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Friday, July 26, 2013

Medicare Durable Medical Equipment: The Competitive Bidding Program

Paulette C. Morgan
Specialist in Health Care Financing

The Medicare Supplementary Medical Insurance Program (Part B) currently covers a wide variety of durable medical equipment, prosthetics, orthotics, and other medical supplies (DMEPOS) if they are medically necessary and are prescribed by a physician. Durable medical equipment (DME) is equipment that (1) can withstand repeated use, (2) has an expected life of at least three years (effective for items classified as DME after January 1, 2012), (3) is used to serve a medical purpose, (4) generally is not useful in the absence of an illness or injury, and (5) is appropriate for use in the home. Examples include hospital beds, blood glucose monitors, and wheelchairs. Prosthetic and orthotic devices (PO) are items that replace all or part of an internal body organ, such as colostomy bags, as well as such items as leg braces and artificial legs, arms, and eyes. Medicare also covers some items or supplies (S), such as disposable surgical dressings that do not meet the definition of DME or PO.

Medicare generally pays for most DMEPOS on the basis of fee schedules. Medicare pays 80% of the fee schedule amount, while the beneficiary is responsible for the remaining 20%, plus any unmet deductible. Unless otherwise specified by Congress, fee schedule amounts are updated yearly by a measure of inflation and economy-wide productivity. However, studies by federal agencies have shown that Medicare pays above-market prices for certain items of DME. Such overpayments may be due partly to the fee schedule mechanism of payment, which does not reflect market changes, such as new and less-expensive technologies, changes in production or supplier costs, or geographic price variations.

Congress enacted legislation to establish a Medicare competitive acquisition program (competitive bidding) under which prices for selected DMEPOS sold in specified areas are determined by suppliers’ bids rather than fee schedules. The first round of the program began on July 1, 2008, but was suspended due to implementation concerns. Suppliers submitted new bids for the first round “rebid,” and payments based on winning suppliers’ bids went into place in the first nine areas on January 1, 2011. Round 2 is set to begin in 91 additional areas on July 1, 2013. The process for re-competing the contracts for Round 1 has started, and payments based on winning bids are expected to be in place on January 1, 2014. Starting in 2016, the Secretary of Health and Human Services (the Secretary) is required to either expand competitive bidding to additional areas, or apply information gained from the program to adjust fee schedule amounts in remaining areas.

Competitive bidding has been shown to decrease Medicare payments for DMEPOS, leading to savings for Medicare and lower beneficiary cost sharing. Evidence from the competitive bidding demonstration and the Round 1 Rebid also suggests, based on evaluations of the program thus far, that competition did not deteriorate beneficiary access to DMEPOS, or the quality and product selection available to them.

In general, the technical implementation concerns that halted the 2008 competition appear to have been addressed, however, concerns over the auction methodology have been raised, drawing into question whether the competitively bid payments are an accurate reflection of the market for DMEPOS. Finally, the competitive bidding program will result in fewer suppliers being allowed to sell competitively bid items to Medicare beneficiaries, though all suppliers may continue to sell non-competitively bid items to beneficiaries and may repair competitively bid and noncompetitively bid DMEPOS.

Date of Report: June 26, 2013
Number of Pages: 37
Order Number: R43123
Price: $29.95

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