on the information presented in this testimony, CMS
officials stated they appreciated GAO noting the administrative
improvements to the competitive bidding process the agency made for
the round 1 rebid. The officials further stated that they believe that
CMS made many improvements to the CBP.
View [hyperlink, http://www.gao.gov/products/GAO-10-1057T] or key
components. For more information, contact Kathleen M. King (202) 512-
7114 or kingk@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the Medicare[Footnote 1]
competitive bidding program for selected durable medical equipment
(DME) and certain other items.[Footnote 2] My testimony today is
focused on how the Centers for Medicare & Medicaid Services (CMS)
[Footnote 3] is addressing bidding process problems we identified
during round 1 of the competitive bidding program--conducted from 2007
to 2008--in our November 2009 report,[Footnote 4] and steps CMS has
taken to address those problems for the program's round 1 rebid
bidding process, which is currently under way. Competitively
determined Medicare payments for items and services covered under the
round 1 rebid will be effective on or after January 1, 2011.
In 2009, Medicare spent $8.1 billion on DME, other items, and related
supplies.[Footnote 5] Since 1989, Medicare has paid for most DME
through fee schedules. 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.[Footnote 6]
Both we and the Department of Health and Human Services' (HHS) Office
of Inspector General have reported that Medicare and its beneficiaries
have sometimes paid higher-than-market rates for various medical
equipment and supply items.[Footnote 7] These overpayments increase
costs to both Medicare and its beneficiaries.[Footnote 8] As we have
previously stated, competitive bidding can reduce Medicare program
payments by providing an incentive for suppliers to accept lower
payment amounts for items and services to retain their ability to
serve Medicare beneficiaries and potentially increase their market
share.[Footnote 9]
The Medicare Prescription Drug, Improvement, and Modernization Act of
2003,[Footnote 10] required CMS to phase in a competitive bidding
program (CBP) for DME suppliers. CMS contracted with Palmetto GBA to
implement the CBP bidding and contract award process and with Maricom
to develop a Web-based electronic bid submission system. CBP round 1
was conducted in 2007 and 2008 for 10 competitive bidding areas.
[Footnote 11] 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.[Footnote 12] The round 1 suppliers submitted
bids for supplying one or more of these 10 DME product categories in 1
or more of the 10 competitive bidding areas. There were 6,374 bids
submitted by 1,010 suppliers. In March 2008, CMS began offering
contracts to winning suppliers to provide DME to Medicare
beneficiaries. The contracts between CMS and suppliers became
effective on July 1, 2008.
Round 1's bid submission and contract award processes raised concerns
about the CBP implementation. Therefore, on July 15, 2008,
implementation of the CBP round 1 was stopped--after 2 weeks--by the
enactment of the Medicare Improvements for Patients and Providers Act
of 2008 (MIPPA), which terminated the contracts already awarded to
suppliers, delayed the program's restart, and required CMS to repeat
the competition for CBP round 1 in 2009[Footnote 13]--referred to in
this statement as the CBP round 1 rebid.[Footnote 14] MIPPA also
imposed additional criteria for how CMS should conduct later CBP
rounds, including the round 1 rebid and subsequent rounds that will
expand the CBP to additional areas.[Footnote 15]
Our November 2009 report documented round 1 implementation problems.
We found, for example, 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 decides to review 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.
In October 2009, CMS began the CBP round 1 rebid process.[Footnote 16]
The bid window closed in December 2009. There were 6,215 complete bids
submitted by 1,011 bidding suppliers. On July 1, 2010, CMS announced
the competitively determined DME single payment amounts, which are the
new payment amounts that Medicare will pay for each item covered under
the CBP. These payments will replace the applicable fee schedule
amounts for the selected DME items in the competitive bidding areas.
Under the round 1 rebid, CMS estimated that compared to the 2009
Medicare fee schedule, the volume-weighted reduction in CBP's single
payment amounts for items averaged 32 percent. Under round 1, the
estimated payment reductions compared to the 2008 Medicare fee
schedule averaged 26 percent.[Footnote 17] CMS also announced on July
1, 2010, that it would begin mailing contract offers to winning
suppliers.[Footnote 18] CMS officials informed us that 1,287 bids are
included in the initial wave of contract offers. CMS officials also
stated that they plan to announce the winning suppliers that accepted
contracts in September 2010.[Footnote 19]
In my testimony today, I will discuss problems we identified in the
round 1 competitive bidding process and how CMS has or plans to
address the problems in the ongoing rebid bidding process regarding
(1) providing suppliers with bid submission information, (2) use of an
electronic bid submission system, and (3) the bid disqualification
notification process.
For our 2009 report, we reviewed data provided by CMS and Palmetto
GBA; reviewed federal laws, regulations, and policies concerning the
bidding and contract award processes; reviewed documents from the CBP
round 1 bidding process, and interviewed CMS and Palmetto GBA
officials about the CBP round 1 bid process and efforts to resolve
problems that arose. For this testimony, we also obtained information
on CMS responses to problems we identified in our 2009 report by
reviewing agency documents and interviewing CMS officials. We also
reviewed the available materials provided on the CMS and Palmetto GBA
CBP Web sites and analyzed the results from the inquiries from
suppliers received by the Palmetto GBA customer service center. We
shared the information in this statement with CMS officials. Our work
was performed in accordance with generally accepted government
auditing standards for the 2009 report from June 2008 through
September 2009 and for this testimony from August through September
2010. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis
for our findings and conclusions based on our audit objectives. We
believe that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Problems Were Identified in the CBP Round 1 Bidding Process in
Providing Suppliers with Bid Submission Information, but Some
Improvements Were Made in the CBP Round 1 Rebid Process:
For CBP round 1, 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. In comparison with CBP round 1, CMS provided CBP round
1 rebid bidding information to suppliers earlier, and its financial
documentation instructions were clearer and suppliers were notified of
missing documentation. CMS also added program information about
determining suppliers' capacity, and provided directories to inform
suppliers about state licensure requirements.
CMS Had Difficulty Providing Clear Bidding Information to Suppliers in
CBP Round 1, but Improved Its Communication about Bidding Information
for the CBP Round 1 Rebid:
CMS had difficulty providing clear bidding information in CBP round 1.
For example, CMS provided new bidding information several times after
the bid window opened, such as announcing the 10 financial measures
used to evaluate the financial viability of bidding suppliers;
clarified CBP round 1's bidding information in response to supplier
confusion, such as providing additional explanatory information
concerning the request-for-bid instructions; and extended the bid
window deadline. These changes in bidding information made it more
difficult for suppliers to submit correct bids.[Footnote 20] CMS and
Palmetto GBA acknowledged that during CBP round 1 suppliers did not
always understand the request-for-bid instructions. The instructions
were not available to suppliers until the day the bid window opened.
During the first 2 months of the bid window, while suppliers were
preparing their bid submissions, Palmetto GBA held informational
bidder conference calls on how to submit bids and maintained audio
recordings on the CBP Web site for a limited time. Questions also were
not organized by subject matter, and while the Web site had a
frequently asked questions section, it was difficult for suppliers to
determine when questions had been added.
CMS improved its communication with suppliers about bidding
information for the CBP round 1 rebid. For example, CMS provided
suppliers with bidding information before the bidding window opened on
October 21, 2009, so that bid window extensions were not needed.
[Footnote 21] Prior to the bid window opening, the rebid's request-for-
bid instructions had been available to potential bidding suppliers for
over 2 months, since August 3, 2009, and CMS had already held seven
informational bidder conference calls.[Footnote 22] Transcripts, audio
recordings, and PowerPoint presentations from the calls were available
on the Palmetto GBA CBP Web site throughout the round 1 rebid. CMS
made two minor clarifications to the CBP round 1 rebid
instructions.[Footnote 23] First, on the day the bid window opened,
CMS provided the actual bid submission deadlines, including the
covered document review date,[Footnote 24] and provided further
instructions on how a supplier needed to approve a bid in the online
bidding system and would submit the required hard copy financial
documents. Second, on November 17, 2009, CMS clarified that the
financial statements for the last operating year that suppliers were
required to submit as part of their bids could be for either calendar
or fiscal years.
For the CBP round 1 rebid, Palmetto GBA maintained suppliers'
frequently asked questions on the CBP's Web site by topic. The
questions were provided for three topics--Bidding Guidelines, Bidding
Process, and Payment Policies--and dated in chronological order,
unlike in CBP round 1, so suppliers could more easily determine when
new ones were posted on the Web site. The Web site also has a "What's
New" section to allow suppliers to find any new CBP information, for
example, information for the suppliers that were offered contracts,
such as the form to request that business locations be added or
removed from their contracts.[Footnote 25]
Unclear CBP Round 1 Financial Documentation Instructions Led to Many
Bid Disqualifications, but CBP Round 1 Rebid Instructions Were Clearer:
In our 2009 report, we found that financial documentation instructions
were sometimes unclear in CBP round 1. CMS acknowledged that during
CBP round 1 many suppliers had particular difficulty complying with
the financial documentation[Footnote 26] requirements and that the
statement of cash flow--described as a statement of changes in
financial position--was the document most often missing. We found that
CMS's CBP round 1 financial documentation instructions did not clearly
address differences among supplier business types--for example, a sole
proprietorship business versus a publicly traded national corporation--
and among the financial documents needed to submit a bid for each
type. Because business types could not easily be cross-referenced to
the request-for-bid instructions, suppliers were at risk of submitting
incomplete or inaccurate financial documentation. We also found that
CMS's CBP round 1 request-for-bid instructions had inconsistent
information about the requirements for the credit report and credit
score submission. For example, the bid submission form stated that a
credit rating and score--rather than using the term credit report--had
to be submitted. Near the end of the bid window, Palmetto GBA then
issued a "required document reminder" that all bidders had to submit
both a credit report and a credit score.
For the CBP round 1 rebid, CMS clarified financial documentation
instructions by providing additional tools to guide suppliers through
the bid submission process.[Footnote 27] The request-for-bid
instructions included a chart--Required Financial Documents by
Business Type--that more clearly explained which documents were to be
submitted by business type. For example, the chart specified which
portions of a supplier's tax return were required based on its
business type such as a sole proprietorship. The chart also included a
credit report column that stated bidders must submit a "Credit Report
with numerical score completed within 90 days of bid submission," and
the bid instructions included the same description. To further assist
suppliers to provide the correct financial documents, the instructions
included a Required Financial Documents appendix with sample documents
and more specific explanations of the income statement, balance sheet,
statement of cash flow, revenue and expense portion of the tax return,
and the credit report, along with a Checklist of Required Hardcopy
Documents for Bid Submission.
For the CBP round 1 rebid, CMS officials told us they notified bidding
suppliers that submitted their hard copy financial documents by the
round's covered review date of any missing documents, as required by
MIPPA.[Footnote 28] Once notified, suppliers had 10 business days to
submit their missing documentation.[Footnote 29] CMS officials told us
that 791 suppliers submitted their financial documentation by the CBP
round 1 rebid covered document review date and 321 were notified that
they had missing documentation. Fourteen suppliers did not
subsequently submit the missing documents and their bids were
disqualified. For this review, tax record documents were the most
often missing financial documentation.
In CBP Round 1, Questions Were Raised about CMS's Ability to Estimate
the Capacity of Suppliers to Furnish DME Items, but CMS Added a
Systematic Method to Estimate Supplier Capacity for the CBP Round 1
Rebid:
In CBP round 1, questions were raised about the capacity of some
suppliers to fulfill their awarded contracts on day one of the CBP's
contract period, including whether they had experience providing the
DME product category, had business locations in the competitive
bidding areas, and could expand their businesses, if needed, to supply
all Medicare beneficiaries in their competitive bidding areas. CMS
officials told us that the CBP's Program Advisory and Oversight
Committee (PAOC)[Footnote 30] raised concerns that suppliers new to a
competitive bidding area, new to a DME product category, or that
reported high capacity figures would not be able to increase reported
capacity in time to meet the projected demand for the DME items in the
competitive bidding areas.
To address the concerns, CMS officials told us that the agency added a
systematic method of reviewing suppliers' capacity and expansion plans
for the CBP round 1 rebid.[Footnote 31] CMS developed a three-step
method to determine whether a supplier new to a product category or a
competitive bidding area or an experienced supplier that reported high
capacity figures would be able to increase capacity to meet the
projected demand for the DME items.[Footnote 32] The three steps were
as follows:
* First, CMS determined whether the total capacity of all experienced
suppliers in the competitive bidding area reporting modest growth
projections and eligible for a competitive bidding program contract
offer could meet the projected demand for items in the contract's
first year. If the capacity from these experienced suppliers was
sufficient to cover the item demand on day one of the program, then
the capacity offered by any additional suppliers with expansion plans
and eligible for a contract offer was considered surplus capacity and
no further review was conducted.
* Second, if the total capacity of the experienced suppliers
identified in step one did not meet the projected demand for the first
year of the contract, then CMS reviewed the expansion plans provided
by the new and high-growth or high-volume suppliers to verify their
capacity to furnish the items. The expansion plan review involved an
in-depth examination of the supplier's financial information,
specifically to verify whether the supplier had the liquid assets and
available credit needed to expand capacity. If the verified capacity
from these suppliers with expansion plans was sufficient to meet
demand, CMS determined that the suppliers eligible for a CBP contract
offer had the ability to meet demand on day one of the program.
* Third, if the results of the first two steps indicated that more
suppliers were needed to meet demand on day one of the program, CMS
made more suppliers eligible for a CBP contract offer.
As of September 10, 2010, CMS had not disclosed how many capacity
evaluations were conducted during the CBP round 1 rebid.
In CBP Round 1, CMS Awarded Some Contracts to Suppliers That Were Not
Yet Licensed, but CMS Provided Directories to Inform Suppliers of
State Licensure Requirements in the CBP Round 1 Rebid:
In 2009, we found that some suppliers that won CBP round 1 contracts
were not yet licensed in states where they would be operating. For the
CBP round 1 rebid, CMS further clarified the state licensure
requirement, stating that suppliers must be licensed for the product
category in the competitive bidding area in which they are bidding,
and if a competitive bidding area covers more than one state, the
supplier needs to obtain applicable licensure in all states. In order
to better inform suppliers about these licensure requirements, CMS and
Palmetto GBA provided licensure state directories for the 11 states
included in the CBP round 1 rebid competitive bidding areas. The
directories, which served only as guides for suppliers, provided a
list of licenses required by each state for each product category for
suppliers with a physical location in that state.[Footnote 33]
Suppliers without a physical location in the state but that would be
providing DME items and services to Medicare beneficiaries in the
state were directed to consult the appropriate state licensing agency;
contact information for those agencies was also provided. The
suppliers were required to file copies of applicable state licenses
with the National Supplier Clearinghouse--which processes Medicare
enrollment applications by DME suppliers--prior to submitting a bid.
Electronic Bid Submission System Used in CBP Round 1 Had Operational
Problems, and CMS Developed a New Bid System for the CBP Round 1 Rebid:
CMS acknowledged that CBP round 1's competitive bid submission system--
CBSS--had operational problems that affected suppliers' ability to
submit their bids. These problems included, for example, loss of bid
submission data caused by CBSS security features that automatically
logged suppliers out after 2 hours and that timed out suppliers if
there was no activity for 30 minutes, and cases when CBSS was
unavailable because of unscheduled downtimes. Additionally, CBSS did
not have a "cut and paste" function and manual data reentry was time-
consuming and increased the risk of suppliers inputting incorrect data
that could disqualify a bid. CMS officials also acknowledged that the
CBSS user guide was not very detailed or user friendly.
CMS developed a new electronic bid submission--DBidS--for the CBP
round 1 rebid. DBidS was designed to address CBSS's specific
deficiencies by being more user friendly and easier for suppliers to
navigate and providing a logical flow of the requested data, as well
as detailed bidding instructions in user-friendly language. Suppliers
were provided a DBidS reference guide on the DMEPOS Competitive
Bidding Program Web site that included screen shot explanations for
the bid submission Forms A and B.[Footnote 34] It also has a "copy and
paste" function for the transfer of certain data and many data-saving
points to minimize loss of data. Suppliers could have more than one
employee access DBidS at the same time, but to control data input
DBidS will not allow more than one employee to input the same data at
the same time. DBidS has status indicators to indicate whether the
bidding forms are "complete," "incomplete," or "pending approval," and
has links in the system to direct suppliers to the incomplete data.
CMS officials told us that DBids did not have significant operational
issues and only a few suppliers experienced minor problems.
CMS Did Not Effectively Notify All Suppliers about the Postbidding
Review Opportunity in CBP Round 1, and Plans to Communicate with All
Losing Suppliers in the CBP Round 1 Rebid after Contract Suppliers are
Announced:
In CBP round 1, CMS sent notification letters to both the winning and
losing suppliers before announcing the final winning suppliers that
accepted contracts for the CBP. The letters sent to suppliers that had
bids disqualified included an attachment using seven general reason
codes to explain the grounds for the disqualifications.[Footnote 35]
Disqualified bids were ineligible to compete on price and were not
considered for a contract award. During CBP round 1, CMS also
conducted a postbidding review process through which the agency
considered concerns raised by losing suppliers and in some cases,
reversed decisions to disqualify the bids of certain suppliers. We
found that CMS had not effectively notified suppliers about the
opportunity for this postbidding review process. To improve future
rounds of the CBP, we recommended in our 2009 report that if CMS
decides to conduct a review of disqualification decisions made 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
agreed with our recommendation.
For the CBP round 1 rebid, CMS sent notification letters to winning
suppliers beginning in July 2010.[Footnote 36] CMS officials informed
us that after the CBP round 1 rebid contracting process is completed,
CMS plans to send letters to all disqualified suppliers with the
reasons why their bids were disqualified.[Footnote 37] CMS officials
said the letters will explain the process by which suppliers may ask
questions and express concerns. CMS officials also stated that in the
course of responding to such questions or concerns, if CMS determines
an error was made, it is possible that a CBP contract may be offered
to the supplier.
As required by MIPPA, we will study the CBP round 1 rebid, including,
for example, the program's impact on Medicare beneficiary access to
items and services and on DME small business suppliers. Our study is
to be completed no later than one year after the CBP round 1 rebid's
Medicare competitively determined payments are first made, which
become effective for covered items and services on January 1, 2011.
Agency Comments:
In commenting on the information presented in this testimony, CMS
officials stated they appreciated GAO noting the administrative
improvements to the competitive bidding process the agency made for
the round 1 rebid. The officials further stated that they believe that
CMS made many improvements to the CBP. CMS also provided technical
comments that we incorporated as appropriate.
Mr. Chairman, this concludes my prepared statement. I would be happy
to answer any questions you or other members of the subcommittee may
have.
[End of section]
Appendix I: GAO Contact and Staff Acknowledgments:
GAO Contact:
For further information about this statement, please contact Kathleen
M. King at (202) 512-7114 or kingk@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this statement.
Staff Acknowledgments:
In addition to the contact named above, key contributors to this
testimony were Martin T. Gahart, and Christie Motley, Assistant
Directors; Lori Achman; Kye Briesath; Krister Friday; Thomas Han;
Erica Pereira; Hemi Tewarson; Opal Winebrenner; and Charles Youman.
[End of section]
Related GAO Products:
Medicare Fraud, Waste, and Abuse: Challenges and Strategies for
Preventing Improper Payments. [hyperlink,
http://www.gao.gov/products/GAO-10-844T]. Washington, D.C.: June 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 the federal health insurance program that currently
serves about 46.3 million elderly and disabled individuals.
[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. Items covered by the
competitive bidding program include selected DME and related supplies
and enteral nutrients and related equipment and supplies.
[3] CMS is an agency within the Department of Health and Human
Services that has responsibility for administering the Medicare
program.
[4] See GAO, 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). Other related GAO products are listed at the end of this
statement.
[5] Other items include prosthetic devices (other than dental), which
are defined as devices needed to replace body parts or functions, such
as artificial limbs, enteral nutrition, and cardiac pacemakers, and
orthotic devices, which are defined as providing rigid or semirigid
support to 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.
[6] Medicare adjusts fee schedules for DME for each state, reflecting
geographic price differences which are subject to national floor and
ceiling limits.
[7] GAO, 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); GAO, 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.
[8] In general, Medicare beneficiaries pay 20 percent of the Medicare
reimbursement rate for DME after reaching their annual deductible.
[9] [hyperlink, http://www.gao.gov/products/GAO-08-767T].
[10] Pub. L. No. 108-173 § 302(b), 117 Stat. 2066, 2224 (2003)
(codified, as amended, at 42 U.S.C. § 1395w-3). In this statement, we
refer to the competitive acquisition program as the competitive
bidding program.
[11] 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 (MSA). The 10 CBAs had to be selected from the
largest MSAs. The 10 CBAs were 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-Miami
Beach, Florida); Orlando (Orlando-Kissimmee, Florida); Pittsburgh
(Pittsburgh, Pennsylvania); Riverside (Riverside-San Bernardino-
Ontario, California); and San Juan (San Juan-Caguas-Guaynabo, Puerto
Rico).
[12] CBP round 1's 10 product categories were oxygen supplies and
equipment; standard power wheelchairs, scooters, and related
accessories; complex rehabilitative power wheelchairs and related
accessories; mail-order diabetic supplies; enteral nutrients,
equipment, and supplies; continuous positive airway pressure devices,
respiratory assist devices, and related supplies and accessories;
hospital beds and related accessories; negative pressure wound therapy
pumps and related supplies and accessories; walkers and related
accessories; and 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 and San Juan CBAs only).
[13] Pub. L. No. 110-275, § 154, 122 Stat, 2494, 2560 (2008)
(codified, as amended, at 42 U.S.C. § 1395w-3).
[14] To ensure budget neutrality, that is, to compensate for the loss
of the projected savings from the CBP's round 1 delay, beginning
January 1, 2009, MIPPA reduced the national Medicare reimbursement
payments by 9.5 percent nationally for items and services that had
been included in CBP round 1.
[15] CMS issued an interim final rule implementing these MIPPA
provisions. Centers for Medicare & Medicaid Services, Medicare
Program: Changes to the Competitive Acquisition of Certain Durable
Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) by
Certain Provisions of MIPPA, 74 Fed. Reg. 2873 (Jan. 16, 2009). In
this rule, CMS clarified that with the exception of the new provisions
in this rule, the CBP final rule published on April 10, 2007, Medicare
Program: Competitive Acquisition for Certain DMEPOS and Other Issues,
72 Fed. Reg. 17, 992, would continue to govern implementation of the
CBP for DME and other items.
[16] In the CBP round 1 rebid, the product categories were revised to
delete the negative pressure wound therapy category and to exclude
group 3 complex rehabilitative power wheelchairs from the entire CBP,
and to delete San Juan (San Juan-Caguas-Guaynabo, Puerto Rico) as a
competitive bidding area.
[17] According to CMS officials, the savings estimate for each
combination of competitive bidding area and product category was
derived by multiplying the difference between the 2009 Medicare fee
schedule for each item in the product category and the CBP-derived
single payment amounts by the item's percentage share of the total
number of units represented by all items in the product category
provided by Medicare in 2008. In both CBP round 1 and the CBP round 1
rebid, the items in the mail-order diabetic supplies product category
had the largest reductions, with the difference between the single
payment amounts and the Medicare fee schedule averaging 43 and 56
percent, respectively.
[18] CMS officials informed us that if any winning supplier offered a
CBP round 1 rebid contract decides not to accept the contract, it is
possible that a losing supplier may later be offered the contract. The
Palmetto GBA CBP Web site--[hyperlink,
http://www.dmecompetitivebid.com]--provided suppliers a fact sheet on
contract supplier obligations. Contract suppliers are winning
suppliers that enter into a contract with CMS to provide specific
items in the area for which the suppliers submitted a competitive bid.
[19] CMS plans to begin the CBP round 2 competitive bidding process in
2011. The Patient Protection and Affordable Care Act of 2010, Pub. L.
No. 111-148, § 6410, 124 Stat. 119, 773 (2010) increases the number of
round 2 competitive bidding areas from 70 to 91 of the largest MSAs,
accelerating the CBP's implementation and its projected savings.
[20] The CBP round 1 bid window was extended three times resulting in
a 4-month-long window. Although suppliers could revise their bid
submissions throughout the bid window, when additional information was
provided those that believed they had submitted completed bids had to
review them to ensure that they were still correct.
[21] The CBP round 1 rebid's bid window was open for 60 days--October
21 through December 21, 2009. Under federal law and implementing
regulations, subject to few exceptions, suppliers furnishing DME and
other items on or after October 1, 2009, must have submitted evidence
of accreditation to CMS and beginning October 2, 2009, suppliers must
submit a surety bond when enrolling in Medicare, making a change in
ownership, or responding to a re-enrollment request. For the round 1
rebid, CMS required suppliers to submit evidence of accreditation and
surety bonds prior to submitting their bids. During CBP round 1,
suppliers could submit bids even if their accreditation was still
pending.
[22] CMS held an eighth special open door forum after the bid window
opened to respond to suppliers' questions about the competitive
bidding process.
[23] Before the bid window opened, CMS changed the instructions on
August 24, 2009 to provide a link to the Financial Documents Chart in
the Required Hardcopy Documents section of the CBP Web site,
[hyperlink, http://www.dmecompetitivebid.com/].
[24] MIPPA and implementing regulations defined 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.
During the CBP round 1 rebid, CMS was required to notify eligible
suppliers of missing financial documentation within 45 days of the
covered review date. The CBP round 1 rebid's review date was November
21, 2009.
[25] In addition, Palmetto GBA again had a customer service center to
field inquiries from suppliers and individuals before, during, and
after the bid window closed--7,637 phone and written inquiries had
been made as of June 30, 2010.
[26] Financial documentation means a financial, tax, or other document
required to be submitted in order to meet CMS's financial standards
for the CBP.
[27] For the CBP round 1 rebid, suppliers were required only to submit
1 year of financial documentation instead of 3 years as was required
in round 1.
[28] The CBP round 1 rebid's covered review date was November 21,
2009. During the 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.
[29] 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 financial requirements.
[30] The PAOC members were appointed by the HHS Secretary to advise
CMS on implementing the CBP.
[31] CMS and Palmetto GBA provided a fact sheet explaining how a
supplier should estimate its capacity to provide each item being bid
to ensure that suppliers winning contracts could sustain this level of
capacity throughout the entire competitive bidding area for the
contract period. The sheet also explained that suppliers new to a
product category, or new to a competitive bidding area, or that
otherwise plan to increase their capacity beyond their current levels
must submit expansion plans as part of their bid submissions.
[32] CMS officials told us that the ability of grandfathered suppliers
or suppliers that are exempt from the CBP to cover a certain
percentage of the beneficiary demand was not considered in reviewing
contract suppliers' ability to meet demand on day one of the program.
The CBP round 1 rebid fact sheets stated that grandfathered suppliers
are suppliers that are not awarded a competitive bidding contract for
furnishing oxygen and oxygen equipment or rented DME in a competitive
bidding area and that decide to be grandfathered suppliers for the
Medicare beneficiaries to whom they are furnishing these DME items at
the time the CBP takes effect.
[33] The directories list, for example, licensure for a home medical
device retail license and a respiratory care practitioner license.
[34] Suppliers submit two forms as part of their bid submission--Form
A, which is the bid application, and Form B, which is the bidding form.
[35] By the end of CBP round 1's initial bid review, almost half of
the bids submitted were disqualified (3,143 of 6,374 submitted). A bid
could be disqualified for more than one reason. Nearly 9 of every 10
disqualified bids (86 percent of the 3,143) did not submit complete
financial documentation. Twenty-two percent of the bids were
disqualified for noncompliance with accreditation requirements; that
is, they failed to receive accreditation by the deadline established
by CMS. Two percent of the bids were disqualified because the bidding
suppliers did not meet supplier financial standards; that is, in CMS's
judgment, they were unlikely for financial reasons to be able to
fulfill their contract obligations.
[36] CMS informed us that they sent letters to winning suppliers in
July 2010, extending offers to enter into a contract with CMS to
provide selected DME. These suppliers must respond to CMS, by either
accepting or declining to enter into these contracts. Once CMS has
heard from all these suppliers, CMS will finalize the contracts and
determine whether there are sufficient numbers of contracted
suppliers. CMS officials informed us that they expected to complete
this contracting process later in September.
[37] CMS officials told us that there are 11 disqualification reasons
for the CBP round 1 rebid.
[End of section]
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