Medical Equipment Suppliers’ Ongoing Opposition to the Competitive Bidding Program and Consequences for Beneficiaries
Report prepared by Mario Ramsey, Center for Medicare Advocacy Summer Health Policy Fellow
Since the introduction of the Competitive Bidding Program (CBP), trade organizations––representing the billion dollar Durable Medical Equipment Prosthetics Orthotics and Supplies (DMEPOS) industry––have been opposed to Medicare’s congressionally mandated competitive bidding program. In keeping with this opposition, supplier organizations were successful in initially delaying the implementation of the program.
The Medicare program has long been plagued by overbilling for DMEPOS. For example, a 2007 Government Accountability Office (GAO) report stated that Medicare made $700 million in improper payments for DMEPOS from April 2005 to May 2006. More recently, the GAO reported that while the implementation of the CBP may be helping to reduce the risk of DMEPOS fraud, “continued vigilance of DMEPOS suppliers is warranted.”
The Centers for Medicare & Medicaid Services (CMS) estimates that following the implementation of the CBP in 2011, the program saved $202 million in its first year; that between 2013 and 2022 the CBP will save Medicare nearly $26 billion; and that beneficiaries will save $17 billion dollars during the same time frame. These substantial savings, however, have not stopped efforts of supplier organizations to repeal the CBP.
The Origin of Competitive Bidding
In order to address overpayments for DMEPOS, the DMEPOS CBP was mandated as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). The purpose of the program is to reduce beneficiaries’ out-of-pocket costs and reduce costs to Medicare while maintaining beneficiary access to DMEPOS items and services. Under the CBP, contracts are awarded to qualified DMEPOS suppliers who provide the best bid price on select DMEPOS items. The contract suppliers are paid at the bid price, which is the median of all winning bids received for an item or service.
As the CBP has rolled out, the Center for Medicare Advocacy (the Center) continues to receive complaints from beneficiaries that contract suppliers are not meeting their obligation for providing needed DMEPOS items and services. Supplier organizations, on the other hand, continue to complain about the actions of contract suppliers––many of whom are presumably their members––under competitive bidding, such as under bidding for contracts or declining to accept bid contracts. They fail, however, to address the issues of reasonable bidding and adherence to contracts amongst their members. As a result, we fear the emergence of an anti-DMEPOS campaign that begs the question whether the industry’s opposition to competitive bidding includes a conscious strategy to ignore its member non-compliance in hopes of seeing the CBP fail. Unfortunately, while supplier organizations seek to dismantle the structure of the bidding process, the beneficiary suffers.
Trade Association Responses to Competitive Bidding
Trade organizations representing suppliers of DMEPOS have expressed concern about Medicare’s CBP. Following the implementation of Round 1 in 2011, many complaints––similar to those received by the Center––were reported by Medicare beneficiaries, providers and case managers through the website of the American Association for Homecare (AAH). Many complaints describe beneficiaries having a difficult time in finding a local equipment or service provider; experiencing delays in obtaining medically-necessary equipment and services; having few choices when selecting equipment or suppliers; and experiencing a reduction in the quality of DMEPOS items and services received. Similarly, the Center has received complaints that a contract supplier failed to deliver walkers upon the beneficiary’s discharge from a skilled nursing facility, thereby causing the beneficiary to pay out-of-pocket for a walker from a non-bid winning supplier. 
Paying out-of-pocket for DMEPOS items and services is costly. Approximately half of all Medicare beneficiaries manage with incomes under 200 percent of the Federal Poverty Level. Moreover, in some instances Medicare beneficiaries spend upwards of 14 percent of their annual income on health care costs. According to the AAH, in the first eight months of 2011 it received 500 complaints from Medicare enrollees and their families who were unable to find a supplier of necessary DMEPOS––more than nine times greater than the number of complaints CMS reported having received. We note too that the Center has experienced an uptick in the number of DMEPOS related complaints. As to the complaints received by the Center, most involve situations in which providers and suppliers either delay providing necessary items of DMEPOS or outright fail to provide such items even though they have won competitive bids to provide and service such items.
Other concerns expressed by supplier organizations included the absence of a surety bond. Suppliers fear that the absence of surety bonds may allow bidders to manipulate contract prices, including driving prices down. Suppliers also complain that; contract winners are allowed to refuse to sign contracts and that standards used to qualify bids are not accessible to the public; and that small businesses are disproportionately affected by the competitive bidding process. In response to these concerns, supplier organizations have lobbied Congress for the passage of legislation to repeal, replace, or refine the current competitive bidding program, and rallied beneficiaries to share their stories of negative experiences with the competitive bidding program.
III. The Effort to Legislate Away Competitive Bidding
Trade organizations have lobbied for the passage of legislation to change, or repeal, the current competitive bidding program. Some trade association proposals offer alternatives to the current problem while others simply repeal the competitive bidding process.
Initial legislation efforts were to repeal the competitive bidding process without providing a replacement. Later proposals sought to repeal competitive bidding, and replace it with market pricing. This latter approach would repeal and replace competitive bidding with a market-based pricing system. This system would include smaller areas, and provide a price driven solely by the DMEPOS market with no pricing control from CMS.
While support for legislation repealing the CBP has not disappeared, supplier organizations, such as the Ohio Association of Medical Equipment Services, have taken the position that this method may not be the best avenue in the current political climate. More recently supplier organizations have supported legislation that would require that suppliers meet state licensure requirements, and present a surety bond. Such legislative proposals would require bidders to put down a bid bond and if offered a contract that they do not accept, CMS would collect on the bid bond. The notion here is that such practice would encourage bidders to submit bids that are more reflective of the market price. Also, CMS would be required to verify a supplier’s licensure prior to accepting a bid.
Provider Anti-Competitive Bidding Legislative Proposals
|H.R. 3790||111th||Repeals competitive bidding||Did not pass|
|H.R. 1041||112th||Repeals competitive bidding||Did not pass|
|H.R. 6490 – Medicare DMEPOS Market Pricing Program Act of 2012||112th||Repeals competitive bidding and establishes a market pricing programs for DMEPOS.||Did not pass|
|H.R. 1717 – Medicare DMEPOS Market Pricing Program Act of 2013||113th||Repeals competitive bidding and establishes a market pricing programs for DMEPOS, and terminates all contracts awarded before enactment of the bill.||Referred to Committee on April 24, 2013:
*No votes on this bill
|H.R. 2375 – Transparency and Accountability in Medicare Bidding Act of 2013||113th||Delays round 2 of the DMEPOS competitive bidding program the Medicare single payment amounts under the national mail order competition for diabetic supplies by six months.
Also delays Round 1 re-compete until six months after Round 2 begins.
|Referred to Committee on June 14, 2013:
*No votes on this bill
|H.R. 4920 – The Medicare DMEPOS Competitive Bidding Improvement Act of 2014||113th||Retains the competitive bidding process, but requires state licensure and performance guarantees, in the form of a surety bond, for suppliers who submit bids.||Referred to Committee on June 19, 2014:
*No votes on this bill
A Review of Provider Website Positions against Competitive Bidding
To gain a better understanding of the stance of various DMEPOS trade organizations on competitive bidding, the websites of twenty-one provider organizations representing forty states were reviewed. Of the fifteen supplier organizations that made advocacy information available to the public, six advocate for amending competitive bidding to include binding bids, seven advocated for market pricing, and two advocate for the repeal of competitive bidding without a suggested replacement. In short, all of the fifteen DMEPOS supplier organizations for whom advocacy information is publicly available opposed competitive bidding.
Overview of DMEPOS Supplier Organizations’ Positions on Competitive BiddingƗ
Ɨ Information presented as it appears on the supplier organization’s website as of July 16, 2014 and is limited to items publicly available on each organization’s website.
* “Not available” means that the advocacy information was only available in the members’ only area of the organization’s website.
IV. A DMEPOS Supplier Call to Action
As with the Round 1 bidding process, the DMEPOS supplier industry has attempted to delay Round 2 of the CBP. While their first attempt to stave off expansion of the CBP to 91 areas was successful,  later attempts proved not to be. For example, the initial implementation of Round 2 was delayed by six months to the summer of 2013. Suppliers, however, feeling that the delay was not enough, unsuccessfully lobbied for H.R. 2375 which would have delayed the start of Round 2 competitive bidding from July 1, 2013 to no earlier than December 31, 2013. There were also attempts to get CMS to delay the implementation of Round 2 by getting members of Congress to sign-on to a letter to the CMS administrator; these efforts were also unsuccessful as Round 2 implementation began in July 2013.
Suppliers have also gained the support of Congressional leaders in asking CMS to further delay implementation of Round 2, but were unsuccessful. Currently, suppliers are rallying support from Congress to delay the national expansion of the CBP which is currently scheduled to be fully implemented in 2016.
Additionally, the AAH along with the People for Quality Care––a homecare advocacy group––have setup a complaint-line for Medicare beneficiaries to share their stories of problems with the CBP. According to the website, Medicare complaint reports will be sent biweekly to members of Congress, to garner support for changing the current competitive bidding process.
DMEPOS supplier organizations suggest that their interests and advocacy groups are similar––namely the need to assure beneficiary access to necessary DMEPOS items and services. The key distinction for beneficiary advocates, however, is the overarching concern that supplier organizations’ zeal to protect their financial interests does not threaten beneficiaries’ access to needed DMEPOS. What suppliers describe as a flawed competitive bidding process is only worsened by their seeming unwillingness to meet their contractual responsibilities to beneficiaries. Ultimately, the billions of dollars to be saved by the Medicare program through reducing unnecessary expenditures and the preservation of beneficiary access to necessary DMEPOS should be paramount.
 See American Association for Homecare, 125 U.S. Representatives and Cleveland Plain Dealer Urge Delay in Bidding (May 27, 2008), https://www.aahomecare.org/blog/125-u-s-representatives-and-cleveland-plain-dealer-urge-delay-in-bidding. Round 1 was initially implemented in ten metropolitan statistical areas (MSAs) in 2008. However, the initial implementation was resulted in many concerns including unclear guidance being provided to bidders, improper disqualification of bidders, and failure to notify bidders when their applications were complete. The Medicare Improvements for Patients and Providers Act, passed in 2009, terminated Round 1 contracts. See http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/Round-2-and-National-Mail-Order/Overview.html. Round 1 rebid occurred in 2009, with the three-year contracts going into effect on January 1, 2011. Id.
 U.S. Gov’t Accountability Office, GAO-07-59, Improvements Needed to Address Improper Payments for Medical Equipment and Supplies 1 (2007), available at http://www.gao.gov/assets/260/255995.pdf.
 U.S. Gov’t Accountability Office, GAO-14-712T, Medicare fraud: Further Actions Needed to Address Fraud, Waste, and Abuse 7 (2014), available at http://www.gao.gov/assets/670/664381.pdf.
 Ctr. for Medicare & Medicaid Servs., Competitive Bidding Update—One Year Implementation Update (Apr. 17, 2012), available at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/DMEPOSCompetitiveBid/Downloads/Competitive-Bidding-Update-One-Year-Implementation.pdf.
 For example, the American Association for Homecare states that it works “preserve and strengthen access to care for the millions of Americans who require medical care in their homes.” https://www.aahomecare.org/about.
 Ctr for Medicare & Medcaid Servs., DMEPOS Competitive Bidding, http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/DMEPOSCompetitiveBid/index.html.
 Id. It has been argued that, setting the contract price equal to the median bid allows suppliers to manipulate the contract price by submitting low bids. Medicare’s Durable Medical Equipment Competitive Bidding Program: How are Small Suppliers Faring? Before the Subcomm. on Healthcare and Tech. of the H. Comm. On Small Bus., 112th Cong. 3 (2012) (Testimony of Peter Cramton, Professor of Economics, University of Maryland), available at http://smallbusiness.house.gov/uploadedfiles/9-11_cramton_testimony.pdf. Additionally, the bidder selection process is not transparent. Id.
 See Sophia Schechner, Delivery and Set-Up Guidelines for Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS), Center for Medicare Advocacy, (July 10, 2014), available at http://www.medicareadvocacy.org/delivery-and-set-up-guidelines-for-durable-medical-equipment-prosthetics-orthotics-and-supplies-dmepos/.
 Contrary to what its name may suggest, AAH is a national DMEPOS supplier organization.
 Stephanie Bouchard, Medicare’s Competitive Bidding Program Disappoints, Healthcare Finance News, Feb. 28, 2011, available at http://www.healthcarefinancenews.com/news/medicares-competitive-bidding-program-disappoints.
 See our Weekly Alert, The DMEPOS Competitive Bidding Process: Is It Working? (June 26, 2014), http://www.medicareadvocacy.org/the-dmepos-competitive-bidding-process-is-it-working/.
 Gretchen Jacobson et al., Kaiser Family Foundation, Income and Assets of Medicare Beneficiaries, 2013–2030 (Jan. 9, 2014), http://kff.org/report-section/income-and-assets-of-medicare-beneficiaries-2013-2030-issue-brief-income-of-medicare-beneficiaries/.
 Juliette Cubanski et al., Kaiser Family Foundation, Health Care on a Budget: The Financial Burden of Health Spending by Medicare Households (Jan. 9, 2014), http://kff.org/medicare/issue-brief/health-care-on-a-budget-the-financial-burden-of-health-spending-by-medicare-households/.
 Jeffry Young, Medicare Bid Process for Medical Supplies to Expand, U.S. Says, Bloomberg (Aug 19, 2011), available at http://www.bloomberg.com/news/2011-08-19/medicare-bid-process-for-medical-supplies-to-expand-u-s-says.html.
 The surety bond would serve as a performance guarantee. Under certain circumstances, if the supplier does not accept an offered contract, he would forfeit the surety bond. This surety bond would require suppliers to This surety bond is different from the surety bond requirement in section 1834(a)(16) of the Social Security Act which requires suppliers to disclose ownership information for issuance and renewal of bid numbers.
 See American Association for Homecare, DME “Competitive” Bidding: A Bad Medicare Program Producing Bad Results, https://s3.amazonaws.com/aafh/downloads/234/AAHomecare_Round_2_Issue_Brief.pdf?1368201545; South carolina Medical Equipment Services Association, Draft Letter to Congressional Delegation, http://scmesa.com/mydocuments/download.php?f=draft_letter_to_congressional_delegations_shirvinsky2.doc.
 For example, see AAH’s efforts at https://www.aahomecare.org/pages/help-save-homecare-what-you-can-do-to-stop-the-bidding-program. See als, the People for Quality Care’s efforts at http://peopleforqualitycare.com/. The People for Quality Care describes itself as an advocacy group to educate the public about Medicare cuts to medical equipment and services.
 H.R. 3790, 111th Congress (2009).
 H.R. 6490, 112th Congress (2012); H.R. 1717, 112th Congress (2013).
 The market-based pricing system uses an auction system to establish market-based prices around the country. Unlike competitive bidding, the market-based system does not i administrative price setting. For more information on concerns about the market-based pricing system see the Center’s Weekly Alert, Let DMEPOS Competitive Bidding Proceed While Addressing Identified Problems and Concerns (June 13, 2013), available at http://www.medicareadvocacy.org/let-dmepos-competitive-bidding-proceed-while-addressing-identified-problems-and-concerns/.
 American Association of Homecare, Medicare DMEPOS Market Pricing Program Act of 2013, https://s3.amazonaws.com/aafh/downloads/233/HR_1717_Overview.pdf?1368201545.
 Ohio Association of Medical Equipment Services, Binding Bid Legislation Introduced in House, http://oames.org/aws/OAMES/pt/sd/news_article/91003/_PARENT/layout_details/false.
 H.R. 4920, 113th Congress (2014).
 American Association of Homecare, Binding Bids Issue Brief, https://s3.amazonaws.com/aafh/downloads/486/Binding_Bids_Issue_Brief_-_June_2014.pdf?.
 See Center for Medicare Advocacy’s Weekly Alert, Let DMEPOS Competitive Bidding Proceed While Addressing Identified Problems and Concerns, http://www.medicareadvocacy.org/let-dmepos-competitive-bidding-proceed-while-addressing-identified-problems-and-concerns/.
 Initially, ten MSA participated in Round 1 of the CBP, and mandated by the MMA. Under the Medicare Improvements for Patients and Providers Act (MIPPA), during the Round 1 rebid, the number of areas was reduced to 9, and the number of MSAs to be added in Round 2 was increased to 70; the Affordable Care Act (ACA) later changed the number of MSAs to be added in Round 2 to 91. See http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/Round-2-and-National-Mail-Order/Overview.html.
 Theresa Flaherty, CMS has delayed Round 2. What does that mean?, HME News (Apr. 7, 2011), available at http://www.hmenews.com/article/cms-has-delayed-round-2-what-does-mean-0; Frank Vinlaun, Medicare competitive bidding rules blasted by DME providers, MedCity News (Apr. 8, 2011), available at http://medcitynews.com/2011/04/medicare-competitive-bidding-rules-blasted-by-dme-providers/#ixzz399it7U00.
 For a timeline of Round 2 implementation, see http://www.dmecompetitivebid.com/palmetto/cbicrd2.nsf/docsCat/Round%202~Important%20Dates~Timeline?open&expand=1&navmenu=Important%5eDates||. H.R. 2375 also would have delayed round 1 recompete of such DMEPOS competitive bidding program from January 1, 2014, to a date no earlier than six months after the initial implementation of round 2. H.R. 2375, 113th Congress (2013).
 See the letter sent to the CMS administrator by lawmakers expressing their concern about, inter alia, “distortion of bid prices,” http://thompson.house.gov/sites/thompson.house.gov/files/ThompsonBraleyLetterToCMS.pdf.
 House Lawmakers Ask Colleagues to Tell CMS to Delay DME Competitive Bidding (May 23, 2013), http://medbill.net/2013/05/house-lawmakers-ask-colleagues-to-tell-cms-to-delay-dme-competitive-bidding/.
 For examples of stories collected by AAH, see https://s3.amazonaws.com/aafh/downloads/260/AAHomecare_Round_2_Stories_-_August_5_2013.pdf?1378311007.
 See http://www.peopleforqualitycare.com/Medicare-Beneficiary-Complaint-Hotline/.