It’s Official: Round 1 Had Lots of Problems

WASHINGTON — More than a year after Congress delayed Round
1 of competitive bidding
in July 2008, the Government Accountability Office has officially
confirmed what industry stakeholders have been saying all along:
The first round of DMEPOS bidding had major problems.

In a report released Dec. 7, the GAO found Round 1 suffered from
poor communication by the Medicare program and an “inadequate” bid
submission system, among other things.

According to the 65-page report, the bidding program “has the
potential to produce considerable benefits including reducing
overall Medicare spending for DME and limiting potential fraud
through increased scrutiny of suppliers.” But the report found the
first-round bid “presented several challenges to suppliers,
including poor timing and lack of clarity in bid submission
information, a failure to inform all suppliers that losing bids
could be reviewed and an inadequate electronic bid submission
system.”

It also noted the bid “represents a change from Medicare’s
long-standing policy that any qualified provider can participate in
Medicare because it authorizes CMS to select suppliers to
participate in Medicare.” Of the 6,374 Round 1 bids submitted by
1,010 providers, the report said, half were disqualified before
competing on price, mostly due to missing financial documentation
or noncompliance with accreditation requirements.

In addition, the GAO said, nearly two-thirds of the 85 auctions
— across 10 product categories in 10 cities — saw the
number of HME providers decrease by 50 percent or more compared to
the number billing Medicare for the product category in 2006.

Some highlights from the report’s findings:

• The information CMS provided to suppliers about bidding
  requirements was sometimes unclear and inconsistent, particularly
  regarding financial documentation, the report said. “Some bid
  submission information was poorly timed and unclear, confusing
  suppliers about bidding requirements and compelling some to revise
  and resubmit their bids.”

• “Several problems with the electronic bid submission system,
  including data losses from automated logouts and unscheduled
  downtimes, made it difficult for some providers to submit
  bids.”

• “While the [competitive bidding program] request-for-bid
  instructions, posted the day that the bid window opened, were only
  revised once, CMS and Palmetto GBA provided additional information
  explaining the instructions throughout the bid window. Although
  suppliers could revise their submissions throughout the bid window,
  when additional information was provided those that believed they
  had submitted completed bids had to review them to ensure they were
  still correct. For example, if a supplier revised any of its
  financial documentation, it had to resubmit the entire financial
  documentation package and certification statement in hard
  copy.”

• “CMS did not effectively notify suppliers of its postbidding
  review process. Because some suppliers were not aware of the review
  process, they missed the opportunity to have their disqualified
  bids reviewed. CMS found that some bids had been incorrectly
  disqualified.”

• Some DME suppliers and trade associations questioned several
  aspects of CMS’ bid submission and contract award processes, the
  report said. “They also questioned whether some winning suppliers
  could provide the volume of items and services their contracts
  required and whether contracts should have been awarded to
  suppliers that had no prior business presence in a CBA.”

• “While the [Program Advisory and Oversight Committee] alerted
  CMS to potential challenges for Round 1, some were not resolved
  before the bid window opened.”

The GAO said CMS has taken several steps to improve the bidding
process for the Round 1 rebid, which began Oct. 21, including
reducing financial documentation requirements and revising bid
instructions. The agency put in place provisions to notify bidders
of missing financial documentation; those in the rebid who got
their paperwork in by Nov. 21 were offered notification of any
missing documents. It developed a new online bidding system
(DBidS), “which the agency claims will address the deficiencies of
the system used for Round 1,” the report said.

The report also noted that to address concerns that “providers
have the experience to provide the DME items they win contracts
for, before they can submit bids, suppliers will also have to be
accredited and licensed for each DME product category and CBA in
which they bid.”

Industry Asks, What About the Real Problems?

The GAO recommended that if CMS decides to conduct reviews of
disqualified bids, the agency “should notify all suppliers of any
such process, give suppliers equal opportunity for such reviews,
and clearly indicate how they can request a review.” HHS agreed
with that recommendation, but it had “a different perspective” on
some aspects of the report, the GAO said.

According to the GAO, CMS argued that it “relied heavily on the
PAOC for the design and implementation” of the bidding program. But
when the GAO was putting its report together, “two original PAOC
members and three trade association representatives told us that
CMS did not always use the PAOC effectively,” the report said. “Our
review of PAOC meeting transcripts also found members who were
dissatisfied with how the PAOC was used.”

As for the overall structure and design of the bidding program,
the GAO said, “such an analysis was beyond the scope of this
report.”

And that’s the rub, HME advocates said: While the report results
back up the complaints of many providers who bid in Round 1, they
don’t go far enough.

“They only looked at some of the implementation issues; the
structural design problems remain,” said Michael Reinemer, vice
president, communications and policy, of the American Association
for Homecare. “It’s important for policymakers to understand that
just because the GAO put out this study saying CMS is working to
address the problems, it doesn’t mean by any stretch that the real
problems have been fixed.”

Added John Shirvinsky, executive director of the Pennsylvania
Association of Medical Suppliers, “The GAO report largely validates
the complaints of the HME industry throughout the original bidding
process. The Medicare bidding program was an unfair, unworkable and
anti-competitive program when first attempted, and it remains so
today. CMS was unwilling to share meaningful data to fully assess
the likely impact of the program on suppliers and
beneficiaries.

“The entire bid review phase of the program has been shrouded in
secrecy and in all aspects failed to meet customary standards of
government transparency,” he continued. “They won’t even release a
list of qualified bidders until after the process is completed in
the fall of 2010,” he said of the Round 1 rebid.

Provider Rob Brant of City Medical Services, Miami, and
president of the Accredited Medical Equipment Providers of America,
agreed.

“The bottom line is they still have never looked inside to see
if a company can survive with the low bids they put in,” he said,
citing large nationals that have reported millions in business
losses yet won Round 1 bids in multiple bidding areas and
categories. Brant said he’s worried that won’t change in the
rebid.

“I believe they are just going to look at the low number and not
a company’s ability to stay in business and provide products and
services to patients,” he said. “That’s not addressed in the
report.”

The issue of unlicensed and out-of-area bid winners also didn’t
get much attention, said Brant. Neither did the role of the PAOC,
which “almost unanimously agreed that out-of-area and inexperienced
companies should not be allowed to let their bids taint the pool of
qualified offers in each area,” he said. “The report also fails to
mention that the majority of the PAOC also wanted to stop bid
winners from selling their business and transferring bid contracts,
because it essentially turned the program into a
commodity.”    

The GAO did repeat CMS’ estimate that the Round 1 program would
have averaged a 26 percent savings when compared to payments under
the Medicare fee schedule.

However, Shirvinsky said, “We contend that the ‘savings’ that
are touted by both CMS and the GAO report are the product of
desperation bidding and are unsustainable. Someone in authority
should be asking the simple question, ‘Are these savings too good
to be true?’ We believe that they clearly are. In the end, it is
elderly and disabled and infirm Medicare beneficiaries that will
face disruptions in service and reduced quality.”

In a Tuesday afternoon press release, AAHomecare listed a number
of holdover concerns about the bidding program, among them:

• Reduced access to quality home medical equipment and services
  since the bid program would vastly reduce the number of home care
  providers allowed to participate in Medicare;

• Widespread business failures and loss of jobs for home medical
  equipment providers who will be forced out of Medicare — even
  if they were willing to provide items and services for the lower
  prices set by the Medicare bid process;

• More difficulty getting basic services and equipment since many
  Medicare beneficiaries would be forced to use multiple, unfamiliar
  providers for different items and services, instead of continuing
  to use a single, familiar provider;

• Lack of transparency within the entire bidding program and a
  lack of willingness to heed the advice of the Medicare advisory
  PAOC; and

• Reductions in service and quality of items and services based on
  artificially low winning bid amounts. There is no requirement that
  providers accept a bid if they are awarded one, which leads to
  providers submitting artificially low bids.

The report was addressed to Senate Finance Committee Chairman
Max Baucus, D-Mont.; House Energy and Commerce Committee Chairman
Henry Waxman, D-Calif.; and House Ways and Means Committee Chairman
Charles Rangel, D-N.Y. But will it help the industry’s
push on H.R. 3790 to repeal the bidding program?

“Inasmuch as the report is directed to the House Ways and Means
Committee, it should raise some red flags about the program’s lack
of fairness, lack of transparency and inability to deliver vital
and necessary equipment and services to Medicare beneficiaries with
specific medical needs,” said Shirvinsky, pointing out that
committee member Rep. Fortney “Pete” Stark, D-Calif., “is well
aware of the risks posed by competitive bidding, and hopefully this
serves as a reminder.”

Stark was the legislator who originally introduced a bill to
delay the bidding program last year.

Read the complete GAO report, titled Medicare: CMS Working to Address Problems from Round 1 of
the Durable Medical Equipment competitive Bidding Program.

View more competitive bidding
stories.