MEDICARE TO SAVE AVERAGE OF 26% FOR SOME DURABLE MEDICAL EQUIPMENT, PROSTHETICS, ORTHOTICS, AND SUPPLIES

A new method of paying for some items of medical equipment and supplies means that Medicare beneficiaries who use those items in ten select regions of the country will see average savings of 26 percent. The savings will be realized through the first round of a new competitive bidding program that will be used to price certain durable medical equipment, prosthetics, orthotics and supplies.

“This new program means that Medicare beneficiaries will have access to some medical equipment and supplies at substantially lower prices than they are paying now,” said CMS Acting Administrator Kerry Weems. “The Medicare program and taxpayers will share in these savings. This program represents yet another way to use the competitive marketplace to bring the best possible and most efficient care and services to people with Medicare. Because new accreditation and quality standard initiatives are being implemented in conjunction with the phase in of competitive bidding, this program will provide assurance to beneficiaries that they are receiving high quality medical equipment for home use.”

The first round of the program begins July 1, 2008 in Charlotte, Cincinnati, Cleveland, Dallas, Kansas City, Miami, Orlando, Pittsburgh, Riverside and San Juan.

Suppliers that wished to participate in the program submitted bids last year.

CMS will announce the contract suppliers once all contracts have been executed.

As part of the first round of the competitive bidding program, beneficiaries and Medicare should expect to see significant savings on the cost of the medical equipment and supplies as seen by the examples of savings for three frequently used items (oxygen concentrators, semi-electric hospital beds, and blood glucose testing suppliers) below.

Item/Period of Service Current Allowed Amount New Allowed ** Amount Medicare Savings ** 80% of Difference Beneficiary Savings 20% of Difference
         
Concentrator        
Per month $199.28 $140.82 $46.77 $11.69
Per year $2,391.36 $1,689.84 $561.24 $140.28
Per 3 years* $7,174.08 $5,069.52 $1,683.72 $420.84
         
Hospital Bed        
Per month $140.46 $99.28 $32.94 $8.24
Per 13 months* $1,474.78 $1,042.46 $345.86 $86.46
         
Diabetic Supplies        
Per month $82.68 $47.53 $28.12 $7.03
Per year $992.16 $570.36 $337.44 $84.36
Per 3 years $2,976.48 $1,711.08 $1,012.32 $253.08

* 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

Medicare made approximately 889,000 monthly payments for oxygen concentrators, 171,000 monthly payments for semi-electric hospital beds, and 2,000,000 payments for boxes of 50 test strips in 2006 in the 10 communities included in the first round of the DMEPOS Competitive Bidding Program.

All suppliers that submitted bids are being notified of the final results of the bid evaluation by CMS.  The bid evaluation process ensures that there will be a sufficient number of suppliers, including small suppliers, to meet the needs of the beneficiaries living in the competitive bidding areas. Small suppliers, those with gross revenues of $3.5 million or less, make up about 64 percent of the suppliers offered contracts in the first round.

Suppliers whose bids were within the winning range will receive contracts to become Medicare contract suppliers.  Suppliers whose bids qualified but were not in the winning range will receive a notice that they may receive a contract from CMS if one of the suppliers offered a contract decides not to participate in the program. Suppliers whose bids were disqualified will be notified of the reasons they did not qualify for the program. Suppliers that are not contract suppliers for the first round of DMEPOS competitive bidding program may bid in Round 2 this summer or in future rounds.

Because of these savings, beneficiaries living in the 10 first round communities will be choosing a new Medicare contract supplier.  Medicare will work with local partners to inform beneficiaries about the changes. Suppliers that are not contract suppliers may continue to provide certain rented DME equipment and oxygen and oxygen equipment for existing clients in the Medicare program if they elect to continue furnishing the items as “grandfathered” suppliers.

Additional information on the DMEPOS competitive bidding program is available here.

FACT SHEET

NEW PROGRAM REDUCES COSTS FOR CERTAIN DURABLE MEDICAL EQUIPMENT, PROSTHETICS, ORTHOTICS, AND SUPPLIES

NEW PAYMENT RATES AND SUPPLIER SELECTION PROCESS FOR FIRST ROUND

Program Background:

The Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program was mandated by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Medicare Modernization Act” or “MMA”).  The new program’s objectives include:

  • Assuring beneficiary access to quality DMEPOS;
  • Reducing the amount Medicare pays for DMEPOS items;
  • Reducing financial burden on beneficiaries by reducing the coinsurance they pay for DMEPOS items; and
  • Contracting with suppliers who meet quality and financial standards.

It is also anticipated that since suppliers must be accredited to participate, the program will help deter fraud with respect to DMEPOS suppliers.

Competitive bidding provides a way to harness the marketplace to obtain a better value for Medicare beneficiaries using DMEPOS items and services.  The new program changes the way that Medicare determines the payment amounts for these items and services under Part B of the Medicare program by replacing the current DMEPOS fee schedule payment amounts for selected items in certain areas with payment amounts based on competitive bids.

The program will start in competitive bidding areas (CBAs) defined by zip codes within ten of the largest Metropolitan Statistical Areas (MSAs).  The MSAs in Round 1 include Charlotte, Cincinnati, Cleveland, Dallas, Kansas City, Miami, Orlando, Pittsburgh, Riverside and San Juan.  The program will expand to 70 additional MSAs in 2009 and additional areas after 2009. The competitive bidding program will offer beneficiaries in the designated CBAs access to quality DMEPOS products and services and lower out-of-pocket costs.  The program also provides special considerations for small suppliers, defined as having gross revenues of $3.5 million or less, to participate in the competitive bidding program. When fully implemented, the program is projected to save Medicare about $1 billion annually.

CMS conducted a demonstration program on the DMEPOS competitive bidding program from 1999 through 2002 in which patient impact and quality of care were assessed. The demonstration projects in Texas and Florida produced significant savings for beneficiaries and taxpayers without hindering access to DMEPOS items and services.  In designing the current DMEPOS competitive bidding program, CMS built on the experiences from those demonstrations.

New Payment Rates for Round 1:

As a result of the competitive bidding process, the amounts that Medicare will pay for the 10 product categories included in Round 1 of the DMEPOS Competitive Bidding Program overall average 26% less than Medicare’s current fee schedule amounts.

The average percentage savings, to both beneficiaries and Medicare, from the current fee schedule amount for each product category included in the competitive bidding program are as follows:

  • Oxygen and Oxygen Equipment: 27%
  • Standard Power Wheelchairs, Scooters and Related Accessories: 21%
  • Complex Rehabilitative Power Wheelchairs and Related Accessories: 15%
  • Mail Order Diabetic Supplies: 43%
  • Enteral Nutrients, Supplies, and Equipment (food and equipment for people who receive their nutrition through feeding tubes): 26%
  • Continuous Positive Airway Pressure Devices, Respiratory Assist Devices and Related Supplies and Accessories: 29%
  • Hospital Beds and Related Accessories: 29%
  • Negative Pressure Wound Therapy Pumps and Related Supplies and Accessories: 14%
  • Walkers and Related Accessories: 27%
  • Support Surfaces, such as specialized mattresses to help people with pressure ulcers: 36%

If there were not enough qualified, accredited suppliers that submitted bids in a certain competitive bidding area to assure that beneficiaries have access to a particular DMEPOS product category, then that product category was not included in the competitive bidding program for that area.   The program will be successful in lowering Medicare payments as well as beneficiary out-of-pocket expenses for necessary items.  The following are examples of savings for three commonly used items: oxygen equipment (e.g., oxygen concentrators); semi-electric hospital beds; and diabetic testing supplies (test strips and lancets). 

OXYGEN CONCENTRATORS
In the competitive bidding areas, Medicare suppliers are currently paid based on a fee schedule amount of $199.28 per month for stationary oxygen equipment (e.g., oxygen concentrators), of which the beneficiary pays 20 percent. After the supplier is paid $7,174.08 over the course of 36 months, of which the beneficiary pays $1,434.82, title for the equipment is transferred to the beneficiary. Medicare payments are then made every 6 months for the maintenance and inspection of the patient owned equipment. In addition, Medicare payments can be made at any time for any necessary repairs of patient owned equipment. Under the competitive bidding program, the average Medicare allowed monthly payment amount in the competitive bidding areas will be reduced by 29 percent from $199.28 to $140.82.

HOSPITAL BEDS
In the competitive bidding areas, Medicare suppliers are currently paid based on a fee schedule amount of $140.46 per month for three months for the rental of a semi-electric hospital bed of which the beneficiary pays 20 percent. Beginning in month four, the rental fee is reduced by 25 percent to approximately $105.34 per month. After the supplier is paid $1,474.78 over the course of 13 months, the beneficiary owns the bed. Under the competitive bidding program, the average Medicare allowed monthly payment amount in the competitive bidding areas will be reduced by 29 percent from $140.46 to $99.28, and the beneficiary will pay the 20 percent coinsurance.

DIABETIC TESTING SUPPLIES
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.

The savings generated for these commonly utilized 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:
 

Item/Period of Service Current Allowed Amount New Allowed ** Amount Medicare Savings ** 80% of Difference Beneficiary Savings 20% of Difference
         
Concentrator        
Per month $199.28 $140.82 $46.77 $11.69
Per year $2,391.36 $1,689.84 $561.24 $140.28
Per 3 years* $7,174.08 $5,069.52 $1,683.72 $420.84
         
Hospital Bed        
Per month $140.46 $99.28 $32.94 $8.24
Per 13 months* $1,474.78 $1,042.46 $345.86 $86.46
         
Diabetic Supplies        
Per month $82.68 $47.53 $28.12 $7.03
Per year $992.16 $570.36 $337.44 $84.36
Per 3 years $2,976.48 $1,711.08 $1,012.32 $253.08

* 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

Medicare made approximately 889,000 monthly payments for oxygen concentrators, 171,000 monthly payments for semi-electric hospital beds, and 2,000,000 payments for boxes of 50 test strips in 2006 in the 10 CBAs included in the first round of the DMEPOS Competitive Bidding Program.

A complete list of payment amounts is available at the following Web site:  http://www.dmecompetitivebid.com.

Supplier Education:

CMS conducted a comprehensive supplier education campaign for this program. The proposed regulation was published on May 1, 2006, giving stakeholders an opportunity to see how the program would be implemented and allow their comments to help shape the program. Quality standards and the accreditation processes were released in August 2006, and CMS informed those who would participate in the competitive program to start preparing by getting accredited.

Preliminary education began months before the final regulation was issued, and the formal education campaign began when the final regulation was announced on April 2, 2007. Prior to opening the supplier bid window on May 15, 2007, CMS established a dedicated Web site, www.dmecompetitivebid.com, with a comprehensive array of important information for suppliers, including a tool kit, fact sheets, Web casts, and questions and answers. CMS also held Open Door Forums and sent listserv announcements in order to disseminate key information about the program. After opening the bidding window, CMS held six bidders’ conferences, during which various parts of the bidding process were explained.  All of the bidders’ conferences were held via teleconference to ensure maximum opportunities for suppliers to participate.

CMS provided extensive education and support to suppliers regarding the on-line bidding system, and answered supplier questions and posted them on the competitive bid Web site. CMS also provided a toll-free help desk to help bidders with all of their questions and concerns. Every bidder received a letter explaining the accreditation requirements. Every bidder also received e-mail reminders to check its bids and submit the required financial documents.  In response to supplier requests, CMS provided several extensions to the bid deadline, which ultimately concluded on September 25, 2007.

Bid Evaluation:

CMS conducted the bid evaluation in accordance with the requirements specified in the final regulation and under the request for bids (RFB), which provided detailed information of what suppliers must submit in their bids.  Bids that did not comply with these requirements were disqualified and eliminated from consideration. Examples of reasons why bids could be disqualified include:

  • The bidder did not meet supplier enrollment standards.
  • The bidder did not submit a bona fide bid that complied with all the terms and conditions contained in the RFB.
  • The bidder did not meet applicable quality standards developed by CMS in accordance with section 1834(a)(20) of the Social Security Act/was not accredited by a CMS-approved accreditation organization.
  • The bidder did not meet financial standards or submit the applicable financial documentation specified in the RFB.
  • If the bidder was a network of small suppliers working together and the bid did not meet the special requirements for networks.
  • The bidder did not submit one bid for commonly-owned or controlled suppliers.

In some cases it was necessary for CMS to ask bidders to provide documentation to substantiate that their bids met the requirements established in the regulations and/or RFB.  Bids that were substantiated as meeting these requirements were accepted. Bids that could not be substantiated were disqualified and eliminated from consideration. To ensure fairness to all bidders, no bidders were permitted to change their bids after they were submitted.

  • CMS then evaluated all qualified bids submitted for items within a product category by:
  • Calculating the expected beneficiary demand in the CBA for the items in the product category;
  • Calculating the total supplier capacity that would be sufficient to meet the expected beneficiary demand in the CBA for the items in the product category;
  • Establishing a composite bid for each supplier and network that submitted a bid for the product category. (A “composite bid” means the sum of supplier’s weighted bids for all items within a product category for purposes of allowing a comparison across bidding suppliers.)
  • Arraying the composite bids from the lowest composite bid price to the highest composite bid price.
  • Calculating the pivotal bid for the product category. (“Pivotal bid” means the lowest composite bid based on bids submitted by suppliers for a product category that includes a sufficient number of suppliers to meet beneficiary demand for the items in that product category.)
  • Selecting the winning suppliers that will receive contract offers from CMS —this includes suppliers and networks whose composite bids are less than or equal to the pivotal bid for that product category, and that meet the basic eligibility, accreditation, and financial standard requirements.  In addition, as explained below, some small suppliers whose composite bids are above the pivotal bid may receive contract offers from CMS in order to meet the small supplier target.

CMS will offer contracts to at least five suppliers if there are at least five winning suppliers. However, CMS will offer contracts to as few as two suppliers if there are fewer than five suppliers that qualify and meet the participation requirements, and these suppliers have sufficient capacity to meet the beneficiary demand in the area for the product category.

The new single payment amount that will replace the current fee schedule amount is the median of the supplier bids that were less than or equal to the pivotal bid per individual item within each product category.

Small Supplier Protections:

CMS ensured that small suppliers had the opportunity to participate in the competitive bidding program by taking the following steps:

  1. Setting a target number for small supplier participation by multiplying 30 percent by the number of qualified suppliers whose bids were less than or equal to the pivotal bid.
  2. Identifying the number of qualified small suppliers whose composite bids were at or below the pivotal bid for the product category.
  3. If the number in step 2 was less than the number in step 1, then CMS selected additional small suppliers whose composite bids were above the pivotal bid for the product category in ascending order based on the proximity of each small supplier’s composite bid to the pivotal bid, until the number in step 1 is reached or there were no more composite bids submitted by small suppliers for the product category.

Contract Award Process:

CMS will notify all suppliers who bid of their results.  Suppliers whose bids were in the winning range will be mailed contracts requiring their signatures. Suppliers with qualifying bids but whose bids were not in the winning range may still receive a contract offer from CMS if one of the suppliers offered a contract decides not to become a contract supplier. Suppliers whose bids were disqualified because their bids did not meet the requirements established in the regulations or the RFB will receive a letter informing them of the reason(s) for disqualification.

Timeline of Events:

March 2008 CMS announces new payment rates for Round 1 derived from competitive bidding and begins contracting process with suppliers
May 2008 CMS announces the Medicare contract suppliers for Round 1
May to July 2008 CMS conducts beneficiary education campaign
July 1, 2008 Payment rates for Medicare contract suppliers for Round 1 go into effect