CMS Releases Competitive Bidding Final Rule

BALTIMORE — Late this afternoon, the Centers for Medicare and Medicaid Services released its final rule on national competitive bidding.

In a press briefing, Leslie Norwalk, acting administrator of CMS, listed the first 10 MSAs selected for bidding. The areas include:

–Charlotte-Gastonia-Concord, N.C.-S.C.
–Cincinnati-Middletown, Ohio-Ky.-Ind.
–Cleveland-Elyria-Mentor, Ohio
–Dallas-Fort Worth-Arlington, Texas
–Kansas City, Mo.-Kan.
–Miami-Fort Lauderdale-Miami Beach, Fla.
–Riverside-San Bernardino-Ontario, Calif.
–Orlando-Kissimmee, Fla.
–Pittsburgh, Pa.
–San Juan-Caguas-Guaynabo, Puerto Rico

Norwalk said the items to be included in the bid are:

–Oxygen equipment and supplies
–Respiratory assist devices and CPAPs
–Power mobility devices, both for rehab and nonrehab
–Diabetic supplies (mail order only)
–Enteral nutrition
–Hospital beds and accessories
–Walkers
–Negative pressure wound therapy devices
–Support surfaces, Group 2 and 3 mattresses and overlays (only to be bid in Miami and San Juan)

“In terms of time line overall,” Norwalk said, “the bid window will be open in late April for 60 days and will close around the end of June depending on the specific time frame. We would review the bids and select winners through the summer–through mid-fall–so probably in the September range. We would be working on beneficiary education after that point in time as well as doing the required system changes, and we would implement the new fees April 1, 2008.”

During the briefing, Norwalk said CMS estimates “generally that we’ll have maybe 20,000 bids, and about half of [those suppliers] would particpate in this program.”

Norwalk said additional information would soon be available at www.dmecompetitivebid.com.

The text of a press release CMS issued about the final rule follows in its entirety:

Medicare Announces Competitive Acquisition Program For Certain Durable Medical Equipment, Prothestics, Orthotics, And Supplies

The Centers for Medicare & Medicaid Services (CMS) today issued a final rule 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.

In 2008, the competitive bidding program will operate in competitive bidding areas (CBAs) within 10 of the largest Metropolitan Statistical Areas (MSAs), excluding the New York, Los Angeles, and Chicago MSAs and will apply to 10 of the top DMEPOS product categories based on criteria outlined in the final rule. The program will be expanded into 70 additional MSAs in 2009. After 2009, CMS will expand the program to additional areas and items.

“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, Esq. “Given the need to tackle the continued and unsustainable growth in health care 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 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 10 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 health care.”

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 “noncontract 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 10 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 noncontract 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 noncontract 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 to establish a new definition of small suppliers that is reflective of this area of the health care industry. The use of this new definition, in conjunction with policies established in the final regulation, will enhance the ability of small suppliers to participate in the competitive bidding program. 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.

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 bug 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 10 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 and the Government Accountability Office.

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

• 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, than 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.

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 the following Web site: http://www.cms.hhs.gov/CompetitiveAcqforDMEPOS/Downloads/CMS-1270-F.pdf

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