CMS is the largest purchaser of health care in the United States, serving over 92 million Medicare, Medicaid, and SCHIP beneficiaries. Medicare alone covers roughly 44 million individuals, with total Medicare benefit outlays projected to reach $499 billion in Fiscal Year (FY) 2009.¹ Each year, DMEPOS suppliers provide items and services including power wheelchairs, oxygen equipment, walkers and hospital beds to millions of people with Medicare. Appropriate Medicare payment amounts for DMEPOS are especially important considering the growth in expenditures for these items.

Medicare currently pays for DMEPOS items and services using fee schedule rates for covered items. In general, fee schedule rates are calculated using historical supplier charge data that may not be reflective of an appropriate payment amount for today's market. Relying on historical charge data has resulted in Medicare payment rates that are often higher than prices charged for identical items and services when furnished to non-Medicare customers. Medicare beneficiaries and taxpayers bear the cost of these inflated charges.

Table 1: Illustrative Comparison Prices Pre-Competitive Bidding

Under the new DMEPOS competitive bidding program, beginning in 10 metropolitan statistical areas (MSAs) on July 1, 2008, Medicare payment to suppliers will be calculated based on competitive bids submitted by accredited suppliers (meeting both quality and financial standards) who were awarded contracts in designated competitive bidding areas. Winning suppliers then compete to serve beneficiaries on the basis of quality and customer service. Requiring suppliers to submit bids, including information on price, accreditation, and financial standards will ensure access to high-quality medical equipment at a more reasonable price to beneficiaries and the Medicare program. These changes, which result in more accurate pricing and improved oversight, also support CMS’ efforts to reduce Medicare waste, fraud and abuse.

Beneficiary Savings

The success story of DMEPOS competitive bidding is the amount of money that beneficiaries will save as a result of lower coinsurance across the board for these products. Competitive bidding has successfully reduced the amount Medicare will pay and has brought the payment amounts in line with that of a competitive market. When fully implemented in 2010, the program is projected to save Medicare and taxpayers $1 billion annually²– and these savings will directly translate to lower coinsurance for beneficiaries. Further, the projected overall savings to Part B of the Medicare program should slow the annual increase of the Part B premium Medicare beneficiaries pay each month.

Across all 10 MSAs and in each product category, beneficiaries will see an average savings of 26 percent when the new payment rates go into effect July 1, 2008. For example, beneficiaries in Orlando who use oxygen will save 32 percent. Before competitive bidding, Medicare paid $199.28 a month for oxygen rental in Orlando and after the bid process; the price has been reduced to $140.82 per month. The beneficiary, who has been paying $39.86 per month, will soon be paying $28.17 per month, a savings of $140 per year. In Charlotte and Cincinnati, beneficiaries will save 30 percent, Miami beneficiaries will save 29 percent, Pittsburgh 28 percent, Cleveland 27 percent, Kansas City 25 percent, Dallas 23 percent and Riverside 22 percent.³

Average savings generated for these commonly used items, for which Medicare pays 80 percent and beneficiaries pay 20 percent of the allowed amount following payment of the annual Part B deductible, is summarized in the following chart:

* Beneficiary takes over ownership of equipment after end of rental payment period ** 20% of current and new allowed amount is paid by the beneficiary out-of-pocket

In the competitive bidding areas, Medicare suppliers are currently paid based on fee schedule amounts that average $82.68 per month for diabetic testing supplies (100 lancets and test strips) of which the beneficiary pays 20 percent (approximately $16.54 per month on average). The payment is the same regardless of whether the supplies are mailed to the beneficiary’s home or purchased at local storefronts (e.g., pharmacies). Under the competitive bidding program, the average Medicare allowed monthly payment amount for these supplies in the competitive bidding areas will be reduced by 43 percent from $82.68 to $47.53, in those cases where the beneficiary chooses to obtain the supplies on a mail order basis. If the beneficiary does not wish to receive their replacement testing supplies on a mail order basis, they can elect to obtain them from a local storefront with no reduction in the allowed payment amount or beneficiary coinsurance amount.

Outreach

CMS is making great efforts to ensure the program’s success. Our outreach plan includes extensive communication to four major categories of stakeholders: beneficiaries, partner groups (the local Area Agencies on Aging, the State Health Insurance Assistance Programs (SHIPs), beneficiary advocacy groups and other local organizations that come in contact with Medicare beneficiaries), providers (doctors, social workers, discharge planners and others), and DMEPOS suppliers (including the new contract suppliers, non-contract suppliers and grandfathered non-contract suppliers).

Our beneficiary outreach will include a direct mailing to all beneficiaries in the Round 1 MSAs, which will contain a letter, a brochure that outlines the new program and a list of all Medicare DMEPOS contract suppliers in their MSA. A beneficiary fact sheet is also available, and will be available through partner groups and providers. We will also rely heavily on our partner groups to assist in this transition. My staff and I have been in contact with, and will continue to meet with partner groups to educate them on this program and ask for support as the program is implemented.

Provider outreach includes doctors, social workers, referral agents, discharge planners and others. This information is delivered through the Centers for Medicare Management listservs, Medicare Learning Network Matters articles, training sessions, and teleconferences. Provider outreach aims to educate providers on how to communicate with the beneficiary about this new program and where to refer their Medicare beneficiaries who need DMEPOS. The communication pieces are delivered through the same avenues as the technical program requirements as well as through local and national medical, social work, referral agent and discharge planning organizations. We are considering conducting a direct mailing to the providers as well.

DMEPOS suppliers are reached through the provider outreach method as well as through the Competitive Bidding Implementation Contractor (CBIC). Throughout the bidding process, the CBIC, in conjunction with CMS, delivered information and messages to suppliers to assist in understanding the program and its requirements through email messages, the CBIC website, bidders’ conferences, teleconferences and direct conversations. Soon, a program manual, outlining technical program requirements including policies and claims processing requirements will be available to suppliers on the CMS website. All suppliers, including the new contract suppliers, non-contract suppliers and grandfathered non-contract suppliers will receive an email notice that information about program requirements is available.

Our outreach strategy is administered both at the national and the regional level. Our CMS Regional Office staff have targeted local organizations, including local Chambers of Commerce, State Departments of Insurance and local elected officials to request that they share information with their members or constituents.

Once the program begins, Regional Offices may respond to general inquiries from beneficiaries and stakeholders and may refer inquiries/complaints that are beneficiary or claims specific to 1-800-MEDICARE, which will be the primary point of contact for beneficiaries. Inquiries and complaints will also be referred to the DME claims processing contractor or local ombudsman depending upon their nature and scope. Inquiries and complaints will be tracked for internal reporting purposes.

In order to ensure that beneficiaries are able to access quality DMEPOS, we will be monitoring the program closely at multiple levels. CMS is committed to ensuring a smooth transition for beneficiaries, providers and suppliers when the new payment rates take effect on July 1, 2008.

The performance of contract suppliers will be monitored through beneficiary satisfaction surveys that measure beneficiaries’ level of satisfaction with the services they receive under the competitive bidding program.

CMS will track the number of questions SHIPs receive about DMEPOS issues.

CMS will track volume of questions and requests for DMEPOS information on 1800-MEDICARE.

CMS will track payments and claims to non-contracted suppliers for
grandfathered supplies.

CMS will track number of Advance Beneficiary Notices (ABNs) issued by non-contract suppliers in a competitively bid area (CBA) for competitively bid items.

CMS will track the shift from non-contract to contract suppliers for the DMEPOS competitively bid products, comparing before and after July 1 and over time.

Bidding

The initial round of DMEPOS competitive bidding (Round 1) is now complete with the bidding window officially closing on September 25, 2007. We received a total of 6,209 bids for the competitively bid products across all 10 Metropolitan Statistical Areas (MSAs). Of the bids received, 1,335 were winning bids. Our target for small supplier participation was exceeded, with 64 percent of contracts offered to small suppliers. Winning bids were offered a contract and as of April 18, 2008, 1,254 contracts have been signed by the suppliers, a 96 percent acceptance rate.

In order to ensure that bidders were fully informed about this new program, CMS made a significant effort to educate and communicate with potential bidders on the bidding process, including, the required documentation, and the rules and procedures for submitting a successful bid. Preliminary education began months before the final regulation was issued, and the formal education campaign began on April 2, 2007, the day the final regulation was released. Also in April 2007, CMS hosted a special Open Door Forum on DMEPOS competitive bidding in which more than 1000 suppliers participated. Prior to opening the supplier bid window on May 15, 2007, CMS established a dedicated website⁴, with a comprehensive array of important information for suppliers, including a tool kit, fact sheets, webcasts, and questions and answers. CMS also held Open Door Forums, bidders’ conferences, and sent listserv announcements in order to disseminate key information about the program.

CMS established a formula for selecting the number of winning bids to ensure that more than enough suppliers were selected to meet the demand for DMEPOS in a particular area. This means that beneficiaries will have access to the services they need, and that competition among winning suppliers, based on quality, customer service, will provide beneficiaries with good choices on where they seek care.

The program includes an anti-discrimination policy, requiring suppliers to provide the same items to Medicare beneficiaries as they do for their other customers. Additionally, CMS is initiating a product transparency program and will be posting a list of all suppliers and the brands they carry on our website to facilitate choice for beneficiaries and their families.

Finally, important aspects of this new program are the quality standards, accreditation program, and financial standards. Accreditation and quality standards will result in improved quality and customer service, while financial standards will ensure that Medicare contracts with financially sound suppliers that are able to meet beneficiaries care needs for the long term. For example, this will diminish concerns about substandard suppliers that have less than satisfactory business practices, a substantial problem in some areas of the country. These programs will result in improved oversight by CMS, and improve the quality of suppliers serving our beneficiaries.

Conclusion

The first round of the competitive bidding process has proven to be successful. Medicare beneficiaries will realize, on average, a 26 percent savings on their commonly used DMEPOS. CMS has already begun an aggressive outreach and education campaign in order to ensure a smooth transition come July 1. We set out to provide beneficiaries with quality DMEPOS, at a lower price, from reliable suppliers in their communities. We have the lower price, we have reliable suppliers and we are in the process of educating beneficiaries of this new program. Our extensive monitoring network will signal any issues that arise and allow us to move to correct them quickly and efficiently.

¹Department of Health and Human Services, Budget in Brief: FY 2009.

²Federal Register, April 10, 2007, page 18079

³CMM data derived from bid results: http://www.cms.hhs.gov/apps/media/press/factsheet.asp?Counter=2993&intNumPerPage=10&checkDate= &checkKey=&srchType=1&numDays=3500&srchOpt=0&srchData=&srchOpt=0&srchData=&keywordT ype=All&chkNewsType=6&intPage=&showAll=&pYear=&year=&desc=false&cboOrder=date

⁴www.dmecompetitivebid.com

Last revised: December 31,2008