CMS Announces Competitive Bidding Final Rule, First MSAs

The Centers for Medicare & Medicaid Services (CMS) issued a final rule April 2 "that will reduce beneficiary out-of-pocket costs, improve the accuracy of Medicare's payments for certain durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS), help combat supplier fraud, and ensure beneficiary access to high quality DMEPOS items and services through a new competitive bidding program," according to CMS.

The new competitive bidding program, mandated by Congress in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), will replace the current Medicare fee schedule for certain durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) in ten of the largest Metropolitan Statistical Areas across the country and will apply initially to ten categories of medical equipment and supplies. CMS expects to begin the bidding process in late April, to announce winning suppliers in early December, and to have payments under the program go into effect in April 2008.

The ten MSAs are:

Charlotte-Gastonia-Concord, North Carolina-South Carolina. Cincinnati-Middletown, Ohio-Kentucky-Indiana. Cleveland-Elyria-Mentor, Ohio. Dallas-Ft. Worth-Arlington, Texas. Kansas City, Missouri-Kansas. Miami-Ft. Lauderdale-Miami Beach, Florida. Orlando-Kissimmee, Florida. Pittsburgh, Pennsylvania. Riverside-San Bernardino-Ontario, California. San Juan-Caguas-Guaynabo, Puerto Rico. The program will be expanded into 70 additional MSAs in 2009, CMS said. After 2009, CMS will expand the program to additional areas and items.

Small Supplier Protections A number of protections have been included to ensure small supplier participation and access to the competitive bidding market, including establishing a target number for small suppliers equal to 30 percent of the number of winning suppliers in each product category, allowing small suppliers to form networks to participate in the bidding process, and granting small suppliers the flexibility to choose the product categories on which they will submit bids (as suppliers will not be required to submit bids for all product categories), CMS said.

"When fully implemented in 2010, the program is projected to save Medicare and taxpayers $1 billion annually--and these savings will directly translate to lower coinsurance for Medicare beneficiaries, CMS said. Further, the projected overall savings to part B of the Medicare program should help reduce the part B premium Medicare beneficiaries pay each month.

"The final rule we are announcing today is focused on improving both service delivery and the quality of care, while getting savings for beneficiaries and taxpayers," said CMS Acting Administrator Leslie V. Norwalk. "Given the need to tackle the continued and unsustainable growth in healthcare costs, this new program represents yet another way to use the competitive marketplace to bring the best possible and most efficient care to Medicare beneficiaries. And when combined with the accreditation and quality standards initiatives that are already underway, this program will provide assurance that high quality service and items are available to those who need medical equipment for home use."

The new competitive bidding program, which is required by the Medicare Prescription Drug, Improvement & Modernization Act of 2003 ("Medicare Modernization Act" or "MMA"), will replace the current payment amounts, for the items being bid, under Medicare's DMEPOS fee schedule with payment rates derived from the bidding process. Suppliers that wish to furnish competitively bid items in a competitive bidding area (CBA) will be required to submit bids to furnish those items. Contracts will be awarded to a sufficient number of winning bidders in each CBA to ensure access and service to high quality DMEPOS items. The winning bids will be used to establish a single Medicare payment amount for each item.

For beneficiaries in the selected CBAs, this program will reduce out-of-pocket expenses while ensuring that they receive high quality items and services. This is because the rule requires all contracting suppliers to be accredited by an approved accreditation organization as meeting CMS' quality standards. CMS has designated ten entities as qualified to accredit DME suppliers, based on quality standards that were posted on the CMS website in August 2006. The single payment amounts established through competitive bidding will be lower than the current fee schedule amounts for the items. In addition, contract suppliers must accept the single payment amount established through competitive bidding as payment in full. The beneficiary's liability is limited to 20 percent of the payment amount and any unmet Part B deductible.

For taxpayers, the competitive bidding program means potentially significant savings for Medicare. When fully implemented in 2010, it is projected that these savings will amount to $1 billion annually.

"For DME items and services, beneficiary coinsurance is 20 percent of the total Medicare payment amount," said Norwalk. "The savings this program will generate will directly translate to lower coinsurance for Medicare beneficiaries, thus significantly reducing their out-of-pocket costs for healthcare."

CMS is creating a limited exception to the competitive bidding requirement that will allow certain treating professionals to furnish items on the competitive bidding list to their own patients without having to participate in bidding and without becoming a contract supplier. This exception would apply to certain specified items furnished by physicians, physician assistants, clinical nurse specialists, nurse practitioners, occupational therapists in private practice, and physical therapists in private practice. In addition, the item must be furnished as part of their professional services. CMS believes that allowing this type of arrangement to continue will promote the efficient and uninterrupted delivery of care to beneficiaries.

The rule also adopts some special protections for beneficiaries in the CBAs who are already renting certain DMEPOS items when the program becomes effective. For example, the final rule includes a grandfathering provision that may enable these beneficiaries to continue renting these items from their existing suppliers if the supplier chooses to continue renting the item under grandfathering rule (called "non-contract suppliers"), rather than having to switch to a contract supplier. If the beneficiary continues to need the item that they are renting from a non-contract supplier and switches to a contract supplier, access to items and services will be ensured because the contract supplier that assumes responsibility for serving the beneficiary will be able to take advantage of special payment provisions.

For suppliers of oxygen equipment, the final rule provides for a minimum of ten months of payment to a contract supplier who assumes the responsibility for providing oxygen to a beneficiary who had been receiving services from a non-contract supplier. Similarly, if a beneficiary who is renting capped rental equipment switches from a non-contract supplier to one that has been awarded a contract under the competitive bidding program, the new contract supplier will receive 13 months of rental payments. These payment provisions apply without regard to the number of months of payments Medicare previously made to the non-contract supplier; however, payment can only be made if medical necessity for the equipment continues.

The final rule allows beneficiaries who own an item of DMEPOS that is part of the competitive bidding program to obtain maintenance and servicing from any Medicare supplier that has a valid billing number, and is not limited to seeking repairs from contract suppliers. However, if the standards for obtaining a total replacement of an owned item that is part of the competitive bidding program are met, the beneficiary will have to obtain the replacement item from a contract supplier, and payment will be made for the item at the single payment amount.

After reviewing comments on the proposed rule, CMS has included in the final rule a number of provisions that will modify the rule's impact on small suppliers, which are defined for purposes of this program as those suppliers having gross revenue of $3.5 million or less in annual receipts. CMS worked closely with the Small Business Administration (SBA) to establish a new definition of small suppliers that is reflective of this area of the healthcare industry, CMS said. As they did when CMS published the proposed competitive bidding rule, small suppliers account for approximately 85 percent of DMEPOS suppliers enrolled in the Medicare program, according to CMS.

The final rule provides for a 30 percent target number for small supplier participation. If CMS determines after the initial evaluation of bids that there are not enough small suppliers with winning bids to meet the target goal of 30 percent in each product category, then contracts will be offered to small suppliers that submitted bids higher than but close to the winning bids. The small suppliers will have the option to accept the single payment amounts based on the winning bids until the 30 percent goal is met or there are no additional small suppliers.

The final rule also allows small suppliers to form networks in order to participate in the bidding process, provided that these networks comply with all federal and state laws including the federal antitrust laws. In addition, small suppliers will not be required to submit bids for all product categories. As a result, small suppliers will have the flexibility of deciding for which product categories to submit bids.

The Medicare law requires that CMS first implement the DMEPOS competitive bidding program in ten of the largest MSAs. In selecting the specific MSAs for the program, CMS took into account allowed DMEPOS charges per beneficiary, the number of suppliers per beneficiary, the total population of the MSA, and the MSA's geographic location. CMS has the discretion to exempt from DMEPOS competitive bidding, rural areas, and areas with low population density within urban areas that are not competitive unless there is a significant national market through mail order for a particular item or service.

The Medicare law gives CMS the discretion to phase in the types of DMEPOS items to be subject to competitive bidding. In evaluating an item's savings potential and selecting the items to be subject to bidding, CMS considered the amount of allowed charges, the growth in expenditures, the number of suppliers of the item, savings realized in the DMEPOS competitive bidding demonstration projects, and reports and studies by entities such as the Health and Human Services Office of Inspector General (OIG) and the Government Accountability Office (GAO).

Qualifications for Contracting In order to qualify for a contract under the competitive bidding program, a supplier must generally meet certain criteria, including the following:

Be in good standing with the Medicare program and not under any current sanctions by Medicare or any governmental agency or accreditation or licensing organization. Have an active National Supplier Clearinghouse (NSC) number. Meet any local or state licensure requirements for the item being bid. Submit a bid as a prerequisite to becoming a winning supplier. Be accredited or have an application for accreditation pending in order to participate in bidding. Provide capacity estimates of the number of units for each item included in the product category that the supplier would be capable of furnishing under the program. Agree to service the entire CBA regardless of where the beneficiary is located, although the supplier will not be required to be capable of servicing 100 percent of the beneficiaries in that geographic area. If a supplier has multiple locations in a competitive bidding area, then it must submit a single bid for all of its locations, and if the supplier is selected as a contract supplier, then all of its locations within the CBA would be considered to be contract suppliers. This will help ensure geographic distribution of suppliers.

In developing the DMEPOS competitive bidding program, CMS built on experiences gained during DMEPOS competitive bidding demonstrations conducted in Polk County, Florida, and San Antonio, Texas from 1999 through 2002. "The two demonstration sites proved successful in terms of generating substantial program savings, maintaining consumer access and satisfaction, upholding the quality of items, preserving competition and administrative feasibility," said CMS.

Additional information on the DMEPOS competitive bidding program, including the CBAs and competitive bidding items for the first round of competitive bidding, is available at: www.cms.hhs.gov/CompetitiveAcqforDMEPOS/Downloads/CMS-1270-F.pdf

The final rule will be published in the Federal Register on April 10.

For more information, go to www.dmecompetitivebid.com

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