Medicare:

Past Experience Can Guide Future Competitive Bidding for Medical Equipment and Supplies

GAO-04-765: Published: Sep 7, 2004. Publicly Released: Sep 7, 2004.

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The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) requires the Centers for Medicare & Medicaid Services (CMS) to conduct large-scale competitive bidding for durable medical equipment, supplies, off-the-shelf orthotics, and enteral nutrients and related equipment and supplies provided to beneficiaries. The Balanced Budget Act of 1997 mandated that GAO study an earlier Medicare competitive bidding demonstration. To address this mandate, GAO assessed this past experience in relation to four issues that CMS might consider as it implements large-scale competitive bidding: (1) items for competitive bidding, (2) how to streamline implementation, (3) ways to collect information on specific items provided to beneficiaries, and (4) steps to ensure quality items and services.

CMS's experience in the Medicare competitive bidding demonstration may prove instructive as the agency implements provisions in MMA to conduct large-scale competitive bidding for durable medical equipment, supplies, off-the-shelf orthotics, and enteral nutrients and related equipment and supplies. The experience gained during the demonstration provides insight as the agency considers four implementation issues. Items for competitive bidding: Items for competitive bidding could include those selected for the demonstration and others that account for high levels of Medicare spending. For example, nondemonstration items that CMS could choose for competitive bidding include power wheelchairs and lancets and test strips used by diabetics. In 2002, these three items accounted for about $1.7 billion in charges for the Medicare program and its beneficiaries. How to streamline implementation: Because of the large scale of future competitive bidding, it will be prudent for CMS to consider ways to streamline implementation. Two ways to streamline are developing a standardized competitive bidding approach that can be replicated in multiple geographic locations and using mail-order delivery for selected items, with uniform fees established through a nationwide competition. Ways to collect information on specific items provided to beneficiaries: Gathering specific information on competitively bid items provided to beneficiaries could help ensure that suppliers do not substitute lower-priced items to reduce their costs. Currently, CMS is not able, or does not routinely, collect specific information on the items that suppliers provide to beneficiaries. Steps to ensure quality items and services for beneficiaries: Routine monitoring could help ensure that beneficiaries continue to have access to suppliers that deliver quality items and services. The agency, when implementing significant Medicare changes in the past that affected payment methods, has lacked information on how the changes affected beneficiary access. As competitive bidding expands, small problems could be potentially magnified. Using quality measures to choose multiple suppliers and having suppliers meet more detailed standards than are currently required can also help ensure quality for beneficiaries.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To increase potential savings from competitive bidding, streamline implementation, help ensure that Medicare is paying appropriately for items, and promote beneficiary satisfaction, the Administrator of CMS should monitor beneficiary satisfaction with items and services provided.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: CMS agreed with this recommendation and its final regulation published in April 10, 2007 mentions that the agency will be monitoring beneficiary satisfaction under the Medicare DMEPOS Competitive Bidding Program and are in the process of determining how best to measure it. CMS also expects that implementing DMEPOS quality standards and accreditation will lead to increased quality of items and services throughout the DMEPOS industry.

    Recommendation: To increase potential savings from competitive bidding, streamline implementation, help ensure that Medicare is paying appropriately for items, and promote beneficiary satisfaction, the Administrator of CMS should periodically obtain specific identifying information on selected high-cost items to monitor the characteristics of items subject to competitive bidding that are provided to beneficiaries, such as manufacturer, make, and model number.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: In a September 2004 report on durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS), we recommended that the Centers for Medicare & Medicaid Services (CMS) periodically obtain specific identifying information on high-cost items to monitor the characteristics of items subject to its Medicare DMEPOS Competitive Bidding Program that are provided to beneficiaries, such as manufacturer, make, and model number. In its April 10, 2007 final rule, CMS indicated that it will require suppliers to indicate in their bids the manufacturer, make, and model number of each item they proposed to supply. CMS's contractor responsible for managing the Medicare DMEPOS Competitive Bidding Program will monitor the suppliers chosen through competition to ensure that the items supplied to beneficiaries conform with the proposals in the bids.

    Recommendation: To increase potential savings from competitive bidding, streamline implementation, help ensure that Medicare is paying appropriately for items, and promote beneficiary satisfaction, the Administrator of CMS should evaluate individual HCPCS codes to determine if codes need to be subdivided because the range in characteristics and price of items included under the individual codes is too broad.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: CMS did not concur with this recommendation, but took action to review and revise codes related to power mobility items, such as scooters and power wheelchairs. In October 2006, CMS will implement revised power mobility codes, including the addition of new codes meant to accommodate technological innovations in the power mobility field. See accomplishment report GAO-06-2463A.

    Recommendation: To increase potential savings from competitive bidding, streamline implementation, help ensure that Medicare is paying appropriately for items, and promote beneficiary satisfaction, the Administrator of CMS should consider using mail delivery for items that can be provided directly to beneficiaries in the home, as a way to implement a national competitive bidding strategy.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: The Balanced Budget Act of 1997 (BBA) required CMS to test competitive bidding as a new way for Medicare to set fees for part B items and services specified by CMS. Competitive bidding provides incentives for suppliers to lower their prices for items and services to retain their ability to serve Medicare beneficiaries and potentially increase their market share. Using its authority under the BBA, CMS conducted a competitive bidding demonstration project to set Medicare part B payment rates for selected durable medical equipment, prosthetic, orthotic, and supply (DMEPOS) items. The demonstration project and CMS's authority to conduct competitive bidding ended on December 31, 2002, but in December 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) required CMS to conduct competitive bidding for DMEPOS on a large scale. The BBA mandated that GAO study the effectiveness of the Medicare competitive bidding demonstration, and in September 2004, we recommended that CMS consider using mail delivery for items that can be provided directly to beneficiaries in the home, as a way to implement a national competitive bidding strategy. In response, CMS stated it would explore the feasibility of using mail-order delivery for items that could be provided directly to beneficiaries in the home. CMS's April 10, 2007 final rule stated mail order suppliers would be eligible to submit bids to furnish items in designated Competitive Bidding Areas (CBAs) established for the 2007 and 2009 implementation phases of its competitive bidding program. Shortly thereafter, CMS invited bid submissions for the competitive bidding program. For example, on July 27, 2007, the agency announced the contract period for mail order diabetic supplies for CBAs will be July 1, 2008 - March 31, 2010 with a bid submission deadline of September 25, 2007.

    Recommendation: To increase potential savings from competitive bidding, streamline implementation, help ensure that Medicare is paying appropriately for items, and promote beneficiary satisfaction, the Administrator of CMS should develop a standardized approach for competitive bidding for use at multiple locations.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: CMS concurred with this recommendation. CMS's May 1, 2006 proposed rule governing the full competitive bidding program demonstrates key areas where CMS will use a standardized approach in implementing the full program - such as in item selection and bidding requirements. See accomplishment report GAO-06-2565A.

    Recommendation: To increase potential savings from competitive bidding, streamline implementation, help ensure that Medicare is paying appropriately for items, and promote beneficiary satisfaction, the Administrator of CMS should consider conducting competitive bidding for demonstration items and items that represent high Medicare spending that were not included in the competitive bidding demonstration.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: On May 1, 2006, CMS published a proposed rule describing its methodology for choosing items for the full competitive bidding program. The rule indicates that CMS will not be wedded exclusively to the particular set of items used during the demonstration program and items not included in the demonstration can and will be considered for the full program. See accomplishment report GAO-06-2381A.

    Recommendation: To increase potential savings from competitive bidding, streamline implementation, help ensure that Medicare is paying appropriately for items, and promote beneficiary satisfaction, the Administrator of CMS should seek input from individuals with technical knowledge about the items and services suppliers provide to beneficiaries.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: CMS agreed with this recommendation and convened a panel of experts to assist in the implementation of competitive bidding.

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