In 2007,  Medicare spent a total of $430.3 billion. On July 15, 2008, MIPPA was enacted, which terminated the CBP contracts  awarded during round 1. However, MIPPA, which was  enacted on July 15, 2008, terminated the CBP round 1 contracts. Of the 6,374 bids submitted by 1,010 suppliers, half  were disqualified before competing on price—most often for missing  financial documentation or noncompliance with accreditation  requirements. About One-Quarter of the Submitted Bids Resulted in Contracts, but Almost Half Were Disqualified for Missing Financial Documentation

Once the contract award process was completed, 22 percent of the bids  submitted (1,372 of 6,374) resulted in contracts between CMS and  suppliers to provide DME and other items to Medicare beneficiaries. CMS Estimated a 26 Percent Reduction in CBP Single Payment Amounts Compared to the Medicare Fee Schedule

CMS estimated that, compared to the 2008 Medicare fee schedule, the  volume-weighted reduction in Medicare’s payment amounts for items  acquired under CBP round 1 would have averaged 26 percent. CMS Had Difficulty Providing Bidders with Clear, Timely Information, and Its Electronic Bid Submission System Was Problematic

CMS’s implementation of CBP round 1 presented several challenges to  suppliers. Some bid submission information was poorly timed and unclear,  confusing suppliers about bidding requirements and compelling some to  revise and resubmit their bids. CMS did not notify all  suppliers of its postbidding review process, which reinstated some bids  that CMS found to have been incorrectly disqualified. Though the PAOC  provided input to CMS to address potential supplier challenges during the  development and implementation of CBP round 1, some issues raised were  not fully resolved, such as concerns about missing or lost financial  documentation, the absence of a formal CMS bid review process, the  concern that small suppliers would be disadvantaged, and that the supplier  quality standards were not finalized before the CBP round 1 bid window  opened. CMS Has Taken Several Steps to Improve Future Rounds of the CBP, Including Implementing MIPPA Provisions and Addressing IT Operational Problems

CMS has taken several steps to improve future rounds of the CBP. Notification of missing financial documentation. CBP ombudsman. Second, CMS announced the timeline for the round 1 rebid bid window in  advance, and to improve the quality and availability of information to  bidding suppliers, CMS launched an intensive bidder education campaign  to provide suppliers with all the information necessary to submit a  complete bid during the round 1 rebid bid window. According to CMS, the  request-for-bid instructions has been made clearer and more  understandable. Some  challenges may be expected for a new program, but problems occurred, in  part because of poor communication by CMS and an inadequate electronic  bid submission system. Because CMS did not effectively  notify suppliers of the postbidding review conducted in round 1, some  suppliers missed the opportunity to have their disqualified bids reviewed. Appendix I: Scope and Methodology

To assess the Centers for Medicare & Medicaid Services’s (CMS)  implementation of round 1 of the competitive bidding program (CBP), we  reviewed federal laws and regulations. We also interviewed officials from  CMS and Palmetto GBA—the contractor CMS selected to implement the  CBP bidding and contract award process—about the results of the bid  submission and review processes, CMS’s major challenges in  implementing CBP round 1, and the actions taken to improve future CBP  rounds. In addition, we interviewed Maricom officials and reviewed available  documentation related to the development, testing, and proposed  implementation of the new electronic bid submission system—Durable  Medical Equipment, Prosthetics, Orthotics, and Supplies bidding system  (DBidS)—that will be used during the CBP round 1 rebid. Appendix II: Change in Numbers of Suppliers by CBP Product Category and CBA: 2006- 2008

Appendix II: Change in Numbers of Suppliers  by CBP Product Category and CBA: 2006-2008 Competitive bidding area (CBA)
Competitive bidding area (CBA)
Competitive bidding area (CBA)
Support Surfaces (group 2 mattresses and overlays)
This table identifies the total number of suppliers that provided services in each competitive bidding  area (CBA) for each product category in CY 2006 with allowed charges for items in the product  category greater than $10,000 and the number of suppliers awarded CBP contracts in round 1 as of  June 11, 2008.  uipment, and supplies are used to provide food through a tube placed in the  nose, the stomach, or the small intestine. Medicare: Competitive Bidding for Medical Equipment and Supplies  Could Reduce Program Payments, but Adequate Oversight Is Critical.
Why GAO Did This Study

In 2007, Medicare spent $8.3 billion for durable medical equipment (DME) and related supplies. To reduce spending, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) required that the Centers for Medicare & Medicaid Services (CMS) phase in, with several rounds of bidding, a large-scale competitive bidding program (CBP) for certain DME and other items. DME suppliers began bidding in round 1 of the CBP on May 15, 2007. After contracts were awarded, the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), was enacted on July 15, 2008. Because of numerous concerns MIPPA delayed the program, terminated supplier contracts, and required CMS to begin the CBP round 1 rebid in 2009. GAO was asked to report on (1) the results of CBP round 1, (2) the major challenges CMS had in conducting CBP round 1, and (3) the steps CMS has taken to improve future CBP rounds. GAO reviewed CMS data and relevant laws and regulations, and interviewed officials from CMS and its contractors, and DME suppliers and professional associations.

What GAO Found

About a quarter of the bids submitted during CBP round 1 resulted in awarded contracts. The contracts were in effect until terminated by MIPPA on July 15, 2008. Of the 6,374 bids submitted by 1,010 suppliers, half were disqualified before competing on price. Bids were most often disqualified for missing financial documentation or noncompliance with accreditation requirements. In nearly two-thirds of CBP round 1's price competitions--in which suppliers submitted bids to deliver items for a specific product category within a specific competitive bidding area (CBA)--the number of suppliers decreased by at least half. The largest decreases in suppliers were in the Miami CBA. CMS estimated that the reduction in Medicare payments for items acquired as a result of CBP round 1 would have averaged 26 percent when compared to payments under the Medicare fee schedule. CBP's round 1 presented several challenges to suppliers, including poor timing and lack of clarity in bid submission information, a failure to inform all suppliers that losing bids could be reviewed, and an inadequate electronic bid submission system. CMS provided some clarifying information about bidding after the bid window opened, repeatedly extended the bid window deadlines, and provided updated guidance to bidders throughout the bid window. The information CMS provided to suppliers about bidding requirements was sometimes unclear and inconsistent, particularly regarding financial documentation. CMS did not effectively notify suppliers of its postbidding review process. Because some suppliers were not aware of the review process, they missed the opportunity to have their disqualified bids reviewed. CMS found that some bids had been incorrectly disqualified. Finally, several problems with the electronic bid submission system, including data losses from automated logouts and unscheduled downtimes, made it difficult for some suppliers to submit bids. CMS has taken several steps to improve the bidding process for the round 1 rebid and subsequent rounds of the CBP. CMS is implementing MIPPA provisions to notify suppliers of missing financial documentation and create a CBP ombudsman. It has reduced financial documentation requirements and revised the request for bid instructions to make it clearer and more understandable. It is also developing a new electronic bidding submission system, the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies bidding system (DBidS), which the agency claims will address the deficiencies of the system used for round 1. Bidding for the round 1 rebid began in late October 2009. The CBP has the potential to produce considerable benefits, including reducing overall Medicare spending for DME and limiting potential fraud through increased scrutiny of suppliers. Although challenges may be expected for any new program, problems occurred in round 1 because of poor communication by CMS and an inadequate bid submission system.