Medicare
Issues for Manufacturer-Level Competitive Bidding for Durable Medical Equipment Gao ID: GAO-11-337R May 31, 2011In 2009, Medicare--a federal health insurance program that serves about 46.3 million beneficiaries--spent approximately $8.1 billion on durable medical equipment (DME), prosthetics, orthotics, and related supplies for 10.6 million beneficiaries. DME includes items such as wheelchairs, hospital beds, and walkers. Medicare beneficiaries typically obtain DME items from suppliers, who submit claims for payment for these items to Medicare on behalf of beneficiaries. The Centers for Medicare & Medicaid Services (CMS), an agency within the Department of Health and Human Services (HHS), has responsibility for administering the Medicare program. Both we and HHS's Office of Inspector General (OIG) have reported that Medicare and its beneficiaries--through their out-of-pocket costs--have sometimes paid higher than market rates for various medical equipment and supplies. To achieve Medicare savings for DME and to address DME fraud concerns, Congress, through the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), required CMS to phase in a competitive bidding program (CBP) for DME suppliers in selected competitive bidding areas (CBA). In CBP, suppliers submit bid prices in the amounts they are willing to accept as payment to provide DME items to Medicare beneficiaries. CMS then enters into contracts with select DME suppliers to provide DME items at the prices determined by CBP. CBP is a fundamental departure from CMS's usual method of paying for DME, in which CMS pays any qualified supplier a set fee schedule. CBP also provides an incentive for DME suppliers to accept lower Medicare payment amounts in exchange for the ability to serve beneficiaries and to potentially increase their Medicare market share. CMS began implementing CBP in 2007 and 2008--referred to as round 1. Concerns about CBP's round 1 bid submission and contract award processes were raised during two congressional hearings in May 2008. CBP's round 1 was stopped 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. To compensate for the loss of the projected savings from the CBP delay, beginning January 1, 2009, MIPPA reduced Medicare payments by 9.5 percent nationally for items in the 10 product categories that had been included in the CBP round 1. The CBP competition--referred to as the round 1 rebid--was repeated in 2009 and 2010. On January 1, 2011, CBP began with 356 suppliers awarded contracts to provide DME items in nine DME product categories in nine CBAs. CMS stated that the CBP payment amounts are projected to result in an average savings of 32 percent as compared to the current Medicare fee schedule payments for the same items. In contrast to CBP's supplier-level approach, some health care purchasers use a manufacturer-level approach to buy DME items directly from DME manufacturers to obtain savings by leveraging their purchasing power. CMS has not been required to develop a manufacturer-level approach, and there are no current proposals for it to do so. You expressed interest in obtaining information on health care purchasers that currently use a manufacturer-level approach and on issues that would need to be addressed if CMS implemented such an approach. In this report, we describe (1) efforts used by some non- Medicare purchasers to reduce DME spending by contracting with DME manufacturers or using purchasing intermediaries, and (2) issues that CMS might face if required to implement a DME manufacturer-level approach with broad authority to do so.
Some government and private health care purchasers leverage their buying power to reduce spending on DME (durable medical equipment) by contracting with DME manufacturers or using purchasing intermediaries. VA requires its medical centers to purchase certain DME items directly from manufacturers through one of three mechanisms. By offering manufacturers the opportunity to serve VA's medical centers, VA leverages its buying power when negotiating for lower prices for high-volume and recurring-need DME items. VA can purchase DME items through the Federal Supply Schedule (FSS), where contracts are awarded to an unlimited number of manufacturers offering VA what are known as mostfavored customer pricing--prices at least as low as those given to the manufacturers' mostfavored commercial customers. To purchase items that are widely used on a recurring basis, VA may use blanket purchase agreements (BPA) and national contracts. VA enters into these agreements and contracts with a limited number of manufacturers--offering to increase the manufacturers' VA market share for certain DME items in exchange for prices that must be lower than those listed on the FSS. Like VA, some Medicaid programs contract with manufacturers for DME items. These programs select either a single or limited number of manufacturers to provide a particular DME item, enabling them to leverage their buying power in exchange for price discounts from DME manufacturers on items requiring little or no servicing. Purchasers can also leverage their buying power by negotiating favorable prices from DME manufacturers through purchasing intermediaries. For example, several private insurers may use one GPO to administer their DME benefits and negotiate favorable manufacturer pricing on their behalf. Similarly, some Medicaid programs use a TPA to negotiate rebates from diabetic supply manufacturers on their behalf. CMS could face issues both similar to those that it addressed in implementing CBP at the supplier level and specific to competitive bidding involving manufacturers if it were required to implement a Medicare DME manufacturer-level approach and were given broad authority to do so. Key issues similar to those CMS considered for CBP could include choosing which DME items to competitively bid that would result in the most Medicare savings, determining whether to operate the program for some items at a national level, and considering the range of Medicare beneficiary choices for DME items. CMS could also consider key issues specific to competitive bidding at the manufacturer level. For example, CMS currently has a minimal relationship with DME manufacturers unless they are also Medicare suppliers, and it might need to strengthen its regulatory relationship with DME manufacturers for competitive bidding. CMS could also consider whether a new Medicare payment system would need to be created that could separate payments for the cost of a manufacturer's item from the cost for an item's services provided by suppliers. In commenting on a draft of this report, HHS stated that the report provides useful information about other ways the Medicare program, and its beneficiaries, can obtain better value for DMEPOS items and services. HHS also noted that the report demonstrates how other payers use various acquisition strategies to receive better prices than Medicare for the same DMEPOS items and services, despite the fact that Medicare often pays for a larger quantity of items and services.
GAO-11-337R, Medicare: Issues for Manufacturer-Level Competitive Bidding for Durable Medical Equipment
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GAO-11-337R:
United States Government Accountability Office:
Washington, DC 20548:
May 31, 2011:
The Honorable Pete Stark:
Ranking Member:
Subcommittee on Health:
Committee On Ways And Means:
House of Representatives:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on The Judiciary:
United States Senate:
Subject: Medicare: Issues For Manufacturer-Level Competitive Bidding
For Durable Medical Equipment:
In 2009, Medicare--a federal health insurance program that serves
about 46.3 million beneficiaries[Footnote 1]--spent approximately $8.1
billion on durable medical equipment (DME), prosthetics, orthotics,
and related supplies for 10.6 million beneficiaries.[Footnote 2] DME
includes items such as wheelchairs, hospital beds, and walkers.
Medicare beneficiaries typically obtain DME items from suppliers, who
submit claims for payment for these items to Medicare on behalf of
beneficiaries. The Centers for Medicare & Medicaid Cervices (CMS), an
agency within the department of Health and Human Services (HHS), has
responsibility for administering the Medicare program. Both we and
HHS's Office of Inspector General (OIG) have reported that Medicare
and its beneficiaries--through their out-of-pocket costs--have
sometimes paid higher than market rates for various medical equipment
and supplies.[footnote 3]
To achieve Medicare savings for DME and to address DME fraud concerns,
Congress, through the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA)[Footnote 4] required CMS to phase in a
competitive bidding program (CBP)[Footnote 5] for DME suppliers in
selected competitive bidding areas (CBA). In CBP, suppliers submit bid
prices in the amounts they are willing to accept as payment to provide
DME items to medicare beneficiaries. CMS then enters into contracts
with selected DME suppliers to provide DME items at the prices
determined by CBP. CBP is a fundamental departure from CMS's usual
method of paying for DME, in which CMS pays any qualified supplier a
set fee schedule. CBP also provides an incentive for DME suppliers to
accept lower medicare payment amounts in exchange for the ability to
serve beneficiaries and to potentially increase their medicare market
share.
CMS began implementing CBP in 2007 and 2008--referred to as round 1.
Concerns about CBP's round 1 bid submission and contract award
processes were raised during two congressional hearings in May 2008.
CBP's round 1 was stopped by the enactment of the Medicare
Improvements for Patients and Providers Act of 2008 (MIPPA),[Footnote
6] which terminated the contracts already awarded to suppliers,
delayed the program's restart, and required CMS to repeat the
competition. [Footnote 7] To compensate for the loss of the projected
savings from the CBP delay, beginning January 1, 2009, MIPPA reduced
Medicare payments by 9.5 percent nationally for items in the 10
product categories that had been included in the CBP round 1. The CBP
competition--referred to as the round 1 rebid--was repeated in 2009
and 2010. On January 1, 2011, CBP began with 356 suppliers awarded
contracts to provide DME items in nine DME product categories[Footnote
8] in nine CBAs.[Footnote 9] CMS stated that the CBP payment amounts
are projected to result in an average savings of 32 percent as
compared to the current Medicare fee schedule payments for the same
items.
In contrast to CBP‘s supplier-level approach, some health care
purchasers use a manufacturer-level approach to buy DME items directly
from DME manufacturers to obtain savings by leveraging their
purchasing power. CMS has not been required to develop a manufacturer-
level approach, and there are no current proposals for it to do so. You
expressed interest in obtaining information on health care purchasers
that currently use a manufacturer-level approach and on issues that
would need to be addressed if CMS implemented such an approach.
[Footnote 10] In this report, we describe (1) efforts used by some non-
Medicare purchasers to reduce DME spending by contracting with DME
manufacturers or using purchasing intermediaries, and (2) issues that
CMS might face if required to implement a DME manufacturer-level
approach with broad authority to do so.
To describe how some non-Medicare purchasers[Footnote 11] reduce
spending on DME items, we interviewed government and private
purchasers that contract with DME manufacturers or use purchasing
intermediaries to reduce DME spending. We selected purchasers for
further study that reflected a wide range of manufacturer-level
purchasing approaches. We interviewed officials from the Department of
Veterans Affairs (VA), which provided care to more than 5.6 million
patients in fiscal year 2010, to identify how VA competitively
purchases DME directly from manufacturers and how VA contracts with
suppliers to provide services such as delivery and setup of DME items.
To compare the costs of certain DME items, we compared VA‘s national
contract prices for DME items in 2010 with Medicare‘s 2010 payments
for those same items. We also interviewed Medicaid[Footnote 12]
officials about program operations and lessons learned from either
attempting to, or successfully contracting with, manufacturers.
[Footnote 13] To identify additional approaches to reducing spending,
we interviewed officials from selected entities that negotiate
favorable prices from manufacturers through purchasing intermediaries.
We interviewed officials from one group purchasing organization (GPO)”-
a purchasing intermediary that negotiates contracts between its
customers and vendors of medical products. This GPO administers DME
benefits on behalf of health insurers. We also interviewed officials
from a third-party administrator (TPA)-”a group that, under a service
contract, processes claims and also provides certain administrative
services to a health insurer”which negotiates discounts from diabetic
supply manufacturers on behalf of some state Medicaid programs.
To describe the issues CMS could face if it were to implement a
competitive bidding program at the manufacturer-level for Medicare
DME, we reviewed competitive bidding studies and interviewed
stakeholders in the DME industry to learn about the structure of the
industry and how a manufacturer-level competitive bidding program
could affect their business. Specifically, we interviewed
representatives from trade associations representing both DME
suppliers and DME manufacturers,[Footnote 14] representatives from
selected DME suppliers and DME manufacturers, and officials from a CMS
contractor responsible for processing Medicare DME claims. On the
basis of these interviews, we compared the issues CMS considered in the
current Medicare DME CBP with the issues CMS could consider if the
agency were to implement a manufacturer-level competitive bidding
program.
We conducted this performance audit from March 2010 to May 2011 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.
Results in Brief:
Some government and private health care purchasers leverage their
buying power to reduce spending on DME (durable medical equipment) by
contracting with DME manufacturers or using purchasing intermediaries.
VA requires its medical centers to purchase certain DME items directly
from manufacturers through one of three mechanisms. By offering
manufacturers the opportunity to serve VA‘s medical centers, VA
leverages its buying power when negotiating for lower prices for high-
volume and recurring-need DME items. VA can purchase DME items through
the Federal Supply Schedule (FSS), where contracts are awarded to an
unlimited number of manufacturers offering VA what are known as most
favored customer pricing-”prices at least as low as those given to the
manufacturers‘ most favored commercial customers. To purchase items
that are widely used on a recurring basis, VA may use blanket purchase
agreements (BPA) and national contracts. VA enters into these
agreements and contracts with a limited number of manufacturers”
offering to increase the manufacturers‘ VA market share for certain
DME items in exchange for prices that must be lower than those listed
on the FSS. Like VA, some Medicaid programs contract with
manufacturers for DME items. These programs select either a single or
limited number of manufacturers to provide a particular DME item,
enabling them to leverage their buying power in exchange for price
discounts from DME manufacturers on items requiring little or no
servicing. Purchasers can also leverage their buying power by
negotiating favorable prices from DME manufacturers through purchasing
intermediaries. For example, several private insurers may use one GPO
to administer their DME benefits and negotiate favorable manufacturer
pricing on their behalf. Similarly, some Medicaid programs use a TPA to
negotiate rebates from diabetic supply manufacturers on their behalf.
CMS could face issues both similar to those that it addressed in
implementing CBP at the supplier level and specific to competitive
bidding involving manufacturers if it were required to implement a
Medicare DME manufacturer-level approach and were given broad authority
to do so. Key issues similar to those CMS considered for CBP could
include choosing which DME items to competitively bid that would
result in the most Medicare savings, determining whether to operate
the program for some items at a national level, and considering the
range of Medicare beneficiary choices for DME items. CMS could also
consider key issues specific to competitive bidding at the
manufacturer level. For example, CMS currently has a minimal
relationship with DME manufacturers unless they are also Medicare
suppliers, and it might need to strengthen its regulatory relationship
with DME manufacturers for competitive bidding. CMS could also
consider whether a new Medicare payment system would need to be
created that could separate payments for the cost of a manufacturer‘s
item from the cost for an item‘s services provided by suppliers.
In commenting on a draft of this report, HHS stated that the report
provides useful information about other ways the Medicare program, and
its beneficiaries, can obtain better value for DMEPOS items and
services. HHS also noted that the report demonstrates how other payers
use various acquisition strategies to receive better prices than
Medicare for the same DMEPOS items and services, despite the fact that
Medicare often pays for a larger quantity of items and services.
Background:
Medicare is the federal program that helps pay for a variety of health
care services for about 46.3 million beneficiaries-”people age 65 and
older, certain disabled individuals, and those with end-stage renal
disease. Most Medicare beneficiaries participate in Medicare Part B,
which helps pay for DME items and supplies, such as oxygen,
wheelchairs, hospital beds, walkers; orthotics, prosthetics, and
supplies if they are medically necessary and prescribed by a
physician.[Footnote 15] Part B also covers certain outpatient
prescription drugs used with DME or that are not usually self-
administered by the patient; some of these drugs, such as inhalation
therapy drugs, are classified as supplies.
Medicare and DME Suppliers and Manufacturers:
Medicare beneficiaries typically obtain their DME items from
suppliers, who submit claims for payment to Medicare on the beneficiary‘
s behalf. To be able to bill Medicare, DME suppliers must enroll in
Medicare and must meet certain requirements, such as accreditation
to ensure that they meet minimum quality standards, in order to reduce
the risk of enrolling suppliers intent on defrauding or abusing
Medicare.[Footnote 16] Suppliers can include DME retail
establishments, and outpatient providers, such as physicians, home
health agencies, and physical therapists. Suppliers may also provide
DME items, such as diabetic testing supplies, directly to a beneficiary‘
s residence through a common carrier, such as the U.S. Postal
Service or shipping or courier services.
Suppliers purchase DME items from DME manufacturers or from
distributors that sell items from multiple manufacturers to suppliers.
[Footnote 17] (See figure 1.) Suppliers may negotiate”-either
directly or indirectly through a third party-”with manufacturers to
obtain item prices lower than the Medicare payment for that item.
Suppliers have an incentive to negotiate DME price discounts, as they
may retain the difference between the negotiated item price and its
Medicare payment. In general, the larger a supplier is, the more it
can leverage its buying power to negotiate price discounts.
Figure 1: How Medicare Beneficiaries May Receive DME Items:
[Refer to PDF for image: illustration]
Manufacturers:
Distributors:
Suppliers:
Beneficiaries.
[Manufacturers to Suppliers, skipping Distributors, in some cases]
Source: GAO.
Note: Medicare beneficiaries can receive DME items directly from
entities that are enrolled as Medicare suppliers. If enrolled as
Medicare suppliers, other entities such as manufacturers,
distributors, and pharmacies, and providers such as hospitals,
nursing homes, and home health agencies, may also furnish items to
beneficiaries.
[End of figure]
Medicare DME Payments:
Medicare pays for most DME through fee schedules based on suppliers'
historical charges to Medicare.[Footnote 18] The Medicare 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. Medicare beneficiaries are responsible for paying the
supplier the remaining 20 percent.[Footnote 19]
The Medicare fee schedules classify most DME, prosthetics, orthotics,
and supplies (DMEPOS) items into six payment categories, for example
the inexpensive or other routinely purchased items category includes
items such as standard walkers and canes. Depending on the category,
the items may be paid as a lump sum--onetime--payment, or as rental
payments--monthly payments over a set time period--and may or may not
include payment for repair, maintenance, and delivery of the
item.[Footnote 20] (See enclosure I.)
In submitting claims for Medicare payments, suppliers use a
standardized coding system--the Healthcare Common Procedure Coding
System (HCPCS). The codes identify a category of like DME items or
services, for example hospital beds, rather than specific products or
brand or trade names. Medicare's DME fee schedule has nearly 3,000
HCPCS codes. Individual HCPCS codes used by suppliers can cover a
broad range of items that serve the same general purpose, but vary in
price, characteristics, and quality.[Footnote 21] To handle DME
payment claims processing, including coverage and payment
determinations, CMS contracts with DME Medicare administrative
contractors.
History of DME Competitive Bidding:
The Balanced Budget Act of 1997 required CMS to test competitive
bidding as a new way to set payment rates for Medicare Part B items
and services selected by CMS.[Footnote 22] CMS conducted three DME CBP
demonstration projects, two in Florida (1999-2002) and one in Texas
(2000-2002). About a year after the demonstrations ended, the MMA was
enacted, requiring CMS to implement a broader CBP beginning in 2007.
Changing the long-standing policy that any qualified supplier be
allowed to enroll in Medicare, the MMA provided that generally only
suppliers who were awarded CBP contracts could be paid by Medicare for
providing CBP-covered Part B DME items and services in selected CBAs.
In 2007 and 2008, CMS began the phase-in of CBP--round 1--with
suppliers submitting price bids for items in 10 product categories
[Footnote 23] in 10 CBAs.[Footnote 24] Through CBP, CMS established
competitively determined Medicare payments for the bid items and
competitively selected a limited number of suppliers to provide items
to Medicare beneficiaries residing in the CBAs.[Footnote 25] Suppliers
submitted bids for supplying 1 or more of the 10 product categories in
1 or more of the 10 CBAs. The MMA imposed certain CBP criteria
including, for example, that the total amount to be paid to winning
suppliers be less than would otherwise be paid by Medicare under
existing fee schedules and that the ability of suppliers to meet the
anticipated needs of beneficiaries in a CBA be considered in choosing
the CBP suppliers.
MIPPA imposed additional requirements for how CMS should conduct later
CBP rounds, including the round 1 rebid and the subsequent rounds that
will expand CBP to additional CBAs. CMS began the CBP round 1 rebid
with nine product categories in nine CBAs in 2009,[Footnote 26] it
announced its winning suppliers in November 2010, and the contracts
awarded through the CBP round 1 rebid and its Medicare payments were
effective January 1, 2011.
Some Non-Medicare Purchasers Contract with DME Manufacturers or Use
Purchasing Intermediaries to Reduce DME Spending:
To reduce DME spending, some non-Medicare government purchasers--both
federal and state--leverage their buying power by contracting with
manufacturers for DME items. Other private purchasers leverage their
buying power through purchasing intermediaries such as group
purchasing organizations (GPO) and third-party administrators (TPA)
that negotiate favorable prices from DME manufacturers on their
behalf. (See enclosure II for a summary of DME purchasing approaches.)
Contracting with Manufacturers:
To reduce spending, some non-Medicare government purchasers--both
federal and state--leverage their buying power by contracting with DME
manufacturers. VA is both a purchaser and provider of DME items and
services, and is able to leverage its DME buying power by having its
medical centers purchase DME items from those manufacturers who have
entered into VA contracts or agreements through one of three
mechanisms. Some Medicaid programs have also reported reducing their
DME spending by contracting, either on their own or with other state
Medicaid programs, with manufacturers for DME items requiring little
or no servicing.
VA Contracting Mechanisms:
VA leverages its DME buying power by requiring that its medical
centers purchase DME items through one of three mechanisms: the
Federal Supply Schedule (FSS),[Footnote 27] blanket purchase
agreements (BPA), and national contracts. The discount VA is able to
achieve off the manufacturer's retail price for DME items depends, in
part, on the exclusivity provided to the manufacturer under each
mechanism and the type of DME item involved. To determine the most
appropriate mechanism to use for each DME item that VA purchases, VA
staff conduct product research, including VA purchasing history for
the particular DME item.
VA can purchase DME items through contracts with manufacturers that
have agreed to provide an uninterrupted supply of an item at a given
price to federal agencies through the FSS program.[Footnote 28] Under
this program, VA awards contracts to multiple vendors--manufacturers
in the case of DME items--for commercially available goods and
services; federal agencies--in this case VA--place orders under these
contracts. To obtain best prices, VA negotiates for the best price
that a vendor--or manufacturer in the case of DME--provides to its
most-favored customer prior to awarding a contract.[Footnote 29] VA
maintains the best prices through a price-reduction clause in FSS
contracts that allows VA to receive a lower contract price if the
vendor lowers its price to a similarly situated commercial
customer.[Footnote 30]
VA generally uses BPAs to fill a recurring need by an agency for
supplies or services and to seek pricing lower than listed on the FSS.
[Footnote 31] Agencies may award BPAs to one vendor--known as a single
award BPA--or to more than one vendor--known as multiple award BPAs,
[Footnote 32] and then issue individual orders against BPAs to fulfill
requirements for supplies as the need arises. The Federal Acquisition
Regulation requires federal agencies to seek reductions from vendors'
FSS prices when negotiating BPAs because the use of BPAs limits the
number of vendors from whom items are purchased, thus granting greater
exclusivity to those vendors.[Footnote 33] For example, the price
under a VA BPA for a 50-count box of blood glucose strips for one
manufacturer is $11.06, compared to the same manufacturer's FSS price
of $13.07.[Footnote 34]
According to VA officials, VA generally negotiates national contracts
with a single manufacturer to exclusively provide particular DME items
to VA medical centers, including with manufacturers that are not
listed on the FSS. VA typically uses these contracts for items it
needs in large quantities, such as hospital beds.[Footnote 35]
Manufacturers bid competitively to provide the DME item, and VA
conducts best-value determinations[Footnote 36] to select the
manufacturer that would provide the greatest overall benefit. For
example, VA's national contract price in 2010 for power lifts used to
transfer patients included a 70 percent discount off the
manufacturer's suggested retail price. (See table 1 for a summary of
VA contracting mechanisms.)
Table 1: Summary of Three VA Contracting Mechanisms for DME Items:
Contracting mechanism: Federal Supply Schedule (FSS);
Relationship to Federal Supply Schedule (FSS): VA operates two
schedules that include DME[A];
Number of awards: No limit to the number of contract awards for a
single item; the manufacturer must be able to provide an uninterrupted
supply of the item;
How the DME item price is determined: Price is no greater than the
manufacturer's most-favored commercial customer price;
What VA medical centers can purchase: Any item on FSS.
Contracting mechanism: Blanket purchase agreement (BPA)[B];
Relationship to Federal Supply Schedule (FSS): Manufacturers that
already participate in the FSS can compete to provide the item;
Number of awards: Generally, no more than three BPAs are awarded;
How the DME item price is determined: Price must be lower than the
manufacturer's FSS price;
What VA medical centers can purchase: The BPA-included item from any
one of the selected manufacturers.
Contracting mechanism: National contract;
Relationship to Federal Supply Schedule (FSS): Manufacturers do not
have to participate in the FSS;
Number of awards: One contract award;
How the DME item price is determined: Price is determined through
competitive bidding and a best-value determination that includes a
trade-off of price and nonprice factors[C];
What VA medical centers can purchase: The item from the winning
manufacturer.
Source: GAO analysis based on the Federal Acquisition Regulation and
interviews with VA officials.
Notes: VA medical centers are required to purchase items first from a
national contract, second from a BPA, and third from an FSS. Only when
items are not available from these sources can the Veterans Integrated
Service Networks (VISN) or VA medical centers enter into local
contracts with local manufacturers or suppliers. See 48 C.F.R. §
808.002 (2010).
[A] The GSA directs and manages the FSS program and has delegated
authority to VA to operate FSS 65 (medical and surgical supplies) and
FSS 66 (laboratory) which include DME items from manufacturers,
distributors, and resellers that are contractually required to provide
an uninterrupted supply of items.
[B] BPAs are not contracts, but rather agreements between federal
agencies and vendors with terms and conditions, including prices, for
future use. When the need arises, agencies enter into contracts with
vendors by issuing individual orders against BPAs.
[C] The best-value determination, in addition to price, considers
nonprice factors such as the past performance record of the bidder and
whether the business is considered to be a small business.
[End of table]
According to VA officials, VA may also use local contracts to obtain
servicing for the DME items that the department purchases and are not
available under the FSS program, BPAs, or national contracts. Each
Veterans Integrated Service Network (VISN)[Footnote 37] or VA medical
center may competitively award these local service contracts to
suppliers. Under these contracts, local DME suppliers may be
responsible for delivering, setting up, and servicing DME items at
beneficiaries' homes. For example, we reviewed one VISN's contract
with a DME supplier to store, deliver, set up, and service DME items,
such as hospital beds and wheelchairs, in that VISN's region.[Footnote
38] This 1-year contract, awarded in 2007 with four 1-year option
periods for renewal, had a value of approximately $177,000.
VA has been able to negotiate for lower prices than Medicare for
certain DME items. For example, in 2002, the HHS OIG reported that,
compared to Medicare, VA's median prices for 15 selected DME items
were 31 to 88 percent less than Medicare's fee schedule prices.
[Footnote 39] In addition, we recently reported that, had Medicare
applied average VA payment rates for home oxygen equipment to
estimated Medicare utilization, Medicare spending for this category
could have been 38 percent lower in 2009.[Footnote 40] We also found
some examples where VA has been able to obtain lower prices than
Medicare. (See table 2.) We found that VA's national contract price in
2010 for a fully electric hospital bed was $396.85, while Medicare's
payment for the same bed was $1,638.38. According to VA officials,
VA's contract price does not include service components that are
included in the Medicare payment, such as delivery and set up of these
hospital beds, which could reduce the difference between VA and
Medicare.
Table 2: Examples of Medicare Payments and VA National Contract Prices
for Select DME Items, 2010:
General item description: Power Wheelchair;
Item name: Jazzy Power Chair;
Medicare payments[A]: $3,855.50[B];
VA national contract price: $2,004.98.
General item description: Dry Pressure Mattress;
Item name: CareGuard 101;
Medicare payments[A]: $187.97;
VA national contract price: $103.01.
General item description: Hospital Bed, Total Electric;
Item name: Full-Electric Bed 5410IVC;
Medicare payments[A]: $1,638.38[B];
VA national contract price: $396.85.
Source: GAO analysis of VA and CMS data.
Notes: While these Medicare payments include servicing and delivery of
DME items, these VA national contract prices may not include servicing
and delivery.
[A] This Medicare payment is the average payment across states.
Medicare has a separate fee schedule for each state based on the
average charges that Medicare allowed in the state in 1986 and 1987.
[B] These two items are categorized by Medicare as capped rental DME.
Capped rental DME is a category of DME for which Medicare contractors
pay DME suppliers a fee schedule amount that is "capped" after a
certain number of continuous months of rental by a Medicare
beneficiary. We determined the Medicare payment by using the Medicare
formula to calculate how much these items would cost if a beneficiary
rents long enough to own them, which occurs after 13 months of rental.
Therefore, the least expensive purchase price is equal to 13 months of
rental payments.
[End of table]
Medicaid Programs:
We examined the Michigan and New Hampshire Medicaid programs and found
that these states also contract with manufacturers and select either a
single or limited number of manufacturers of DME items through a
competitive bidding process.[Footnote 41] This process enables these
Medicaid programs to offer their purchasing power in exchange for
price discounts on certain DME items requiring little or no servicing.
These Medicaid programs pay manufacturers the negotiated contract rate
for the DME item and may make a separate payment to DME suppliers for
dispensing the item and for providing follow-up services. A Medicaid
official from Michigan told us that limiting the number of
manufacturers has allowed the state to achieve both administrative
efficiencies and cost savings. For example, Michigan has a contract
with a single manufacturer to provide eligible beneficiaries both
eyeglass frames and lenses.[Footnote 42] According to program
officials, Michigan's program saves approximately $73 per complete set
of eyeglasses compared to retail chain prices.[Footnote 43] Michigan
also has a volume purchase contract with one distributor of
incontinence supplies that enables Medicaid beneficiaries to receive
incontinence supplies by mail.[Footnote 44] Officials told us
Michigan's program saves about $50,000 to $55,000 per month on
incontinence supplies. For hearing aids, Michigan entered into a
multistate contract with 13 manufacturers in 2009 along with Minnesota
and Wisconsin, allowing all three states to leverage their buying
power and purchase the hearing aids from any of the 13 manufacturers
at reduced prices.[Footnote 45]
Officials from New Hampshire's Medicaid program told us that New
Hampshire also contracted with a single DME distributor that was
selected through a competitive process to obtain high-volume discounts
for incontinence supplies. The distributor provides incontinence
supplies from multiple manufacturers to either Medicaid DME suppliers
or directly to beneficiaries by mail. All Medicaid suppliers must
obtain incontinence supplies through this distributor at the
contracted rate set by the state through competitive bidding unless
there is a medical exception.[Footnote 46] The state reimburses
Medicaid suppliers for these products at the established Medicaid fee-
for-service payment, which includes the contracted rate and an
additional markup for administrative and dispensing costs. For
Medicaid beneficiaries selecting the mail-order option, the
distributor must provide incontinence supplies by mail at the same
Medicaid fee-for-service payment paid to other Medicaid suppliers.
According to the New Hampshire Medicaid officials, contracting with a
single distributor has allowed New Hampshire to secure high-volume
discounts, stabilize the product line to obtain quality control, and
ease the administrative burden of dealing with multiple distributors.
Officials also told us that contracting with a single distributor has
produced program savings of more than 50 percent--with the state's
average payment per unit for incontinence supplies down to $0.42 from
$0.90.
Negotiations with Manufacturers through Purchasing Intermediaries:
Some purchasers of DME leverage their buying power through purchasing
intermediaries that negotiate favorable prices from manufacturers on
their behalf. For example, we contacted one GPO and one TPA that
negotiate with DME manufacturers on behalf of the purchasers in order
to reduce their DME spending.
Group Purchasing Organization (GPO):
One GPO[Footnote 47] we contacted acts as a purchasing intermediary by
negotiating DME item discounts from manufacturers on behalf of its
clients--private health insurers. The GPO maintains a network of DME
suppliers for these insurers and leverages the network's purchasing
power to obtain manufacturer discounts, thus lowering the insurers'
DME spending. For each major DME product category, the GPO typically
contracts with one competitively selected preferred manufacturer,
although items are also available at lesser discounts from
approximately another 20 to 25 manufacturers. According to a GPO
official, manufacturers give the GPO DME item discounts in exchange
for access to its large supplier network and may give additional
discounts depending on supplier purchasing volume. Once contracts are
established with DME manufacturers, the GPO establishes a discounted
fee schedule for each insurer by adding estimated DME item service
costs[Footnote 48] to an average manufacturer price for that item.
[Footnote 49] Suppliers in the network procure DME items directly from
these manufacturers at the discounted rates and submit claims for
payment to the GPO.[Footnote 50] The GPO--acting as a benefit manager
for the insurers--then makes a fee schedule payment to suppliers for
providing the DME items to beneficiaries.[Footnote 51] Suppliers that
join the GPO's network gain access to these high-volume discounts in
exchange for accepting the reduced payments.[Footnote 52] A GPO
official told us that in addition to a discounted DME fee schedule,
the GPO provides utilization-management services for its clients--such
as requiring preauthorization for certain DME items--and achieves
additional administrative cost savings. The official also told us that
the GPO's fee schedule rates are about 70 percent of Medicare fee
schedule rates, saving insurers between 20 percent and 30 percent
compared to Medicare--an amount roughly equivalent to CMS's projected
CBP round 1 rebid savings of 32 percent. According to the official,
the savings the GPO is able to achieve for insurers varies by product
category.
Third-Party Administrator (TPA):
Some Medicaid programs, including those that use both managed care and
fee-for-service (FFS) plans,[Footnote 53] use a TPA to negotiate with
certain manufacturers of diabetic supplies on their behalf before they
contract with these manufacturers.[Footnote 54] A TPA official told us
that these programs operate a rebate program by having the TPA that is
already operating their pharmacy benefits negotiate rebate amounts
with manufacturers of diabetic supplies. This is similar to Medicaid's
supplemental rebate program[Footnote 55] for preferred drugs--where
the TPA negotiates supplemental rebates for participating states from
pharmaceutical manufacturers based on their placement on a state's
preferred drug list (PDL).[Footnote 56] According to TPA and Medicaid
officials, states determine the rebate amounts based on the number of
manufacturers they select to be on their preferred list. For example,
the rebate is higher if a state has only one manufacturer instead of
three manufacturers on its preferred list because it provides a larger
market share to that manufacturer. However, states may select more
than one manufacturer to provide beneficiaries with greater item
choice. Officials from the rebate program said that diabetic supplies
work for this approach because they can be easily substituted--one
manufacturer's blood-glucose monitor can be interchanged with that of
another manufacturer.[Footnote 57] Medicaid programs file rebate
claims quarterly with the DME manufacturer based on the utilization of
the specific manufacturer's products.
CMS Could Face a Number of Issues If Required to Implement a Medicare
DME Competitive Bidding Program at the Manufacturer-Level:
CMS could face several issues regarding competitive bidding if it
developed a DME manufacturer-level competitive bidding program. Some
of these issues would be similar to those CMS faced in implementing
CBP while others would be specific to implementing a manufacturer-
level program.
Several Issues CMS Faced When Implementing CBP Could Again Be Issues
for a Medicare Manufacturer-Level Competitive Bidding Program:
If CMS is given broad authority to implement a manufacturer-level
competitive bidding program, it would face issues similar to those it
addressed in implementing CBP. These program issues are, among others,
which DME items to include, the geographic level on which to operate,
the potential effect on small businesses, the range of beneficiary
choice, and the implementation time including program demonstrations.
DME items to include. For CBP, CMS chose the DME items to include--
generally those with the highest utilization and cost with the largest
savings potential--organized by product category, which is a grouping
of related items used to treat a similar medical condition.[Footnote
58] DME suppliers must provide all DME items in a CBP product
category.[Footnote 59] If a manufacturer-level program is implemented,
CMS could face the issue of whether to conduct the program at the item
level because manufacturers do not always produce all items within a
Medicare-covered product category.[Footnote 60] Also, some experts and
stakeholders we interviewed suggested that commodity-type items--items
considered to be standard and interchangeable--may be preferable to
include in a manufacturer-level program. Examples of commodity-type
items include diabetic monitors,[Footnote 61] walkers, and canes. A
CMS official told us that commodity items that do not need to be
delivered by a supplier to a beneficiary's home, or replacement items
such as diabetic supplies that can be mailed from a manufacturer to a
beneficiary, could be considered. Furthermore, industry stakeholders
also told us that CMS would need to consider the number of major
manufacturers producing a particular item in the market. For example,
if one manufacturer dominates the market for a particular item, that
manufacturer may not have sufficient incentive to discount its prices
if it believes Medicare must include its item to meet beneficiary
demand.
Geographic level to operate. For CBP, CMS determined which of the
largest MSAs to include as the CBAs for the competitive bidding
rounds.[Footnote 62] CMS could consider at what geographic level--for
example, by region or nationally--to operate a manufacturer-level
program. It may be possible for CMS to implement a manufacturer-level
competitive bidding program on a national basis, which would limit the
number of bid competitions needed as compared to CBP. DME
manufacturers generally use distributors to provide their items to DME
suppliers throughout the country, which could allow for national
competitions. An industry stakeholder told us, however, that some DME
manufacturers only provide their items locally. If these local
manufacturers are to be included, a more regionalized competitive
bidding approach may be needed.
Small-business consideration. To protect small DME suppliers in CBP,
CMS established a target that at least 30 percent of the winning
suppliers be small suppliers, and also allowed small suppliers to bid
together as networks under certain conditions.[Footnote 63] For a
manufacturer-level program, CMS could consider whether to allow for
special consideration of smaller manufacturers. A trade association
told us that there are small DME manufacturers, including specialty
manufacturers that may produce only one item, such as wheelchair seat
cushions, and therefore may not be able to compete with larger,
national DME manufacturers that produce a range of items under a
Medicare competitive bidding program.
Range of beneficiary choice. When developing CBP, CMS determined it
would award contracts to enough suppliers to both meet projected
demand and to ensure that beneficiaries would have a choice of
suppliers. For CBP, CMS established a minimum of two winning suppliers
in each product category for each CBA and sought to have at least five
suppliers in each category.[Footnote 64] For a manufacturer-level
program, CMS could consider the trade-off between limiting the number
of manufacturers to achieve more savings and ensuring access to a wide
array of DME items for Medicare beneficiaries. As demonstrated by
other DME purchasing programs, leveraging purchasing power by limiting
the number of manufacturers participating in a program generally
allows for greater cost savings. The more limited the participation
would be for manufacturers in a manufacturer-level program, the more
savings CMS could likely achieve as manufacturers may be willing to
provide greater discounts in return for a greater Medicare market
share. However, greater exclusivity would limit the array of DME items
that Medicare beneficiaries would be allowed to choose. Additionally,
CMS could consider including a process to allow beneficiaries to have
DME items not produced or carried by contracted manufacturers in cases
of medical necessity. As required by federal law,[Footnote 65] CMS has
a similar medical necessity process for CBP--referred to as the
physician authorization process.
Implementation and demonstrations. CMS might consider whether
demonstrations would be necessary to test a manufacturer-level program
and the length of time and associated costs needed to develop a
program. For CBP, CMS began work in 1995 and conducted three supplier-
level program demonstrations over 4 years--1999 through 2002--to test
how the program's design would work; the demonstrations were
subsequently evaluated. CMS's first attempt to implement CBP on a
nondemonstration basis--round 1--ended when MIPPA, enacted in July
2008, terminated the CBP contracts awarded during that round.
Contracts awarded as a result of CBP's round 1 rebid began operating
in January 2011.
Table 3 summarizes the key issues CMS could face if it were required
to implement a manufacturer-level competitive bidding program and how
these issues were resolved in CBP.
Table 3: Comparison of Key Issues in Supplier-Level Competitive
Bidding Program and a Possible Manufacturer-Level Competitive Bidding
Program:
Issue: DME items to include:
Supplier-level competitive bidding program (CBP): CBP began with nine
product categories[A] generally including high-utilization and high-
cost items with the potential for the most Medicare savings;
Possible manufacturer-level competitive bidding program: High-
utilization and high-cost items may not provide the most savings if
the item cost is a small proportion of total Medicare payment.
Commodity items may be preferable.
Issue: DME items to include:
Supplier-level competitive bidding program (CBP): CBP winning
suppliers must provide all items within a product category;
Possible manufacturer-level competitive bidding program: Manufacturers
may need to bid by item rather than product category because one
manufacturer may not be able to provide all items within a product
category.
Issue: Geographic level to operate;
Supplier-level competitive bidding program (CBP): CBP was phased in
beginning with 9 competitive bidding areas (CBA);
competition is to occur in 91 of the largest MSAs in round 2;
Possible manufacturer-level competitive bidding program: May be
possible to conduct a program at the national level.
Issue: Small-business consideration;
Supplier-level competitive bidding program (CBP): CBP has a target
that a minimum of 30 percent of winning suppliers be small suppliers.
Small suppliers can bid together as networks under certain conditions;
Possible manufacturer-level competitive bidding program: Small
specialty manufacturers may find it difficult to compete against
larger manufacturers.
Issue: Range of beneficiary choice;
Supplier-level competitive bidding program (CBP): CBP tried to have
five winning suppliers--a minimum of at least two--for each product
category in each CBA to provide Medicare beneficiaries with a choice
of suppliers;
Possible manufacturer-level competitive bidding program: Limiting the
number of winning manufacturers may limit the range of item models
available to Medicare beneficiaries.
Issue: Implementation and demonstrations;
Supplier-level competitive bidding program (CBP): Work began on a
supplier-level competitive bidding demonstration in 1995. CBP's round
1 rebid was effective January 1, 2011;
Possible manufacturer-level competitive bidding program: Time would be
needed to possibly conduct demonstrations, and to establish a new
manufacturer-level competitive bidding program.
Source: GAO analysis.
[A] The nine product categories were: oxygen, oxygen equipment, and
supplies; standard power wheelchairs, scooters, and related
accessories; complex rehabilitative power wheelchairs and related
accessories (group 2--power wheelchairs with power options); mail-
order diabetic supplies; enteral nutrition, equipment, and supplies;
continuous positive airway pressure devices, respiratory assist
devices, and related supplies and accessories; hospital beds and
related accessories; walkers and related accessories; and support
services (group 2 mattresses and overlays) in only one CBA.
[End of table]
Additional Issues CMS Could Face with a Manufacturer-Level Competitive
Bidding Program:
Depending on how a manufacturer-level competitive bidding program
might be designed, CMS could face issues other than those it faced for
CBP. These issues include establishing a more direct relationship
between CMS and DME manufacturers, changing Medicare's DME payment
system, and changing the DME coding system used for billing.
CMS relationship with DME manufacturers. CMS currently has a minimal
relationship with DME manufacturers unless they are also Medicare
suppliers.[Footnote 66] For example, DME manufacturers that are not
Medicare suppliers submit their products to a CMS contractor for HCPCS
code assignment, which is needed for suppliers to bill Medicare and
other health insurers. DME manufacturers generally do not have systems
to submit claims to Medicare or other health insurers. DME suppliers
must meet a set of Medicare enrollment requirements, be accredited,
and obtain a unique supplier number to be able to bill Medicare.
[Footnote 67] For CBP, CMS had additional regulatory requirements that
suppliers had to meet, for example, having all required state licenses
for items and services in the bid. Suppliers also had to submit
financial documentation, such as a balance sheet and a credit rating
score with their bids. Once participating in Medicare, DME suppliers
have systems and standards for billing Medicare.
The extent of the relationship needed between CMS and DME
manufacturers would depend on how a manufacturer-level competitive
bidding program might be designed. If the program were designed like
the VA or Medicaid programs, under which a specific manufacturer or
set of manufacturers is chosen to exclusively provide DME items to
beneficiaries, then CMS could consider developing product
specifications that manufacturers would need to meet and create
committees to review the DME items that manufacturers propose to
provide through their bids. VA, for instance, includes product
requirements in its requests for bids for BPAs and national contracts,
and has clinical staff that review DME samples during the bidding
process. CMS also could consider the need to accredit DME
manufacturers, as it does DME suppliers, or to review DME manufacturer
financial information, as it does for DME suppliers in CBP.
Changes to DME payment system. If CMS implemented a manufacturer-level
competitive bidding program that required separate payments for the
item and the supplier's service, a new payment system for suppliers
might be needed to account for the service component associated with
each DME item that requires servicing. Currently, the Medicare payment
to the DME supplier generally includes the cost of both the items and
services provided to beneficiaries. Under some other payers'
competitive bidding programs, the service component is separated from
the payment for the DME item. This is the case, for instance, with
items provided by the VA, such as hospital beds, that require local
service contracts for delivery and setup in the patient's home, and
for the hearing aids provided by a Medicaid program that includes
separate dispensing fees for the hearing-aid supplier. The service
component payment would likely need to vary by DME item because some
DME items, such as home oxygen, require more service by a DME supplier
than others. According to a CMS official, previous attempts by the
agency to separate the item cost component and the service cost
component for DME items have not been successful. During the 1990s,
Congress required the agency to examine how a split payment for DME,
which would include one payment for the cost of an item and one
payment for the servicing associated with an item, would work.
According to CMS officials, DME suppliers would not provide the agency
with the information necessary to respond to the mandate.
However, CMS was able to establish a separate servicing payment in one
non-DME program--the Competitive Acquisition Program for Part B drugs,
which was in effect from July 1, 2006, through December 31, 2008.
[Footnote 68] Under this program, CMS competitively contracted with a
specialty pharmacy to supply a designated basket of Part B drugs to
physicians, whose participation in the program was voluntary. The
specialty pharmacy billed Medicare for the predetermined cost of the
drug--which was determined as part of the bid process--and the
physician billed Medicare for the administration of the drug.
Changes to DME coding system. If CMS implemented a manufacturer-level
competitive bidding program that required the identification of the
manufacturer of the item provided, like the existing Medicaid rebate
programs for diabetic supplies, the coding system for DME might need
to be changed to include manufacturer information. Under a rebate
program, the amount that the manufacturer pays in the form of the
rebate is determined by the number of the manufacturer's items that
are purchased, which means claims need to identify the manufacturer.
HCPCS, which is currently used by Medicare to code DME items, does not
allow for identification of the manufacturer of a DME item or the
model of an item being provided to the beneficiary. A DME
administrative contractor official also noted there are limitations to
the number of fields on the current Medicare claim form that could
also be a problem due to the number of different models that exist
within the DME industry.[Footnote 69] As an example, according to the
CMS contractor that assigns HCPCS codes to DME items, 506 different
products produced by 55 different manufacturers have been assigned the
HCPCS code E0143, which is for folding walkers with wheels. CMS
officials told us another way to accomplish the same goal would be to
modify the DME claim form to identify a product's manufacturer.
We provided a draft of this report for comment to HHS. HHS provided
written comments, which are summarized below, and reprinted in
enclosure III. HHS also provided technical comments that we
incorporated as appropriate.
In its comments, HHS stated that the report provides useful
information about other ways the Medicare program, and its
beneficiaries, can obtain better value for DMEPOS items and services.
HHS also noted that the report demonstrates how other payers use
various acquisition strategies to receive better prices than Medicare
for the same DMEPOS items and services, despite the fact that Medicare
often pays for a larger quantity of items and services. Given
Medicare's scarce resources, the department noted the importance of
considering various ways to leverage Medicare's buying power to
achieve savings.
As we agreed with your offices, unless you publicly announce the
contents of this report earlier, we plan no further distribution of it
until 30 days from its date. 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 Web site 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 enclosure IV.
Signed by:
Kathleen M. King:
Director, Health Care:
Enclosures - 4:
[End of section]
Enclosure I: Six Durable Medical Equipment, Prosthetics, Orthotics,
and Supplies (DMEPOS) Medicare Fee Schedule Categories:
Fee schedule category: Inexpensive or other routinely purchased items;
DMEPOS example: Inexpensive equipment that has a purchase price that
does not exceed $150; Other routinely purchased equipment that is
bought--rather than rented--at least 75 percent of the time;
Medicare payment: Depending on the beneficiary's choice, equipment may
be paid as a lump-sum purchase of new or used equipment, or as rental
equipment. The total payment amount may not exceed the actual charge
or the fee schedule for a purchase.
Fee schedule category: Items requiring frequent and substantial
servicing;
DMEPOS example: Ventilators and intermittent positive pressure
breathing machines, and continuous passive motion machines;
Medicare payment: Equipment is only paid on a rental basis. Payments
are based on the monthly fee schedule amounts until the beneficiary's
medical necessity ends; No payments are made for the purchase of
equipment, for maintenance and servicing, or for replacement of items;
Supplies and accessories are not allowed separately.
Fee schedule category: Certain customized items;
DMEPOS example: Items uniquely constructed or substantially modified
for a specific beneficiary prescribed by a physician;
Medicare payment: The coverage and allowable amounts for custom
equipment is decided by individual evaluation based on medical
indications and is paid as a lump-sum payment.
Fee schedule category: Other prosthetic and orthotic devices;
DMEPOS example: All prosthetic and orthotic devices except items
requiring frequent and substantial servicing, certain customized
items, parenteral and enteral nutritional supplies and equipment, and
intraocular lenses;
Medicare payment: Payment is on a lump-sum purchase basis.
Fee schedule category: Capped rental items;
DMEPOS example: Electric wheelchairs;
Medicare payment: Payment is on a monthly rental basis not to exceed a
13-month period of continuous use for rentals beginning on or after
January 1, 2006.[A] After the 13th month, the equipment is owned by
the beneficiary.
Fee schedule category: Oxygen and oxygen equipment;
DMEPOS example: Stationary and portable oxygen system;
Medicare payment: Payment for oxygen equipment is on a rental basis
only. The total number of continuous rental months is capped at 36
months. The costs of oxygen contents, maintenance, and repairs are
bundled into the rental payment. After 36 months, rental payments
cease but Medicare will pay separately for oxygen contents and
nonroutine maintenance.
Source: GAO analysis of Centers for Medicare & Medicaid Services data.
Notes: The data are from the Medicare claims processing manual and DME
Medicare Administrative Contractor supplier manuals.
[A] Prior to January 1, 2006, the monthly rentals are not to exceed a
period of continuous use of 15 months or on a purchase option basis
not to exceed a period of continuous use of 13 months.
[End of table]
[End of enclosure]
Enclosure II: Summary of Durable Medical Equipment (DME) Purchasing
Approaches:
Purchasing approaches: Contracting with manufacturers; Department of
Veterans Affairs (VA) federal supply schedule (FSS);
DME Items purchased: Any item on FSS;
How prices are set: VA contracts directly with manufacturers and price
is no greater than the manufacturer's most-favored commercial customer
price;
How prices are set: Any manufacturer offering VA their best item price.
Purchasing approaches: Contracting with manufacturers; VA blanket
purchase agreements (BPA)[A];
DME Items purchased:
* Continuous positive airway pressure (CPAP), Bi-level positive airway
pressure (BPAP), Auto positive airway pressure (APAP) equipment[B];
* Masks, headgear, filters[B];
How prices are set: VA enters into agreements directly with
manufacturers listed on the FSS, and prices must be lower than the
manufacturer's FSS price for that item;
How prices are set: VA enters into agreements with one manufacturer in
a single award BPA and with more than one manufacturer in a multiple
award BPA.
Purchasing approaches: Contracting with manufacturers; VA national
contracts;
DME Items purchased:
* Enteral nutrients[B];
* Standard power wheelchairs, scooters, and related accessories[B];
* Hospital beds, related accessories[B];
How prices are set: VA contracts with one manufacturer and price is
determined through best-value determinations, which include a trade-
off of price and nonprice factors;
How prices are set: Typically a single manufacturer is chosen based on
the lowest bid for the item through a competitive bidding process.
Purchasing approaches: Contracting with manufacturers; Medicaid
programs;
DME Items purchased:
* Incontinence supplies;
* Hearing aids;
* Eyeglasses;
How prices are set:Some Medicaid programs directly contract with one
or a limited number of manufacturers, and prices are set based on bids
submitted by the manufacturers;
How prices are set:Medicaid programs contract with one or a limited
number of manufacturers.
Purchasing approaches: Negotiations through purchasing intermediaries;
Purchasing approaches: Group Purchasing Organization (GPO);
DME Items purchased: All covered DME;
How prices are set: One GPO contracts with manufacturers on behalf of
private insurers to establish a discounted fee schedule for its
national network of suppliers, and prices are set by the GPO, which
calculates service costs that are added onto an average manufacturer
price for that item;
How prices are set: GPO selects manufacturers to provide DME to its
network of suppliers.
Purchasing approaches: Negotiations through purchasing intermediaries;
Third-Party Administrator (TPA);
DME Items purchased: Diabetic supplies;
How prices are set: One TPA operates a rebate program on behalf of
certain state Medicaid programs, and prices are set based on bids
submitted to the TPA by manufacturers;
How prices are set: States select one or a limited number of
manufacturers to provide diabetic supplies based on a list provided by
the TPA.
Source: GAO's analysis of information from VA, Medicaid programs, and
purchasing intermediaries.
[A] BPAs are not contracts, but rather agreements between federal
agencies and vendors with terms and conditions, including prices, for
future use. When the need arises, agencies enter into contracts by
issuing individual orders against BPAs.
[B] Examples include only items in the competitive bidding program's
round 1 rebid product categories.
[End of table]
[End of enclosure]
Enclosure III: Comments from the Department of Health and Human
Services:
Department of Health and Human Services:
Office Of The Secretary:
Assistant Secretary for Legislation:
Washington, DC 20201:
April 29, 2011:
Kathleen King:
Director, Health Care:
U.S. Government Accountability Office:
441 G Street N.W.
Washington, DC 20548:
Dear Ms. King:
Attached are comments on the U.S. Government Accountability Office's
(GAO) draft correspondence entitled: "Medicare: Issues for
Manufacturer-level Competitive Bidding for Durable Medical Equipment"
(GAO-11-337R).
The Department appreciates the opportunity to review this
correspondence before its 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 Correspondence
Entitled, "Medicare: Issues For Manufacturer-Level Competitive Bidding
For Durable Medical Equipment" (GAO-11-337R):
The Department appreciates the opportunity to review and comment on
this draft correspondence.
This exploration of manufacturer-level competitive bidding provides
useful information about other ways the Medicare program, and its
beneficiaries, can obtain better value for quality durable medical
equipment prosthetics, orthotics, and supplies (DMEPOS) items and
services. It is important to consider the various ways that Medicare's
buying power could be used to leverage savings for overpriced DMEPOS
items and preserve scarce Medicare resources.
This correspondence demonstrates how other payers employ various
acquisition strategies to receive better prices than Medicare for the
same DMEPOS items and services, despite the fact that Medicare, in
many cases, pays for a considerably higher quantity of items and
services than other payers. In general, there are a number of
important issues identified in this report that might need to be
addressed if manufacturer-level bidding is considered as an
alternative for reforming how Medicare items and services are
acquired. In particular, GAO points out that the idea of manufacturer-
level bidding might have more potential for commodity items such as
diabetic test strips that can be shipped directly to the beneficiary
without an extensive local distribution network and without in home
equipment set up requirements. However, the possibility of bidding at
the manufacturer level for other items should not be dismissed and
could have merit.
[End of enclosure]
Enclosure IV: GAO Contact and Staff Acknowledgments:
Contact:
Kathleen M. King at (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; Lori Achman;
Krister Friday; Thomas Han; Erica Pereira; Hemi Tewarson; and Opal
Winebrenner.
[End of enclosure]
In CBP, winning suppliers must provide all items in the product
category for which they are awarded a contract, and must provide the
same items to Medicare beneficiaries and non-Medicare customers.
Footnotes:
[1] Medicare is the federal health insurance program 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. 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
semirigid 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.
[3] 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); 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); Daniel R. Levinson, Inspector General, Department of
Health and Human Services, Medicare's Competitive Bidding Program for
Durable Medical Equipment: Implications for Quality, Cost, and Access,
testimony before the House of Representatives Committee on Energy and
Commerce, Subcommittee on Health, 111th Cong., 2nd sess., Sept. 15,
2010; 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 (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.
[4] Medicare Prescription Drug, Improvement, and Modernization Act of
2003, Pub. L. No. 108-173, § 302(b), 117 Stat. 2066, 2224-29 (2003)
(codified as amended at 42 U.S.C. § 1395w-3). MMA established a
competitive acquisition program for certain Medicare-covered items of
DME, prosthetics, orthotics, and supplies referred to as DMEPOS. CMS
refers to this program as the Medicare DMEPOS competitive bidding
program. The items and services covered by the competition were DME and
related supplies, off-the-shelf orthotics, and enteral nutrients and
related equipment and supplies.
[5] For this report, the term CBP is used to refer to CMS's supplier-
level Medicare DMEPOS competitive bidding program, and the term DME
refers to durable medical equipment, prosthetics, orthotics, and
related supplies.
[6] Pub. L. No. 110-275, § 154, 122 Stat. 2494, 2560-68 (2008)
(amending 42 U.S.C. § 1395w-3).
[7] In a November 2009 report, we documented round 1 implementation
problems, including, for example, that CMS had not provided suppliers
with timely and clear bid submission information. GAO, Medicare: CMS
Working to Address Problems from Round 1 of the Durable Medical
Equipment Competitive Bidding Program, GAO-10-27 (Washington, D.C.:
Nov. 6, 2009).
[8] A product category is a grouping of related DME items that are
used to treat a similar medical condition. The nine DME product
categories and their items selected by CMS for bidding were generally
high-volume and high-cost items. The product categories are: oxygen
supplies and equipment; standard power wheelchairs, scooters, and
related accessories; complex rehabilitative power wheelchairs and
related accessories (limited to group 2--power wheelchairs with power
options); mail-order diabetic supplies; enteral nutrients, equipment,
and supplies; continuous positive airway pressure devices, and
respiratory assist devices, and related supplies and accessories;
hospital beds and related 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 CBA only). The enteral
nutrition product category--equipment and supplies to provide
nutrition through a tube into the stomach or small intestine--is
covered under the Medicare prosthetic device benefit for beneficiaries.
[9] The CBAs were required to be selected from the largest
metropolitan statistical areas (MSA). The nine selected CBAs 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).
[10] Actual implementation issues presented by such a program,
however, would depend on whether and how Congress may design the
program and the nature of the authority Congress provides to CMS for
implementation.
[11] In this report, we use the term "purchaser" to refer both to
those who obtain DME and provide it to beneficiaries, such as the
Department of Veterans Affairs (VA), and to those who pay for DME
obtained by beneficiaries, such as CMS.
[12] Medicaid is the joint federal-state program that finances medical
services for certain low-income adults and children.
[13] We contacted Medicaid officials and an official from an
association of state public health and human services departments to
identify states whose Medicaid programs attempted to or were using
competitive bidding programs for certain DME items. We interviewed
Medicaid officials from California, Florida, Michigan, Nevada, New
Hampshire, New York, Rhode Island, South Carolina, and Texas.
[14] We interviewed representatives from the American Association for
Homecare, which is an organization of DME suppliers, the Advanced
Medical Technology Association, which is an organization of DME and
medical device manufacturers, and the National Association for the
Support of Long Term Care, which is an organization of DME
manufacturers and DME suppliers that provide medical supplies to long-
term care facilities and home care providers.
[15] Medicare Part B helps pay for certain physician, outpatient
hospital, laboratory, and other services, and medical equipment and
supplies. Beneficiaries are required to pay a monthly premium for Part B
coverage, an annual deductible, and coinsurance.
[16] For a list of Medicare enrollment standards applying to DME
suppliers, see 42 C.F.R. § 424.57(c) (2010). For a list of quality
standards applying to DME suppliers, see [hyperlink,
http://www.cms.hhs.gov/MedicareProviderSupEnroll/Downloads/DMEPOSAccredi
tationStandards.pdf] (downloaded on Jan. 20, 2011).
[17] A distributor generally transfers DME items from one or more DME
manufacturers to suppliers who then provide the items to Medicare
beneficiaries. A distributor is not regulated by CMS unless it enrolls
in Medicare as a supplier and then provides items directly to Medicare
beneficiaries.
[18] Medicare adjusts fee schedules for DME 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 DME 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 items,
Medicare assignment is mandatory for suppliers.
[20] Repairs are paid separately only if the item is being purchased
or is already owned by the beneficiary, and the repair is necessary to
make the item serviceable. For some DME items, manufacturers are
responsible for warranty repair work; repairs made under warranty are
not a covered Medicare service and no Medicare payment is made.
Maintenance is also paid only if the item is being purchased or is
already owned by the beneficiary, and if the maintenance is extensive
amounting to repairs that require the services of skilled technicians.
Routine maintenance and periodic servicing are not covered by Medicare
payment.
[21] For example, 82 products are listed under the HCPCS code E0260
"Hospital Bed, Semi-Electric (Head and Foot Adjustment), With Any Type
Side Rails, With Mattress."
[22] Pub. L. No. 105-33, § 4319(a), 111 Stat. 251, 392-94 (1997)
(adding 42 U.S.C. § 1395w-3).
[23] The 10 DME product categories--a grouping of related items used
to treat a similar medical condition--selected by CMS for bidding were
generally high-volume and high-cost items. The product categories were
the same as the CBP round 1 rebid, except that round 1 also included
the negative pressure wound therapy pumps and related supplies and
accessories category.
[24] To begin the program's national phase-in, 10 CBAs were chosen
from the largest MSAs. In CBP's round 1 rebid there were 9 CBAs. For
round 2, the Patient Protection and Affordable Care Act (PPACA)
provided for competition to occur in 91 of the largest MSAs. Pub. L.
No. 111-148, § 6410, 124 Stat. 119, 773 (2010).
[25] To submit CBP bids, CMS required eligible suppliers to have met
Medicare enrollment, quality, and financial standards, obtained the
state licenses required to provide the relevant services, and have
been accredited by a CMS-approved accrediting organization. The
competitive bidding process had several steps: bidder registration,
bid submission, bid review, winner selection, setting CBP Medicare
payments--referred to as single payment amounts--for each item in a
product category in each CBA, and awarding contracts to winning
suppliers.
[26] In CBP's 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 the San Juan, Puerto Rico, CBA was deleted.
[27] The General Services Administration (GSA) directs and manages the
FSS program, which government agencies use to procure commonly used
goods and services. The GSA, for example, is responsible for acquiring
vehicles for government agencies to use in the federal fleet. See GAO,
Federal Energy and Fleet Management: Plug-in Vehicles Offer Potential
Benefits, but High Costs and Limited Information Could Hinder
Integration into the Federal Fleet, [hyperlink,
http://www.gao.gov/products/GAO-09-493] (Washington, D.C.: June 9,
2009). The GSA has delegated authority to VA to operate the FSS
schedules and contract for medical supplies and services, including
DME, for federal agencies. The GSA has not delegated VA the authority
to prescribe the policies and procedures that govern the FSS program.
[28] Contracts awarded through the FSS program are indefinite delivery-
indefinite quantity contracts. These contracts allow the federal
agency to order unspecified quantities, within stated limits, of
products or services during a fixed period when the agency cannot
predetermine its needs.
[29] Most-favored customers are customers or categories of customers
that receive the best price from vendors. See 48 C.F.R. §§ 538.270(a),
538.271, and 538.272 (2010). The pursuit of most-favored customer
pricing is consistent with the objective of negotiating a fair and
reasonable price. See 62 Fed. Reg. 44,518, 44,519 (Aug. 21, 1997).
[30] See 48 C.F.R. § 538.272 (2010). Previous GAO work has shown that
some of the tools for obtaining the best price are used on a limited
basis, which hinders the ability of the government to determine
whether the FSS program is achieving its goal of obtaining best
prices. See GAO, Contracting Strategies: Data and Oversight Problems
Hamper Opportunities to Leverage Value of Interagency and
Enterprisewide Contracts, [hyperlink,
http://www.gao.gov/products/GAO-10-367] (Washington, D.C.: Apr. 29,
2010).
[31 VA can only award a BPA to a manufacturer that is already
participating in the FSS program. BPAs are not contracts, but rather
agreements between federal agencies and vendors with terms and
conditions, including prices, for future use. When the need arises,
agencies enter into contracts with vendors by issuing individual
orders against BPAs. Previous GAO work has identified a number of
issues with federal agencies' use of BPAs. See GAO, Contract
Management: Agencies Are Not Maximizing Opportunities for Competition
or Savings under Blanket Purchase Agreements despite Significant
Increase in Usage, [hyperlink, http://www.gao.gov/products/GAO-09-792]
(Washington, D.C.: Sept. 9, 2009).
[32] Multiple award BPAs provide an opportunity to benefit from
further competition when placing orders because vendors compete
against other BPA vendors for a particular product.
[33] VA has BPAs in place for a number of DME items, including
continuous positive airway pressure (CPAP) machines and accessories,
which are used to treat sleep problems.
[34] In order to purchase the strips at the lower BPA price, all VA
medical centers must sign a letter of participation and agree to
purchase at least 90 percent of their test strips from this
manufacturer.
[35] Among the CBP DME items for which VA has national contracts are
enteral nutrients, standard power wheelchairs, scooters, and related
accessories.
[36] The best-value determination, in addition to price, considers
nonprice factors such as the past performance record of the bidder and
whether the business is considered to be a small business.
[37] The VA healthcare system is organized into 21 regional networks,
which are called VISNs. VA has delegated to VISNs decision-making
authority regarding financing and service delivery for health care
services, including most budget and management responsibilities
concerning VA medical center operations.
[38] This contract had a series of requirements for the DME supplier,
including that the supplier respond to service calls within 48 hours
under normal circumstances and to an emergency call within 8 hours.
[39] Rehnquist, Medicare Reimbursement for Medical Equipment and
Supplies.
[40] GAO, Medicare Home Oxygen: Refining Payment Methodology Has
Potential to Lower Program and Beneficiary Spending, [hyperlink,
http://www.gao.gov/products/GAO-11-56] (Washington, D.C.: Jan. 21,
2011). We also calculated that this difference between VA and Medicare
costs would be reduced if we accounted for the assumed lower
administrative costs for serving VA patients.
[41] Medicare and Medicaid do not always cover the same DME items.
[42] According to the contract, the Michigan Department of Community
Health has been authorized to contract for volume purchase of
eyeglasses since 1979. Since 1980, 10 contracts have been awarded
ranging in length from 18 months to 5 years. Medicare only covers
eyeglass frames and lenses for beneficiaries who have had cataract
surgery.
[43] Michigan's Medicaid program obtains both eyeglass frames and
lenses for about $27 per complete set under its vision services
contract. Michigan officials told us that chain vision suppliers'
prices of approximately $100 per set indicates the savings Michigan
achieved for the same quality and styles available in retail optical
stores.
[44] According to state officials, Michigan has been contracting with
distributors of incontinence supplies under its Medicaid Diaper and
Incontinence Supply Program since 1997. Medicare does not include
incontinence supplies in its DME benefit.
[45] Medicare does not cover hearing aids or the exam for fitting
hearing aids.
[46] New Hampshire's Medicaid program grants a medical necessity
exception--for example, if a beneficiary is obese or has a specific
skin condition--to the requirement that suppliers obtain only those
products on the state's approved list of incontinence supplies from
the distributor. The medical necessity exception also applies to
beneficiaries who receive supplies directly from the distributor.
[47] A GPO official told us that the entity also describes itself as a
durable medical equipment benefits manager. In addition to DME, the
GPO also manages orthotic and prosthetic services.
[48] The profit margin points--reflecting DME item service costs--that
the GPO adds to the average item price in calculating its fee schedule
would be lower for items requiring little or no servicing than for
items requiring the supplier to deliver the item to the beneficiary's
home, educate the beneficiary about its use, and intermittently
service the item.
[49] To set average prices for each DME item on the fee schedule, the
GPO collects information on the average cost of standard and basic DME
items from three to four leading manufacturers.
[50] A GPO official told us that in the event a network supplier is
able to purchase DME at a lower cost than under a GPO contract, they
are free to do so.
[51] The GPO we interviewed is also accredited for utilization
management and claims management by the Utilization Review
Accreditation Committee.
[52] When selecting DME suppliers for its network, the GPO we
interviewed checks a supplier's accreditation status to ensure the
supplier is enrolled in Medicare and also checks to make sure the
supplier has been in business for a certain number of years.
[53] States generally cover Medicaid services for beneficiaries
through two major payment approaches: FFS, in which the Medicaid
program directly pays suppliers for care provided to beneficiaries,
and capitated managed care, in which the state prospectively pays
managed care organizations a fixed monthly fee per enrollee to provide
or arrange for most health care services.
[54] Diabetic supplies include blood-glucose monitors and test strips.
[55] Medicaid drug supplemental rebates are in addition to rebates
already received under the Medicaid national drug agreement.
[56] To contain prescription drug program costs, Medicaid's PDL
programs encourage physicians to prescribe drugs on the list, which
are deemed functionally safe and equivalent to more expensive drugs in
the same drug class. Nonpreferred drugs are available through prior
medical authorization.
[57] There are specialized blood-glucose monitors, such as voice
synthesized monitors for the visually impaired that are exempted from
this program.
[58] CMS chose the CBP items to include from (1) DME in four
categories--inexpensive or routinely purchased items, items requiring
frequent and substantial servicing, oxygen and oxygen equipment, and
other capped rental DME items; (2) supplies necessary for the
effective use of DME; (3) enteral nutrients, equipment, and supplies;
and (4) off-the-shelf orthotics.
[59] In CBP, winning suppliers must provide all items in the product
category for which they are awarded a contract, and must provide the
same items to Medicare beneficiaries and non-Medicare customers.
[60] While CMS also chose to begin CBP by including high-cost and high-
volume DME product categories, these same product categories may not
provide the same savings under a manufacturer-level program, if the
item's cost is a small portion of the total Medicare payment.
[61] The CBP round 1 rebid includes a mail-order diabetic supplies
product category that includes replacement supplies. Mail-order for
the round 1 rebid is defined as items that are ordered remotely, for
example, by phone or e-mail, and that are delivered to a beneficiary's
residence by a common carrier.
[62] MMA required that CBP first be implemented in 10 of the largest
MSAs, and that CMS would choose which MSAs would be used as CBAs.
MIPPA designated the round 1 rebid CBAs. PPACA increased the number of
MSAs for round 2. CMS also has discretion to operate CBP regionally or
nationally for items furnished by mail.
[63] For CBP, a network is defined as a group of between 2 to 20 small
suppliers that meet certain requirements, including that they cannot
independently furnish all items in the product category for which the
network is submitting a bid to beneficiaries throughout the entire
CBA, and that they collectively submit a bid as a single entity.
[64] When there are not five suppliers, at least two suppliers are
selected. The mail-order diabetic supply product category in regional
and national CBAs was exempted from the five-supplier minimum.
[65] See 42 U.S.C. § 1395w-3(a)(5)(A).
[66] Manufacturers that make DME items that meet the definition of a
device are subject to regulation by the Food and Drug Administration
(FDA). FDA defines a home health care medical device as any product or
equipment that is used in the home environment by people who are ill
or have disabilities including, for example, ventilators and
nebulizers, wheelchairs, infusion pumps, and blood-glucose meters. For
more information, see GAO, Medical Devices: Shortcomings in FDA's
Premarket Review, Postmarket Surveillance, and Inspections of Device
Manufacturing Establishments, [hyperlink,
http://www.gao.gov/products/GAO-09-370T] (Washington, D.C.: June 18,
2009).
[67] To ensure suppliers meet these requirements, suppliers must be
accredited by a CMS-deemed accrediting organization. CMS published a
final rule in the Federal Register, effective September 27, 2010, to
clarify and expand the existing enrollment requirements suppliers must
be in compliance with to obtain and retain their Medicare billing
privileges; there are 30 supplier standards, including, for example,
that the supplier meets all state licensure and regulatory
requirements to furnish certain DME items or services. 75 Fed. Reg.
52,629 (Aug. 27, 2010) (amending 42 C.F.R. § 424.57(c)). As of October
2009, suppliers were required to obtain and submit a surety bond in
the amount of at least $50,000. See 42 U.S.C. § 1395m(a)(16)(B). A
surety bond is issued by an entity guaranteeing that erroneous
Medicare payments that result from a supplier's fraudulent or abusive
billing practices can be recouped by means of the bond.
[68] Medicare covers drugs typically provided in a physician's office
under Part B. Section 303(d)(2) of MMA required CMS to implement the
Competitive Acquisition Program.
[69] Under a contract with CMS, DME administrative contractors process
and pay Medicare DME claims.
[End of section]
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