OIG, GAO Reports Examine Round 1 Rebid of the Medicare DMEPOS Competitive Bidding Program

On April 8, 2014, the OIG and GAO each issued reports focusing on different aspects of the “Round 1 Rebid” of the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program. By way of background, under DMEPOS competitive bidding, only suppliers that are winning bidders, meet licensing and other standards, and enter into a contract with CMS may furnish selected categories of DMEPOS to Medicare beneficiaries in competitive bidding areas (CBAs), with very limited exceptions. Contract suppliers are paid based on the median of the winning suppliers’ bids in the CBA, rather than the DMEPOS fee schedule amount. The Round 1 Rebid was in effect for a 3-year period, from 2011 through 2013, involving nine DME product categories in nine CBAs. CMS subsequently “recompeted” contracts in the Round 1 areas (including additional products), with three-year contracts effective January 1, 2014. CMS also established a second round of bidding covering 100 CBAs, along with a national mail-order diabetic testing supplies competitive bidding program; those three-year contracts went into effect July 1, 2013.

The OIG report assesses CMS compliance with DMEPOS bidding rules in the Round 1 Rebid. The OIG concluded that CMS generally followed its competitive bidding program rules when it selected suppliers and computed single payment amounts for the Round 1 Rebid – although a number of CMS errors were identified. Specifically, the OIG conducted a review based on a random sample of 100 of the 3,011 established DMEPOS single payment amounts in the Round 1 Rebid Program and the selection process for 266 winning suppliers associated with the sampled payment amounts. The OIG determined that CMS followed all applicable requirements for 255 of the 266 winning suppliers, but nine winning suppliers did not meet financial documentation requirements, and CMS incorrectly used two suppliers in one single payment computation. While the OIG characterizes the overall effect on Medicare payments to suppliers as “immaterial,” the OIG estimates that CMS paid suppliers $34,000 less than they would have received without any errors (less than 0.1 percent of the $113 million paid under the Round 1 Rebid Program during the first 6 months of 2011). The OIG recommends that CMS: (1) follow its established program procedures and applicable federal requirements consistently in evaluating the financial documents of all suppliers, and (2) ensure that all bids of winning suppliers are included in the calculation of single payment amounts before offering contracts. CMS concurred with the recommendations, and pointed out that it has enhanced the financial review process to ensure that all reviewers are accountants or certified public accountants.  Looking ahead, the OIG will be conducting a similar analysis for Round 2 of competitive bidding; this analysis may include an analysis of CMS’s procedures for ensuring supplier compliance with applicable state licensure requirements (depending on the results of an ongoing limited scope review).

The GAO issued a broader review focusing on data from the second year of the Round 1 Rebid contracts, covering the Round 1 Rebid’s effects on Medicare beneficiaries, contract suppliers, and non-contract suppliers. Among other things, the GAO observed that:

  • The number of beneficiaries furnished DME items included in the competitive bidding program generally decreased more in CBAs than in demographically similar “comparator” areas. CMS suggests that such declines may be attributable to reduced inappropriate usage of DME and do not necessarily reflect beneficiary access issues. In fact, CMS stated in comments on the report that its “sophisticated real-time claims monitoring system has continuously found that beneficiary access to all necessary and appropriate competitive bid items has been preserved since the program began” – a conclusion generally disputed by industry.
  • A small number of contract suppliers generally had a large proportion of the market share in the nine competitive bidding areas.
  • The total number of DME suppliers and Medicare allowed charges decreased more in CBAs than in the comparator areas. For instance, the number of suppliers with Medicare allowed charge amounts of $2,500 or more per quarter decreased an average of 27% in the CBAs compared to 5% in the comparator areas.
  • The number of grandfathered suppliers had so diminished that CMS was no longer monitoring them after the second quarter of 2012.
  • The program did not appear to have adversely affected beneficiary access to covered items, although additional monitoring would be needed to monitor the impact of the national mail-order diabetic testing supplies program and Round 2.

CMS Takes First Steps to Cut Medicare DMEPOS Fees Based on Competitive Bidding Prices

On February 26, 2014, CMS published an advance notice of proposed rulemaking (ANPRM) seeking public comments on two potential changes to Medicare reimbursement for durable medical equipment (DME), prosthetics, orthotics, and supplies (DMEPOS) that could impact payment to DMEPOS suppliers nationwide regardless of whether they participate in competitive bidding. At this point, CMS is providing more questions than answers on the future of Medicare DMEPOS reimbursement policy, as discussed below.

First, CMS is requesting comments on how to implement a statutory requirement that it use pricing information from the DMEPOS competitive bidding program to adjust Medicare payments for DMEPOS items and services furnished outside of competitive bidding areas (CBAs). By way of background, the Affordable Care Act (ACA) requires CMS to use information from the DMEPOS competitive bidding program to adjust DME fee schedule amounts in areas where competitive bidding programs are not implemented by January 1, 2016; CMS also is authorized (but not mandated) to make such adjustments for off-the-shelf orthotics and enteral nutrients, supplies, and equipment in areas where competitive bidding programs have not been established. CMS must promulgate its methodology for making such adjustments through notice and comment rulemaking, and it must consider costs outside of CBAs compared to rates in CBAs.

Prior to issuing a proposed methodology for adjusting payments in non-CBAs, CMS is soliciting public comments on a number of aspects of this policy, including the following:

  • Do the costs of furnishing DMEPOS items and services vary based on the geographic area in which they are furnished, and if so, how should the methodology account for these geographic variations?
  • Do the costs of furnishing DMEPOS items and services vary based on population size, distance covered, or other logistical or demographic factors?
  • How should CMS adjust payments for items that have not been included in all competitive bidding programs (such as transcutaneous electrical nerve stimulation (TENS) devices that have only been included in nine Round 1 areas so far)?
  • Should competitive bidding programs be established in all areas of the country for a few high-volume items to gather general cost information (e.g., rural vs. urban area costs)?
  • What factors should be used to determining a competitive service area in rural areas?

In addition to seeking comments related to adjustments of DMEPOS payments outside of CBAs, CMS is considering potential modifications to its competitive bidding payment policy to allow the use of bundled payments for certain types of DME and enteral nutrition. Under this concept, which would require future rulemaking, suppliers would submit one bid that reflects the average per beneficiary monthly cost of furnishing the DME, supplies, and accessories along with the maintenance and servicing costs. CMS would make monthly payments to the supplier for as long as the equipment were medical necessary; that is, rental payments would no longer reach a cap, but at the same time, CMS would no longer make separate payment for supplies, accessories, enteral nutrients, or maintenance and servicing. The supplier would retain title to the equipment. Whether CMS proceeds with proposing this change depends on issues such as administrative burden and feasibility, as well as other potential issues raised in public comments. CMS states that it is particularly interested in feedback on issues such as:

  • Are lump sum purchases and capped rental payment rules for DME and enteral nutrition equipment still needed if monthly payment amounts can be established under competitive bidding?
  • Are there reasons that beneficiaries need to own expensive DME or enteral nutrition equipment rather than use such equipment as needed on a continuous monthly basis?
  • What would be the advantages and disadvantages to beneficiaries and suppliers associated with such a bundled approach?
  • Would bundled monthly payment adversely impact beneficiary access to personalized items such as speech generating devices and specialized wheelchairs?
  • If CMS maintains payment on a capped rental, rent-to-own basis or lump sum purchase basis, should CMS require that the supplier that transfers the equipment title to the beneficiary be responsible for all maintenance and servicing of the beneficiary-owned equipment for the remainder of the equipment's reasonable useful lifetime with no additional payment? The associated costs ostensibly would be factored into bids and payment amounts.
  • Would payment on a bundled, continuous rental basis adversely impact the beneficiary's ability to direct their own care, follow a provider’s plan of care, or provide for appropriate care transitions?

Comments are due to CMS by March 28, 2014. Interested parties will have another opportunity to comment on these provisions when the proposed regulations are issued.

CMS Adopts Changes to Medicare Payment, Coverage Rules for DMEPOS

As part of the CY 2014 Medicare end stage renal disease (ESRD) prospective payment system (PPS) final rule, published on December 2, 2013, CMS has adopted updates to three Medicare durable medical equipment (DME), prosthetics, orthotics, and supplies (DMEPOS) policies.

  • 3-Year Minimum Lifetime Requirement (MLR). CMS previously issued regulations providing that, effective for items classified as DME after January 1, 2012, the item must have an expected life of at least 3 years to be considered “durable.” The final ESRD PPS rule clarifies the treatment of a “grandfathered item” classified as DME on or before January 1, 2012 if that product is subsequently modified (e.g., upgraded, refined, or reengineered). Specifically, effective April 1, 2014, if a grandfathered product is modified, and the modified product has an expected life that is shorter than that of the original product, the modified item will lose its grandfathered status and it will be subject to the 3-year MLR requirement. The impact of the loss of grandfathered status on coverage would depend on the new expected lifetime of the modified product. For instance, if a grandfathered product covered as DME prior to 2012 with a lifetime of four years is modified, resulting in a product with a lifetime of 2.5 years, this product would lose its grandfathered status and no longer meet the definition of DME because the 3-year MLR would not be met. On the other hand, if this modification reduced the lifetime of the product to 3.5 years, the product would lose its grandfathering status but would satisfy the 3-year rule and continue to meet the definition of DME.
  • Reclassification of Routinely-Purchased DME. The final clarifies the definition of routinely purchased equipment at §414.220(a)(2) to address inconsistencies in how CMS has classified certain expensive items as routinely purchased, rather than capped rental. CMS adopted its proposal to reclassify as capped rental items about 80 DME and DME accessory HCPCS codes added after 1989 that are currently classified as routinely purchased (although CMS agreed with commenters that E0760, Osteogenesis Ultrasound Stimulator, should remain classified as routinely purchased equipment). The complete list of codes subject to this provision is set forth in Table 11. The effective dates for the reclassifications are: (1) April 1, 2014, for items not included in DMEPOS competitive bidding (which is 3 months later than CMS initially proposed); (2) July 1, 2016, for (a) items furnished in all areas of the country if the item is included in a Round 2 competitive bidding program (CBP) and not in a Round 1 Recompete CBP, and (b) for items included in a Round 1 Recompete CBP but furnished in an area other than one of the nine Round 1 Recompete areas; and (3) January 1, 2017, for items included in a Round 1 Recompete CBP and furnished in one of the nine Round 1 Recompete areas. 
  • Fee Schedules for Splints, Casts, and Certain IOLs. CMS has adopted its proposal to implement on a budget-neutral basis Medicare fee schedules for splints and casts, and intraocular lenses (IOLs) inserted in a physician’s office. This provision is effective for services furnished on or after April 1, 2014. In future years, the fee schedule amounts will be updated by the percentage increase in the CPI-U for the 12-month period ending with June of the preceding year, reduced by the multifactor productivity adjustment.

CMS also has adopted certain technical amendments to DMEPOS payment regulations.

CMS Announces Medicare DMEPOS Bidding Round 1 Recompete Contract Suppliers

CMS has announced the names of 282 suppliers that have been awarded 3-year contracts under the Medicare DME, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program “Round 1 Recompete.” As discussed in our previous reports, this phase of bidding applies to nine geographic areas where competitive bidding contracts have been in effect since 2011, but it includes a broader array of products than currently covered. The contract period for the Round 1 Recompete is January 1, 2014 through December 31, 2016.

By way of background, under DMEPOS competitive bidding, only suppliers that are winning bidders, meet licensing and other standards, and enter into a contract with CMS may furnish selected categories of DMEPOS to Medicare beneficiaries in competitive bidding areas (CBAs), with very limited exceptions. Contract suppliers are paid based on the median of the winning suppliers’ bids in the CBA, rather than the DMEPOS fee schedule amount. CMS reported earlier this year that Medicare reimbursement will be cut by an average of 37% compared to fee schedule amounts under the Round 1 Recompete contracts, which include the following six product categories: (1) Respiratory Equipment and Related Supplies and Accessories (includes oxygen, oxygen equipment, and supplies; continuous positive airway pressure devices and respiratory assist devices, and related supplies and accessories; and standard nebulizers); (2) Standard Mobility Equipment and Related Accessories (includes walkers, standard power and manual wheelchairs, scooters, and related accessories); (3) General Home Equipment and Related Supplies and Accessories (includes hospital beds and related accessories, group 1 and 2 support surfaces, transcutaneous electrical nerve stimulation devices (TENS), commode chairs, patient lifts, and seat lifts); (4) Enteral Nutrients, Equipment and Supplies; (5) Negative Pressure Wound Therapy Pumps and Related Supplies and Accessories; and (6) External Infusion Pumps and Supplies.

CMS reports that Round 1 Recompete contract suppliers have 620 locations to serve Medicare beneficiaries in the CBAs, and about 58% of these suppliers are “small suppliers” with gross revenues of $3.5 million or less. CMS will now accelerate educational efforts aimed at suppliers, referral agents, and beneficiaries in preparation for the new contracts.

Medicare Rates to Fall by Average of 37% under DMEPOS Competitive Bidding "Round 1 Recompete" Contracts

CMS has announced the contract prices for items included in the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding “Round 1 Recompete.”  As discussed in our previous reports, this phase of bidding applies to nine geographic areas where competitive bidding has been in effect since 2011, but it includes a broader array of products. The contract period for the Round 1 Recompete is January 1, 2014 through December 31, 2016.

Contract prices under the Round 1 Recompete will average 37% below Medicare's fee schedule rates for the six product categories, according to files posted by the Competitive Bidding Implementation Contractor (CBIC) on October 1, 2013. The weighted average savings by product category are as follows:

Enteral Nutrients, Equipment & Supplies

External Infusion Pumps & Supplies

General Home Equipment and Related Supplies & Accessories

NPWT Pumps and Related Supplies & Accessories

Respiratory Equipment and Related Supplies & Accessories

Standard Mobility Equipment & Related Accessories

Overall Average

41%

21%

47%

42%

40%

34%

37%

These savings compare to a 45% average cut for suppliers participating in Round 2 of the competitive bidding program and a 72% reduction under the national mail order competition for diabetic testing supplies; contracts for both of these programs went into effect July 1, 2013.

The CBIC also posted statistics on the number of Round 1 Recompete contract offers extended for each competitive bidding area (CBA) and product category and the number of supplier locations represented in those offers.  The contracting process for the Round 1 Recompete is now underway. Bidders who were not “winners” will be notified of the reasons they were not offered contracts. CMS plans to announce the names of contract suppliers this fall.

OIG Focuses on Improper Medicare Diabetes Test Strip Payments

A recent OIG report examines the extent of improper Medicare reimbursement for diabetes test strips (DTS), including the effect of mail-order DTS being subject to competitive bidding in nine geographic areas beginning in 2011 (CMS subsequently implemented a national competitive bidding program for mail-order DTS, effective July 1, 2013). According to the OIG, in 2011, Medicare inappropriately allowed $6 million for DTS claims billed for beneficiaries without a documented diagnosis code for diabetes, or that inappropriately overlapped with an inpatient hospital stay or an inpatient skilled nursing facility stay. Moreover, the OIG identified $425 million in Medicare-allowed DTS claims in 2011 that had characteristics of questionable billing, such as claims in excess of utilization guidelines, claims at perfectly regular intervals, or overlapping claims for the same beneficiary. The OIG observes that the Medicare competitive bidding program appears to have been successful in reducing questionable billing for mail-order DTS, since Medicare allowed claims for mail order DTS for suppliers exhibiting questionable billing in CBAs fell from $33.2 million to $4.3 million between 2010 and 2011. The OIG recommended that CMS take additional action to address inappropriate DTS claims, such as expanding supplier education, enforcing claims edits, and increasing monitoring of DTS suppliers’ billing. CMS also agreed to take appropriate action regarding inappropriate Medicare DTS claims and suppliers identified by the OIG, including referral of questionable claims to the Recovery Auditors and Medicare Administrative Contractors (MACs).

OIG Reports Point States to Potential Medicaid DMEPOS Savings

Two recent OIG reports point out the savings that state Medicaid programs could attain if they based reimbursement for DME, prosthetics, orthotics, and supplies (DMEPOS) on Medicare competitive bidding payment amounts – although at least one state is pushing back on this idea. In the first report, “Medicaid DMEPOS Costs May be Exceeding Medicare Costs in Competitive Bidding Areas,” the OIG calculated the potential savings Texas could have achieved in 2011 if it adopted Medicare DMEPOS bidding prices for selected items of DMEPOS. According to the OIG, Texas Medicaid fee-schedule could have saved approximately $2 million (state/federal shares combined) in the Dallas/Fort Worth area if it had based Medicaid rates on the Medicare DMEPOS competitive bidding amounts for 32 DMEPOS items covered under both programs. The OIG states that its report provides “a tangible example of potential State and Federal savings for Medicaid programs if the programs were to use the Medicare Competitive Bidding payment amounts for DMEPOS items.” This report did not include recommendations or state reaction. 

In the second report, “New Jersey Medicaid Program Could Achieve Savings by Reducing Home Blood-Glucose Test Strip Prices,” the OIG estimates that the New Jersey Medicaid program could have saved approximately $1.8 million to $2.7 million in 2011 by reducing home blood-glucose test strip reimbursement rates to retail rates or by establishing a competitive bidding program for test strips. Such policy changes for test strips also could reduce Medicaid managed care organization reimbursement rates by up to 70%. However, the New Jersey Department of Human Services disagreed with the OIG’s recommendations to align state Medicaid reimbursement with average retail price or Medicare competitive bidding pricing, citing, among other things, doubts about the feasibility of attaining such savings and concerns about patient access and the impact on proper diabetes management.

CMS Updates Off-The-Shelf (OTS) Orthotics Listing for 2014

CMS has updated its list of Healthcare Common Procedures Coding System Codes (HCPCS) codes that it considers to be off-the-shelf (OTS) orthotics – and therefore subject to inclusion in a future round of the DMEPOS competitive bidding program. Under the Social Security Act, OTS orthotics are those that require minimal self-adjustment for appropriate use and do not require expertise in trimming, bending, molding, assembling, or customizing to fit to the individual. CMS has defined "minimal self-adjustment" to mean an adjustment that the beneficiary, caretaker for the beneficiary, or supplier of the device can perform and that does not require the services of a certified orthotist or an individual who has specialized training. The statute authorizes CMS to included OTS orthotics in DMEPOS competitive bidding, although CMS has not included these items in the competitions announced to date. CMS notes that while it has not determined the schedule for bidding OTS orthotics, it will identify the specific OTS orthotic codes included in a competitive bidding program through program instructions or website posting. The 2014 listing, which was posted on August 12, 2013, revises a preliminary listing CMS released in February 2012. CMS also responds to public comments it received on the 2012 listing. CMS expects to make subsequent coding updates to the OTS list through program instructions.

CMS Announces "Winners" of Medicare DMEPOS Competitive Bidding Round 2/National Mail Order Competition

On April 9, 2013, CMS announced the names of 799 suppliers that have been awarded 3-year contracts under Round 2 of the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program, along with the 18 suppliers that accepted contracts under the national mail order competition for diabetic testing supplies. Under competitive bidding, only suppliers that are winning bidders, meet licensing and other standards, and enter into a contract with CMS may furnish selected categories of DMEPOS to Medicare beneficiaries in competitive bidding areas (CBAs), with very limited exceptions. Winning bidders who sign contracts are paid based on the median of the winning suppliers’ bids in the CBA, rather than the DMEPOS fee schedule amount. Contracts under Round 2 and national mail-order contracts begin on July 1, 2013. As previously reported, Medicare reimbursement will be cut by an average of 45% for suppliers participating in Round 2, which covers eight product areas in 100 CBAs. Mail-order diabetic testing supplies contracts cover all 50 States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa. Medicare reimbursement for diabetic testing supplies will fall 72% compared to current fee schedule amounts (the new prices will be applied in the retail setting as well under separate legislative authority). CMS notes that Round 2 contract suppliers have 2,988 locations to serve Medicare beneficiaries in the CBAs, and about 63% of these suppliers are “small suppliers,” with gross revenues of $3.5 million or less. CMS will now step up educational efforts aimed at suppliers, referral agents, and beneficiaries in preparation for the expansion of competitive bidding this summer.

CMS Requests Comments on New Forms to Disclose Competitive Bidding Contract Supplier Ownership Changes

CMS is seeking comments on new forms it intends to require suppliers to use to report changes of ownership (CHOW) involving contract suppliers under the Medicare durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) competitive bidding program. CMS will evaluate the information in the forms to determine if a supplier that merges with or acquires a contract supplier meets the conditions for awarding a competitive bidding contract as specified in regulations. The proposed Change of Ownership Purchaser Form and Contract Supplier Notification Form will be used in all rounds of competition. CMS will accept comments on the forms through April 30, 2013.

CMS Plans to Include DME Infusion Drugs in Competitive Bidding in Response to OIG Findings

A new OIG report, “Part B Payments for Drugs Infused through Durable Medical Equipment,” calls for changes in the Medicare reimbursement methodology for Part B infusion drugs administered in conjunction with DME in light of potentially inaccurate pricing. By way of background, DME infusion drugs are reimbursed at 95% of the drug’s average wholesale price (AWP) in effect on October 1, 2003, compared to 106% of the average sales price (ASP) for most Part B drugs. Based on a comparison of actual Medicare reimbursement and the amount that would have been paid under the ASP methodology for each DME infusion drug from 2005 to 2011, the OIG found that payment exceeded ASPs by 54%-122% annually. On the other hand, reimbursement for up to one-third of DME infusion drugs were below the ASP, indicating that in some cases Medicare may underpay for these drugs. On the whole, the OIG estimates that Medicare spending on DME infusion drugs would have been cut by 44% ($334 million) between 2005 and 2011 if payment had been based on ASP. The OIG recommends that CMS either (1) seek legislation requiring DME infusion drug payment to be based on ASP, or (2) include DME infusion drugs in the next round of the DMEPOS competitive bidding program. CMS was noncommittal on legislative changes, but said it would include ME infusion drugs in the next round of competitive bidding (CMS has not yet provided other details on future expansion of competitive bidding). 

CMS Slashes Medicare Reimbursement under Round 2 of the Medicare DMEPOS Competitive Bidding Program/National Mail Order Competition for Diabetic Testing Supplies

Medicare reimbursement will be cut by an average of 45% for suppliers participating in Round 2 of the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program, CMS announced on January 30, 2013. Medicare reimbursement will fall even more dramatically under the national mail order competition for diabetic testing supplies, with payment reduced by 72% compared to current fee schedule amounts (and under the terms of the new “fiscal cliff” law, these prices will be applied in the retail setting as well). Round 2 and national mail-order contracts and prices are scheduled to go into effect on July 1, 2013. CMS estimates that competitive bidding will save the Medicare Part B Trust Fund $25.7 billion and Medicare beneficiaries $17.1 billion between 2013 and 2022. 

By way of background, under competitive bidding, only suppliers that are winning bidders, meet licensing and other standards, and enter into a contract with CMS may furnish selected categories of DMEPOS to Medicare beneficiaries in competitive bidding areas (CBAs), with very limited exceptions. Winning bidders who sign contracts are paid based on the median of the winning suppliers’ bids in the CBA, rather than the DMEPOS fee schedule amount. The Round 1 “Rebid” went into effect January 1, 2011 in nine CBAs, involving nine product categories. Payment amounts under the Round 1 rebid average 32% below the Medicare DMEPOS fee schedule amounts. CMS has recently conducted a “recompete” for six product categories in the Round 1 Rebid areas (including additional products) to take effect in 2014.

Round 2 will take place in 100 CBAs covering 91 metropolitan statistical areas, with three-year contracts effective July 1, 2013. CMS announced yesterday that the weighted average savings by product category are as follows:

  • Oxygen, Oxygen Equip. & Supplies - 41%
  • Standard (power & manual) Wheelchairs, Scooters, & Accessories - 36%
  • Enteral Nutrients, Equip. & Supplies - 41%
  • CPAP/RAD & Related Supplies & Accessories - 47%
  • Hospital Beds & Accessories - 44%
  • Walkers & Accessories - 46%
  • Support Surfaces (Group 2 Mattresses & Overlays) - 63%
  • NPWT Pumps & Related Supplies & Accessories - 41%

CMS also conducted a national mail-order competition for diabetic testing supplies concurrent with the Round 2 competition. CMS announced that Medicare payment for diabetic testing supplies (100 lancets and test strips) under competitive bidding will be reduced from $77.90 to a national rate of $22.47. While the competition for diabetic testing supplies was intended to apply only to mail-order suppliers, it is important to note that the American Taxpayer Relief Act of 2012 (ATRA), which was signed into law on January 2, 2013, sets Medicare payment amounts for retail diabetic supplies at the national mail order competitive bidding single-payment amounts, effective July 1, 2013.  In other words, as a result of the ATRA, the competitive bidding process is being used to reduce pricing for DMEPOS other than items that actually were subject to competitive bidding. This policy was adopted despite CMS’s previous acknowledgment that "there are pricing differences between mail order and non-mail order diabetic testing supplies because of the delivery methods for these supplies."  Even though under competitive bidding program rules, only successful bidders that sign a contract with CMS will be eligible to furnish mail order diabetes supplies to Medicare beneficiaries as of July 1, 2013, Medicare beneficiaries will not be limited to using contract suppliers to obtain retail/storefront diabetes supplies. In sum, a Medicare beneficiary must use a contract supplier to obtain mail order diabetic testing supplies, but can pick up diabetic testing supplies from any local retailer; the payment to the supplier and the beneficiary copayment will be the same in either setting. (The ATRA also temporarily reduces fee schedule amounts for retail diabetic testing supplies to mail order amounts from April 1, 2013 until the national mail-order program single payment amounts start on July 1, 2013.)

CMS next will be mailing contracts to “winning” bidders. According to a CMS fact sheet, 14,654 contract offers will be made to 867 Round 2 bidders, who have 3,109 locations to serve Medicare beneficiaries in the CBAs. CMS also will offer 15 contracts for the national mail-order program; the national mail-order program winners have 48 locations in all. CMS notes that about 62% of Round 2 winning suppliers are small suppliers (gross revenues of $3.5 million or less), and 33% of national mail-order contract offers will go to small suppliers. When the contracting process is complete, unsuccessful bidders will be notified of the reasons they were not offered a contract. CMS expects to announce the names of the contract suppliers in the spring of 2013. CMS and the Competitive Bidding Implementation Contractor (CBIC) also will be stepping up educational activities leading up to implementation of Round 2 and national mail-order bidding.

For more information, including the single price amounts for each code subject to bidding, see the CBIC website, and Reed Smith’s previous reporting on the competitive bidding program is available here

OIG Calls for Cuts in Medicare Rates for Back Orthoses

The OIG is calling on CMS to lower Medicare payment for certain back orthosis products, either by subjecting these products to the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program or by making an inherent reasonableness adjustment. This recommendation stems from the OIG’s findings that Medicare payment amounts far exceeded supplier acquisition costs for lumbar-sacral orthoses billed under L0631. Specifically, between July 2010 and June 2011, the average Medicare-allowed amount for L0631 was $919, compared to the average supplier acquisition cost of $191, resulting in Medicare paying an estimated $37 million more than supplier costs. Moreover, while the code descriptor for L0631 references fitting and adjustment services, the OIG found that for 33% of claims the supplier did not report providing such services, and only 7% of suppliers reported providing any additional services other than general instructions. CMS agreed that Medicare payments for back orthoses billed under HCPCS code L0631 “should be adjusted to more closely reflect the supplier’s acquisition costs for the device and the level of service provided when furnishing the device.” CMS indicated that it would be pursing competitive bidding rather than an inherent reasonableness adjustment, noting that it is working to finalize its classification of HCPCS codes that may be considered to be “off-the-shelf” orthotics and subject to DMEPOS competitive bidding.

OIG Finds DMEPOS Competitive Bidding Not Spurring Suppliers to Solicit Specific Brands/Modes of Delivery

The OIG has released a statutorily-mandated report on the extent of supplier solicitation of physicians under the Round 1 rebid of the Medicare DMEPOS competitive bidding program, which began in nine competitive bidding areas on January 1, 2011.  Under competitive bidding rules, a physician can prescribe a specific brand or mode of delivery (e.g., gaseous or liquid oxygen system) if the physician determines it is needed to avoid an adverse beneficiary medical outcome. In such cases, the contract supplier must furnish the item as prescribed, ask the physician to approve an alternative brand, or help the beneficiary find a contract supplier to furnish the prescribed brand (if a physician does not prescribe a specific brand, the supplier may choose a brand within the HCPCS code). Concerns have been raised that suppliers might have a financial motivation to solicit physicians to change a prescribed brand if the supplier does not carry the brand or have it in stock rather than send the patient to a different supplier, even though it would not result in a different Medicare payment amount. For its report, “Limited Supplier Solicitation of Prescribing Physicians under Medicare DMEPOS Competitive Bidding Program,” the OIG surveyed a sample of 294 physicians who prescribed competitive-bid items during the first half of 2011. The OIG found that 58% of the physicians did not prescribe brand-specific products, so had no reason to be solicited by suppliers regarding brand changes. Of the physicians that did prescribe a specific brand or mode of delivery, 69% did not receive any requests for brand changes. Only 33 physicians in the sample reported solicitations (22 of which were for diabetes supplies), and they told OIG that supplier reasons for change requests included the supplier’s belief that a change would better meet patient needs, the supplier not carrying the prescribed brand, and patient requests. The OIG also observed that none of the 37,000 Medicare hotline calls related to the competitive bidding program involved concerns about supplier solicitation of physicians regarding brand or mode of delivery.

Fiscal Cliff Deal Includes Medicare Cuts and Other Health Policy Changes

On January 2, 2013, President Obama signed into law (via autopen) the “fiscal cliff” deal, H.R. 8, the American Taxpayer Relief Act of 2012 (ATRA). In addition to making well-publicized changes to the tax code, the new law includes numerous Medicare payment provisions. Most notably, the law includes a one-year Medicare physician fee schedule (MPFS) fix that is paid for by approximately $30 billion in other health care (mainly Medicare) spending reductions over 10 years. ATRA also delays until March 2013 the automatic, across-the-board “sequestration” cuts in federal spending imposed by the Budget Control Act of 2011, which was expected to reduce Medicare provider payments by more than $11 billion in fiscal year (FY) 2013 and $123 billion over the period of FY 2013 to 2021 (CBO subsequently estimated  that the 2013 cut to Medicare payments now will be approximately $9.9 billion due to changes in the sequestration targets under the ATRA). The delay in sequestration, coupled with the government again reaching its debt ceiling, sets up another near-term battle on federal spending, during which Medicare, Medicaid, and other health care programs could be targeted for even more significant cuts.

The health provisions of ATRA are summarized in our Client Alert.

OIG Reviews Impact of DMEPOS Bidding Program on Billing for Diabetes Test Strips (DTS)

A recent OIG report – “Supplier Billing for Diabetes Test Strips and Inappropriate Supplier Activities in Competitive Bidding Areas” -- assesses how suppliers have changed their delivery and billing practices for DTS in areas where the Medicare DMEPOS competitive bidding program for mail-order DTS was implemented in 2011. By way of background, Round 1 of the DMEPOS competitive bidding program, currently underway in nine competitive bidding areas (CBAs), applies to mail-order DTS and certain other specific items of DME. For purposes of Round 1 only, the term “mail-order” is defined as ordered remotely and delivered by common carrier; in contrast, DTS delivered to a beneficiary’s home by a local store front supplier using its own vehicles and W2 employees is not considered mail order under Round 1, and therefore is not subject to competitive bidding. The net effect if this bifurcation is that beneficiaries residing in one of the Round 1 CBAs must purchase mail-order DTS from a winning contract supplier, but may purchase non-mail order DTS from any enrolled Medicare supplier. Significantly, the mail-order DTS contract prices under Round 1 average less than half of the Medicare fee schedule amount, and the OIG observes that this price disparity provides suppliers with “a financial incentive to bill for non-mail order DTS,” even though beneficiaries in turn will be responsible for higher copayments for non-mail order DTS. According to the OIG report, claims for non-mail order DTS increased by 33% in 2011 compared to 2010, while claims for mail-order DTS fell by 71%. The OIG also states that sampled beneficiaries sometimes reported receiving less expensive mail-order DTS – notwithstanding that Medicare claims records reflected billing for non-mail order items (although the OIG warns that self-reported data from beneficiaries were not independently verified, and beneficiaries’ ability to recall events over a span of 2 years could affect the data). The OIG observed that suppliers’ inappropriate waiver of beneficiaries’ copayments did not appear to contribute to the increase in non-mail order DTS claims, but almost a quarter of the sample of beneficiaries interviewed by the OIG reported supplier activities such as routine waver of copayments or shipments of unsolicited DTS that the OIG determined to be inappropriate. The report does not contain any recommendations. Note that a national mail order (NMO) program for diabetic supplies is scheduled to go into effect July 1, 2013, and will apply nationally to DTS that are delivered via any method (i.e., common carrier or supplier delivery).

CMS Accepting Bids for the Round 1 Recompete of the DMEPOS Competitive Bidding Program

On October 15, 2012, CMS opened the 60-day bidding window for the Round 1 Recompete of the Medicare DMEPOS competitive bidding program; the bid window closes on December 14, 2012.  As discussed in our previous reports, the recompete applies to nine geographic areas where competitive bidding currently is in effect, but it includes a broader array of products. The contract period for the Round 1 Recompete is January 1, 2014 through December 31, 2016. All potential bidders must register by October 19, 2012 at 9 p.m. Eastern Time to be eligible to bid. CMS encourages bidding suppliers to take advantage of the covered document review process, under which CMS will notify suppliers that submit their hardcopy financial documents by November 14, 2012 of any missing financial documents.

Congressional Health Policy Hearings

A number of recent Congressional hearings have focused on health policy issues, including the following:

Congressional Hearings

The Senate Health, Education, Labor and Pensions Committee held a field hearing in Connecticut on “Lyme Disease: A Comprehensive Approach to an Evolving Threat.”  On September 11, 2012, the House Ways and Means Oversight Subcommittee is holding a hearing on the Internal Revenue Service’s implementation of various ACA tax provisions. Also on September 11, the House Small Business Healthcare Subcommittee is holding a hearing on "Medicare's Durable Medical Equipment Competitive Bidding Program: How Are Small Suppliers Faring?"

CMS Announces Timeline for Medicare DMEPOS Competitive Bidding Round 1 Recompete

On August 16, 2012, CMS announced the detailed timeline for the Round 1 Recompete of the Medicare DMEPOS competitive bidding program, which applies to nine geographic areas where competitive bidding currently is in effect. As we previously reported, although CMS is calling this a “recompete,” the agency is actually making significant changes to the products included in Round 1, including subjecting new products to bidding for the first time (i.e., products that were not in the original Round 1 competitive bidding process), and expanding the range of products included in a single product category (which is significant because a contract supplier must furnish all products within a product category, either directly or through a qualified subcontract, in the competitive bidding area). The following is the timeline for registering and bidding (note that dates are subject to change):  

  • 8/20/2012 -- Registration for user IDs and passwords begins
  • 9/7/2012 -- Authorized Officials strongly encouraged to register by this date
  • 9/28/2012 -- Backup Authorized Officials strongly encouraged to register by this date
  • 10/15/2012 -- CMS opens 60-day bid window
  • 10/19/2012 -- Registration closes
  • 11/14/2012 -- Covered document review date for bidders to submit financial documents
  • 12/14/2012 -- 60-day bid window closes
  • Spring 2013 -- CMS announces single payment amounts, begins contracting process
  • Fall 2013 -- CMS announces contract suppliers, begins education campaign
  • January 1, 2014 -- Implementation of Round 1 Recompete contracts and prices

As CMS announced in the spring, the product categories for the Round 1 Recompete are: (1) Respiratory Equipment and Related Supplies and Accessories (includes oxygen, oxygen equipment, and supplies; continuous positive airway pressure devices and respiratory assist devices, and related supplies and accessories; and standard nebulizers); (2) Standard Mobility Equipment and Related Accessories (includes walkers, standard power and manual wheelchairs, scooters, and related accessories); (3) General Home Equipment and Related Supplies and Accessories (includes hospital beds and related accessories, group 1 and 2 support surfaces, transcutaneous electrical nerve stimulation devices (TENS), commode chairs, patient lifts, and seat lifts); (4) Enteral Nutrients, Equipment and Supplies; (5) Negative Pressure Wound Therapy Pumps and Related Supplies and Accessories; and (6) External Infusion Pumps and Supplies.

Older Entries

June 26, 2012 — CMS Officially Announces Potential Inherent Reasonableness Payment Adjustment for Medicare Retail Diabetic Testing Supplies; Meeting Set for July 23

May 23, 2012 — CMS Examining Inherent Reasonableness Payment Adjustment for Medicare Retail Diabetic Testing Supplies; Meeting Scheduled for July 23

May 14, 2012 — Congressional Health Policy Hearings

April 23, 2012 — DMEPOS Bidding "Recompete" Subjects New Products to Competitive Bidding, Expands Product Categories

March 12, 2012 — CMS Finalizes Revisions to Medicare DMEPOS Supplier Standards

February 28, 2012 — CMS Updates Data on DMEPOS Competitive Bidding Program Health Outcomes

February 13, 2012 — DMEPOS Competitive Bidding Open, State Licensure Deadline Extended

February 13, 2012 — CMS Seeks Comments on List of Off-the-Shelf Orthotics Codes

December 9, 2011 — CMS Launches Round 2 of DMEPOS Competitive Bidding Program; Registration Underway

November 14, 2011 — CMS Transmittal on 2012 Update to DMEPOS Fee Schedule

October 14, 2011 — Updated Resources for DMEPOS Competitive Bidding

September 30, 2011 — MedPAC Offers Medicare SGR Proposal, With Offsetting Medicare Cuts

September 1, 2011 — Preparing for Round 2 of the DMEPOS Competitive Bidding Program

August 19, 2011 — CMS Announces Products for Round 2 DMEPOS Competitive Bidding Program

July 18, 2011 — CMS Releases Data on Health Status Under DMEPOS Competitive Bidding

July 18, 2011 — GAO Examines Potential "Manufacturer-Level" DMEPOS Competitive Bidding.

April 13, 2011 — CMS Proposes Additional Changes to DMEPOS Supplier Standards

April 13, 2011 — CMS Delays Second Round of DMEPOS Competitive Bidding; Provides Update on Round 1 Rebid.

March 29, 2011 — DMEPOS Competitive Bidding "Form C" Deadline Delayed

March 7, 2011 — DMEPOS Bidding Documentation, Quarterly Reporting Requirements, FAQs on Supplier Standards

March 2, 2011 — CMS Schedules April 5, 2011 DMEPOS Competitive Bidding PAOC Meeting

December 15, 2010 — OIG Report on Mail Order Diabetic Testing Strips

November 27, 2010 — DMEPOS Competitive Bidding Meeting/San Bernardino, CA (Dec. 7)

November 16, 2010 — CMS Issues Final CY 2011 Physician Fee Schedule Rule

November 15, 2010 — DMEPOS Bidding Contractors Announced

November 1, 2010 — Medicare DMEPOS Competitive Bidding Educational Calls (Nov. 8 & 16)

October 29, 2010 — DMEPOS Competitive Bidding Update

September 17, 2010 — September 2010 Congressional Hearings

September 9, 2010 — Upcoming Congressional Hearing on DMEPOS Competitive Bidding (Sept. 15)

August 13, 2010 — DMEPOS Competitive Bidding Educational Articles

July 12, 2010 — CMS Issues Proposed CY 2011 Physician Fee Schedule Update

July 10, 2010 — DMEPOS Competitive Bidding Prices Released

July 8, 2010 — Reed Smith Health Care Reform Review: The Affordable Care Act - Analysis and Implications for DMEPOS Suppliers

May 13, 2010 — CMS Materials on DMEPOS Competitive Bidding Program

March 30, 2010 — PAOC Meeting/Timeline for Round 2 of DMEPOS Competitive Bidding Program

February 18, 2010 — PAOC Meeting on DMEPOS Competitive Bidding Postponed to March 17

February 4, 2010 — DMEPOS Bidding PAOC Meeting Agenda, Educational Materials Posted

January 20, 2010 — DMEPOS Competitive Bidding/PAOC Meeting (Feb. 23, 2010)

January 13, 2010 — Enteral Nutrient Prices During Non-Part A Nursing Stays

December 21, 2009 — GAO Highlights Problems in First Round of DMEPOS Competitive Bidding

November 11, 2009 — Final CY 2010 Medicare Physician Fee Schedule Rule Released

October 30, 2009 — DMEPOS Competitive Bidding Window Open until December 21, 2009

October 15, 2009 — DMEPOS Accreditation Delay for Pharmacies

October 15, 2009 — DMEPOS Competitive Bidding Update

September 17, 2009 — DMEPOS Bidding Financial Documentation Requirements - CMS Call on Sept. 22, 2009

August 27, 2009 — CMS Call on DMEPOS Competitive Bidding - Rules for Bidding Successfully (Sept. 2, 2009)

August 17, 2009 — DMEPOS Competitive Bidding Registration Period Opens

August 15, 2009 — Schedule of Medicare DMEPOS Competitive Bidding Supplier Education Events

August 7, 2009 — Medicare DMEPOS Bidding Education Calls, Materials

August 3, 2009 — CMS Announces Detailed DMEPOS Competitive Bidding Timeline

July 27, 2009 — Preparing for DMEPOS Competitive Bidding

July 16, 2009 — CMS DMEPOS Bidding Program "Webinar" -- July 20, 2009

July 7, 2009 — CMS Proposes CY 2010 Medicare Physician Fee Schedule Rule

June 5, 2009 — CMS Targets January 2011 Implementation Date for DMEPOS Competitive Bidding

May 29, 2009 — CMS Announces General Timeline for DMEPOS Competitive Bidding Program

May 21, 2009 — CMS Releases Draft DMEPOS Competitive Bidding Forms

May 14, 2009 — CMS Prepares to Re-Launch Medicare DMEPOS Competitive Bidding -- Tips for Potential Bidders

May 8, 2009 — PAOC Meeting on DMEPOS Competitive Bidding Program -- June 4, 2009

April 24, 2009 — DMEPOS Competitive Bidding

April 6, 2009 — Negative Pressure Wound Therapy (NPWT) Pumps

March 6, 2009 — DMEPOS Competitive Bidding Rule Delay

February 19, 2009 — MIPPA DMEPOS Bidding Rule Effective Date Delayed

February 12, 2009 — Congressional Hearings

February 9, 2009 — Comment Opportunity on MIPPA DMEPOS Competitive Bidding Rule (Due Feb. 12, 2009)

January 27, 2009 — DMEPOS Competitive Bidding

December 1, 2008 — 2009 Medicare DMEPOS Fee Schedule Released

October 7, 2008 — Medicare DMEPOS Competitive Bidding Advisory Committee Member Solicitation

August 22, 2008 — DMEPOS Accreditation

July 29, 2008 — Medicare Physician Payment/DMEPOS Bidding Delay Legislation Enacted

July 29, 2008 — CMS Guidance on MIPPA Implementation.

July 29, 2008 — OIG Guidance on MIPPA/Waiver of Copayments

July 16, 2008 — MIPPA: Medicare Physician Payment/DMEPOS Bidding Delay Legislation Enacted

July 9, 2008 — DMEPOS Competitive Bidding Program

June 20, 2008 — DMEPOS Competitive Bidding Delay Legislation Introduced

June 4, 2008 — DMEPOS Competitive Bidding/PAOC Meeting

June 3, 2008 — DMEPOS Competitive Bidding Developments