Medicare Program; Competitive Acquisition for Certain Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) and Other Issues, 17992-18090 [07-1701]
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Federal Register / Vol. 72, No. 68 / Tuesday, April 10, 2007 / Rules and Regulations
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Parts 411 and 414
[CMS–1270–F]
RIN 0938–AN14
Medicare Program; Competitive
Acquisition for Certain Durable
Medical Equipment, Prosthetics,
Orthotics, and Supplies (DMEPOS) and
Other Issues
Centers for Medicare &
Medicaid Services (CMS), HHS.
ACTION: Final rule.
AGENCY:
SUMMARY: This final rule establishes
competitive bidding programs for
certain Medicare Part B covered items of
durable medical equipment, prosthetics,
orthotics, and supplies (DMEPOS)
throughout the United States in
accordance with sections 1847(a) and
(b) of the Social Security Act. These
competitive bidding programs, which
will be phased in over several years,
utilize bids submitted by DMEPOS
suppliers to establish applicable
payment amounts under Medicare Part
B.
DATES: Effective Date: This final rule is
effective on June 11, 2007.
FOR FURTHER INFORMATION, CONTACT:
Lorrie Ballantine, (410) 786–7543, Ralph
Goldberg, (410) 786–4870, Karen Jacobs,
(410) 786–2173, Michael Keane, (410)
786–4495, Alexis Meholic, (410) 786–
5395, Linda Smith, (410) 786–5650.
SUPPLEMENTARY INFORMATION:
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Alphabetical Listing of Acronyms
Appearing in This Final Rule
ABN
Advance Beneficiary Notice
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BBA Balanced Budget Act of 1997, Pub. L.
105–33
BESS [Medicare] Part B Extract and
Summary System
CBA Competitive bidding area
CBIC Competitive bidding implementation
contractor
CBSA Core-based statistical area
CMS Centers for Medicare & Medicaid
Services
CPI–U Consumer Price Index—All Urban
Consumers
CPT [Physician] Current Procedural
Terminology, Fourth Edition, 2007,
copyrighted by the American Medical
Association. CPT is a trademark of the
American Medical Association
CY Calendar year
DME Durable medical equipment
DME MAC Durable Medical Equipment
Medicare Administrative Contractor
DMEPOS Durable medical equipment,
prosthetics, orthotics, and supplies
DMERC Durable medical equipment
regional carrier
DRA Deficit Reduction Act of 2005, Pub. L.
109–171
FAR Federal Acquisition Regulation
FEHB Federal Employees Health Benefits
Program
FFS Fee-for-service
FTE Full-time equivalent
GAO Government Accountability Office
HCPCS Healthcare Common Procedure
Coding System
HHA Home health agency
HHS Department of Health and Human
Services
HIPAA Health Insurance Portability and
Accountability Act of 1996, Pub. L. 104–
191
IIC Inflation indexed charge
IRF Inpatient rehabilitation facility
MMA Medicare Prescription Drug,
Improvement, and Modernization Act of
2003, Pub. L. 108–173
MSA Metropolitan Statistical Area
NAICS North American Industry
Classification System
NF Nursing facility
NPWT Negative pressure wound therapy
NSC National Supplier Clearinghouse
OBRA ’87 Omnibus Budget Reconciliation
Act of 1987, Pub. L. 100–203
OIG Office of the Inspector General, HHS
OTS Off-the-shelf
PAOC Program Advisory and Oversight
Committee
PEN Parenteral and enteral nutrition
POV Power-operated vehicle
RFB Request for bids
SADMERC Statistical Analysis Durable
Medical Equipment Regional Carrier
SBA Small Business Administration
SGD Speech generating device
SNF Skilled nursing facility
TENS Transcutaneous electrical nerve
stimulator
To assist readers in referencing
sections contained in this document, we
are providing the following table of
contents:
Table of Contents
I. Provisions of the May 1, 2006 Proposed
Rule
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A. Summary of the Proposed Rule
B. Public Comments Received
II. Issuance of Final Rules
A. Issuance of the FY 2007 IRF Final Rule
Which Finalized Certain Provisions
Relating to Competitive Acquisition for
DMEPOS and the Accreditation of
DMEPOS Suppliers
B. Future Issuance of a Final Rule on
Certain Other Provisions Addressed in
the May 1, 2006 Proposed Rule
III. Payment for DMEPOS Under Medicare
Part B: Background
A. Payment for DMEPOS on the Basis of
Reasonable Charges
B. Payment for DMEPOS Under Fee
Schedules
C. Use of the Healthcare Common
Procedure Coding System (HCPCS)
IV. Medicare Competitive Bidding
Demonstrations
V. Discussion of the Provisions of This Final
Rule
VI. Medicare DMEPOS Competitive Bidding
Program
A. Legislative Authority and Program
Advisory and Oversight Committee
l. Legislative Authority
2. Program Advisory and Oversight
Committee
B. Purpose and Definitions (§§ 414.400 and
414.402)
C. Competitive Bidding Implementation
Contractors (CBICs) (§§ 414.406(a) and
(e))
D. Payment Under the Medicare DMEPOS
Competitive Bidding Program
1. Payment Basis (§§ 414.408(a), (c), and
(d))
2. General Payment Rules
3. Special Rules for Certain Rented Items
of DME and Oxygen (Grandfathering of
Suppliers) (§ 414.408(j))
a. Process for Grandfathering Suppliers
b. Payment Amounts to Grandfathered
Suppliers
(1) Grandfathering of Suppliers Furnishing
Items Prior to the First Competitive
Bidding Program in a CBA
(2) Suppliers That Lose Their Contract
Status in a Subsequent Competitive
Bidding Program
c. Payment for Accessories for Items
Subject to Grandfathering
4. Payment Adjustments
a. Adjustment to Account for Inflation
(§ 414.408(b))
b. Adjustments to Single Payment
Amounts to Reflect Changes to the
HCPCS (§ 414.426)
5. Authority to Adjust Payments in Other
Areas
6. Requirement to Obtain Competitively
Bid Items From a Contract Supplier
(§ 414.408(e))
7. Limitation on Beneficiary Liability for
Items Furnished by Noncontract
Suppliers (§§ 414.408(e)(2)(iv) and (e)(3))
8. Payment for Repair and Replacement of
Beneficiary-Owned Items (§ 414.408(l))
E. Competitive Bidding Areas (§§ 414.406
and 414.410)
1. Background
2. Methodology for MSA Selection for CYs
2007 and 2009 Competitive Bidding
Programs (§§ 414.410(a) and (b))
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a. MSAs for CY 2007
b. MSAs for CY 2009
3. Establishing Competitive Bidding Areas
and Exemption of Rural Areas and Areas
With Low Population Density Within
Urban Areas (§ 414.410(c))
4. Establishing Competitive Bidding Areas
for CYs 2007 and 2009 (§§ 414.406(b)
and (c))
5. Nationwide or Regional Mail Order
Competitive Bidding Program
(§§ 414.410(d)(2) and 414.412(f) and (g))
6. Additional Competitive Bidding Areas
After CY 2009 (§ 414.410(e))
F. Criteria for Item Selection (§§ 414.402
and 414.406(d)(1))
G. Submission of Bids for Competitively
Bid DMEPOS (§§ 414.404, 414.408,
414.412. and 412.422)
1. Furnishing of Items (§§ 414.412(c) and
414.422(e))
a. Furnishing of Items to Medicare
Beneficiaries Who Maintain a Permanent
Residence in a CBA
b. Furnishing of Items to Medicare
Beneficiaries Whose Permanent
Residence Is Outside a CBA
2. Requirement for Providers to Submit
Bids (§§ 414.404(a)(2) and 414.422(e)(2))
3. Physicians and Certain Nonphysician
Practitioners (§§ 414.404(a) and (b))
4. Product Categories for Bidding Purposes
(§§ 414.402 and 414.412(b) Through (e))
5. Bidding for Specific Types of Items and
Associated Payment Rules (§§ 414.408(f)
Through (j))
a. Inexpensive or Other Routinely
Purchased DME Items (§§ 414.408(f) and
(h)(6))
b. DME Items Requiring Frequent and
Substantial Servicing (§ 414.408(h)(7))
c. Oxygen and Oxygen Equipment
(§§ 414.408(i) and (j))
d. Capped Rental Items (§ 414.408(h))
e. Enteral Nutrients, Equipment, and
Supplies (§§ 414.408(f), (g)(2), and (h))
f. Maintenance and Servicing of Enteral
Nutrition Equipment (§§ 414.408(h)(5)
and (i)(5))
g. Supplies Used in Conjunction With DME
(§ 414.408(g)(1))
h. Off-the-Shelf Orthotics (§ 414.408(g)(4))
VII. Conditions for Awarding Contracts for
Competitive Bids
A. Quality Standards and Accreditation
B. Eligibility (§ 414.414(b))
C. Financial Standards (§ 414.414(d))
D. Evaluation of Bids (§ 414.414(e))
1. Market Demand and Supplier Capacity
(§§ 414.414(e)(1) and (e)(2))
2. Composite Bids (§§ 414.414(e)(3) and
(e)(4))
3. Determining the Pivotal Bid
(§§ 414.414(e)(5) and (e)(6))
4. Assurance of Savings (§ 414.414(f))
5. Assurance of Multiple Contractors
(§ 414.414(h))
6. Selection of New Suppliers After
Bidding (§ 414.414(i))
VIII. Determining Single Payment Amounts
for Individual Items
A. Setting Single Payment Amounts for
Individual Items (§§ 414.416(a) and (b))
B. Rebate Program
IX. Terms of Contracts
A. Terms and Conditions of Contracts
(§§ 414.422(a) Through (c))
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B. Change in Ownership (§ 414.422(d))
C. Suspension or Termination of a Contract
(§§ 414.422(f) and (g))
X. Administrative or Judicial Review of
Determinations Made Under the
Medicare DMEPOS Competitive Bidding
Program (§ 414.424)
XI. Opportunity for Participation by Small
Suppliers (§ 414.414(g))
XII. Opportunity for Networks (§ 414.418)
XIII. Education and Outreach for Suppliers
and Beneficiaries
XIV. Monitoring and Complaint Services for
the Medicare DMEPOS Competitive
Bidding Program
XV. Physician or Treating Practitioner
Authorization and Consideration of
Clinical Efficiency and Value of Items in
Determining Categories for Bids
(§ 414.420)
XVI. Other Public Comments Received on the
May 1, 2006 Proposed Rule
XVII. Collection of Information Requirements
XVIII. Regulatory Impact Analysis
A. Overall Impact
1. Executive Order 12866
2. Regulatory Flexibility Act (RFA)
3. Small Rural Hospitals
4. Unfunded Mandates
5. Federalism
B. Regulatory Flexibility Analysis
1. Summary
2. The Need for and Objective of the Final
Rule
3. Comments Regarding Small Suppliers
a. Comments on Small Supplier Focus
Groups
b. Comments on the Definition of Small
Supplier
c. Comments on the Protections for Small
Suppliers
d. Comments on Bidding Requirements for
Physician and Other Providers
e. Comments on Bidding by Product
Category
f. Comments on Financial Standards
g. Comments on Supplier Networks
4. Description and Estimate of the Number
of Small Entities
5. Projected Reporting, Recordkeeping, and
Other Compliance Requirements
6. Agency Efforts to Minimize the
Significant Impact on Small Entities
C. Anticipated Effects
D. Implementation Costs
E. Program Savings
F. Effect on Beneficiaries
G. Effect on Suppliers
1. Affected Suppliers
2. Small Suppliers
H. Accounting Statement
I. Executive Order 12866
orthotics, and supplies (DMEPOS)
under sections 1847(a) and (b) of the
Social Security Act (the Act), as
amended by section 302(b)(1) of the
Medicare Prescription Drug,
Improvement, and Modernization Act of
2003 (MMA), Pub. L. 108–173.
• Implement requirements for
independent accreditation organizations
that will be applying quality standards
to all DMEPOS suppliers as required by
section 1834(a)(20) of the Act. (We note
that, as explained later under section
VII. of this final rule, we have finalized
certain provisions of the May 1, 2006
proposed rule relating to accreditation
in the DMEPOS provisions of a final
rule entitled ‘‘Inpatient Rehabilitation
Facility Prospective Payment System for
Federal FY 2007; Provisions Concerning
Competitive Acquisition for Durable
Medical Equipment, Prosthetics,
Orthotics, and Supplies (DMEPOS);
Accreditation of DMEPOS Suppliers,’’
which appeared in the Federal Register
on August 18, 2006 (71 FR 48354) and
is referred to throughout this final rule
as the ‘‘FY 2007 IRF final rule.’’)
• Establish a new fee schedule for
home dialysis supplies and equipment
that continue to be paid on a reasonable
charge basis. (We note that we will
respond to comments on this proposal
in a future final rule.)
• Establish a revised methodology for
calculating fee schedule amounts for
new DMEPOS items. (We note that we
will respond to comments on this
proposal in a future final rule.)
• Codify in our regulations that the
statutorily imposed eyeglass coverage
exclusion under Medicare Part B
encompasses all devices that use lenses
to aid vision or provide magnification of
images for impaired vision. (We note
that we will respond to comments on
this proposal in a future final rule.)
• Codify in regulations that the
Medicare fee schedule amount for
therapeutic shoes, inserts, and shoe
modifications are established in
accordance with the methodology
specified in sections 1833(o) and
1834(h) of the Act. (We note that we
will respond to comments on this
proposal in a future final rule.)
Regulation Text
B. Public Comments Received
We received approximately 2,129
timely pieces of correspondence in
response to the May 1, 2006 proposed
rule. Except where indicated in section
II.B. of this final rule, this final rule
discusses the provisions of the May 1,
2006 proposed rule, summarizes the
public comments received on each
subject area, sets out our responses to
those comments, and sets forth our final
rules.
I. Provisions of the May 1, 2006
Proposed Rule
A. Summary of the Proposed Rule
On May 1, 2006, we published in the
Federal Register (71 FR 25654) a
proposed rule to—
• Establish and implement
competitive bidding programs for
certain covered items of durable
medical equipment, prosthetics,
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Federal Register / Vol. 72, No. 68 / Tuesday, April 10, 2007 / Rules and Regulations
II. Issuance of Final Rules
A. Issuance of the FY 2007 IRF Final
Rule Which Finalized Certain Provisions
Relating to Competitive Acquisition for
DMEPOS and the Accreditation of
DMEPOS Suppliers
To ensure timely implementation of
the Medicare DMEPOS Competitive
Bidding Program, we responded to
comments submitted on certain
provisions of the May 1, 2006 proposed
rule and finalized our proposals
concerning the designation of
competitive bidding implementation
contractors (CBICs), competitive bidding
education and outreach, and the
accreditation of DMEPOS suppliers in
the DMEPOS provisions of the FY 2007
IRF final rule (71 FR 48354). We also
discussed in that final rule certain
issues relating to the establishment of
quality standards for DMEPOS suppliers
that will be applied by independent
accreditation organizations.
B. Future Issuance of a Final Rule on
Certain Other Provisions Addressed in
the May 1, 2006 Proposed Rule
We will respond to comments
submitted on certain provisions of the
May 1, 2006 proposed rule and finalize
our proposals concerning the following
provisions in a separate final rule that
will be published at a later date in the
Federal Register: (1) Establishment of a
new fee schedule for home dialysis
supplies and equipment that continue to
be paid on a reasonable charge basis; (2)
establishment of a revised methodology
for calculating fee schedule amounts for
new DMEPOS items; (3) codification in
our regulations that the scope of the
eyeglass coverage exclusion under
Medicare Part B encompasses all
devices that use lenses to aid vision or
provide magnification of images for
impaired vision; and (4) codification in
our regulations that the Medicare fee
schedule amounts for therapeutic shoes,
inserts, and shoe modifications are
established in accordance with the
methodology specified in sections
1833(o) and 1834(h) of the Act.
III. Payment for DMEPOS Under
Medicare Part B: Background
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A. Payment for DMEPOS on the Basis of
Reasonable Charges
Payment for most DMEPOS items,
including supplies and equipment,
furnished under Medicare Part B is
made through contractors known as
Durable Medical Equipment Medicare
Administrative Contractors (DME
MACs) (previously Durable Medical
Equipment Regional Carriers (DMERCs),
also known as Medicare carriers). Before
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January 1, 1989, payment for most of
these items was made on a reasonable
charge basis by Medicare carriers.
Section 1842(b) of the Act sets forth the
methodology for determining reasonable
charges. Implementing regulations for
section 1842(b) of the Act are located at
42 CFR Part 405, Subpart E.
Reasonable charge determinations are
generally based on customary and
prevailing charges derived from historic
charge data, with the ‘‘reasonable
charge’’ for an item being the lowest of
the following factors:
• The supplier’s actual charge for the
item.
• The supplier’s customary charge for
the item.
• The prevailing charge in the locality
for the item. The prevailing charge may
not exceed the 75th percentile of the
customary charges of suppliers in the
locality.
• The inflation indexed charge (IIC).
The IIC is defined in § 405.509(a) of the
Medicare regulations as the lowest of
the fee screens used to determine
reasonable charges for services,
including supplies, and equipment paid
on a reasonable charge basis (excluding
physicians’ services), that is in effect on
December 31 of the previous fee screen
year, updated by the inflation
adjustment factor. The inflation
adjustment factor is based on the
current change in the Consumer Price
Index for All Urban Consumers (CPI–U),
as compiled by the Bureau of Labor
Statistics, for the 12-month period
ending June 30 each year.
B. Payment for DMEPOS Under Fee
Schedules
Section 1834 of the Act, as added by
section 4062 of the Omnibus Budget
Reconciliation Act of 1987 (OBRA ‘87),
Public Law 100–203, provides for
implementation of a fee schedule
payment methodology for most durable
medical equipment (DME), prosthetic
devices, and orthotic devices furnished
after January 1, 1989. Specifically,
sections 1834(a)(1)(A) and (B) and
1834(h)(1)(A) of the Act provide that
Medicare payment for these items is
equal to 80 percent of the lesser of the
actual charge for the item or the fee
schedule amount for the item. We
implemented this payment methodology
at 42 CFR Part 414, Subpart D of our
regulations. Sections 1834(a)(2) through
(a)(5) and section 1834(a)(7) of the Act,
and implementing regulations at
§ 414.200 through § 414.232 (with the
exception of § 414.228), set forth
separate payment categories of DME and
describe how the fee schedule for each
of the following categories is
established:
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• Inexpensive or other routinely
purchased items (section 1834(a)(2) of
the Act and § 414.220 of the
regulations);
• Items requiring frequent and
substantial servicing (section 1834(a)(3)
of the Act and § 414.222 of the
regulations);
• Customized items (section
1834(a)(4) of the Act and § 414.224 of
the regulations);
• Oxygen and oxygen equipment
(section 1834(a)(5) of the Act and
§ 414.226 of the regulations);
• Other items of DME (section
1834(a)(7) of the Act and § 414.229 of
the regulations).
Each category has its own unique
payment rules. With the exception of
customized items, a fee schedule
amount is calculated for each item or
category of DME that is identified by a
code in the Healthcare Common
Procedure Coding System (HCPCS). The
HCPCS is discussed in section III.C. of
this final rule. The Medicare payment
amount for a customized item of DME
is based on the Medicare carrier’s
individual consideration of that item.
The fee schedule amounts for oxygen
and oxygen equipment are monthly
payment amounts. Payment under the
DME benefit is made for supplies
necessary for the effective use of DME
(for example, lancets used with blood
glucose monitors). These supplies are
paid for using the same methodology
that we use to pay for the purchase of
inexpensive or routinely purchased
items.
The fee schedule amounts for DME
are generally adjusted annually by the
change in the CPI–U for the 12-month
period ending June 30 of the preceding
year. The fee schedule amounts are also
generally limited by a ceiling (upper
limit) and floor (lower limit) equal to
100 percent and 85 percent,
respectively, of the median of the
Statewide fee schedule amounts.
Since 1994, Medicare has paid for
most surgical dressings in accordance
with section 1834(i) of the Act and
§ 414.220(g) of the regulations, using the
same methodology as is used for
payment of purchased inexpensive or
routinely purchased DME.
Under section 1834(h) of the Act and
§ 414.228 of the regulations, payment
for prosthetic and orthotic devices is
made on a lump sum basis and is equal
to the lower of the fee schedule amount
calculated for the item or the actual
charge for the item, less any unmet
deductible amount. The fee schedule
amounts are calculated using a weighted
average of Medicare payments made in
the States in each of 10 CMS regions
from July 1, 1986, through June 30,
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1987, adjusted annually by the change
in the CPI–U for the 12-month period
ending June 30 of the preceding year.
The regional fee schedule amounts are
limited by a ceiling (upper limit) and
floor (lower limit) equal to 120 percent
and 90 percent, respectively, of the
average of the regional fee schedule
amounts for each State.
As authorized under section 1842(s)
of the Act and 42 CFR Part 414, Subpart
C of our regulations, Medicare pays for
parenteral and enteral nutrition (PEN)
nutrients, equipment, and supplies on
the basis of 80 percent of the lesser of
the actual charge for the item or the fee
schedule amount for the item
(§ 414.102(a)). The fee schedule
amounts for PEN items are calculated on
a nationwide basis and are the lesser of
the reasonable charges for CY 1995 or
the reasonable charges that would have
been used in determining payment for
these items in CY 2002 under the former
reasonable charge payment
methodology (§ 414.104(b)). The fee
schedule amounts are generally adjusted
annually by the percentage increase in
the CPI–U for the 12-month period
ending with June 30 of the preceding
year (§ 414.102(c)). Under § 414.104(a),
payment for PEN nutrients and supplies
is made on a purchase basis, and
payment for PEN equipment that is
rented is made on a monthly basis. (We
note that we proposed to revise § 414.1
in the May 1, 2006 proposed rule to
specify that fee schedules were
established for PEN items in accordance
with our authority under section 1842(s)
of Act. We will address this proposal in
a final rule that will be published later
in the Federal Register.)
Section 1833(o)(2) of the Act, as
amended by section 627 of the MMA,
requires implementation of fee schedule
amounts, effective January 1, 2005, for
the purpose of determining payment for
custom molded shoes, extra-depth
shoes, and inserts (collectively,
‘‘therapeutic shoes’’). We stated in the
May 1, 2006 proposed rule that we
believe this section of the MMA is
largely self-implementing because it
mandates use of the methodology set
forth in section 1834(h) of the Act for
prosthetic and orthotic devices in
determining the fee schedule amounts
for therapeutic shoes. We implemented
the methodology for payment for
prosthetic and orthotic devices in
regulations at 42 CFR Part 414, Subpart
D, and section 627 of the MMA provides
that the same methodology shall apply
to therapeutic shoes. We implemented
section 627 of the MMA through
program instructions, and on January 1,
2005, Medicare began paying for
therapeutic shoes based on fee schedule
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amounts determined in accordance with
section 1834(h) of the Act and Part 414,
Subpart D of our regulations.
Section 5101(a) of the Deficit
Reduction Act of 2005 (DRA), Public
Law 109–171, amended section
1834(a)(7)(A) of the Act to change the
way Medicare pays for capped rental
items. As a result, section
1834(a)(7)(A)(i)(I) of the Act now states
that payment for a capped rental item
may not extend over a period of
continuous use (as determined by the
Secretary) of longer than 13 months, and
section 1834(a)(7)(A)(i)(II) of the Act
sets forth how the 13 monthly rental
payment amounts are to be determined.
In addition, section 1834(a)(7)(A)(ii) of
the Act now provides that on the first
day that begins after the 13th
continuous month during which
payment is made for a capped rental
item, the supplier of the capped rental
item must transfer title to the item to the
Medicare beneficiary. Once the title has
transferred, or once a purchase
agreement for a power wheelchair has
been entered into in accordance with
section 1834(a)(7)(A)(iii) of the Act as
amended, section 1834(a)(7)(A)(iv) of
the Act provides that reasonable and
necessary maintenance and servicing
payments (for parts and labor not
covered by the supplier’s or the
manufacturer’s warranty, as determined
by the Secretary to be appropriate for
the particular item) will be made. These
statutory changes apply only to capped
rental items whose first rental month
occurs on or after January 1, 2006. We
implemented section 5101(a) of the DRA
in a final rule, CMS–1304–F: Home
Health Prospective Payment System
Rate Update for Calendar Year 2007 and
Deficit Reduction Act of 2005; Changes
to Medicare Payment for Oxygen
Equipment and Capped Rental Durable
Medical Equipment, that was published
in the Federal Register on November 9,
2006 (71 FR 65884).
Section 5101(b) of the DRA amended
section 1834(a)(5) of the Act to limit
monthly rental payments for oxygen
equipment to a 36-month period of
continuous use (as determined by the
Secretary). On the first day that begins
after the 36th continuous month during
which payment is made for the oxygen
equipment, new section
1834(a)(5)(F)(ii)(I) of the Act provides
that the supplier must transfer title to
the equipment to the Medicare
beneficiary. Section
1834(a)(5)(F)(ii)(II)(aa) of the Act
provides that Medicare will continue to
make monthly payments for oxygen
contents for beneficiary-owned oxygen
equipment in the amounts recognized
under section 1834(a)(9) of the Act for
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the period of medical need. However,
under section 1834(a)(5)(F)(ii)(II)(bb) of
the Act, maintenance and servicing
payments for beneficiary-owned oxygen
equipment (for parts and labor not
covered by the supplier’s or
manufacturer’s warranty) will be made
only if they are reasonable and
necessary. These statutory changes went
into effect on January 1, 2006. For
beneficiaries receiving Medicarecovered oxygen equipment as of
December 31, 2005, the 36-month rental
period began on January 1, 2006. We
implemented section 5101(b) of the
DRA in a final rule, entitled CMS–1304–
F Home Health Prospective Payment
System Rate Update for Calendar Year
2007 and Deficit Reduction Act of 2005;
Changes to Medicare Payment for
Oxygen Equipment and Capped Rental
Durable Medical Equipment, that was
published in the Federal Register on
November 9, 2006 (71 FR 65884).
C. Use of the Healthcare Common
Procedure Coding System (HCPCS)
The Healthcare Common Procedure
Coding System (HCPCS) is a
standardized coding system used to
process claims submitted to Medicare,
Medicaid, and other health insurance
programs by providers, physicians, and
other suppliers. The HCPCS code set is
divided into the following two principal
subsystems, referred to as Level I and
Level II of the HCPCS:
• Level I of the HCPCS codes is
comprised of Current Procedural
Terminology (CPT) codes, which are
copyrighted by the American Medical
Association. CPT codes are a uniform
coding system consisting of descriptive
terms and identifying codes that are
used primarily to identify medical
services and procedures furnished by
physicians and other health care
professionals which are billed to public
or private health insurance programs.
CPT codes are developed, published,
and maintained by the American
Medical Association. CPT codes do not
include codes needed to separately
report medical items that are regularly
billed by suppliers other than
physicians.
• Level II of the HCPCS codes is a
standardized coding system used
primarily to identify products and
supplies that are not included in the
CPT codes, such as DMEPOS when used
outside a physician’s office.
• HCPCS Level II codes classify like
items by category for the purpose of
efficient claims processing. Assignment
of a HCPCS code is not a coverage
determination, and does not imply that
any payer will cover the items in the
code category. For some DMEPOS items,
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such as wheelchairs and wheelchair
cushions, minimum performance
standards must be met before an item
can be classified under a HCPCS code.
In October 2003, the Secretary delegated
authority under the Health Insurance
Portability and Accountability Act of
1996 (HIPAA) to CMS to maintain and
distribute the HCPCS Level II codes. In
the May 1, 2006 proposed rule, we
proposed that the HCPCS Level II codes
would be used to describe the DME,
orthotic, and enteral nutrients,
equipment, and supplies furnished
under the Medicare DMEPOS
Competitive Bidding Program, both for
the purpose of requesting bids and for
establishing payment amounts.
IV. Medicare Competitive Bidding
Demonstrations
Prior to enactment of the MMA,
section 4319 of the Balanced Budget Act
of 1997 (BBA), Pub. L. 105–33,
authorized implementation of up to five
demonstration projects of competitive
bidding for Medicare Part B items,
except physician services. In accordance
with section 4319 of the BBA, we
planned and implemented the DMEPOS
Competitive Bidding Demonstration to
test the feasibility and program impacts
of using competitive bidding to set
prices for DMEPOS. The demonstration
was implemented at two sites: Polk
County, Florida, and in the San
Antonio, Texas, Metropolitan Statistical
Area (MSA). The competitive bidding
demonstrations, authorized under the
BBA, were implemented successfully in
both demonstration sites from 1999 to
2002, resulted in a substantial savings to
the program, and offered beneficiaries
sufficient access and quality products.
At the first site, Polk County, Florida,
we conducted the first of two rounds of
bidding in 1999. Five categories of
DMEPOS were put up for bidding:
oxygen equipment and supplies
(required by statute); hospital beds and
accessories; enteral nutrition formulas
and equipment; urological supplies; and
surgical dressings. A total of 16 contract
suppliers began providing
demonstration products in Polk County
on October 1, 1999, and continued for
2 years. The second and final round of
bidding in Polk County was conducted
in 2001 for the same product categories
minus enteral nutrition. (Enteral
nutrition was dropped to retain only
product categories that are
overwhelmingly used in private homes.)
The second set of competitively bid
payment amounts took effect in October
2001. As in round one, 16 suppliers
were selected, of whom half had
participated as winners previously. The
new fee schedules developed from the
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bids in each round replaced the
Statewide Medicare DMEPOS fees. The
second round of the demonstration in
Polk County ended in September 2002.
Texas was the second site for the
demonstration. In Bexar, Comal, and
Guadalupe counties in the San Antonio
MSA, we conducted bidding in 2000 for
five kinds of DMEPOS: oxygen
equipment and supplies; hospital beds
and accessories; wheelchairs and
accessories; general orthotics; and
nebulizer drugs. Fifty-one suppliers
were selected and began serving
Medicare beneficiaries under the new
fees in February 2001. The San Antonio
site ended operations in December 2002,
the statutorily required termination date
in the BBA.
In each area of evaluation, the data
indicated mostly favorable results for
the Medicare program. The
demonstration led to lower Medicare
fees for almost every item in almost
every product category in each round of
bidding. Fee reductions varied by
product category and item, resulting in
a nearly 20 percent overall savings at
each site. Statistical and qualitative data
indicate that beneficiary access and
quality of services were essentially
unchanged.
The DMEPOS Competitive Bidding
Demonstration offered valuable
information for understanding the
impacts of competitive bidding for
Medicare services. This information is
especially important now because
section 302(b) of the MMA mandates a
larger role for competitive bidding
within the Medicare program by
requiring the Secretary to implement
competitive bidding programs for the
furnishing of certain DME and
associated supplies, enteral nutrition
and associated supplies, and off-theshelf (OTS) orthotics. In addition,
section 303(d) of the MMA required the
Secretary to implement a competitive
bidding program for certain Medicare
Part B drugs not paid on a cost or
prospective payment system basis, and
section 302(b) of the MMA requires that
competitive bidding demonstration
projects be implemented for clinical
laboratory services and managed care.
V. Discussion of the Provisions of This
Final Rule
In this final rule we are adding new
sections to 42 CFR Part 414, Subpart F
that implement rules relating to the
Medicare DMEPOS Competitive Bidding
Program. A discussion of the specific
provisions of the proposed rule, a
summary of the public comments we
received and our responses to those
comments are presented in sections VI.
through XVII. of this final rule. We
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present a regulatory impact analysis of
the provisions of this final rule in
section XVIII. of this final rule. The
regulation text appears at the end of this
final rule.
VI. Medicare DMEPOS Competitive
Bidding Program
A. Legislative Authority and Program
Advisory and Oversight Committee
1. Legislative Authority
Section 302(b)(1) of the MMA (Pub. L.
108–173) amended section 1847 of the
Act to require the Secretary to establish
and implement programs under which
competitive bidding areas (CBAs) are
established throughout the United
States for contract award purposes for
the furnishing of certain competitively
priced items for which payment is made
under Medicare Part B (the ‘‘Medicare
DMEPOS Competitive Bidding
Program’’). Section 1847(a)(2) of the Act
provides that the items and services to
which competitive bidding applies are
certain durable medical equipment
(DME) and medical supplies, which are
covered items (as defined in section
1834(a)(13) of the Act) for which
payment would otherwise be made
under section 1834(a) of the Act,
including items used in infusion and
drugs, (other than inhalation drugs) and
supplies used in conjunction with DME,
but excluding class III devices under the
Federal Food, Drug and Cosmetic Act;
enteral nutrients, equipment and
supplies (as described in section
1842(s)(2)(D) of the Act); and OTS
orthotics (as described in section
1861(s)(9) of the Act) for which payment
would otherwise be made under section
1834(h) of the Act and which require
minimal self-adjustment. In addition,
sections 1847(a) and (b) of the Act
specify certain requirements and
conditions for implementation of the
Medicare DMEPOS Competitive Bidding
Program.
Competitive bidding provides a way
to harness marketplace dynamics to
create incentives for suppliers to
provide quality items in an efficient
manner and at a reasonable cost to the
program. In our view, the Medicare
DMEPOS Competitive Bidding Program
has five main objectives:
• To implement competitive bidding
programs for certain DMEPOS items.
• To assure beneficiary access to
quality DMEPOS as a result of the
program.
• To reduce the amount Medicare
pays for DMEPOS and create a payment
structure under competitive bidding
that is more reflective of a competitive
market.
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• To limit the financial burden on
beneficiaries by reducing their out-ofpocket expenses for DMEPOS they
obtain through the program.
• To contract with suppliers that
conduct business in a manner that is
beneficial for the program and for
Medicare beneficiaries.
As discussed in section IV. of this
final rule, the Medicare DMEPOS
competitive bidding demonstration
projects that were conducted prior to
the enactment of the MMA offered
valuable information for understanding
the impacts of competitive bidding for
Medicare services. This information, in
part, led to the adoption of section
302(b) of the MMA, which requires that
the Secretary implement competitive
bidding programs for the furnishing of
certain DMEPOS under the Medicare
program.
2. Program Advisory and Oversight
Committee
Section 1847(c) of the Act, as
amended by section 302(b)(1) of the
MMA, required the Secretary to
establish a Program Advisory and
Oversight Committee (PAOC) to provide
advice to the Secretary with respect to
the following functions:
• The implementation of the
Medicare DMEPOS Competitive Bidding
Program.
• The establishment of financial
standards for entities seeking contracts
under the Medicare DMEPOS
Competitive Bidding Program, taking
into account the needs of small
providers.
• The establishment of requirements
for collection of data for the efficient
management of the Medicare DMEPOS
Competitive Bidding Program.
• The development of proposals for
efficient interaction among
manufacturers, providers of services,
suppliers (as defined in section 1861(d)
of the Act), and individuals.
• The establishment of quality
standards for DMEPOS suppliers under
section 1834(a)(20) of the Act.
In addition, section 1847(c)(3)(B) of
the Act authorizes the PAOC to perform
such additional functions to assist the
Secretary in carrying out the Medicare
DMEPOS Competitive Bidding Program
as the Secretary may specify.
As authorized under section
1847(c)(2) of the Act, the PAOC
members were appointed by the
Secretary and represent a broad mix of
relevant industry, consumer, and
government parties. Specifically, the
membership roster includes two
beneficiary/consumer representatives,
four manufacturer representatives, five
supplier representatives, three
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certification/standards representatives,
six Federal and State program
representatives, one physician, and one
pharmacist. The representatives have
expertise in a variety of subject matter
areas, including DMEPOS, competitive
bidding methodologies and processes,
and rural and urban marketplace
dynamics.
We held the first PAOC meeting,
which was announced in a Federal
Register notice (69 FR 31125), at the
CMS Headquarters on October 6, 2004.
We held the second meeting on
December 6 and 7, 2004. We have held
two additional PAOC meetings in 2005
and 2006 during which we, along with
our contractor, RTI International,
presented material to both the PAOC
and the public relating to the provisions
that are outlined in the proposed rule
and in this final rule. The topics that we
presented included—
• Medicare’s timeline for
implementation of the Medicare
DMEPOS Competitive Bidding Program;
• Results of the Medicare competitive
bidding demonstration projects
authorized by section 4319 of the BBA;
• Structure of the Medicare DMEPOS
Competitive Bidding Program;
• Existing non-Medicare competitive
bidding programs for DMEPOS;
• Program design options for the
Medicare DMEPOS Competitive Bidding
Program;
• Criteria for selecting Metropolitan
Statistical Areas (MSAs) in which
competition under the Medicare
DMEPOS Competitive Bidding Program
will occur in both CYs 2007 and 2009;
• Criteria for selecting items for
competitive bidding;
• Bidding process overview;
• Methodology for setting single
payment amounts for competitively bid
items;
• Capacity of DMEPOS suppliers and
beneficiary utilization of DMEPOS;
• Financial capabilities of bidding
suppliers;
• Exception authority under section
1847(a)(3) of the Act for rural areas and
areas with low population density
within urban areas that are not
competitive; and
• Quality standards and accreditation
procedures applicable to DMEPOS
suppliers.
In addition to the PAOC meetings, we
have designed and implemented a CMS
Web site at https://cms.hhs.gov/
CompetitiveAcqforDMEPOS/PAOCMI/
list.asp specifically for the public to
have access to all PAOC presentations,
minutes, and updates for the Medicare
DMEPOS Competitive Bidding Program.
In accordance with section 1847(c)(5) of
the Act, the PAOC will continue to
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operate until December 31, 2009. Future
PAOC meeting dates, as well as other
information pertinent to the Medicare
DMEPOS Competitive Bidding Program,
can be found on the CMS Web site.
B. Purpose and Definitions (§§ 414.400
and 414.402)
In the May 1, 2006 proposed rule, we
proposed in § 414.400 to state that the
purpose of 42 CFR Part 414, Subpart F
would be to implement the Medicare
DMEPOS Competitive Bidding Program
for certain DMEPOS items as required
by sections 1847(a) and (b) of the Act.
As set forth in proposed § 414.402, we
proposed to define certain frequently
occurring terms that would be used in
competitive bidding. Specifically, we
proposed to define the following terms:
Bid means an offer to furnish an item
for a particular price and time period
that includes, where appropriate, any
services that are directly related to the
furnishing of the item.
Competitive bidding area (CBA)
means an area established by the
Secretary under this subpart [42 CFR
Part 414, Subpart F]. (We note that the
definition language included in the
preamble of the proposed rule was
inconsistent with the definition
language in the proposed regulation
text, which was correct.)
Composite bid means the sum of a
bidding supplier’s weighted bids for all
items within a product category for
purposes of allowing a comparison
across bidding suppliers.
Competitive bidding program means a
program established under this subpart
[42 CFR Part 414, Subpart F]. (We note
that the definition language included in
the preamble of the proposed rule was
inconsistent with the definition
language in the proposed regulation
text, which was correct.)
Contract supplier means an entity that
is awarded a contract by CMS to furnish
items under a competitive bidding
program.
DMEPOS stands for durable medical
equipment, prosthetics, orthotics and
supplies.
Grandfathered item means any one of
the following items for which payment
is made on a rental basis prior to the
implementation of a competitive
bidding program under this subpart [42
CFR Part 414, Subpart F]:
(1) An inexpensive or routinely
purchased item described in § 414.220.
(2) An item requiring frequent and
substantial servicing as described in
§ 414.222.
(3) Oxygen and oxygen equipment
described in § 414.226.
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(4) A capped rental item described in
§ 414.229.
Grandfathered supplier means a
noncontract supplier that furnishes a
grandfathered item.
Item means one of the following
products identified by a HCPCS code,
other than class III devices under the
Federal Food, Drug and Cosmetic Act
and inhalation drugs, and includes the
services directly related to the
furnishing of that product to the
beneficiary:
(1) Durable medical equipment
(DME), as defined in § 414.202 and
further classified into the following
categories:
(i) Inexpensive or routinely purchased
items, as specified in § 414.220(a);
(ii) Items requiring frequent and
substantial servicing, as specified in
§ 414.222(a);
(iii) Oxygen and oxygen equipment,
as specified in § 414.226(b).
(iv) Other DME (capped rental items),
as specified in § 414.229.
(2) Supplies necessary for the
effective use of DME.
(3) Enteral nutrients, equipment, and
supplies.
(4) Off-the-shelf orthotics, which are
orthotics described in section 1861(s)(9)
of the Act that require minimal selfadjustment for appropriate use and do
not require expertise in trimming,
bending, molding, assembling, or
customizing to fit a beneficiary.
Item weight is a number assigned to
an item based on its beneficiary
utilization rate in a competitive bidding
area when compared to other items in
the same product category.
Metropolitan Statistical Area (MSA)
has the same meaning as that given by
the Office of Management and Budget.
Nationwide competitive bidding area
means a competitive bidding area that
includes the United States and its
territories.
Noncontract supplier means a
supplier that is located in a competitive
bidding area or that furnishes items
through the mail to beneficiaries in a
competitive bidding area but that is not
awarded a contract by CMS to furnish
items included in a competitive bidding
program for that area.
Physician has the same meaning as in
section 1861(r)(1) of the Act.
Pivotal bid means the highest
composite bid based on bids submitted
by a suppliers for a product category
that will include a sufficient number of
suppliers to meet beneficiary demand
for the items in that product category.
Product category means a grouping of
related items that are included in a
competitive bidding program.
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Single payment amount means the
allowed payment for an item furnished
under a competitive bidding program.
Supplier means an entity with a valid
Medicare supplier number, including an
entity that furnishes an item through the
mail.
Treating practitioner means a
physician assistant, nurse practitioner,
or clinical nurse specialist, as those
terms are defined in section 1861(aa)(5)
of the Act.
Weighted bid means the item weight
multiplied by the bid price submitted
for that item.
Comment: Several commenters
supported the definitions of ‘‘bid’’ and
‘‘item’’ because these definitions
acknowledge that services are involved
in the delivery of products to Medicare
beneficiaries. One commenter suggested
that Medicare competitively bid class III
devices, which appear to be excluded
under the proposed definition of
‘‘item.’’
Response: We appreciate the
commenters’ support. Section
1847(a)(2)(A) of the Act specifically
excludes class III devices under the
Federal Food, Drug, and Cosmetic Act
from the Medicare DMEPOS
Competitive Bidding Program.
Therefore, we do not have the authority
to conduct competitive bidding for these
items. We are clarifying in the definition
of ‘‘item’’ that the DME excludes class
III devices under the Federal Food, Drug
and Cosmetic Act as defined in
§ 414.402 and that inhalation drugs are
not included in the term ‘‘supplies
necessary for the effective use of DME.’’
We are also revising the regulatory
cross-reference for ‘‘oxygen and oxygen
equipment.’’
We agree with the commenters that
the definition of an item should
acknowledge what is included in an
item for which bids are being submitted.
Therefore, in this final rule, we are
revising the definition of ‘‘item’’ to
indicate that although we will always
identify the product by its HCPCS code,
we may combine several codes to form
one competitively bid item or specify a
particular method by which the item is
furnished. For example, if we were to
include diabetic test strips in a mailorder competitive bidding program, we
would identify the item by its HCPCS
code and indicate that the product is to
be furnished only by mail. We are
making this change because we need to
be able to modify HCPCS codes or
combine HCPCS codes to identify the
items for which we will be conducting
competitive bidding because HCPCS
codes, by themselves, do not always
fully define the items for which we wish
to solicit competitive bids. We further
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discuss this revision in section VI.B. of
this final rule. Therefore, in this final
rule, we have revised the definition of
‘‘item’’ to specify that an item for
purposes of competitive bidding may be
comprised of two or more products
identified by different HCPCS codes
and/or modifiers and that these codes
may be defined based on how a product
is furnished (for example, by mail).
Comment: One commenter stated that
the definitions for the ‘‘composite bid’’
and the ‘‘single payment amount’’ for
the individual items should include all
the costs associated with training the
beneficiary and properly putting
equipment in place to ensure the safe
administration of a piece of DMEPOS in
a beneficiary’s home.
Response: We are not changing the
definitions of ‘‘composite bid’’ and
‘‘single payment amount’’ because these
definitions are based upon the bids,
which, by definition, include any
services that are directly related to the
furnishing of the item to the beneficiary.
In addition, to the extent that the service
component is included in the
definitions of ‘‘bid’’ and ‘‘item,’’ the
‘‘composite bid’’ and the ‘‘single
payment amount’’ calculated for each
item would reflect the costs of services
associated with furnishing that item to
a beneficiary.
Comment: Several commenters
suggested that the proposed definition
of ‘‘noncontract supplier’’ does not
address suppliers that are physically
located outside of a CBA, yet provide
services to beneficiaries whose
permanent address is inside a CBA. One
commenter suggested that the definition
read: ‘‘A supplier that furnishes items to
beneficiaries in a competitive bidding
area, but that is not awarded a contract
by Medicare to furnish items included
in the competitive bidding program for
that area.’’
Response: Our proposed definition of
the term ‘‘noncontract supplier’’ only
included suppliers located in a CBA or
that mailed items to beneficiaries in a
CBA. However, we recognize the
commenter’s concerns that this
definition would not capture suppliers
that are located outside the CBA but that
furnish items to beneficiaries who
maintain a permanent residence in a
CBA. Therefore, we are revising the
definition of the term ‘‘noncontract
supplier’’ in this final rule to mean: ‘‘a
supplier that is not awarded a contract
by CMS to furnish items included in a
competitive bidding program.’’
Comment: Many commenters
suggested that the definition of
‘‘physician’’ be expanded to allow
podiatrists, optometrists and dentists to
prescribe a particular brand or mode of
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delivery of DMEPOS, along with
physician assistants, nurse practitioners,
and clinical nurse specialists. The
commenters asserted that this expansion
would allow a variety of qualified
practitioners, in addition to physicians,
to prescribe particular brands or modes
of delivery where appropriate. The
commenters requested that the
definition of physician be changed from
that specified in section 1861(r)(1) of the
Act to that specified in section 1861(r)
of the Act.
Response: We agree with the
commenters and are revising the
definition of ‘‘physician’’ applicable in
this final rule to have the same meaning
as in section 1861(r) of the Act. We
believe that this revision is consistent
with the intent of the 1847(a)(5)(A) as it
reflects which professionals would be
ordering Medicare-covered items under
the Medicare DMEPOS Competitive
Bidding Program. In addition, we are
finalizing the definition that we had
proposed that a treating practitioner
means a physician assistant, nurse
practitioner, or clinical nurse specialist,
as defined in section 1861(aa)(5) of the
Act. In ordering DMEPOS under the
Medicare program, these treating
practitioners can specify a particular
brand or mode of delivery for an item,
which would be paid at the single
payment amount.
After consideration of the public
comments received, we are finalizing
proposed § 414.400 with only a
technical change to the heading of the
section (changing the heading from
‘‘Basis’’ to ‘‘Purpose and Basis’’). In
addition, we are revising the definitions
of ‘‘item,’’ ‘‘noncontract supplier,’’ and
‘‘physician’’ in § 414.402 as discussed
above. We are also revising the
definitions of several other terms in
§ 414.402, as well as adding new
definitions. Below we state the revised
and new definitions and indicate where
a full discussion of each change can be
found in this final rule:
• Revising the regulatory reference to
the oxygen payment classes in the
definition of ‘‘item’’ so that the
definition now references
§ 414.226(c)(1) instead of § 414.225(b).
We discuss this revision in section
VI.G.6 of this final rule.
• Revising the definition of ‘‘item
weight’’ by removing the phrase ‘‘in a
competitive bidding area’’ and adding
the phrase ‘‘using national data’’ in
referencing the beneficiary utilization
rate. We discuss this revision in section
VI.D.2. (Evaluation of Bids) of this final
rule.
• Adding a definition of ‘‘mail order
contract supplier’’ to mean a contract
supplier that furnishes items through
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the mail to beneficiaries who maintain
a permanent residence in a competitive
bidding area.’’ This new definition is
discussed in section V.I.E.5. of this final
rule.
• Adding a definition of ‘‘minimal
self-adjustment’’ to mean ‘‘an
adjustment that the beneficiary,
caretaker for the beneficiary, or supplier
of the device can perform and does not
require the services of a certified
orthotist (that is, an individual certified
by either the American Board for
Certification in Orthotics and
Prosthetics, Inc., or the Board for
Orthotist/Prosthetist Certification) or an
individual who has specialized training.
This new definition is discussed in
section VI.F. of this final rule.
• Adding a definition of ‘‘nationwide
mail order contract supplier’’ to mean a
mail order contract supplier that
furnishes items in a nationwide
competitive bidding area, and a
definition of ‘‘regional mail order
contract supplier’’ to mean a mail order
contract supplier that furnishes items to
any Medicare beneficiary residing
within a certain region(s) that are
designated as CBAs and are located
within the United States, its Territories,
or the District of Columbia, as discussed
in section VI.E.5. of this final rule.
• Adding a definition of ‘‘network’’ to
mean a group of small suppliers that
form a legal entity that submits a bid to
furnish competitively bid items in a
CBA, and that meets additional
requirements. This change is discussed
in section XII. of this final rule.
• Revising the definition of ‘‘pivotal
bid’’ to mean 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.’’ We consider this
revision to be a clarification that the
pivotal bid is the lowest composite bid
in terms of the bid amounts submitted
by the suppliers rather than the highest
composite bid that includes sufficient
number of suppliers to meet demand, as
discussed in section VII.D.3. of this final
rule.
• Revising the definition of ‘‘product
category’’ to mean ‘‘a grouping of related
items that are used to treat a similar
medical condition’’, as discussed in
section VI.G.5. of this final rule.
• Adding a definition of ‘‘regional
competitive bidding area ‘‘to mean’’ a
CBA that consists of a region of the
United States, its Territories, and/or the
District of Columbia’’as discussed in
section VI.E.5. of this final rule.
• Adding a definition of ‘‘small
supplier’’ to mean the ‘‘a supplier that
generates gross revenue of $3.5 million
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or less in annual receipts including
Medicare and non-Medicare revenue,’’
as discussed in section XII. of this final
rule.
We are also making the following
technical changes to proposed
§ 414.402:
• Revising the definition of
‘‘competitive bidding program’’ to
clarify that such a program established
under 42 CFR Part 414, Subpart F
occurs ‘‘within a designated CBA.’’
• Clarifying the introductory language
of the definition of ‘‘grandfathered
item’’ to read: ‘‘any one of the following
items for which payment is made on a
rental basis prior to the implementation
of a competitive bidding program and
for which payment is made after
implementation of a competitive
bidding program to a grandfathered
supplier that continues to furnish items
in accordance with § 414.408(j).’’
• Revising the definition of
‘‘grandfathered supplier’’ to mean a
noncontract supplier ‘‘that chooses to
continue to furnish grandfathered items
to a beneficiary in a CBA.’’
• Revising the definition of a
‘‘nationwide competitive bidding area’’
to mean a CBA that includes the United
States, its Territories, and the District of
Columbia.’’
We are finalizing all of the other
definitions in proposed § 414.402
without modification.
C. Competitive Bidding Implementation
Contractors (CBICs) (§§ 414.406(a) and
(e))
Section 1847(b)(9) of the Act provides
that the Secretary may contract with
appropriate entities to implement the
Medicare DMEPOS Competitive Bidding
Program. Section 1847(a)(1)(C) of the
Act also authorizes the Secretary to
waive such provisions of the Federal
Acquisition Regulation (FAR) as are
necessary for the efficient
implementation of this section, other
than provisions relating to
confidentiality of information and such
other provisions as the Secretary
determines appropriate.
In the May 1, 2006 proposed rule (71
FR 25661), we proposed to designate
one or more competitive bidding
implementation contractors (CBICs) for
the purpose of implementing the
Medicare DMEPOS Competitive Bidding
Program (proposed § 414.406(a)). We
also stated that we envisioned the
program would have six primary
functions, including overall oversight
and decision making, operation design
functions (including the design of both
bidding and outreach material
templates, as well as program
processes), bidding and evaluation,
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access and quality monitoring, outreach
and education, and claims processing.
As we stated earlier, under the
DMEPOS provisions of the FY 2007 IRF
final rule (71 FR 48354), we addressed
the public comments we received on the
proposed provisions relating to
implementation contractors under the
Medicare DMEPOS Competitive Bidding
Program and finalized regulations at
§ 414.406(a), which allows us to
designate one or more CBICs for the
purpose of implementing the program,
and at § 414.406(e), which codifies our
proposal to have the regional carrier
(now referred to as a Durable Medical
Equipment Medicare Administrative
Contractor, or DME MAC) that would
otherwise be processing claims for a
particular geographic region also
process claims for items furnished
under a competitive bidding program in
the same geographic region. In the same
final rule, we also finalized our policy
regarding the elements of performance
that will be included in a contract we
enter into with a CBIC.
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D. Payment under the Medicare
DMEPOS Competitive Bidding Program
1. Payment Basis (§§ 414.408(a), (c), and
(d))
Section 1847(b)(5) of the Act
mandates that a single payment amount
be established for each item in each
CBA based on the bids submitted and
accepted for that item. Medicare
payment for the item is then made on
an assignment-related basis equal to 80
percent of the applicable single payment
amount, less any unmet Part B
deductible described in section 1833(b)
of the Act. Section 1847(a)(6) of the Act
requires that this payment basis be
substituted for the payment basis
otherwise applied under section 1834(a)
of the Act for DME, section 1834(h) of
the Act for OTS orthotics, or section
1842(s) of the Act for enteral nutrients,
equipment, and supplies, as
appropriate.
As discussed in detail in section II.C.
of the May 1, 2006 proposed rule (71 FR
25662), we proposed that payment to
the contract supplier would be based on
the single payment amount for the item
in the CBA where the beneficiary
maintains a permanent residence
(proposed § 414.408(a)(1)). If an item
that is included in a competitive
bidding program is furnished to a
beneficiary who does not maintain a
permanent residence in a CBA, the
payment basis for the item would be 80
percent of the lesser of the actual charge
for the item, or the applicable fee
schedule amount for the item (proposed
§ 414.408(a)(2)). We also proposed that
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implementation of a competitive
bidding program would not preclude
the use of an advanced beneficiary
notice (ABN) to allow beneficiaries to
make informed consumer choices
regarding whether to obtain items for
which Medicare might not make
payment (proposed § 414.408(d)).
Finally, as required under section
1847(b)(5)(C) of the Act, we proposed in
§ 414.408(c) that payment for an item
furnished under a competitive bidding
program would be made on an
assignment-related basis.
Comment: Several commenters stated
that basing payment amounts on the
CBA where the beneficiary maintains a
permanent residence, and not on the
location where the item is furnished,
may cause suppliers to be paid less than
the single payment amount in their area.
They recommended that CMS allow
payment to be made at the payment
amount for the area where the item is
furnished. The commenters pointed out
that it will also be difficult for contract
suppliers to determine what the single
payment amount is for beneficiaries
who reside outside their CBA.
Response: Medicare currently pays for
all DMEPOS items based on the
payment amount applicable for the
primary residence of the beneficiary,
regardless of where the item is
furnished. The Medicare payment
system is set up to base payment
amounts on the beneficiary’s primary
residence. We proposed to adopt this
longstanding rule for the Medicare
DMEPOS Competitive Bidding Program
because it is an effective way to ensure
that suppliers do not organize their
businesses to obtain higher payment
amounts that apply to certain
geographic areas of the country. We do
not believe it will be difficult for
contract suppliers to determine how
much they will be paid for an item
furnished to a beneficiary who does not
reside in the contract supplier’s CBA
because we will make the single
payment amounts for each item in each
CBA, along with the fee schedule
amounts that will continue to be paid in
areas that are not CBAs, publicly
available to all suppliers.
Comment: Several commenters
suggested that CMS not conduct
competitive bidding, but simply lower
the payment amounts for DMEPOS until
the only suppliers left to provide these
items are the minimum number
necessary to furnish items needed by
Medicare beneficiaries.
Response: Section 302(b) of the MMA
mandated that the Secretary establish
and implement competitive bidding
programs for certain items of DMEPOS,
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and we have a legal obligation to
comply with this legislative mandate.
After consideration of the public
comments we received, we are
finalizing, without substantive
revisions, proposed § 414.408(a) that
governs the payment basis under the
Medicare DMEPOS Competitive Bidding
Program. We did not receive comments
on proposed §§ 414.408(c) and (d) and
are finalizing those sections. We have
made an editorial revision to § 414.408,
using the acronym CBA instead of the
terms ‘‘area’’ or ‘‘competitive bidding
area.’’
2. General Payment Rules
Section 1834(a) of the Act and
implementing regulations at 42 CFR
§ 414.200 through § 414.232 (with the
exception of § 414.228) set forth the
Medicare Part B payment methodology
we currently use to pay for the rental or
purchase of new and used DME. Each
item of DME that is paid for under these
sections is classified into a payment
category, and each category has its own
unique payment rules. Section 1842(s)
of the Act provides authority for
establishing a statewide or areawide fee
schedule to be used for the payment of
items described in section 1842(s)(2) of
the Act. Under this authority, we
implemented fee schedules for payment
for the purchase and rental of enteral
nutrients, equipment, and supplies
(§ 414.100 through § 414.104). Section
1834(h) of the Act and § 414.228 of our
regulations set forth the Medicare Part B
payment methodology we currently use
to pay for orthotics and prosthetics.
Other than the rules governing
calculation of the single payment
amount and other modifications to
existing rules that are addressed in this
final rule, we proposed that the current
requirements regarding the rental or
purchase of DMEPOS items would
continue to apply under the Medicare
DMEPOS Competitive Bidding Program.
While we believe that we have
discretion under section 1847(a)(6) of
the Act to adopt new rules that would
govern these requirements, we proposed
only to change the payment basis for
these items and to make a few
modifications to existing rules.
3. Special Rules for Certain Rented
Items of DME and Oxygen
(Grandfathering of Suppliers)
(§ 414.408(j))
a. Process for Grandfathering Suppliers
Section 1847(a)(4) of the Act requires
that in the case of covered DME items
for which payment is made on a rental
basis under section 1834(a) of the Act,
and in the case of oxygen for which
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payment is made under section
1834(a)(5) of the Act, the Secretary shall
establish a ‘‘grandfathering’’ process by
which rental agreements for those
covered items and supply arrangements
with oxygen suppliers entered into
before the start of a competitive bidding
program may be continued. DME paid
on a rental basis under section 1834(a)
of the Act includes inexpensive or
routinely purchased items furnished on
a rental basis (as described in § 414.220
of the regulations), items requiring
frequent and substantial servicing (as
described in § 414.222 of the
regulations), and capped rental items (as
described in § 414.229 of the
regulations). Section 1834(a)(5) of the
Act and § 414.226 of our regulations
provide that payment be made on the
basis of monthly payment amounts for
oxygen and oxygen equipment (other
than portable oxygen equipment) with
separate add-on payments for portable
oxygen equipment. In cases where the
beneficiary owns stationary and/or
portable gaseous or liquid oxygen
equipment, payment is made on the
basis of monthly payment amounts for
oxygen contents.
In the May 1, 2006 proposed rule (71
FR 25662), in proposed § 414.408(k)
(redesignated as § 414.408(j) in this final
rule), we proposed to establish the
grandfathering process described below
for rented DME and oxygen and oxygen
equipment when these items are
included under the Medicare DMEPOS
Competitive Bidding Program. We
proposed that this process would apply
only to suppliers that began furnishing
the items described above to Medicare
beneficiaries who maintain a permanent
residence in an area prior to the
implementation of the competitive
bidding program in that area that
includes the same items.
In the case of the specific items
identified in this section, we proposed
in § 414.408(k)(4) to give Medicare
beneficiaries the choice of deciding
whether they would like to continue
receiving the item from the
grandfathered supplier or a contract
supplier, unless the grandfathered
supplier is not willing to continue
furnishing the item under the terms we
have specified below. If the
grandfathered supplier is not willing to
continue furnishing the item under
these terms, a contract supplier would
assume responsibility for continuing to
furnish the item and be paid based on
the single payment amount determined
for that item under the Medicare
DMEPOS Competitive Bidding Program.
In addition, the beneficiary could elect,
at any time, to transition to a contract
supplier and the contract supplier
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would be required to accept the
beneficiary as a customer. Suppliers that
agree to be grandfathered suppliers for
a specific item must agree to be a
grandfathered supplier for all
beneficiaries who request to continue to
use their service for that item.
Comment: One commenter supported
our grandfathering proposal. The
commenter stated that our proposal
would allow some beneficiaries to
maintain an established relationship
with a current supplier and that this
was important to minimize disruption
for beneficiaries.
Response: We appreciate the
comment and agree that minimizing
disruption of service for beneficiaries is
an important principle that underlies
our grandfathering rules.
b. Payment Amounts to Grandfathered
Suppliers
(1) Grandfathering of Suppliers
Furnishing Items Prior to the First
Competitive Bidding Program in a CBA
For items requiring frequent and
substantial servicing, as well as oxygen
and oxygen equipment, we proposed
that a grandfathered supplier may
continue furnishing these items to
beneficiaries in accordance with
existing rental agreements or supply
arrangements. However, we proposed
that, as long as the items remain
medically necessary, the grandfathered
supplier would be paid the single
payment amounts determined for those
items under the competitive bidding
program because beneficiaries rent these
items for extended time periods
(proposed §§ 414.408(k)(2)(iii) and (iv));
redesignated as §§ 414.408(j)(2)(iii) and
(iv) in this final rule). We believe that
this payment proposal is consistent with
section 1847(a)(4) of the Act, which
requires us to establish a ‘‘process’’
under which rental agreements and
supply arrangements ‘‘may be
continued,’’ but is silent regarding the
terms of that process. Because the rental
payments for these items are not
calculated based on, or limited to, the
purchase fee for that item as is the case
for other rented DME items, we do not
believe that it is reasonable to continue
paying the fee schedule amounts for
these items and believe that payment at
the competitively determined rates (that
is, the single payment amounts) will
comport with an overarching goal of
competitive bidding to achieve savings
for the Medicare program.
Unlike other items requiring frequent
and substantial servicing, the duration
of the rental payments for capped rental
items and inexpensive or routinely
purchased items is limited. In addition,
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unlike oxygen equipment, the payment
amounts made for capped rental items
and inexpensive or routinely purchased
items are limited to the approximate
purchase fee for the item.
Therefore, for items that are furnished
on a rental basis under § 414.220 or
§ 414.229, we proposed in
§§ 414.408(k)(2)(i) and (k)(2)(ii)
(redesignated as §§ 414.408(j)(2)(i) and
(ii) in this final rule) that the
grandfathered supplier could continue
furnishing the items in accordance with
existing rental agreements and continue
to be paid in accordance with section
1834(a) of the Act. We believe that
continuing to pay for these
grandfathered items at the fee schedule
rates is authorized under section
1862(a)(17) of the Act, which allows the
Secretary to specify ‘‘other
circumstances’’ in which Medicare will
make payment where the expenses for a
competitively bid item furnished in a
CBA were incurred by a supplier other
than a contract supplier. In our view,
the limited duration of the rental
agreements for capped rental items and
inexpensive or routinely purchased
items furnished on a rental basis, in
addition to the fact that payments for
these items are based on or limited to
the purchase fees for the items,
constitute appropriate circumstances
under which we would allow these
rental agreements, including their
payment terms, to continue until their
conclusion. The rental fee schedule
amounts that we would pay for
grandfathered items in the capped rental
or inexpensive or routinely purchased
categories would be those fee schedule
amounts established for the State in
which the beneficiary maintains a
permanent residence.
Comment: Some commenters stated
that the grandfathering and transition
policies are both unworkable and unfair
to contract suppliers that will be
required to continue to furnish capped
rental or oxygen equipment to
beneficiaries in the CBA regardless of
the number of rental payments that have
already been made to other suppliers for
the equipment. They added that a
contract supplier could inherit an
unknown number of beneficiaries who
have been renting oxygen equipment for
20 to 30 months of continuous use. In
these cases, the contract supplier would
receive a minimal number of rental
payments that would be insufficient to
cover the cost of oxygen equipment for
which title will transfer to the
beneficiary after 36 months of
continuous use. The commenters stated
that if a contract supplier has to supply
a capped rental item for the last 6
months of the rental cycle, the supplier
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would only receive 45 percent of the
single payment amount, which is not
enough to cover costs. They
recommended that Medicare initiate a
new period of continuous use if a
beneficiary decides to switch from a
grandfathered supplier to a contract
supplier.
One commenter suggested that CMS
establish a defined timeframe within
which a beneficiary can transfer to a
new contract supplier. The commenter
also suggested that CMS not require
contract suppliers to accept, as
customers, beneficiaries who are already
currently using capped rental
equipment furnished by another
supplier. Another commenter stated that
CMS should mandate grandfathering by
requiring the supplier that furnished
oxygen or a capped rental item to a
beneficiary before the implementation
of a competitive bidding program to
continue to furnish that item to the
beneficiary for the remainder of the
rental period. Some commenters also
questioned how section 5101 of the
DRA, which imposes new requirements
regarding the rental of oxygen, oxygen
equipment, and capped rental items,
will affect competitive bidding. Several
commenters suggested that the
information in the proposed rule is
inadequate to serve as a basis for public
comments, especially with respect to
the impact that the implementation of
the DRA will have on competitive
bidding. Several commenters noted that
until CMS establishes the scope of the
DRA provisions and how they dovetail
with competitive bidding, they cannot
provide meaningful comments or make
recommendations. For example, the
commenters questioned how CMS
intended to apply the DRA oxygen
provisions to grandfathered suppliers
and beneficiaries and whether the
grandfathered relationship would
terminate at the conclusion of 36
months.
Response: Section 5101 of the DRA
(discussed in detail in section III.B. of
this final rule) caps the number of rental
payments that may be made for oxygen
equipment and capped rental DME
items and requires that title to these
items transfer to the beneficiary at the
conclusion of the rental period. We
proposed in the May 1, 2006 proposed
rule (71 FR 25662) that current
requirements regarding the rental or
purchase of DMEPOS items would
continue to apply under the Medicare
DMEPOS Competitive Bidding Program.
These requirements include the changes
we recently made to 42 CFR Part 414,
Subpart D of our regulations that
implemented section 5101 of the DRA,
new supplier requirements that protect
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beneficiary access to oxygen, oxygen
equipment and capped rental items, and
new payment classes for oxygen and
oxygen equipment (see 71 FR 65884 for
a full discussion of these provisions).
We recognize that the title transfer
provisions that are part of these new
requirements, when read together with
proposed § 414.408(k)(1) (allowing a
supplier to elect to be a grandfathered
supplier) and proposed § 414.408(k)(4)
(allowing a beneficiary the choice of
receiving a grandfathered item from a
grandfathered supplier or a contract
supplier), might place a contract
supplier in the position of being
required to furnish oxygen equipment or
a capped rental item to a beneficiary
who previously rented the item from
another supplier (either a supplier that
does not elect to become a
grandfathered supplier or a
grandfathered supplier) and then
transfer title to that item without being
paid a sufficient amount to cover its
costs. We also recognize that contract
suppliers will not be able to predict how
many beneficiaries will obtain capped
rental items or oxygen equipment from
them, rather than from a supplier that
does not elect to become a
grandfathered supplier.
In response to the commenters’
concerns, we are implementing two new
payment rules to ensure that contract
suppliers that must begin furnishing
oxygen equipment and/or capped rental
items to which the grandfathering
process would otherwise apply receive
a sufficient number of monthly rental
payments to recover their costs. We
believe that these changes are consistent
with our statutory mandate under
sections 1847(a) and (b) of the Act,
which give us broad authority regarding
how to structure the Medicare DMEPOS
Competitive Bidding Program, and more
specifically with section 1847(b)(3)(A)
of the Act, which allows us to specify
the terms and conditions of contracts we
enter into with contract suppliers.
Capped Rental: For capped rental
items furnished on a rental basis, we are
providing in a new § 414.408(h)(2) that
a contract supplier that must begin
furnishing a capped rental item during
the rental period to a beneficiary who is
no longer renting the item from his or
her previous supplier (because the
previous supplier elected not to become
a grandfathered supplier or the
beneficiary elected to change suppliers)
will receive 13 monthly rental payments
for the item, regardless of how many
monthly rental payments Medicare
previously made to the prior supplier,
assuming the item remains medically
necessary. This will ensure that the
contract supplier can recover its costs
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because, as discussed in section VI.G.5.
of this final rule, the 13 monthly rental
payments for the capped rental item
will be based on a single payment
amount that reflects the purchase price
for that item. At the end of this new 13
month rental period, the contract
supplier will transfer title to the capped
rental item to the beneficiary. This rule
does not apply when a beneficiary who
is renting a capped rental item from a
contract supplier elects to obtain the
same item from another contract
supplier, because the grandfathering
provisions, as described in section
1847(a)(4) of the Act, only apply to
those situations in which a beneficiary
had been previously receiving the item
from a noncontract supplier. In this
case, the new contract supplier would
be paid the single payment amount for
the duration of the rental period.
Oxygen Equipment: For oxygen
equipment, we provide in a new
§ 414.408(i)(2) that a contract supplier
that must begin furnishing oxygen
equipment after the rental period has
already begun to a beneficiary who is no
longer renting the item from his or her
previous supplier (because the previous
supplier elected not to become a
grandfathered supplier or the
beneficiary elected to change suppliers)
will receive at least 10 rental payments
for furnishing the equipment. For
example, if a contract supplier begins
furnishing oxygen equipment to a
beneficiary in months 2 through 26, we
would make payment for the remaining
number of rental months in the 36month rental period, because the
number of payments to the contract
supplier would be at least 10 payments.
In other words, a contract supplier that
begins furnishing oxygen equipment
beginning with the 20th month of rental
will receive 17 payments (17 for the
remaining number of rental months in
the 36 month rental period). However,
if a contract supplier begins furnishing
oxygen equipment to a beneficiary in
month 27 or later, we would make 10
rental payments assuming the
equipment remains medically
necessary. We believe this is a
reasonable solution because our data
from the GAO and the OIG and data
available through the Internet show that
most oxygen equipment can be
purchased for $1,000 or less, and data
from the competitive bidding
demonstrations indicate that suppliers
received more than $1,000 over 10
months for furnishing oxygen
equipment. Based on these data, we
believe that 10 months is sufficient to
cover the contract supplier’s cost to
furnish the equipment, irrespective of
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the modality that is used to administer
the oxygen. This rule regarding the
minimum number of rental payments
does not apply when a beneficiary
switches from a contract supplier to
another contract supplier to receive his
or her oxygen equipment. In this case,
the new contract supplier would be paid
the single payment amount for the
remaining number of months in the
rental period.
We note that the DRA does not apply
to inexpensive or routinely purchased
items when they are furnished on a
rental basis. Therefore, we do not see a
need to make these special payment
provisions applicable to those items.
Comment: Several commenters
suggested that CMS establish a
transition period that would allow
beneficiaries who reside in a CBA to
continue to receive items from a
noncontract supplier. They indicated
that suppliers should be paid the
current fee schedule amounts for these
items during this transition period.
They further suggested that CMS could
use this period of time to educate
beneficiaries and suppliers about the
Medicare DMEPOS Competitive Bidding
Program. Other commenters stated that
the payment amount to grandfathered
suppliers should always be the fee
schedule amount (not just during a
transition period) and never be the
single payment amount.
Response: We proposed to establish a
grandfathering process that would allow
existing rental agreements for certain
rented items to continue because we
want to minimize the potential that
these arrangements will be disruptive to
the beneficiary due to the
implementation of competitive bidding.
We do not believe it is necessary to
establish a transition process, however,
as discussed in the proposed rule, we
are requiring that a supplier that elects
to be a grandfathered supplier for a
specific item must serve as a
grandfathered supplier to all
beneficiaries who elect to receive that
item from them. We plan to start
educating suppliers, beneficiaries, and
referral agents about competitive
bidding as soon as this final rule is
published and expect that these efforts
will make the transition to this new
program go as smoothly as possible. We
do not, however, have authority to
establish a grandfathering process that
would allow beneficiaries to continue
receiving from their current supplier
items other than those specified in
section 1847(a)(4) of the Act.
We proposed to pay grandfathered
suppliers the single payment amount for
items requiring frequent and substantial
servicing and oxygen and oxygen
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equipment because the rental payments
for these items are not calculated based
on, or limited to, the purchase fees for
these items. Therefore, we believe that
it is reasonable to require suppliers that
want to continue furnishing these items
as grandfathered suppliers to accept the
same payment that will be made for
these items to contract suppliers. This
achieves the goal of the program to
achieve savings for the Medicare
program.
However, the payment amounts made
to grandfathered suppliers for
furnishing capped rental and
inexpensive or routinely purchased
items will continue to be based on the
fee schedule amounts that are paid for
these items. Unlike items requiring
frequent and substantial servicing and
oxygen and oxygen equipment, the
monthly rental payments for these items
are made for a more limited period of
time. In addition, the payment amounts
for these items are based on the
purchase fees for these items. Therefore,
we believe that it is reasonable to
continue paying for these items in
accordance with existing rental
agreements.
(2) Suppliers That Lose Their Contract
Status in a Subsequent Competitive
Bidding Program
There may be instances when a
supplier that was awarded a contract to
furnish rental items or oxygen and
oxygen equipment under a competitive
bidding program is not awarded a
contract to furnish the same items under
a subsequent competitive bidding
program in the same area. We are
concerned that if this occurs,
beneficiaries will need to switch
suppliers in the middle of the rental
period and could experience a
disruption of service as a result. In order
to minimize this possibility, we
proposed to apply section 1847(a)(4) of
the Act not only in a CBA where we
implement a competitive bidding
program for the first time, but also in the
same area when we implement a
subsequent competitive bidding
program (proposed § 414.408(k)(3);
redesignated § 414.408(j)(3) in this final
rule). We believe our proposal is
consistent with section 1847(a)(4) of the
Act, which we interpret as applying to
each competitive bidding ‘‘program’’
that we implement in an area because
each program will be unique in terms of
bidders, contract suppliers, items
included in the program, and prices.
Under the proposed rule, Medicare
beneficiaries would be allowed to
continue renting medically necessary
items from their existing supplier, even
if that supplier has lost its contract
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status under a subsequent competitive
bidding program.
However, where a supplier that is no
longer a contract supplier continues to
furnish a rental item or oxygen and
oxygen equipment on a grandfathered
basis, we proposed that Medicare make
payment for the item in the amount
established for that item under the new
competitive bidding program for that
area. We believe that section 1847(a)(4)
of the Act gives us this discretion, since
that section only requires us to establish
a ‘‘process’’ under which these rental
agreements or supply arrangements
‘‘may continue’’ but does not specify a
payment methodology that must be used
under that process. In addition, we do
not believe that the alternative, which
would be to make payment for the item
under the fee schedule, is reasonable
since the rental agreement or supply
arrangement began under a competitive
bidding program.
All rules that applied to grandfathered
suppliers will apply in this situation
when a supplier is a contact supplier in
under one competitive bidding program
e.g. in round one but is not a contract
supplier in a subsequent competitive
bidding program in the same CBA, e.g.
in round two. However, the payment
amounts will not revert back to the
current fee schedule but rather the
payment amounts will be the new
competitive bid single payment
amounts as determined under § 414.416.
We did not receive any specific
comments on these proposals.
Therefore, in this final rule, we are
redesignating proposed § 414.408(k)(3)
as § 414.408(j)(3), making editorial
revisions, and finalizing that section.
c. Payment for Accessories for Items
Subject to Grandfathering
(§ 414.408(j)(5))
We proposed that accessories and
supplies used in conjunction with an
item which is furnished under a
grandfathering process described above
may also be furnished by the
grandfathered supplier. Payment would
be based on the single payment amount
established for the accessories and
supplies if the item is oxygen or oxygen
equipment or one that requires frequent
and substantial servicing. For
accessories and supplies used in
conjunction with capped rental and
inexpensive or routinely purchased
items, we proposed that the payment
amounts would be based on the fee
schedule amounts for the accessories
and supplies furnished prior to the
implementation of the first competitive
bidding program in an area, or on the
newly established competitively bid
single payment amounts if the items are
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furnished by a grandfathered supplier
that was a contract supplier for a
competitive bidding program, but is no
longer a contract supplier for a
subsequent competitive bidding
program in the same area.
Our proposal is similar to the
grandfathering approach that was used
in the DMEPOS competitive bidding
demonstrations under which we paid
grandfathered suppliers the
competitively bid amount for certain
items and the fee schedule amounts for
other items. We specifically solicited
comments on our grandfathering
proposals.
Comment: Several commenters
supported our proposal to require that
accessories and supplies used in
conjunction with an item furnished
under the grandfathering process be
furnished by a grandfathered supplier.
Response: We appreciate the
commenters’ support and continue to
believe that this approach is reasonable.
To clarify the situations in which this
may occur, we are revising proposed
§ 414.408(k) (redesignated § 414.408(j)
in this final rule) by adding a new
paragraph (j)(5) to specify that
accessories and supplies that are
necessary for the effective use of DME
may also be furnished by the same
grandfathered supplier that furnishes
the grandfathered item. This approach
will provide the beneficiary with
continuity of service by requiring one
supplier to provide all related items the
beneficiary may need for the proper use
of their equipment. This rule will not
apply to accessories that are not an
integral part of the base equipment. For
example, a standard mattress is an
essential accessory for a hospital bed
and may be furnished by a
grandfathered supplier of a hospital bed,
if the supplier has elected to be a
grandfathered supplier for the hospital
bed. However, a special, powered
alternating pressure mattress furnished
to prevent decubitus ulcers is not an
essential part of the base equipment and
is furnished in addition to the general
service of furnishing the hospital bed.
Assuming the grandfathered supplier
for the base equipment is willing to also
furnish accessories or supplies for the
base equipment, beneficiaries will be
able to choose to obtain any
competitively bid accessories or
supplies from either the grandfathered
supplier or a contract supplier. We
believe that the amount to be paid under
the Medicare DMEPOS Competitive
Bidding Program should be the single
payment amount, regardless of which
supplier furnishes the accessories or
supplies. Payment for most accessories
or supplies for DME is made on a
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purchase basis, and in those cases
where a single payment amount has
been established for the accessories or
supplies, we believe it is reasonable to
pay the single payment amount for the
accessories or supplies to the
grandfathered supplier for the base
equipment. We believe this is
reasonable, regardless of what payment
category the base equipment falls under
because the single payment amount
reflects a reasonable payment amount
determined by a competitive market. If
the grandfathered supplier chooses not
to furnish the accessories or supplies for
the grandfathered base equipment, a
contract supplier would be responsible
for furnishing the accessories or
supplies.
Comment: One commenter suggested
that CMS needs to establish a transition
plan for Medicare Advantage
beneficiaries who disenroll from their
MA plan and enroll in traditional feefor-service Medicare Part B. The
commenter pointed out that these
beneficiaries may currently be using a
noncontract supplier and should be
given the option to remain with their
existing supplier under the
grandfathering provisions.
Response: All beneficiaries to whom
the grandfathering process applies can
elect to continue receiving certain
rented items from a supplier that elects
to become a grandfathered supplier.
Therefore, if a supplier from whom a
Medicare Advantage beneficiary
previously rented one of these items is
eligible, and elects, to become a
grandfathered supplier, then the
beneficiary could continue to receive
the item from that supplier.
Comment: One commenter stated that
the rule should apply grandfathering
provisions to enteral equipment,
nutrition, and supplies. The commenter
stated that beneficiaries on enteral
nutrition develop an ongoing
relationship with their suppliers. The
commenter pointed out that suppliers
that furnish enteral equipment,
nutrition, and supplies frequently
service and maintain the enteral pumps.
The commenter added that, under the
proposed rule, contract suppliers would
be responsible for servicing and
maintaining enteral pumps that they did
not provide to beneficiaries. The
commenter recommended that the
previous enteral supplier be able to
continue to provide enteral equipment,
nutrition, and supplies to the
beneficiary until the 15-month rental
period ends.
Another commenter stated that our
grandfathering proposal did not include
a process for grandfathering glucose
testing supplies. The commenter
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indicated that competitive bidding
could force many beneficiaries to switch
their glucose monitoring system if the
contract supplier does not offer the
testing supplies for the monitor they
currently use.
Another commenter suggested that
Medicare allow grandfathering for all
DMEPOS items. Another commenter
suggested that Medicare only allow
grandfathering for oxygen equipment
because otherwise, competitive bidding
for capped rental items, oxygen, and
oxygen equipment will only affect
beneficiaries who need to obtain these
items after a competitive bidding
program has been implemented in their
area, which undermines a program goal
to harness market place dynamics.
Response: Section 1847(a)(4) of the
Act requires that we establish a process
by which rental agreements for DME
and supply arrangements for suppliers
of oxygen and oxygen equipment
entered into before the implementation
of a competitive bidding program may
be continued. We do not believe we
have authority to allow grandfathering
for other DMEPOS, such as glucose
testing supplies and enteral nutrition,
equipment, and supplies.
After consideration of the public
comments received, we are
redesignating proposed § 414.408 (k) as
§ 414.408 (j) and finalizing this section
as discussed above and with additional
technical modifications. We are also
adding new § 414.408(h)(2) and
§ 414.408(i)(2), which provide for
special payments to certain contract
suppliers that furnish certain rented
items.
4. Payment Adjustments
a. Adjustment to Account for Inflation
(§ 414.408(b))
The fee schedule payment amounts
for DMEPOS items are updated by
annual update factors described in 42
CFR Part 414, Subparts C and D. In
general, the update factors are
established based on the percentage
change in the CPI–U for the 12-month
period ending June 30 of each year and
preceding the calendar year to which
the update applies. In accordance with
section 1847(b)(3)(B) of the Act, the
term of a competitive bidding contract
may not exceed 3 years.
In the May 1, 2006 proposed rule (71
FR 25663), we proposed to apply an
annual inflation update to the single
payment amounts established for a
competitive bidding program (proposed
§ 414.408(b)). Specifically, beginning
with the second year of a contract
entered into under a competitive
bidding program, we proposed to
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update the single payment amounts by
the percentage increase in the CPI–U for
the 12-month period ending with June
30 of the preceding calendar year. We
stated that using the CPI–U index would
be consistent with Medicare using this
index to update the DME fee schedule.
This would account for inflation in the
cost of business for suppliers submitting
bids for furnishing items under a multiyear contract.
Comment: One commenter suggested
that CMS not finalize its proposal to
make an annual inflation update to the
single payment amounts. The
commenter believed that this payment
adjustment may make it possible for
single payment amounts to rise faster
than current fee schedule payment
amounts, particularly in the event of a
payment freeze or a payment reduction.
The commenter recommended that CMS
determine a single payment amount that
will apply for the full term of the
contract or allow each bidder to specify
an annual adjustment in its bid.
Response: We agree with the
commenter and will not finalize our
proposal to make an annual inflation
update to the single payment amounts.
The single payment amounts will
remain in effect for the duration of the
contract. We believe it is more
appropriate for suppliers to address the
possible effects of inflation or price
increases when they formulate their
bids because automatic payment
adjustments to competitively bid items
may result in higher payment amounts
than would occurred under the
DMEPOS fee schedule payment
amounts if these amounts are subject to
Congressional freezes or payment
reductions.
Comment: Several commenters stated
that the proposal did not address
situations where the manufacturers or
distributors raise their prices, thereby
requiring suppliers to pay more money
to purchase their products. They believe
that suppliers may be required to
continue to furnish these items at the
single payment amounts
notwithstanding the fact that their costs
have increased.
Response: While we recognize that
increases in suppliers’ costs for
equipment and other costs can occur at
any time, suppliers should be generally
aware of how often these changes occur
and how these changes affect their
businesses. We expect suppliers to
consider this factor when developing
their bids, which represent bids for
furnishing items during the entire
period that the contract will be in effect.
Comment: Several commenters
recommended that CMS continue to use
the CPI–U to adjust fee schedule
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amounts for class III devices. The
commenters indicated that the March
2006 GAO report was flawed because it
did not provide a full assessment of
changes over time in the costs of
producing, supplying and servicing
class III devices. The commenters also
noted that the report does not specify a
specific percentage update for CY 2007
or CY 2008. Another commenter stated
that the GAO report examines class III
devices in relation to only a very limited
number of higher-technology class III
items that may not be reflective of the
general class III items. One commenter
unfavorably compared the GAO report
to the Medicare Payment Advisory
Commission (MedPAC) reports which
assess the adequacy of Medicare
payments for hospital inpatient and
outpatient services, physician services,
outpatient dialysis services, skilled
nursing facility services, home health
services, long-term care hospital
services and inpatient rehabilitation
facility services. (Following each
detailed assessment, MedPAC then
recommends an update policy for each
provider category for the coming year.)
The commenter noted that the GAO
report does not justify its alternative
assessment methodology or its failure to
take into account changes over time in
manufacturer costs for class III devices.
Another commenter recommended that
the class III proposal be included in a
separate rulemaking procedure because
it is not related to competitive bidding.
Response: Pursuant to section
1834(a)(14)(H)(i) of the Act, in
determining the appropriate fee
schedule update percentages for class III
medical devices prescribed in section
513(a)(1)(C) of the Federal Food, Drug
and Cosmetic Act (21 U.S.C.
360(c)(1)(C)) for CY 2007, we must take
into account recommendations
contained in the report of the
Comptroller General of the United
States under section 302(c)(1)(B) of the
MMA. We have not yet made a
determination regarding the appropriate
percentage change for CY 2007 in the
fee schedule amounts for class III DME
and, therefore, are not making that
determination as part of this final rule.
We will address this issue in a future
rulemaking.
After consideration of the public
comments received, in this final rule,
we are revising proposed § 414.408(b) to
specify that the single payment amount
for each item that is determined under
each competition will be in effect for the
duration of the contract and will not be
adjusted by an annual inflation update.
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b. Adjustments to Single Payment
Amounts to Reflect Changes in the
HCPCS (§ 414.426)
We proposed under § 414.426 that
revisions to HCPCS codes for items
under a competitive bidding program
that occur in the middle of a bidding
cycle would be handled as follows:
• If a single HCPCS code for an item
is divided into multiple codes for the
components of that item, the sum of
payments for these new codes would be
equal to the payment for the original
item. Suppliers selected through
competitive bidding to provide the item
would also provide the components of
the item. During the subsequent
competitive bidding cycle, suppliers
would bid on each new code for the
components of the item, and we would
determine new single payment amounts
for these components.
• If a single HCPCS code for two or
more similar items is divided into two
or more separate codes, the payment
amount applied to these codes would
continue to be the same payment
amount applied to the single code until
the next competitive bidding cycle.
During the next cycle, suppliers would
bid on the new separate and distinct
codes.
• If the HCPCS codes for several
components of one item are merged into
one new code for the single item, the
payment amount of the new code would
be equal to the total of the separate
payment amounts for the components.
Suppliers that were selected through
competitive bidding to supply the
various components of the item would
continue to supply the item using the
new code. During the subsequent
bidding cycle, suppliers would bid on
the new code for the single item to
determine a new single payment
amount for this new code.
• If multiple codes for different, but
related or similar items are placed into
a single code, the payment amount for
the new single code would be the
average (arithmetic mean) weighted by
frequency of payments for the formerly
separate codes. Suppliers would also
provide the item under the new single
code. During the subsequent bidding
cycle, suppliers would bid on the new
single code and determine a new single
payment amount for this code.
Comment: Several commenters stated
that when multiple codes for similar
items are merged to a new code, CMS
should continue to use the former codes
and single payment amounts for the
remainder of the contract period. One
commenter stated that the proposal that
the payment amounts for new HCPCS
codes continue to be the same payment
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amounts until the next competitive
bidding cycle is not an equitable
proposal and a more appropriate
procedure must be developed. Another
commenter stated that CMS’ only
authority to adjust payment amounts for
an item is through the inherent
reasonableness authority under the
Medicare statute. The commenter
disagreed with the proposal for paying
for new HCPCS codes that are
established during a competitive
bidding cycle. The commenter stated
that CMS should rebid these items,
assuming they are appropriate for
inclusion in the program.
Response: After further consideration,
we are clarifying that when multiple
codes for different items are
discontinued and the items are placed
into a new single code, the payment for
the new code will be based on the fee
schedule methodology, even if we had
previously established a single payment
through competitive bidding for the
items included in the new code. The old
codes will be considered invalid and
therefore will no longer be included in
the competitive bidding program for the
remainder of the contract term. During
a subsequent competitive bidding
program, suppliers would bid on the
new single code and we will determine
a new single payment amounts for this
code based on the bids submitted and
accepted. We are not finalizing this part
of the proposed methodology because
we do not believe the single payment
amount in this case would be reflective
of the bids submitted and accepted for
these multiple items. However, unlike
this proposal, our other three proposals
will be finalized because they are
reflective of the bids submitted and
accepted for the items described by the
new codes.
We note that we do not believe we
have authority to use the inherent
reasonableness authority to adjust the
single payment amounts set through
competitive bidding. We believe that the
prices set by competitive bidding will
be reasonable because they will be
reflective of the market. When we split
or merge HCPCS codes, we will ensure
that the new payment amounts are
reflective of the previously established
payment amounts, and this does not
require the use of the inherent
reasonableness authority or the need to
rebid the items.
After consideration of the public
comments we received, we are
finalizing §§ 414.426(a) through (c) and
revising § 414.426(d) as discussed above
and with additional technical changes.
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5. Authority to Adjust Payments in
Other Areas
Section 1834(a)(1)(F)(ii) of the Act
provides authority, effective for covered
items furnished on or after January 1,
2009, that are included in a competitive
bidding program, for us to use the
payment information determined under
that competitive bidding program to
adjust the payment amounts otherwise
recognized under section
1834(a)(1)(B)(ii) of the Act for the same
DME items in areas not included in a
competitive bidding program. Sections
1834(h)(1)(H)(ii) and 1842(s)(3)(B) of the
Act provide the same authority for
orthotic and prosthetic devices, and
enteral nutrition, respectively.
In the May 1, 2006 proposed rule (71
FR 25664), we proposed to use this
authority but stated that we had not yet
developed a detailed methodology for
doing so. Therefore, we specifically
invited comments and
recommendations on this issue. We
stated that we believed that our
methodology would be influenced by
our experience and information gained
from the competitive bidding programs
in CYs 2007 and 2009. When submitting
recommendations on a methodology for
using this authority, we asked
commenters to keep in mind the
following factors that are likely to be
incorporated in the methodology:
• The threshold or amount or level of
savings that the Medicare program must
realize for an item or group of items
before we would use payment
information from a competitive bidding
program to adjust payment amounts for
those items in other areas.
• Whether adjustments of payment
amounts in other areas would be on a
local, regional, or national basis,
depending on the extent to which the
single payment amounts and price
indexes (for example, local prices used
in calculating the CPI–U) for an item or
group of items varied across different
areas of the country.
• Whether adjustments of payment
amounts in other areas would be based
on a certain percentage of the single
payment amount(s) from the CBA(s).
Comment: Some commenters stated
that CMS must issue a final rule to spell
out a detailed plan for using the
authority provided by sections
1834(a)(1)(F)(ii), 1834(h)(1)(H)(ii), and
1842(s)(3)(B) of the Act before it can
implement these provisions.
Response: We agree with the
commenters that a more detailed plan
must be developed for using the
authorities provided by sections
1834(a)(1)(F)(ii), 1834(h)(1)(H)(ii), and
1842(s)(3)(B) of the Act, and we plan to
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conduct subsequent rulemaking prior to
implementing these provisions.
Subsequent rulemaking would provide a
more detailed plan for using these
authorities. Therefore, we are not
finalizing proposed § 414.408(e) until
the subsequent rulemaking is
completed.
6. Requirement to Obtain Competitively
Bid Items From a Contract Supplier
(§§ 411.15(s), 414.408(e))
Beneficiaries often travel, for
example, to visit family members or to
reside in a State with a warmer climate
during the winter months. To prevent
these beneficiaries from having to return
home to obtain needed DMEPOS, in
proposed § 414.408(f)(2)(ii)
(redesignated § 414.408(e)(2)(iii) in this
final rule), we proposed to allow
beneficiaries who are traveling outside
the CBA where they permanently reside
to obtain items that they would
ordinarily be required to obtain from a
contract supplier for their CBA from a
supplier that has not been awarded a
contract to furnish items for that area. If
the area that the beneficiary is visiting
is also a CBA and the item is subject to
the competitive bidding program in that
area, the beneficiary would be required
to obtain the item from a contract
supplier for that area. If the area that the
beneficiary is visiting is not a CBA, or
if the area is a CBA but the item needed
by the beneficiary is not included in the
competitive bidding program for that
area, the beneficiary would be required
to obtain the item from a supplier that
has a valid Medicare supplier number.
In either case, payment to the supplier
would be made based on the single
payment amount for the item in the
CBA where the beneficiary maintains a
permanent residence.
In the May 1, 2006 proposed rule, we
proposed that if a beneficiary is not
visiting another area, but is merely
receiving competitively bid items from
a supplier located outside but near the
boundary of the CBA, the proposed
exemption to the general rule that
beneficiaries who reside in a CBA must
obtain DMEPOS covered by competitive
bidding from contract suppliers in that
area would not apply. We stated that we
plan to monitor the programs closely to
ensure that this type of abuse or
circumvention of the competitive
bidding process and requirements to
obtain items from a contract supplier
does not occur.
We also proposed to base claims
jurisdiction and the payment amount on
the beneficiary’s permanent residence as
we have done since the early 1990s with
the current DMEPOS program under
§ 421.210(e). Under this proposal, the
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DME MAC responsible for the area
where the beneficiary maintains a
permanent residence would process all
claims submitted for items furnished to
that beneficiary, whether or not the
beneficiary obtained the item in that
area. If the beneficiary maintained a
permanent residence in a CBA and
obtained an item included in the
competitive bidding program for that
area, Medicare would pay the supplier
the single payment amount for the item
determined under the competitive
bidding program for that area. If the
beneficiary did not maintain a
permanent residence in a CBA,
Medicare would pay the supplier the fee
schedule amount for the area in which
the beneficiary maintains a permanent
residence. We believe that this proposal
is consistent with our current policy,
under which suppliers across the
country are paid the same amount for
similar products obtained by
beneficiaries who maintain their
permanent residence within the same
geographic area.
We proposed that Medicare
beneficiaries who maintain their
permanent residence in a CBA be
required to obtain competitively bid
items from a contract supplier for that
area with the following two exceptions:
• A beneficiary may obtain an item
from a supplier or a noncontract
supplier in accordance with the
competitive bidding program
grandfathering provisions described in
section VI.C.3. of this final rule.
• A beneficiary who is outside of the
CBA where he or she maintains a
permanent residence may obtain an
item from a contract supplier, if he or
she is in another CBA and the same item
is included under a competitive bidding
program for that area, or from a supplier
with a valid Medicare supplier number,
if he or she is either in another CBA that
does not include the item in its program
or is in an area that is not a CBA.
We proposed that unless one of the
exceptions discussed above applies,
Medicare would not pay for the item.
We also proposed to add a new
§ 411.15(s) that would prohibit
Medicare from making payment for an
item that is included in a competitive
bidding program if that item is
furnished by a supplier other than a
contract supplier, unless an exception
applies.
Comment: Several commenters
suggested that CMS exclude from
competitive bidding beneficiaries who
have Medicare as their secondary
insurance. The commenters stated that
claims for beneficiaries with Medicare
as a secondary payer should be
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processed and paid under the standard
fee schedule.
Response: We believe that the
commenters’ intent was to request that
Medicare pay for an item that was
furnished by a supplier that the
beneficiary is required to use under his
or her primary insurance policy even if
that item is furnished by a supplier that
is not a contract supplier. We agree with
the commenters that an exception under
the Medicare DMEPOS Competitive
Bidding Program needs to be made for
beneficiaries with Medicare as their
secondary insurance. Section
1862(a)(17) of the Act allows the
Secretary to specify circumstances
under which it would be appropriate to
pay for an item that is furnished by an
entity other than a contract supplier. To
address secondary payer concerns, we
are adding an exception at
§ 414.408(e)(2)(ii) of the list of
circumstances when Medicare will
make payment where the expenses for a
competitively bid DMEPOS item
furnished in a CBA were incurred by a
supplier other than a contract supplier.
Under this exception Medicare may
make a secondary payment for a
DMEPOS item that is furnished by a
noncontract supplier if the beneficiary,
in order to comply with his or her
primary insurance plan, does not have
the option to use a contract supplier. In
addition, Medicare will only make a
secondary payment to a supplier that
the beneficiary is required to use under
his or her insurance plan if the supplier
is eligible to submit claims to Medicare.
These suppliers will need to have a
valid Medicare billing number to be
eligible to submit claims to Medicare.
This regulation does not supersede the
established Medicare secondary payer
statutory and regulatory requirements,
including the Medicare secondary
payment rules found at 42 CFR 411.32
and 411.33, and payment will be
calculated in accordance with those
rules.
Comment: One commenter stated that
the requirement to obtain competitively
bid items from a contract supplier will
be extremely confusing to the traveling
beneficiary and will limit beneficiary
access to DMEPOS while the beneficiary
is away from his or her permanent
residence. The commenter also
proposed that the supplier outside of
the beneficiary’s CBA be reimbursed
either (a) the regular fee schedule
amount for the product if the area
traveled to is not a CBA or (b) the higher
single payment amount for the two
CBAs, if the area where the beneficiary
has traveled is in a CBA.
Some commenters were concerned
that the difference between the fee
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18007
schedule amount and the single
payment amount may be substantial,
thereby hindering beneficiary access to
needed equipment. They recommended
that CMS continue to pay for an item
based on the fee schedule amount that
corresponds with the beneficiary’s
permanent residence if the beneficiary
obtains the item while visiting another
area. The commenters were concerned
about the impact that the requirement to
obtain competitively bid items from a
contract supplier would have on both
suppliers and beneficiaries who travel
to ‘‘snowbird’’ areas.
Response: The approach set out in the
proposed rule is consistent with our
long-standing rule under which
Medicare payment for DMEPOS is based
on the beneficiary’s primary residence.
If a beneficiary maintains a permanent
residence in a CBA, payment for an item
that the beneficiary obtains while
visiting another area will be based on
the payment amount for the item in the
beneficiary’s CBA. We note that, under
our current rule, there are instances
when a supplier is paid more or less
than the fee schedule amount that the
supplier would otherwise receive for an
item because the payment amount has
been determined based on where the
beneficiary resides. The same will be
true under the Medicare DMEPOS
Competitive Bidding Program. For
example, when a beneficiary who
resides in an area that is not a CBA
travels into a CBA and needs to obtain
an item, the supplier that furnishes the
item will be paid the current fee
schedule amount for the item based on
the beneficiary’s residence, even if the
fee schedule amount is greater than the
single payment amount that the supplier
would otherwise receive for furnishing
the item. We believe that it is
appropriate to adopt our current claims
jurisdiction policy for the Medicare
DMEPOS Competitive Bidding Program
because it minimizes the possibility that
suppliers will set up locations in certain
geographic areas for the purpose of
obtaining higher payment amounts.
We plan to conduct an extensive
education campaign to minimize
confusion on the part of both
beneficiaries and suppliers regarding
this provision and all other provisions
of the Medicare DMEPOS Competitive
Bidding Program.
Comment: Several commenters stated
that suppliers need access to a
beneficiary database that identifies the
county in which a beneficiary resides at
the zip code level, so they can
determine if the beneficiary resides in a
CBA.
Response: We do not believe that this
is necessary for suppliers. Currently,
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payment is based on beneficiary
residence, and suppliers do not have
access to beneficiary zip code
information to bill for items. We will
post all counties and zip codes where
competitive bidding is conducted on
our Web site. The Medicare claims form
requires a beneficiary address.
Therefore, the supplier will be able to
ascertain if the beneficiary resides in a
CBA. We currently post fee schedules
on our Web site and the single payment
amounts for each item in each CBA will
also be posted. Therefore, suppliers can
look to the postings to determine
payment amounts in other areas. In
addition, our claims processing systems
are equipped to identify the appropriate
payment amount so no calculations are
necessary to determine the payment
amount for an item.
Comment: Several commenters stated
that beneficiaries will not have access to
newer technology for competitively bid
products.
Response: One of the main objectives
of the Medicare DMEPOS Competitive
Bidding Program is to ensure that
beneficiaries have access to quality
DMEPOS. Therefore, we have built
safeguards into the competitive bidding
program to ensure there is continued
access to quality medical equipment
and supplies, as well as to services
necessary to maintain the equipment.
As we discuss more fully in response to
comments in section XV. Physician or
Treating Practitioner Authorization and
Consideration of Clinical Efficiency and
Value of Items in Determining
Categories for Bids of this final rule
(§ 414.422(c)), we have proposed to
include a nondiscrimination clause in
each contract awarded under this
program. We believe that the inclusion
of this contract provision will ensure
that beneficiaries who obtain items
under a competitive bidding program
have access to the same products as
other Medicare customers and private
pay individuals. In addition, we are
taking other steps to ensure that high
quality items are furnished to
beneficiaries under this program. We
plan to implement a complaint system
so that beneficiaries, referral agents,
providers, and suppliers can report
problems and difficulties they
encounter with the ordering and
furnishing of DMEPOS in CBAs. In
addition, we will not award a contract
to a supplier unless that supplier meets
our eligibility standards, is accredited,
and meets our financial standards.
In addition, items that represent new
technology and that receive a new
HCPCS code to separately designate
them, rather than updates to current
technology will not be added to a
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contract supplier’s contract. Instead,
beneficiaries will be able to obtain these
items from any supplier for the
remainder of the contract period, and
the supplier will be paid the fee
schedule amount for those items.
Comment: One commenter stated that
competitive bidding will limit full-time
access to supplies that are crucial to
beneficiaries with diabetes. The
commenter stated that beneficiaries may
find that they can no longer purchase
their supplies from their current
supplier and may be inconvenienced.
The commenter recommended that CMS
implement an aggressive education
outreach program.
Response: We do not believe that
competitive bidding will limit
beneficiary access to any competitively
bid items, including diabetic supplies.
Although it is true that some
beneficiaries will have to find a contract
supplier to purchase their supplies, we
do not believe this will result in an
inconvenience to beneficiaries, because
there will be a sufficient number of
contract suppliers that furnish these
items for each CBA. The process we
have proposed for awarding contracts
under the Medicare DMEPOS
Competitive Bidding Program will
ensure that there are a sufficient number
of contract suppliers to furnish items to
all beneficiaries located in a CBA. We
plan to conduct an aggressive outreach
program for all beneficiaries, suppliers,
and referral agents. (We refer readers to
the DMEPOS provisions of the FY 2007
IRF final rule (71 FR 48354) for a
complete discussion of our planned
education and outreach policy.)
Comment: One commenter expressed
concern that in a State with multiple
MSAs, there could be a different
payment rate for the same item in each
MSA. The commenter believed this
would add confusion and would
increase billing time and expenses,
which will, in turn, increase the price
of products.
Response: We agree that if we
conducted competitive bidding in
multiple CBAs within a State, there
could be different prices in each CBA
for the same item. However, we do not
believe that this would be a problem for
contract suppliers. Under the current
program, suppliers may have a customer
base that comes from areas with
different fee schedule amounts because
the fee schedules vary by State.
Therefore, we believe that many
suppliers are already equipped to
handle price variations for an item. In
addition, the fee schedule for each item
in each State is published on our Web
site, and we plan to also publish the
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single payment amounts for each item
in each CBA on our Web site.
After consideration of the public
comments we received, we are
redesignating proposed § 414.408(f) as
§ 414.408(e) and adding a new
§ 414.408(e)(2)(ii) that specifies that
Medicare may make a secondary
payment for a DMEPOS item that is
furnished by a supplier that is not
awarded a contract under a competitive
bidding program. We are also finalizing
the remainder of proposed
§§ 414.408(f)(1) and (f)(2)(i) and (f)(2)(ii)
(redesignated as §§ 414.408(e)(2)(i) and
(e)(2)(iii)) with only technical
modifications. We are also finalizing
§ 411.15(s).
7. Limitation on Medicare Payment and
Beneficiary Liability for Items
Furnished by Noncontract Suppliers
(§§ 414.408(e)(3) and (e)(4)
In the May 1, 2006 proposed rule (71
FR 25664), we proposed that if a
noncontract supplier located in a CBA
furnishes an item included in the
competitive bidding program for that
area to a beneficiary who maintains a
permanent residence in that area, the
beneficiary would have no financial
liability to the noncontract supplier
unless the grandfathering exception
discussed in section VI.D.3. of this final
rule applies (proposed
§ 414.408(f)(2)(iii); redesignated
§ 414.408(e)(3) in this final rule).
We proposed that this rule would not
apply if the noncontract supplier
furnished items that are not included in
the competitive bidding program for the
area. We proposed to specially designate
the supplier numbers of all noncontract
suppliers so that we will easily be able
to identify whether a noncontract
supplier has furnished a competitively
bid item to a beneficiary who maintains
a permanent residence in a CBA
(proposed § 414.408(f)(3)) (redesignated
in this final rule as § 414.408(e)(4)).
Comment: Several commenters
suggested that proposed
§ 414.408(f)(2)(ii) be clarified to include
a limitation on beneficiary liability
unless the noncontract supplier has
obtained a signed ABN, which indicates
that the beneficiary was informed prior
to receiving service that there would be
no coverage due to the supplier’s
noncontract status and that the
beneficiary still desired to receive the
service from the noncontract supplier.
Response: We are revising the
regulation to add § 414.408(e)(3)(ii) and
§ 414.408(c) to reflect that there is a
limitation on beneficiary liability unless
the noncontract supplier has obtained a
signed ABN because, if the beneficiary
desires to receive this item from a
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supplier that is not a contract supplier,
the ABN indicates the beneficiary’s
knowledge and understanding that
Medicare will not pay for that item. In
this circumstance, a noncontract
supplier cannot bill the Medicare
program and receive payment for a
competitively bid item provided to a
beneficiary whose primary residence is
in a CBA unless an exception discussed
in this rule applies.
We are also revising proposed
§ 414.408(f)(2)(iii) (redesignated in this
final rule as § 414.408(e)(3)(ii) to delete
the phrase ‘‘who maintains a permanent
residence in a CBA.’’ We believe this
change clarifies our final policy that
beneficiaries will not be financially
responsible for making payment to a
noncontract supplier that furnishes a
competitively bid item in violation of
the Medicare DMEPOS competitive
bidding program.
After consideration of the public
comments we received, we are
redesignating proposed
§§ 414.408(f)(2)(iii) and (f)(3) as final
§§ 414.408(e)(3)(ii) and (e)(4),
respectively, and finalizing these
sections as discussed above and with
additional technical changes.
8. Payment for Repair and Replacement
of Beneficiary-Owned Items
(§ 414.408(k))
In the proposed rule (71 FR 25681),
we proposed that repair or replacement
of beneficiary-owned DME, enteral
nutrition equipment, or OTS orthotics
that are subject to the Medicare
DMEPOS Competitive Bidding Program
must be furnished by a contract supplier
because only winning suppliers can
provide these items in a CBA (proposed
§ 414.422(c)). The contract supplier
could not refuse to repair or replace
beneficiary-owned items subject to
competitive bidding. We indicated that
this proposed provision would help
ensure that the beneficiaries will get the
items from qualified suppliers, and is
consistent with the competitive bidding
program in that it directs business to
contract suppliers.
Therefore, we proposed that repair or
replacement of beneficiary-owned items
subject to a competitive bidding
program must be furnished by a contract
supplier. We indicated that this
proposed requirement would not apply
to Medicare beneficiaries who are
outside of a CBA.
Comment: Some commenters objected
to the requirements that repair of
beneficiary-owned equipment that is
subject to a competitive bidding
program must be furnished by a contract
supplier and that a contract supplier
must agree to service all items included
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in its contract. The commenters
remarked that a limited number of
suppliers have repair facilities. In
addition, the commenters noted that
contract suppliers may not have access
to the parts necessary to repair
equipment sold by another contract
supplier, and this provision would
allow manufacturers to inflate the price
for parts that must be obtained by
contract suppliers that do not regularly
furnish their products. The commenters
also suggested that, in cases where the
manufacturer is the sole distributor of
an item, the repair parts and accessories
for the item might not be
interchangeable and the use of parts that
are not provided by the manufacturer
may void the manufacturer’s warranty.
The commenters also suggested that if
there are warranties that must be
honored on previously rented or
purchased equipment, the cost of
service should be borne by the contract
supplier that received reimbursement
for the malfunctioning item. Several
commenters expressed concern about
assuming the liability for modifying a
splint if they were not the contract
supplier that originally furnished it. In
addition, the commenters suggested that
this proposal could restrict Medicare
beneficiary access to a choice of
suppliers that can repair their
equipment. Several commenters noted
that contract suppliers may not have the
training and expertise required for
repairs. One commenter asked how the
repair proposal might be affected by the
DRA provisions that impose new
requirements regarding capped rental
items, oxygen, and oxygen equipment.
Another commenter recommended
that repairs should be treated as a
separate bid on the RFB, rather than as
a cost of furnishing an item in an overall
product category.
Response: After consideration of the
commenters’ concerns, we are revising
our proposal on payment for repairs and
replacement of beneficiary-owned
items. We will not require that repairs
of beneficiary-owned competitively bid
items be performed by contract
suppliers because we recognize that
contract suppliers may not have the
training and expertise to repair every
make and model of equipment that
could be provided to a Medicare
beneficiary. This policy will also apply
to maintenance services required by the
DRA. We will pay for maintenance and
servicing of competitively bid items,
including replacement parts that may be
needed, that are performed by any
supplier as long as those repairs are
made by suppliers that have a valid
Medicare billing number that enables
them to receive payment for covered
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18009
Medicare services (§ 414.408(k)).
Payment will generally be made for
parts and labor consistent with the
methodology we currently use to make
these payments, which can be found in
42 CFR 414.210(e)(1) of our regulations
for durable medical equipment, and
prosthetic and orthotic devices.
However, if the part needed to repair the
item is itself a competitively bid item
for the CBA in which the beneficiary
maintains a permanent residence, we
will pay the supplier the single payment
amount for the part because we do not
believe that the payment amount for the
part should be different from what it
would otherwise be in the CBA solely
because the part is furnished by a
supplier that is not a contract supplier.
For example, if a beneficiary needs to
obtain a new battery for his or her
wheelchair, and the battery is itself a
competitively bid item for the
applicable CBA, we will pay the
supplier that performs the repair the
reasonable and necessary charges for the
labor needed to service the wheelchair
and the single payment amount for the
battery. We believe that allowing any
supplier to furnish a part when
performing a repair, even though the
part is itself a competitively bid item, is
a reasonable accommodation that will
enable the supplier to complete the
repair properly, and an appropriate
circumstance under which we can make
payment to the supplier under our
authority in section 1862(a)(17) of the
Act.
In addition, under final
§ 414.408(k)(2) to be consistent with our
current maintenance and servicing rules
for oxygen equipment, we will make
general maintenance and servicing
payments to suppliers that service
oxygen equipment (other than liquid
and gaseous equipment) in accordance
with § 414.210(e)(2) and an additional
payment to a supplier that picks up and
stores or disposes of beneficiary-owned
oxygen tanks or cylinders that are no
longer medically necessary, as provided
under § 414.210(e)(3).
We note that we do not have authority
under § 1847(a)(2) to include splints in
the Medicare DMEPOS Competitive
Bidding Program.
Comment: Numerous commenters
raised concerns regarding the
requirement that replacement of
beneficiary-owned equipment that is
subject to the Medicare DMEPOS
Competitive Bidding Program must be
furnished by a contract supplier. The
commenters suggested that CMS allow
contract suppliers to replace items even
if they do not ordinarily furnish these
items. The commenters believed that
implementing the replacement
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provision may be difficult as a
replacement may relate to a warranty
claim or require that the same product
be furnished to ensure continuity of
care. The commenters also noted that,
under the proposed provision, contract
suppliers would be required to replace
products that have been damaged
despite the fact that they did not sell the
item initially. The commenters asserted
that if a beneficiary purchased a product
from a noncontract supplier prior to
competitive bidding, the noncontract
supplier should be responsible for
repairs or replacement and be paid
accordingly. The commenters also
stressed that payment rates should be
generous enough to ensure that
beneficiaries receive an appropriate
level of response or service, and
contract suppliers should be reimbursed
for the service and replacement items
they provide. The commenters remarked
that the proposed rule assumes that
replacement equipment will be
provided and paid for in an amount
equal to the single payment amount.
Several commenters suggested that CMS
eliminate the requirement that
beneficiary-owned equipment subject to
competitive bidding must be replaced
by a contract supplier. Other
commenters requested that CMS revise
proposed § 414.422(c) to limit the scope
of this requirement so that contract
suppliers that are FDA-approved
manufacturers and that only furnish
their own products to beneficiaries in
the CBA are exempt and would only be
required to replace their own products.
One commenter asked how the
replacement proposal might be affected
by DRA provisions that imposed new
requirements regarding capped rental
items, oxygen, and oxygen equipment.
Response: As we stated above, we
have decided to modify our proposal
regarding the maintenance and servicing
of beneficiary-owned items to allow any
supplier to perform this service,
provided that the supplier has a valid
Medicare billing number. However, we
do not believe that this modification
should extend to situations where an
item must be replaced in its entirety
because the concern expressed by the
commenters, namely that suppliers
cannot be expected to have the expertise
to repair every make and model of
equipment, would not be a factor in the
event that an item must be replaced.
Accordingly, we continue to believe that
beneficiaries should be required to
obtain a replacement of an entire item,
as apposed to replacement of a part for
repair purposes, from a contract
supplier. As we stated in the May 1,
2006 proposed rule (71 FR 25681), this
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rule will help ensure that beneficiaries
obtain replacement items from qualified
suppliers, and it is consistent with one
of the competitive bidding program’s
goals, that is, to direct business to
contract suppliers that conduct business
in a manner that is beneficial for the
Medicare program and for beneficiaries.
Therefore, in final § 414.408(k)(3) we
have retained this requirement.
Medicare regulations at 42 CFR
414.210(f) provide that if an item of
DME or a prosthetic or orthotic device
paid for by Medicare has been in
continuous use by the patient for the
equipment’s reasonable useful lifetime
or if the carrier determines that the item
is lost, stolen, or irreparably damaged,
the patient may elect to obtain a new
piece of equipment. If these
requirements are met, the Medicare
beneficiary would be required to go to
a contract supplier to obtain a complete
replacement of beneficiary-owned
equipment. However, as we stated
above, if a beneficiary needs to obtain a
replacement part for his or her
beneficiary-owned equipment, or needs
to obtain maintenance or servicing of
the equipment, the beneficiary may
obtain the part or service from any
supplier that has a valid Medicare
billing number. If the replacement part
is itself a competitively bid item in the
CBA where the beneficiary maintains a
permanent residence, the supplier that
performs the repair would generally be
paid for the labor associated with the
repair in accordance with the
methodology described in
§ 414.210(e)(1), and the single payment
amount for the part.
We do not agree with the commenters
that our replacement rules would
generally require a contract supplier
replace an entire competitively bid item
with the same make or model to ensure
continuity of care. Rather, as we discuss
in § 414.420 of this final rule, this
would only be required if a physician or
treating practitioner prescribed a
particular brand or mode of delivery for
an item. If a beneficiary needs a
replacement item, a manufacturer that
only furnishes its own brand would
generally be able to furnish that brand
to the beneficiary. In addition, we
expect that a manufacturer’s warranty
would be honored by the manufacturer,
regardless of which supplier from which
the Medicare beneficiary obtains the
replacement.
In summary, after consideration of the
public comments we received, in this
final rule, we are redesignating
proposed § 414.422(c) as new
§ 414.408(k) and revising this section as
discussed above.
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E. Competitive Bidding Areas
(§§ 414.402, 414.406(b)–(c), 414.410,
414.412(f) and (g)
1. Background
Section 1847(a)(1)(A) of the Act
requires that competitive bidding
programs be established and
implemented in areas throughout the
United States. We are interpreting the
term ‘‘United States’’ to include all
States, Territories, and, as discussed in
section VI.B. of this final rule, the
District of Columbia. Section
1847(a)(1)(B) of the Act provides us
with the authority to phase in
competitive bidding programs so that
the competition under the programs
occurs in—
• 10 of the largest MSAs in CY 2007;
• 80 of the largest MSAs in CY 2009;
and
• Additional areas after CY 2009.
We proposed to implement this
statutory provision in § 414.406(b)–(c),
and in § 414.410.
Section 1847(a)(1)(B) of the Act also
authorizes us to phase in competitive
bidding programs first among the
highest cost and volume items or those
items that we determine have the largest
savings potential. As we proposed, we
describe our methodologies for selecting
the MSAs for CYs 2007 and 2009 below.
Once the MSAs have been selected for
CYs 2007 and 2009, we proposed to
define the CBAs for CYs 2007 and 2009.
The process we proposed for
establishing CBAs in future years,
which we are finalizing in this final
rule, is also discussed below.
2. Methodology for MSA Selection for
CYs 2007 and 2009 Competitive Bidding
Programs (§§ 414.410(a) and (b))
Based on sections 1847(a)(1)(B)(i)(I)
and (II) of the Act, we have the authority
to select from among the largest MSAs
during the first two implementation
phases in order to phase in the programs
in the most successful way, thereby
achieving the greatest savings while
maintaining quality and beneficiary
access to care. In phasing in the
competitive bidding programs, we
proposed to adopt a definition of the
term ‘‘Metropolitan Statistical Area’’
(MSA) consistent with that issued by
the Office of Management and Budget
(OMB) and applicable for CYs 2007 and
2009 (§ 414.402). OMB is the Federal
agency responsible for establishing the
standards for defining MSAs for the
purpose of providing nationally
consistent definitions for collecting,
tabulating, and publishing Federal
statistics for a set of geographic areas.
OMB most recently revised its standards
for defining MSAs in CY 2000 (65 FR
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82228 through 82238). Under these
standards, an MSA is defined as a corebased statistical area (CBSA) (a
statistical geographic area consisting of
the county or counties associated with
at least one core (urbanized area or
urban cluster) of at least 10,000
population, plus adjacent counties
having a high degree of social and
economic integration as measured
through commuting ties with the
counties containing the core) associated
with at least one urbanized area that has
a population of at least 50,000, and is
comprised of the central county or
counties containing the core, plus
adjacent outlying counties having a high
degree of social and economic
integration with the central county as
measured through commuting. OMB
issues periodic updates of the MSAs
between decennial censuses based on
United States Census Bureau estimates,
but other than identifying certain MSAs
having a population core of at least 2.5
million, does not rank MSAs based on
population size. However, the U.S.
Census Bureau periodically publishes a
Statistical Abstract of the United States,
which contains a table listing large
MSAs, or MSAs having a population of
250,000 and over. For the purpose of
this rule, we proposed to use these data
to identify the largest MSAs.
In the May 1, 2006 proposed rule (71
FR 25665), we proposed a formula
driven methodology for selecting the
MSAs for competitive bidding in CYs
2007 and 2009. After we select the
MSAs, we would define the CBAs. For
the purpose of our proposal, DMEPOS
allowed charges would be the Medicare
fee-for-service (FFS) allowed charge
data for DMEPOS items that we have
authority to include in a competitive
bidding program. These data do not
include Medicare expenditures for
DMEPOS items under the Medicare
Advantage Program.
a. MSAs for CY 2007
We proposed to use a multiple step
process in selecting the MSAs for CY
2007. First, we proposed to identify the
50 largest MSAs in terms of total
population in CY 2005 using population
estimates published by the U.S. Census
Bureau in its table of large MSAs from
the Statistical Abstract of the United
States. Second, 25 MSAs out of the 50
MSAs identified in step one would be
eliminated from consideration based on
our determination that they have the
lowest totals of DMEPOS allowed
charges for items furnished in CY 2004.
This step would allow us to focus on the
25 MSAs that have the highest totals of
DMEPOS allowed charges which, we
believe, would produce a greater chance
of savings as a result of competitive
bidding than MSAs with lower total
DMEPOS allowed charges. Table 1 of
the proposed rule (71 FR 25665 and
25666), which is republished below,
illustrated the DMEPOS allowed charge
data for items furnished in CY 2003 and
Census Bureau population estimates as
of July 1, 2003.
TABLE 1.—TOP 25 MSAS BASED ON TOTAL DMEPOS MEDICARE ALLOWED CHARGES FOR CY 2003
MSA
Allowed charges
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New York-Northern New Jersey-Long Island, NY-NJ-PA (New York) ............................................................................................
Los Angeles-Long Beach-Santa Ana, CA (Los Angeles) ...............................................................................................................
Miami-Fort Lauderdale-Miami Beach, FL (Miami) ...........................................................................................................................
Chicago-Naperville-Joliet, IL-IN-WI (Chicago) .................................................................................................................................
Houston-Baytown-Sugar Land, TX (Houston) .................................................................................................................................
Dallas-Fort Worth-Arlington, TX (Dallas) .........................................................................................................................................
Detroit-Warren-Livonia, MI (Detroit) ................................................................................................................................................
San Juan, PR ..................................................................................................................................................................................
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD (Philadelphia) ...................................................................................................
Atlanta-Sandy Springs-Marietta, GA (Atlanta) .................................................................................................................................
Tampa-St. Petersburg-Clearwater, FL (Tampa) ..............................................................................................................................
Boston-Cambridge-Quincy, MA-NH (Boston) ..................................................................................................................................
Washington-Arlington-Alexandria, DC-VA-MD-WV (DC) ................................................................................................................
Baltimore-Towson, MD (Baltimore) .................................................................................................................................................
Pittsburgh, PA ..................................................................................................................................................................................
St. Louis, MO-IL ...............................................................................................................................................................................
Riverside-San Bernardino-Ontario, CA (Riverside) .........................................................................................................................
Cleveland-Elyria-Mentor, OH (Cleveland) .......................................................................................................................................
Orlando, FL ......................................................................................................................................................................................
San Francisco-Oakland-Fremont, CA (San Francisco) ...................................................................................................................
San Antonio, TX ..............................................................................................................................................................................
Cincinnati-Middletown, OH-KY-IN (Cincinnati) ................................................................................................................................
Kansas City, MO-KS ........................................................................................................................................................................
Virginia Beach-Norfolk-Newport News, VA-NC (Virginia Beach) ....................................................................................................
Charlotte-Gastonia-Concord, NC-SC (Charlotte) ............................................................................................................................
Table 1 showed the 25 MSAs that
would be left for consideration after step
two is completed. However, we
proposed to select the actual MSAs for
CY 2007 using U.S. Census Bureau
population data published as of July 1,
2005, and DMEPOS allowed charge data
for items furnished in CY 2004. We
proposed using population data for CY
2005 and DMEPOS allowed charge data
for CY 2004 because we believed these
data would be the most recently
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available data at the time that the MSAs
are selected for CY 2007
implementation. We now have more
current utilization data (that is, from CY
2005); we will use these data in
selecting the MSAs for the first round of
competitive bidding.
Third, we proposed to score the MSAs
based on combined rankings of
DMEPOS allowed charges per FFS
beneficiary (charges per beneficiary) and
the number of DMEPOS suppliers per
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$312,124,291
253,382,483
221,660,443
173,922,952
149,060,607
139,910,862
121,444,298
108,478,208
97,487,063
75,860,276
71,309,635
62,467,094
61,416,109
59,714,310
56,612,095
55,931,373
52,910,209
52,237,312
51,982,164
45,565,320
44,113,886
41,582,961
41,310,326
41,016,726
37,874,144
number of beneficiaries receiving
DMEPOS items (suppliers per
beneficiary) in CY 2004, with equal
weight (50 percent) being given to each
factor. The MSAs would be ranked from
1 to 25 in terms of DMEPOS allowed
charges per FFS beneficiary (for
example, the MSA with the highest
DMEPOS allowed charges per FFS
beneficiary would be ranked number 1).
Similarly, areas having more suppliers
per beneficiary are more likely to be
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competitive and would be ranked higher
than MSAs having fewer suppliers per
beneficiary. Based on our experience
from the DMEPOS competitive bidding
demonstrations, the number of suppliers
would be based on suppliers with at
least $10,000 in allowed charges
attributed to them for DMEPOS items
furnished in the MSA in CY 2004. The
number of beneficiaries would be based
on the number of beneficiaries receiving
DMEPOS items in the MSA in CY 2004.
If more than one MSA receives the same
score, we proposed to use total
DMEPOS allowed charges for items that
we have authority to include in a
competitive bidding program in each
MSA as the tiebreaker because this
would be an indicator of where more
program funds would be spent on
DMEPOS items subject to competitive
bidding. Table 2 in the proposed rule
(71 FR 25666), which is republished
below, illustrated how the 25 MSAs
from Table 1 in the proposed rule would
be scored, based on data for CY 2003.
TABLE 2.—SCORING OF TOP 25 MSAS BASED ON DATA FOR CY 2003
[Scoring based on combined rank from columns 3 and 4]
MSA
Score
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Miami ...............................................................................................................
Houston ............................................................................................................
Dallas ...............................................................................................................
Riverside ..........................................................................................................
San Antonio .....................................................................................................
Los Angeles .....................................................................................................
Charlotte ..........................................................................................................
Orlando ............................................................................................................
San Juan ..........................................................................................................
Atlanta ..............................................................................................................
Tampa ..............................................................................................................
Kansas City ......................................................................................................
Pittsburgh .........................................................................................................
Virginia Beach ..................................................................................................
St. Louis ...........................................................................................................
San Francisco ..................................................................................................
Cincinnati .........................................................................................................
Cleveland .........................................................................................................
Detroit ..............................................................................................................
Baltimore ..........................................................................................................
Philadelphia .....................................................................................................
DC ....................................................................................................................
Chicago ............................................................................................................
New York .........................................................................................................
Boston ..............................................................................................................
We proposed that the final scoring be
based on utilization data for CY 2004
and population data for CY 2005
because we believed these data would
be the most recently available data at
the time that the MSAs are selected for
CY 2007 implementation. However, we
will use utilization data for CY 2005
when we perform the final scoring for
the third step because this is the most
current utilization data that we have.
For purposes of phasing in the
programs, we proposed to exclude from
consideration for competitive bidding
until CY 2009 the three largest MSAs in
terms of population, as well as any MSA
that is geographically located in an area
served by two DME MACs. The three
largest MSAs based on total population
(based on CY 2003 data) are New York,
Los Angeles, and Chicago. We believe
that these MSAs should not be phased
in until CY 2009 because of the logistics
associated with the start-up of this new
and complex program. As of 2000, each
of these three MSAs had a total
population of over 9 million. By
comparison, the largest area in which
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3
6
8
9
9
11
14
18
25
25
25
25
26
26
32
32
32
33
37
37
40
41
44
45
47
Charges per
beneficiary
$428.44 (1)
348.83 (2)
297.33 (3)
220.93 (8)
243.03 (6)
277.16 (5)
226.09 (7)
212.57 (9)
291.97 (4)
185.80 (15)
190.30 (13)
186.39 (14)
197.95 (11)
207.28 (10)
169.81 (18)
127.56 (24)
167.06 (19)
182.01 (16)
195.99 (12)
174.38 (17)
152.38 (21)
128.97 (23)
160.26 (20)
139.81 (22)
113.99 (25)
the demonstrations were conducted was
San Antonio (total population of 1.7
million in 2000). We want to gain
experience with the competitive bidding
process in MSAs larger than San
Antonio before moving onto the three
largest MSAs. After we have gained
experience operating competitive
bidding programs in CBAs that
encompass smaller MSAs in CYs 2007
and 2008, we plan to implement
programs that include New York, Los
Angeles, and Chicago in CY 2009.
In the May 1, 2006 proposed rule, we
indicated that we were considering an
alternative under which we would
establish CBAs that include portions of
one or more of these MSAs (for
example, by county). We believe that
this alternative is authorized by section
1847(a)(1)(B)(II) of the Act, which states
that competition under the programs
shall occur in 80 of the largest MSAs in
CY 2009 but does not require the
competition to occur in the entire MSA.
In addition, section 1847 of the Act does
not prohibit us from implementing a
competitive bidding program in an area
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Suppliers per
beneficiary
0.01121 (2)
0.00864 (4)
0.00749 (5)
0.01144 (1)
0.00897 (3)
0.00692 (6)
0.00661 (7)
0.00569 (9)
0.00388 (21)
0.00569 (10)
0.00529 (12)
0.00555 (11)
0.00484 (15)
0.00477 (16)
0.00488 (14)
0.00632 (8)
0.00528 (13)
0.00470 (17)
0.00290 (25)
0.00396 (20)
0.00443 (19)
0.00449 (18)
0.00327 (24)
0.00342 (23)
0.00371 (22)
Allowed charges
$221,660,443
149,060,607
139,910,862
52,910,209
44,113,886
253,382,483
37,874,144
51,982,164
108,478,208
75,860,276
71,309,635
41,310,326
56,612,095
41,016,726
55,931,373
45,565,320
41,582,961
52,237,312
121,444,298
59,714,310
97,487,063
61,416,109
173,922,952
312,124,291
62,467,094
that is larger than a MSA. In the
proposed rule, we solicited specific
comments on these alternatives.
Comment: Several commenters stated
that CMS does not have the authority to
extend or decrease the size of the MSA
boundaries and that this proposal is
inconsistent with the statute. They
noted that section 1847(a)(1)(B) of the
Act requires that competitive
acquisition occur in MSAs in CY 2007
and CY 2009, and only authorizes
competitive acquisition in ‘‘other areas’’
after CY 2009.
Response: Section 1847(a)(1)(B) of the
Act requires that competition under the
programs occur in CY 2007 and CY 2009
in a minimum number of MSAs. We did
not propose to extend or decrease any
MSA boundaries. Rather, we stated that
section 1847(a)(1)(B) of the Act does not
require us to define the boundaries of a
CBA congruently with the boundaries of
an MSA, as long as 10 MSAs are
involved in CY 2007 and 80 MSAs are
involved in CY 2009. We also proposed
to consider an area for inclusion in a
CBA in CY 2007 or CY 2009, or both,
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if (1) The area is not part of the MSA
but adjoins an MSA in which a
competitive bidding program will be
operating; (2) the area is competitive
(meaning that it has high DMEPOS
utilization, significant expenditures,
and/or a large number of suppliers that
furnish items that will be included in
the competitive bidding program for the
adjoining MSA); and (3) the area is part
of the normal service area or market for
suppliers that also serve the MSA
market or areas within the boundaries
for an MSA in which a competitive
bidding program will be operating. We
continue to believe this approach is
reasonable because if an area meets
these criteria, we believe that we could
properly characterize the area as being
integrated with the MSA in terms of the
DMEPOS market.
Comment: One commenter
recommended that, when picking the
first 10 MSAs, CMS should pick the
smallest of the 10 largest MSAs.
Response: Section 1847(a)(1)(B) of the
Act requires us to phase-in the
competitive bidding programs so that
the competition occurs in 10 of the
largest MSAs in 2007. The process that
we proposed and are finalizing in this
final rule is a formula driven approach
that bases the decision on the total
population of an MSA, the Medicare
allowed charges for DMEPOS items per
FFS beneficiary in an MSA, the total
number of DMEPOS suppliers per FFS
beneficiary who received DMEPOS
items in an MSA, and the MSA’s
geographic location, for example, in the
first round, to ensure that there is at
least one CBA in each DME MAC
region. We believe that this approach
will result in the selection of MSAs that
have more potential to produce savings
for the Medicare program than we might
otherwise achieve if we selected MSAs
based on their size alone. However, we
also recognize that implementing the
Medicare DMEPOS Competitive Bidding
Program will involve many challenges,
and we want to gain sufficient
experience in administering the
program before we implement
competitive bidding programs in the
three largest MSAs in terms of
population size. Therefore, we proposed
to exclude the MSAs that include New
York City, Los Angeles, and Chicago
from the competition that will occur in
CY 2007.
Comment: One commenter
recommended excluding Miami from
the first round of bidding. The
commenter noted that Miami has the
largest MSA market based charges per
beneficiary, suppliers per beneficiary,
and total DMEPOS allowed charges. The
commenter stated that there is a big
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difference between the Medicare
DMEPOS market in an MSA and the
total population of an MSA. The
commenter also recommended that CMS
exclude, until CY 2009, or once further
experience has been accumulated and
cultural competency has been
accounted for, culturally diverse MSAs
such as Miami and those located in
Puerto Rico from competitive bidding. A
number of other commenters also
recommended excluding MSAs located
in Puerto Rico.
Response: We believe our
methodology results in the selection of
top priority areas in terms of potential
savings for the program. Cultural
diversity is not one of the factors we
considered when developing a formula
driven approach because our goal in
implementing the program is to select
areas that provide the greatest
opportunity for savings.
We proposed not to include CBAs that
cross DME MAC regions because this
could complicate implementation by
having two DME MACs processing
claims from one CBA.
The next step that we proposed
entails ensuring that there is at least one
CBA in each DME MAC region by first
selecting the highest scoring MSA in
each DME MAC region (other than New
York, Los Angeles, Chicago, or MSAs
that cross DME MAC boundaries). This
would ensure that each DME MAC gains
some experience with competitive
bidding prior to CY 2009, when
competitive bidding would be
implemented in CBAs that include 80
MSAs.
Comment: One commenter
recommended that one MSA be selected
from each DME MAC region for CY
2007.
Response: Section 1847(a)(1)(B)
requires us to implement competitive
bidding in 10 of the largest MSAs in CY
2007. We are adopting as final the
approach outlined in our proposed rule
(71 FR 25667) which ensures that there
is a least one CBA in each DME MAC
region. This would ensure that each
DME MAC region gains experience with
the competitive bidding program prior
to CY 2009 when we phase in 70
additional CBAs.
We also proposed to select no more
than two MSAs per State among the
initial CBAs selected for CY 2007 in
order to learn how competitive bidding
works in more States and regions of the
country. In summary, we proposed to
select the 10 MSAs in which
competition under the programs would
occur in CY 2007 using the following
steps:
• Identify the top 50 MSAs in terms
of general population.
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18013
• Focus on the 25 MSAs from step
one with the greatest total of DMEPOS
allowed charges.
• Score the MSAs from step two
based on combined rankings of
DMEPOS allowed charges per
beneficiary and suppliers per
beneficiary, with lower scores
indicating a greater potential for savings
if programs are implemented in those
areas.
• Exclude the three largest MSAs in
terms of population (New York, Los
Angeles, Chicago) and any MSA that
crosses DME MAC boundaries.
• Select the lowest scoring MSA from
each DME MAC region.
• Select the next six lowest scoring
MSAs regardless of DME MAC region,
but not more than two MSAs from one
State.
• Break ties in scores using DMEPOS
allowed charges, selecting MSAs with
higher total DMEPOS allowed charges.
In the proposed rule, we indicated
that we considered a number of
alternative methods for selecting the
MSAs for CY 2007. We indicated that
the MSAs could be selected based on a
combination of one or more variables or
measures including, but not limited to—
• General population;
• Medicare FFS beneficiary
population;
• Number of beneficiaries receiving
DMEPOS items that we have authority
to include in a competitive bidding
program;
• Total Medicare allowed charges for
DMEPOS items subject to competitive
bidding; and
• Number of suppliers of DMEPOS
items that we have authority to include
in a competitive bidding program.
In evaluating these alternatives, we
defined the general population as all
individuals residing in an MSA,
whether or not they were enrolled in
Medicare. One advantage of this
variable would have been that total
population is a widely accepted
measure of gauging MSA size and the
data are readily accessible to the general
public through the U.S. Census Bureau
Web site. Another advantage of using
this variable would be that total
population takes into account the
demand for DMEPOS items and other
supplies from population groups other
than the Medicare population. DMEPOS
demand from non-Medicare individuals
might make it less likely that a supplier
not selected as a contract supplier
would exit the market. This could help
increase the likelihood of competition
in future rounds of competitive bidding
within that MSA. However, we
recognize that the MSAs with the largest
total populations might not have the
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most Medicare beneficiaries or the
greatest potential for savings. One
reason is that the age distribution is not
uniform across MSAs. MSAs located in
States that have either large immigrant
populations or have experienced rapid
recent growth often have younger than
average age profiles. Another reason is
that DMEPOS utilization and potential
profits are not uniform across MSAs. It
is quite possible that some of the
smaller population MSAs may have a
greater potential for savings than MSAs
with much larger populations. We
believe that the disadvantages of
selecting MSAs based on general
population are greater than the
advantages of using this method and,
therefore, did not propose using general
population as the sole variable in
selecting the MSAs for CY 2007.
An advantage of selecting MSAs
based on the Medicare FFS population
would have been that this population
represents the number of individuals
who could potentially be affected by
competitive bidding. A disadvantage of
selecting MSAs based solely on this
variable is that it does not reflect actual
DMEPOS utilization. Therefore, we did
not propose using the FFS population as
the sole variable in selecting the MSAs
for CY 2007. Per capita DMEPOS
utilization rates vary across MSAs. As a
result, MSAs with fewer Medicare
beneficiaries could have a greater
potential for savings from competitive
bidding. The advantage of using the
number of Medicare beneficiaries
receiving DMEPOS items to select the
MSAs is that MSAs would be selected
based on the number of individual
beneficiaries who are most likely to be
directly affected by competitive bidding
because they already have a need for
these items. A disadvantage of this
variable is that the number of specific
beneficiaries receiving DMEPOS items
is only a static measure. The number of
beneficiaries who would be receiving
DMEPOS products in the future could
be substantially different from the
current number. Treatment patterns
within the MSA could change or the
number of beneficiaries receiving
DMEPOS items could fluctuate if
beneficiaries switch from FFS benefits
to a Medicare Advantage plan. For these
reasons, we did not propose using the
number of beneficiaries receiving
DMEPOS items as the sole variable in
selecting the MSAs for CY 2007.
Selecting the MSAs using the steps
we proposed utilizes a variety of
variables that we believe would help us
predict which MSAs will offer the
largest savings potential under a
competitive bidding program. In step 2
above, we would focus on a subset of
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large MSAs with higher allowed charges
for DMEPOS items, which is consistent
with section 1847(a)(1)(B)(ii) of the Act
and which would allow us to phase in
the Medicare DMEPOS Competitive
Bidding Program first for those items
that have the highest cost and highest
volume, or those items that have the
largest savings potential. This step
would directly address the question of
which MSAs have the highest costs. In
step 3 above, we proposed to use
allowed DMEPOS charges per
beneficiary and the number of suppliers
per beneficiary to further measure the
savings potential for each MSA.
Allowed DMEPOS charges per
beneficiary is a measure of per capita
DMEPOS utilization in terms of the
overall DMEPOS cost per beneficiary.
We believe that areas with higher
utilization rates and costs would have a
greater potential for savings under the
programs, which will rely on
competition among suppliers to lower
costs in the area. Competition among
suppliers is necessary for competitive
bidding to be successful. Without
sufficient competition among suppliers,
suppliers have little incentive to submit
low bids in response to the RFBs for
DMEPOS products. In addition, we
believe that competition for market
share among winning suppliers will act
as a market force to maintain a high
level of quality products. The number of
suppliers per beneficiary is a direct
measure of how many suppliers are
competing for each beneficiary’s
business. We expect that the higher the
number of suppliers per beneficiary, the
higher the degree of competition will be.
In the proposed rule, we invited
specific comments about the selection
method for the original 10 MSAs in CY
2007. We welcomed recommendations
of other options and criteria for
consideration. We indicated that, after
further consideration of comments
received, in the final rule, we may adopt
other criteria regarding issues described
above or other criteria and options
brought to our attention through the
comment process.
Comment: Several commenters
recommended that CMS identify the
initial 10 MSAs in the final regulation.
Response: We plan to announce the
first 10 MSAs, which will be based on
10 of the largest MSAs, at the same time
we publish this final rule.
Comment: Several commenters
recommended that CMS stagger the
implementation of the initial 10 MSAs
to identify and correct problems
encountered early in the
implementation process.
Response: Section 1847(a)(1)(B)(i)(I)
of the Act requires that the competition
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take place in 10 of the largest MSAs in
CY 2007. In implementing competitive
bidding programs in 10 CBAs that
include these MSAs, we do not believe
it is necessary or practical to use the
staggered approach recommended by
the commenters, as we believe that this
would likely result in confusion for
beneficiaries and suppliers and make
the phase-in process too
administratively complicated.
Comment: Several commenters
suggested that CMS use an area
selection methodology that initially
results in a limited number of small
CBAs. The commenters also stated that
this is an experimental program. They
noted that there is little geographic
diversity in the CBAs identified in Table
2 of the proposed rule (republished as
Table 2 in this final rule), and that based
on this table, the CBAs would be
disproportionately concentrated in DME
MAC Region C. The commenters
suggested that the geographic diversity
should be expanded to provide more
useful information that CMS can
consider when implementing the
program in more areas in the future.
Response: We believe that our
proposed methodology for selecting
MSAs will result in the selection of the
most appropriate MSAs (and therefore
CBAs) in terms of achieving one of the
most critical goals of the program to
reduce Medicare expenditures for
DMEPOS. As we explained above,
several aspects of our methodology,
including in the first round of
competitive bidding selecting at least
one MSA in each DME MAC region, and
selecting not more than two MSAs per
State, allow for geographic diversity.
b. MSAs for CY 2009
In selecting the 70 additional MSAs in
which competition will occur in CY
2009, we proposed using generally the
same criteria used to select the MSAs
for CY 2007 (proposed § 414.410(b)).
Because the number of MSAs in which
competition must occur in CY 2009 is
much higher than the number for CY
2007, we proposed that the steps in the
selection process would change as
follows:
• We would score all of the MSAs
included in the table of large MSAs in
the most recent publication of the U.S.
Census Bureau’s Statistical Abstract of
the United States.
• We would use the same criteria to
score the MSAs as we would use in
selecting the MSAs for CY 2007, but use
data from CY 2006.
In the proposed rule, we indicated
that one option we were considering
and on which we requested comments
is whether we should modify the
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ranking of MSAs based on allowed
DMEPOS charges per beneficiary so that
it focuses on charges in each MSA for
the items that experienced the largest
payment reductions or savings under
the initial round of competitive bidding
in CY 2007.
In selecting the MSAs for CY 2009, we
did not propose excluding the 3 largest
MSAs in terms of population size or
MSAs that cross DME MAC boundaries
from the 80 largest MSAs to be included
in the CBAs. In addition, we did not
propose limiting the number of MSAs
that could be selected from any one
State.
Comment: One commenter suggested
that New York, Los Angeles, and
Chicago be top priorities in the CY 2009
phase of implementation due to the
potential for significant cost savings to
the Medicare program.
Response: These MSAs are only being
excluded from consideration during the
first phase of competitive bidding and
will be included in the selection
methodology for the second phase.
After consideration of the public
comments we received, we are
finalizing our rules under proposed
§§ 414.410(a) and (b) regarding the
methodology for MSA selection with
only technical changes.
3. Establishing Competitive Bidding
Areas and Exemption of Rural Areas
and Areas With Low Population Density
Within Urban Areas (§ 414.410(c))
Section 1847(a)(1) of the Act requires
that we phase in competitive bidding
programs and establish CBAs
throughout the United States over
several years beginning in CY 2007.
Section 1847(a)(3)(A) of the Act gives us
the authority to exempt ‘‘rural areas and
areas with low population density
within urban areas that are not
competitive, unless there is a significant
national market through mail order for
a particular item or service.’’
In the May 1, 2006 proposed rule, we
proposed to use the authority in section
1847(a)(3) of the Act to exempt areas
from competitive bidding if data for the
areas indicate that they are not
competitive based on one or more of the
following indicators:
• Low utilization of items in terms of
the number of items and/or allowed
charges for DMEPOS in the area relative
to other similar geographic areas.
• Low number of suppliers of
DMEPOS items subject to competitive
bidding serving the area relative to other
similar geographic areas.
• Low number of Medicare
beneficiaries receiving FFS benefits in
the area relative to other similar
geographic areas.
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We proposed to make decisions
regarding what constitutes low
(noncompetitive) levels of utilization,
suppliers, and beneficiaries on the basis
of our analysis of the data for allowed
charges, allowed services for items that
may be subject to competitive bidding,
and the number of Medicare
beneficiaries receiving FFS benefits and
DMEPOS suppliers in specific
geographic areas. In defining urban and
rural areas, we proposed to use the
definitions currently in § 412.64(b)(1)(ii)
of our regulations. We proposed to
incorporate these provisions in
proposed § 414.410(c).
We invited comments on the
methodologies we proposed for
determining whether an area within an
urban area that has a low population
density is not competitive. We indicated
that we would be reviewing the total
allowed charges, the number of
beneficiaries, and the number of
suppliers to determine whether a rural
area should be exempted from
competitive bidding. In addition, we
invited comments on standards for
exempting particular rural areas from
competitive bidding.
Comment: Several commenters
believed that competitive bidding
should not be implemented in MSAs
with less than 500,000 people. They
indicated that this will help keep small
business owners in rural communities
open and, therefore, beneficiary access
in these areas will not be compromised.
Response: Section 1847(a)(1) of the
Act requires that we establish
competitive bidding programs
throughout the United States. We have
the authority under section 1847(a)(3) of
the Act to exempt rural areas and areas
with low population density within
urban areas that are not competitive
unless there is a significant mail order
market for a particular item. When we
implement the program, we will only
include areas in CBAs that are
competitive and that we believe will
produce savings for the program. In
addition, we have revised our rules
regarding small suppliers in response to
public comments and believe that the
revised rules will help to ensure that
small suppliers have an opportunity to
participate in the Medicare DMEPOS
Competitive Bidding Program. A full
discussion of these modifications can be
found in section XI. of this final rule.
After consideration of the public
comments we received, we are
finalizing, with only technical changes,
proposed § 414.410(c) regarding the
exclusion of rural areas or areas with
low population density from a CBA.
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18015
4. Establishing Competitive Bidding
Areas for CYs 2007 and 2009
(§§ 414.406(b) and (c))
Section 1847(a)(1)(B) of the Act
requires that the competition ‘‘occurs
in’’ 10 of the largest MSAs in CY 2007,
and in 80 of the largest MSAs in CY
2009, but does not require us to define
the competition boundaries
concurrently with the MSA boundaries,
as long as 10 MSAs are involved in CY
2007 and 80 MSAs are involved in CY
2009. Therefore, we do not believe that
section 1847(a)(1)(B) of the Act
prohibits us from extending individual
competition areas beyond the MSA
boundaries in CYs 2007 or 2009.
In the May 1, 2006 proposed rule, we
proposed in § 414.406(b) to designate
through program instructions each CBA
in which a competitive bidding program
will take place, and we proposed in
§ 414.406(c) that we could revise the
CBAs if necessary. We also proposed (71
FR 25668) that an area (for example, a
county, parish, or zip code) outside the
boundaries of an MSA be considered for
inclusion in a CBA for CY 2007 or CY
2009, or both if all of the following
apply:
• The area adjoins an MSA in which
a competitive bidding program will be
operating in CY 2007 or CY 2009.
• The area is not part of an MSA in
which a competitive bidding program
will be operating in CY 2007 or CY
2009.
• The area is competitive, as
explained below.
• The area is part of the normal
service area or market for suppliers that
also serve the MSA market or areas
within the boundaries of an MSA in
which a competitive bidding program
will be operating in CY 2007 or CY
2009.
As explained in section VI.E.2. of this
final rule, we proposed to define an
MSA as a Core Based Statistical Area
associated with at least one urbanized
area that has a population of at least
50,000, and comprised of the central
county or counties containing the core,
plus adjacent outlying counties having a
high degree of social and economic
integration with the central county as
measured through commuting.
However, when using this definition to
establish the boundaries of an MSA,
OMB would not consider whether an
area or areas adjoining an MSA are
served by the same DMEPOS suppliers
that furnish items to beneficiaries
residing in the MSA. If an area has a
high level of utilization, significant
expenditures, and/or a large number of
suppliers of DMEPOS items included in
the competitive bidding program for the
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adjoining MSA, we stated that we
believe that it would be practical and
beneficial to include this area in the
CBA. The savings to the program
associated with adding the area to the
CBA would likely offset any
incremental administrative costs
incurred by the CBIC associated with
including the area in the competitive
bidding program for the MSA.
Finally, we did not propose to
consider counties that do not adjoin an
MSA for inclusion in a CBA for CY 2007
or CY 2009 because we believe that
these outlying counties are too far
removed from the areas that OMB has
determined to be economically
integrated. We stated that we have the
discretion to define a CBA to be either
concurrent with an MSA, larger than an
MSA, or smaller than an MSA. We also
stated that we would detail in the RFBs
the exact boundaries of each CBA. We
invited comments on the criteria to be
used in considering whether to include
counties outside MSAs in a CBA in CY
2007 or CY 2009.
Comment: Several commenters
recommended that the maximum
number of CBAs in a State should be
one instead of two. They stated that the
methodology should be changed to
distribute the CBAs so that there are
three areas in each of two of the DME
MAC regions, and two in each of the
remaining two DME MAC regions to
ensure geographic distribution.
Response: We believe that our
proposed methodology for selecting
MSAs and designating CBAs will not
only produce large savings for the
Medicare program, but that it will also
ensure that the work involved with
administering the program and
processing claims is evenly distributed
among our contractors. We also note
that one of the factors we proposed to
consider when selecting MSAs is their
geographic location.
Comment: Several commenters urged
CMS to adopt CBAs that are somewhat
smaller than the MSAs to help minimize
the risk of a CBA crossing a state line
or areas shared by more than one
DMERC and to ensure adequate
geographic distribution of suppliers
within a CBA in order to maintain
beneficiary access to competitively bid
items.
Response: We proposed to designate
CBAs whose boundaries are concurrent
with, larger than, or smaller than the
associated MSA because we believe that
it is practical and beneficial to
implement competitive bidding
programs in areas that are integrated in
terms of DMEPOS utilization,
expenditures, and suppliers. We believe
that these factors, as well as the other
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factors that we proposed to consider
when designating CBAs, will help
ensure that the CBAs are geographically
distributed in a way that does not limit
beneficiary access to competitively bid
items. We also note that, as specified in
§ 414.412 of this final rule, each contract
supplier will be required to furnish
items to every beneficiary who
maintains a permanent residence in the
contract supplier’s CBA. We believe that
this requirement will further ensure that
beneficiary access to competitively bid
items is maintained.
Comment: Several commenters
suggested that CMS not rely heavily on
DMEPOS allowed charges per
beneficiary and suppliers per
beneficiary.
Response: We disagree. We believe
that our methodology properly
identifies large MSAs with a significant
savings potential by considering
DMEPOS allowed charges per FFS
beneficiary and suppliers per FFS
beneficiary, as these data would
indicate that these MSAs have the
largest number of suppliers available for
competition and the most expenditures/
utilization per Medicare beneficiary.
Comment: One commenter suggested
that CMS divide the MSAs by some
easily recognized boundaries as
proposed as an alternative proposal in
the proposed rule.
Response: We will establish the CBAs
based on the most current data and use
our authority to adjust the areas to
exclude rural areas and areas with low
population density within urban areas
that are not competitive. We will set
easily recognizable boundaries by using
county lines and zip codes to identify
the CBAs we select.
Comment: One commenter supported
the criteria for MSA selection that
would consider MSAs based on their
total population, total DMEPOS charges,
charges per beneficiary, and the number
of DMEPOS suppliers per DMEPOS
users. The commenter also suggested
considering the numbers of suppliers of
constituent categories of DMEPOS, for
example, oxygen and supplies or
hospital beds. The commenter believed
that, if there are enough suppliers to
conduct a competition for each of the
constituent categories within a CBA, the
constituent categories should be
included in the competitive bidding
program.
Response: We believe our
methodology, which concentrates on
allowed charges per beneficiary and
suppliers per beneficiary, will result in
the selection of areas with the most
potential for savings under the
programs. This methodology relies on
average expenditures per beneficiary
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and the availability of competing
suppliers. We believe that the criteria
that we will be using are sufficiently
representative to select the appropriate
MSAs for competitive bidding because
they will identify those MSAs that have
high beneficiary allowed charges and a
high number of DMEPOS suppliers per
DMEPOS users. We acknowledge the
value of more specific item data for the
purposes of selecting items for
competitive bidding. Therefore, we will
be looking at utilization of items when
we select the items for competitive
bidding.
Comment: One commenter suggested
that we identify the top 80 MSAs for
competitive bidding using the
methodology as proposed. However, for
the initial competitive bidding program,
the commenter proposed that the agency
use only the allowed DMEPOS charges
per beneficiary metric when selecting
the 10 MSAs from the set of 80. The
commenter believed that this selection
methodology will provide us with a
range of valuable data regarding areas
that have many suppliers per
beneficiary and areas that have fewer
suppliers per beneficiary.
Response: We believe that selecting
the initial 10 MSAs based on combined
rankings of both DMEPOS allowed
charges per FFS beneficiary and the
number of DMEPOS suppliers per
number of beneficiaries receiving
DMEPOS items, as well as based on the
MSA’s total population and geographic
area, is important and necessary for
designating CBAs that will produce
savings for the Medicare program. In
addition, we believe that these factors
are appropriate indicators of how robust
competition is likely to be in an area
which will ultimately result in lower
prices and increased savings for the
program.
Comment: One commenter questioned
CMS’ decision to exclude the top three
MSAs from consideration for
competition prior to CY 2009. The
commenter stated that the decision was
arbitrary and discriminatory.
Response: As stated in the proposed
rule, because of the logistics associated
with the startup of this new and
complex program, we would like to gain
experience in the first phase of
competitive bidding prior to
implementing programs in CBAs that
include the three largest MSAs (New
York, Los Angeles, and Chicago).
However, we will include these MSAs
when we consider which MSAs to select
for the CY 2009 competition.
Comment: One commenter requested
that implementation of competitive
bidding be delayed indefinitely to
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permit thoughtful review and revisions
to the program.
Response: Section 1847(a)(1) of the
Act requires that competition under the
competitive bidding program occurs in
10 of the largest MSAs in CY 2007.
Therefore, the Act does not permit us to
delay indefinitely implementation of the
program.
Comment: One commenter
recommended that CMS count all
suppliers that have submitted Medicare
DMEPOS claims in the past year in
determining the number of suppliers per
beneficiary. The commenter asked if
CMS will only calculate suppliers with
physical locations inside of the CBA or
if it will base its number of suppliers on
those that have submitted Medicare
claims for DMEPOS for a specific time
period. Another commenter believed
that the proposed dollar amount,
$10,000, for suppliers with allowed
charges attributed to them for DMEPOS
items furnished in the MSA in CY 2004
is too low. In addition, the commenter
added that the $10,000 threshold may
be too small for some items of DME. The
commenter further stated that for higher
cost items, $10,000 in allowed charges
would not indicate that the supplier has
an adequate level of experience with a
product to appropriately meet the needs
of Medicare beneficiaries. The
commenter suggested that CMS look at
total allowed charges and allowed
charges for the items being bid. In
addition, the commenter recommended
that the supplier set an appropriate
dollar threshold for each product
category that would demonstrate that
the supplier has adequate experience
with the product category before
counting that supplier for MSA
selection purposes.
Response: We believe that the $10,000
threshold will give us an assurance that
there will be a sufficient number of
suppliers that have the capability to
serve the area regardless of the
experience with the particular product
category. For suppliers with less than
$10,000 in allowed charges, we do not
have the assurance that the majority of
them because of the cost of participating
in the competitive bidding program and
accreditation will be interested in
participating in the competitive bidding
program. By including in our
calculations only those suppliers with
allowed charges of at least $10,000, we
are ensuring that we select MSAs that
have a large number of suppliers that
are interested and able to participate in
the competitive bidding program
considering those suppliers.
Comment: One commenter
recommended that CMS adjust data on
DMEPOS allowed charges and on the
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number of beneficiaries and suppliers in
‘‘snowbird’’ locations before selecting
CBAs.
Response: We believe that our
methodology provides us with the most
appropriate CBA selection and greatest
savings for the program. As part of our
evaluation of Medicare allowed charges
for items per fee-for-service beneficiary
and the total number of suppliers per
fee-for-service beneficiary, we will
consider how these data might be
affected in areas where beneficiaries
reside for only part of the year.
Comment: One commenter
recommended that CMS exclude areas
that have a high probability of
experiencing a natural disaster until CY
2009 and consult with both the Federal
Emergency Management Agency
(FEMA) and the Department of
Homeland Security before
implementing competitive bidding in
these areas.
Response: The statute provides us
with a geographic exception authority
only for rural areas and areas with low
population density within urban areas
that are not competitive, unless there is
a significant nationwide market through
mail order for a particular item or
service. We do not have authority to
exclude areas that might experience a
natural disaster.
Comment: One commenter
recommended that CMS initially
implement competitive bidding
programs in three CBAs in October
2007; in three CBAs in February 2008,
and in four CBAs in June 2008. The
commenter also recommended
excluding St. Louis, Kansas City,
Baltimore, and Washington, D.C. from
the MSA selection process because
these MSAs overlap with multiple DME
MAC regions or recent transition to a
new DME MAC. In addition, the
commenter recommended excluding
Orlando and San Antonio from the MSA
selection process because these areas
were part of the demonstration projects.
Response: We believe that our
approach to conduct the competition in
all 10 CBAs at once is appropriate and
will ensure that the CBAs are
geographically dispersed. In addition, as
stated above, we believe that this
approach will alleviate the confusion
that could otherwise result if we
conducted the competition in the
manner suggested by the commenter.
The statute provides us with a
geographic exception authority only for
rural areas and areas with low
population density within urban areas
that are not competitive, unless there is
a significant nationwide market through
mail order for a particular item or
service.
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Comment: One commenter
recommended initially implementing
competitive bidding programs in 3
MSAs, Miami, Houston, and Dallas,
then 120 days later, implementing
programs in the next 3 MSAs in
February, and finally implementing
programs in the last 4 MSAs. The
commenter indicated that this will
allow CMS to monitor and proactively
make changes before it fully implements
programs in the 10 MSAs.
Response: The statute requires that
the competition occur in 10 of the
largest MSAs in CY 2007. As we
explained above, we believe that our
methodology provides us with the most
appropriate CBA selection methodology
and greatest savings potential for the
program and that initially implementing
programs in all 10 CBAs at once will
reduce the potential for confusion that
could otherwise result if we conducted
the competition in the sequence
suggested by the commenter.
Comment: One commenter requested
that CMS define ‘‘combined rankings.’’
The commenter asked whether this term
means the allowed charges that
suppliers have submitted to Medicare or
the allowed payments.
Response: ‘‘Combined rankings’’
means a combined score for the
DMEPOS allowed charges per
beneficiary in an MSA and the number
of DMEPOS suppliers per beneficiary in
the same MSA with equal weight given
to each. The term ‘‘allowed charges’’
includes both Medicare’s approved
payment amount and the beneficiary’s
coinsurance amount.
Comment: One commenter
recommended that, in the situation
where more than one MSA receives the
same score, instead of using the total
DMEPOS allowed charges for items that
CMS has the authority to include in
competitive bidding in each MSA as the
tiebreaker, CMS use the FFS charges for
the items proposed for bidding in each
MSA and the total number of accredited
suppliers in each MSA to break ties.
Response: We chose to use the total
DMEPOS allowed charges because this
number indicates the size of the overall
business that is conducted in an MSA
for items subjected to the competitive
bidding program. We believe that using
total DMEPOS allowed charges is a
better indication of savings than the
total number of suppliers in an area for
the purpose of having a tie breaker
because this measure indicates how
many items are actually being furnished
in an area.
Comment: One commenter agreed
with our proposal to exclude the three
largest MSAs from inclusion in
competitive bidding until CY 2009.
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Response: The three largest MSAs
will be included in the list of potential
MSA candidates for the CY 2009
competitive bidding program.
5. Nationwide or Regional Mail Order
Competitive Bidding Program
(§§ 414.410(d)(2) and 414.412(f) and (g))
Our data show that a significant
percentage of certain items such as
diabetic testing supplies (blood glucose
test strips and lancets) are furnished to
beneficiaries by nationwide mail order
suppliers. Therefore, in the May 1, 2006
proposed rule (71 FR 25669), we
proposed in § 414.410(d)(2) and
§§ 414.412(f) and (g) to establish a
nationwide or regional competitive
bidding program, effective for items
furnished on or after January 1, 2010, for
the purpose of awarding contracts to
suppliers to furnish these items across
the nation or region to beneficiaries who
elect to obtain them through the mail.
We proposed that the national or
regional CBAs under the Medicare
DMEPOS Competitive Bidding Program
would be phased in after CY 2009, and
payment would be based on the bids
submitted and accepted for the
furnishing of items through mail order
throughout the nation or region.
Suppliers that furnish these items
through mail order on either a national
or regional basis would be required to
submit bids to participate in any
competitive bidding program
implemented for the furnishing of mail
order items.
We proposed that, prior to the
establishment of a nationwide or
regional competitive bidding program in
CY 2010, mail order suppliers would be
eligible to submit bids for furnishing
items in one or more of the CBAs we
establish for purposes of the CYs 2007
and 2009 implementation phases. In
addition, beginning with programs
implemented in CY 2010, we proposed
that mail order suppliers would be
eligible to submit bids in one or more
CBAs to furnish items that are not
included in a nationwide or regional
competitive bidding program.
Nationwide or regional mail order
suppliers would be required to submit
bids and be selected as contract
suppliers for each CBA in which they
seek to furnish these items. However,
we proposed that they would have the
choice of either submitting the same bid
amounts for each CBA or submitting
separate bids.
For items that are subject to a
nationwide or regional mail order
competitive bidding program, we
proposed that suppliers that furnish
these same items in the local market and
do not furnish them via mail order
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would not be required to participate in
the nationwide or regional mail order
competitive bidding program. However,
we would only allow these suppliers to
continue furnishing the items in CBAs
if they were selected as contract
suppliers.
We proposed to allow these nonmail
order suppliers to continue furnishing
these items in areas subject to a
competitive bidding program if the
supplier has been selected as a contract
supplier. When furnishing items to
beneficiaries who do not maintain a
permanent residence in a CBA, nonmail
order suppliers would be paid based on
the payment amount applicable to the
area where the beneficiary maintains his
or her permanent residence.
In a September 2004 report (GAO–04–
765), GAO recommended that we
consider using mail delivery for items
that can be provided directly to
beneficiaries in the home as a way to
implement a DMEPOS competitive
bidding strategy. In the proposed rule,
we solicited comments on our proposal
to implement this recommendation and
on the types of items that would be
suitable for a mail order competitive
bidding program.
In addition, we requested public
comment on an alternative that would
require that replacement of all supplies
such as test strips and lancets for
Medicare beneficiaries be furnished by
mail order suppliers under a nationwide
or regional mail order program. For
example, there are services paid under
the Medicare Physician Fee Schedule
(MPFS) that are associated with the
furnishing of blood glucose testing
equipment (for example, home blood
glucose monitors) such as training,
education, assistance with product
selection, maintenance, and servicing,
that do not relate to the furnishing of
replacement supplies used with the
equipment. Once the brand of monitor
has been selected by the beneficiary, the
services associated with furnishing the
supplies must be provided on a timely
basis and the beneficiary must receive
the brand of test strips needed for his or
her monitor. We invited public
comment on whether the service of
furnishing replacement test strips,
lancets or other supplies can easily,
effectively, and conveniently be
performed by nationwide mail order
suppliers.
Comment: Several commenters
suggested that a separate program for
mail order is unnecessary for CY 2010.
They also noted that mail order supplies
are not excluded for CYs 2007 and 2009.
Response: Our data indicate that over
60 percent of Medicare expenditures for
diabetic supplies are for items furnished
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by nationwide mail order suppliers. We
believe that the implementation of a
separate mail order competitive bidding
program would result in significant
savings because it would focus on
suppliers that can obtain discounts from
manufacturers because they furnish a
large volume of items to beneficiaries
through the mail. Therefore, we
envision that large savings for the
Medicare program would result from the
implementation of a separate mail order
program.
Comment: Several commenters noted
that there is no definition of a ‘‘mail
order supplier’’ or description of a
nationwide or regional mail order
company in the proposed rule.
Response: In the proposed rule, we
provided a definition of a ‘‘supplier’’
that includes an entity that furnishes
items through the mail. However, to
further prevent confusion, as discussed
in section VI.A. we have added
definitions of ‘‘mail order contract
suppler,’’ ‘‘nationwide mail order
contract supplier,’’ ‘‘regional
competitive bidding area,’’ and
‘‘regional mail order contract supplier’’
in § 414.402. For purposes of
competitive bidding a ‘‘mail order
contract supplier’’ will be a contract
supplier that furnishes items through
the mail to beneficiaries who maintain
a permanent residence in a competitive
bidding area.
Comment: One commenter asked
whether a supplier would qualify to
participate in a mail order competitive
bidding program if the supplier
furnishes items both through the mail
and through a storefront location to
beneficiaries.
Response: Any national or regional
mail order competitive bidding program
that we might choose to implement
starting in CY 2010 would be limited to
the furnishing of items through the mail.
Therefore, if a supplier wants to
participate in a mail order program, it
will have to submit a separate mail
order program bid. Only a designated
mail order contract supplier may
furnish items under a mail order
competitive bidding program. To
participate in a program for providing
items from a local storefront, a separate
bid would have to be submitted.
Comment: One commenter noted that
mail order is an appropriate and cost
effective vehicle for delivery of some
replacement supplies (test strips and
lancets). Several commenters opposed
the requirement for beneficiaries to use
the mail order suppliers and suggested
that the mail order program be
voluntary for beneficiaries. Several
commenters noted that beneficiaries
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must have the option to get the supplies
from their local suppliers.
Response: We continue to believe that
a national or regional mail order
program will be cost effective for the
Medicare program, and did not propose
that it would be mandatory for
beneficiaries. Such a mail order program
will be voluntary and beneficiaries will
have the option to receive their items
through the mail or from a local contract
supplier.
Comment: One commenter suggested
that CMS specifically ensure that all
suppliers in a mail order competitive
bidding program are in compliance with
the DMEPOS quality standard that
requires that ‘‘mail services are not used
for the initial delivery, set-up, and
beneficiary education/training’’ for DME
equipment and supplies.
Response: The DMEPOS quality
standard that the commenter is referring
to was included in the draft quality
standards that were released for public
comments on September 25, 2005.
Although the final quality standards do
not preclude suppliers from furnishing
certain DMEPOS through the mail, they
also require suppliers to verify that a
beneficiary has received an item and to
provide clear instructions to the
beneficiary related to the use,
maintenance, and potential hazards of
the item. A supplier cannot be
accredited unless a CMS-approved
accreditation organization has
determined that the supplier is
complying with the quality standards,
and accreditation is a prerequisite to a
supplier being eligible to participate in
the Medicare DMEPOS Competitive
Bidding Program. Therefore, our goal is
to award contracts only to suppliers that
conduct business in a manner that is
beneficial to beneficiaries under the
program. The final Quality Standards
document can be found under the basic
standards and the consumer services
section at the Medicare DMEPOS
Competitive Bidding Program Web site:
https://www.cms.hhs.gov/Competitive
AcqforDMEPOS/04_New_Quality
_Standards.asp#TopofPage.
Comment: One commenter suggested
that CMS not implement a mail order
competitive bidding program for
diabetes testing supplies until the
effects of such a program on
beneficiaries with diabetes have been
carefully studied, perhaps through a
pilot program.
Response: We do not believe a pilot
program is necessary. Our data show
that 60 percent of beneficiaries currently
receive supplies from mail order
suppliers. Under the competitive
bidding programs, beneficiaries will
continue to have the option of receiving
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their supplies through the mail or from
a local supplier.
Comment: One commenter suggested
that CMS create a national supplier
designation for which suppliers, mailorder or retail, can apply.
Response: As we discussed above, we
will separately designate the supplier
numbers of all noncontract suppliers to
monitor whether they are complying
with the rules regarding the limited
circumstances under which they can
furnish a competitively bid item. To
address the commenter’s concern, in
addition to differentiating between
contract suppliers and noncontract
suppliers, we will also differentiate
between mail order contract suppliers
and mail order noncontract suppliers.
We will be making those designations
with the award of contracts.
Comment: One commenter
recommended that, if CMS decides to
create a nationwide or regional mail
order competitive bidding program,
CMS include a program oversight
provision related to refilling of supplies.
The commenter suggested that CMS
prohibit contract suppliers from
automatically refilling and sending
replacement supplies without receiving
a refill request from the beneficiary.
Response: Section 200, Chapter 20 of
the Medicare Claims Processing Manual
(Publication 100–4), prohibits suppliers/
manufacturers from automatically
delivering replacement supplies to
beneficiaries unless the beneficiary, or
their caregiver has requested them. The
reason for this prohibition is to ensure
that the beneficiary actually needs the
replacement supplies. This requirement
will apply to the Medicare DMEPOS
Competitive Bidding Program.
Comment: One commenter opposed
mail order/drop shipping for oxygen
and related equipment because this
might actually encourage contract
suppliers to ship oxygen cylinders or
other similar devices than deliver
directly to the beneficiary.
Response: Pursuant to our DMEPOS
supplier standards at 42 CFR 424.57(c),
a supplier must operate its business and
furnish Medicare covered items in
compliance with all applicable Federal
and State licensure and regulatory
requirements. Therefore, suppliers are
required to furnish oxygen cylinders
and other similar devices in accordance
with these requirements.
6. Additional Competitive Bidding
Areas After CY 2009 (§ 414.410(d)(1))
Section 1847(a)(1)(B)(III) of the Act
requires that competition under the
Medicare DMEPOS Competitive Bidding
Program occur in additional areas after
CY 2009. Beginning in CY 2010, we
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proposed in § 414.410(d)(1) to designate
through program instructions additional
CBAs based on our determination that
the implementation of a competitive
bidding program in a particular area
would be likely to result in significant
savings to the Medicare program.
We did not receive any comments on
this specific.
Therefore, after considering the
comments we received on Section II. D.
of the proposed rule, we are finalizing
§§ 414.406(b)–(c) and § 414.410 as
discussed above and with additional
technical changes, which include
specifying in § 414.406(b) that we may
designate CBAs through program
instructions or by other means. We are
also adding a several definitions,
including a of ‘‘mail order contract
supplier’’ under § 414.402. Finally, we
are finalizing §§ 414.412(f) and (g) as
discussed above and with technical
changes.
F. Criteria for Item Selection (§§ 414.402
and 414.406(d))
Section 1847(a)(2) of the Act describes
the DMEPOS items that are subject to
competitive bidding. They include:
• Durable medical equipment and
medical supplies: Covered items (as
defined in section 1834(a)(13) of the
Act) for which payment would
otherwise be made under section
1834(a) of the Act, including items used
in infusion and drugs (other than
inhalation drugs) and supplies used in
conjunction with DME, but excluding
class III devices under the Federal Food,
Drug, and Cosmetic Act.
• Other equipment and supplies
(enteral nutrition, equipment, and
supplies)—Items described in section
1842(s)(2)(D) of the Act, other than
parenteral nutrients, equipment, and
supplies.
• OTS orthotics: Orthotics described
in section 1861(s)(9) of the Act for
which payment would otherwise be
made under section 1834(h) of the Act,
which require minimal self-adjustment
for appropriate use and do not require
expertise in trimming, bending,
molding, assembling, or customizing to
fit the individual.
In the May 1, 2006 proposed rule, we
proposed in § 414.406(d) to designate
the items that would be included in
each competitive bidding program
through program instructions. We also
proposed (71 FR 25669) to define
‘‘minimal self-adjustment’’ to mean an
adjustment that the beneficiary,
caretaker for the beneficiary, or supplier
of the device can perform without the
assistance of a certified orthotist (that is,
an individual certified by either the
American Board for Certification in
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Orthotics and Prosthetics, Inc., or the
Board for Orthotist/Prosthetist
Certification). We also proposed to
consider any adjustments that can only
be made by a certified orthotist to be
adjustments that require expertise in
trimming, bending, molding,
assembling, or customizing to fit the
individual. We proposed to consult with
a variety of individuals, including
experts in orthotics, to determine which
items and/or HCPCS codes would be
classified as OTS orthotics. We invited
comments on a process for identifying
OTS orthotics subject to competitive
bidding.
Section 1847(a)(1)(B)(ii) of the Act
gives us the authority to phase in
competitive bidding ‘‘first among the
highest cost and highest volume items
or those items that the Secretary
determines have the largest savings
potential.’’ In addition, section
1847(a)(3)(B) of the Act grants us the
authority to exempt items for which the
application of competitive bidding is
not likely to result in significant
savings. In exercising this authority, we
proposed to exempt items outright or on
an area-by-area basis using area-specific
utilization data. For example, if we
found that utilization (that is, allowed
services or allowed charges) for
commode chairs was low (or the
number of commode chair suppliers
was low) in a given area compared to
other areas, we might choose to exempt
commode chairs from the competitive
bidding programs in the CBA where
significant savings would not be likely
while including commode chairs in the
competitive bidding programs for other
CBAs. This decision would be based on
area-specific utilization data.
We proposed to use the authority
provided by section 1847(a)(1)(B)(ii) of
the Act to phase in only those items that
we determine are among the highest
cost and highest volume items during
each phase of the Medicare DMEPOS
Competitive Bidding Programs. In
section II.F. of the proposed rule, we
proposed to conduct competitive
bidding for product categories that
would be described in each RFB.
Suppliers would submit a separate bid
for each item under a defined product
category, unless specifically excluded in
the RFB. We proposed to include a
‘‘core’’ set of product categories in each
CBA. We indicated that we might elect
to phase in some individual product
categories in a limited number of CBAs
in order to test and learn about their
suitability for competitive bidding.
Because we had not yet identified the
product categories for competitive
bidding at the time we issued the
proposed rule, we used policy groups
developed by the statistical analysis
durable medical equipment regional
carrier (SADMERC) for purposes of
illustration. The SADMERC has defined
a set of 64 DMERC [DME MAC] policy
groups for analytical purposes in its role
as the statistical analysis contractor for
DMEPOS. A policy group is a set of
HCPCS codes that describe related items
that are addressed in a DME MAC
medical review policy. For example, the
policy group ‘‘oxygen and supplies’’
consists of approximately 20 HCPCS
codes. Although the product categories
subject to competitive bidding will not
necessarily correspond to these policy
groups, we presented data for these
policy groups and items contained in
these policy groups for the purpose of
identifying the highest cost and highest
volume DMEPOS items that may be
subject to competitive bidding. In other
words, we proposed using SADMERC
data for ‘‘policy groups’’ to identify
groups of items we will consider
phasing in first under the competitive
bidding programs, but the actual
‘‘product categories’’ for which we
would request bids could be a subset of
items from a ‘‘policy group’’ or a
combination of items from different
‘‘policy groups.’’ The highest volume
items (HCPCS codes) fall into a
relatively small number of policy groups
as illustrated in Table 3.
TABLE 3.—CY 2003 HIGH VOLUME ITEMS (HCPCS CODES)
HCPCS code
Allowed charges
Product description
Policy group
Oxygen.
Wheelchairs.
Diabetic Supplies & Equipment.
Hospital Beds/Accessories.
Oxygen.
Enteral Nutrition.
Enteral Nutrition.
Support Surfaces.
Oxygen.
CPAP Devices.
Wheelchairs.
Wheelchairs.
Diabetic Supplies & Equipment.
Nebulizers.
Enteral Nutrition.
Walkers.
Respiratory Assist Devices.
Negative Pressure Wound Therapy (NPWT) Devices.
Respiratory Assist Devices.
Wheelchairs.
Wheelchairs.
Support Surfaces.
Commodes.
Enteral Nutrition.
$2,033,123,147
1,176,277,899
779,756,243
331,457,962
228,066,037
206,396,813
197,057,150
156,762,241
141,268,474
123,865,463
103,217,209
87,208,486
79,575,166
76,588,088
76,326,903
75,950,410
75,136,517
65,603,531
Oxygen concentrator ...........................................................................
Power wheelchair with programmable features .................................
Blood glucose/reagent strips, box of 50 .............................................
Semi-electric hospital bed ...................................................................
Portable gaseous oxygen equipment .................................................
Enteral formula, category I .................................................................
Enteral feeding supply kit, pump fed, per day ....................................
Powered air mattress ..........................................................................
Stationary liquid oxygen ......................................................................
Continuous positive airway pressure device (CPAP) .........................
Standard manual wheelchair ..............................................................
High strength lightweight manual wheelchair .....................................
Lancets, box of 100 ............................................................................
Nebulizer with compressor .................................................................
Enteral formula, category IV ...............................................................
Folding wheeled walker w/o seat .......................................................
Respiratory assist device with backup rate feature ............................
Negative pressure wound therapy electrical pump ............................
K0532 * ................
K0003 ..................
K0108 ..................
E0192 * ................
E0163 ..................
B4034 ..................
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E1390 ..................
K0011 * ................
A4253 ..................
E0260 ..................
E0431 ..................
B4150 * ................
B4035 ..................
E0277 ..................
E0439 ..................
E0601 ..................
K0001 ..................
K0004 ..................
A4259 ..................
E0570 ..................
B4154 * ................
E0143 ..................
K0533 * ................
K0538 * ................
56,046,930
55,318,959
52,139,979
48,413,938
48,216,855
42,277,968
Respiratory assist device without backup rate feature .......................
Lightweight manual wheelchair ...........................................................
Miscellaneous wheelchair accessory ..................................................
Wheelchair cushion .............................................................................
Stationary commode chair with fixed arms ........................................
Enteral feeding supply kit syringe, per day ........................................
* Due to HCPCS coding changes made since 1993, the descriptions or code numbers for these codes have been modified. The power wheelchair codes became effective November 15, 2006 and will be billed under several new HCPCS codes.
Because we proposed that we would
conduct competitive bidding for items
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grouped into product categories, we
indicated that we would consider
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DMEPOS allowed charges and volume
at the product category level for the
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purpose of selecting which items to
phase in first under the competitive
bidding programs. The table below
provides data for the top 20 policy
groups based on Medicare allowed
charges for the items within each policy
group that we may choose to include in
the competitive bidding programs. Data
from the SADMERC for claims received
in CY 2003 are used for all policy
groups except those for nebulizers and
OTS orthotics. For the nebulizer and
OTS orthotics groups, data are included
from the CMS BESS (Part B Extract and
18021
Summary System) database for items
furnished in CY 2003. The percentage of
total allowed Medicare charges for
DMEPOS that each policy group makes
up is included in Table 4.
TABLE 4.—CY 2003 DMEPOS ALLOWED CHARGES BY POLICY GROUP
CY 2003
Percent of
DMEPOS
Rank
Policy group
1 ....................................................
2 ....................................................
3 ....................................................
4 ....................................................
5 ....................................................
6 ....................................................
7 ....................................................
8 ....................................................
9 ....................................................
10 ..................................................
11 ..................................................
12 ..................................................
13 ..................................................
14 ..................................................
15 ..................................................
16 ..................................................
17 ..................................................
18 ..................................................
19 ..................................................
20 ..................................................
Oxygen Supplies/Equipment ................................................................
Wheelchairs/Power Operated Vehicle (POVs) ** .................................
Diabetic Supplies & Equipment ...........................................................
Enteral Nutrition ...................................................................................
Hospital Beds/Accessories ..................................................................
CPAP Devices .....................................................................................
Support Surfaces .................................................................................
Infusion Pumps & Related Drugs ........................................................
Respiratory Assist Devices ..................................................................
Lower Limb Orthoses * .........................................................................
Nebulizers * ..........................................................................................
Walkers ................................................................................................
Negative Pressure wound therapy (NPWT) Devices ..........................
Commodes/Bed Pans/Urinals ..............................................................
Ventilators ............................................................................................
Spinal Orthoses * .................................................................................
Upper Limb Orthoses * .........................................................................
Patient Lifts ..........................................................................................
Seat Lift Mechanisms ..........................................................................
TENS Devices ** ..................................................................................
$2,433,713,269
1,926,210,675
1,110,934,736
676,122,703
373,973,207
204,774,837
193,659,248
149,208,088
133,645,918
122,813,555
98,951,212
96,654,035
88,530,828
51,372,352
42,890,761
40,731,646
29,069,027
26,551,310
15,318,552
15,258,579
21.3
16.9
9.7
5.9
3.3
1.8
1.7
1.3
1.2
1.1
0.9
0.8
0.8
0.5
0.4
0.4
0.3
0.2
0.1
0.1
Total for 20 Groups ..................................................................................................................................
Total for DMEPOS ....................................................................................................................................
7,830,384,538
11,410,019,351
68.6
............................
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* Data are from the CMS BESS (Date of Service). Data for orthoses policy groups exclude data for custom fabricated orthotics, but may include data for other items that will not be considered OTS orthotics.
** POVs are power-operated vehicles (scooters), and TENS devices are transcutaneous electrical nerve stimulation devices.
Section 1847(a)(1)(B)(ii) of the Act
provides that the items we phase in first
under competitive bidding may include
products having the greatest potential
for savings. In the May 1, 2006 proposed
rule, we proposed to use a combination
of the following variables when making
determinations about an item’s potential
savings as a result of the application of
competitive bidding:
• Annual Medicare DMEPOS allowed
charges.
• Annual growth in expenditures.
• Number of suppliers.
• Savings in the DMEPOS
competitive bidding demonstrations.
• Reports and studies.
We proposed that items with high
allowed charges or rapidly increasing
allowed charges would be our highest
priority in selecting items for
competitive bidding.
The number of suppliers furnishing a
particular item or group of items would
also be an important variable in
identifying items with high savings
potential. We believe that a relatively
large number of suppliers for a
particular group of items would likely
increase the degree of competition
among suppliers and increase the
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probability that suppliers would
compete on quality for business and
market share. We saw evidence in the
competitive bidding demonstrations
that products furnished by a large
number of suppliers had large savings
rates and fewer problems with quality.
We understand that having a large
number of suppliers is not always a
necessary condition for competition. A
CBA could be more concentrated and
less competitive than the number of
suppliers would predict if the market is
dominated by only a few suppliers and
the remaining suppliers have only
minimal charges.
The DMEPOS competitive bidding
demonstrations took place from 1999 to
2002 in two MSAs: Polk County, Florida
and San Antonio, Texas. Five product
categories containing items we might
include in the Medicare DMEPOS
Competitive Bidding Programs were
included in at least one round of these
demonstrations: oxygen equipment and
supplies; hospital beds and accessories;
enteral nutrition; wheelchairs and
accessories; and general orthotics.
The results of the demonstrations
provide useful information because they
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are based on actual Medicare
competitive bidding and the amounts
suppliers actually were willing to accept
as payment from Medicare. However,
we recognize that these results should
be used with caution. The
demonstrations occurred more than 3
years ago and the fee schedule has
changed as a result of certain provisions
in the MMA (for example, section
302(c)(2) of the MMA (codified at
section 1834(a)(21) of the Act), which
requires that CMS adjust the fee
schedules for certain items based on a
comparison to other payers such as the
Federal Employees Health Plan (FEHP)).
The HHS Office of the Inspector
General (OIG) and GAO frequently
conduct studies that analyze the extent
to which Medicare overpays for specific
items, and we believe that these studies
could assist with determining the saving
potential for an item if it were included
in competitive bidding. Examples of
relevant OIG studies include the
following:
• Medicare Allowed Charges for
Orthotic Body Jackets, March 2000
(OEI–04–97–00391);
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• Medicare Payments for Enteral
Nutrition, February 2004 (OEI–03–02–
00700); and
• A Comparison of Prices for Power
Wheelchairs in the Medicare Program,
April 2004 (OEI–03–03–00460).
In addition, CMS and the DME MACs
obtain retail pricing information for
items in the course of establishing fee
schedule amounts and considering
whether payment adjustments are
warranted for items using the inherent
reasonableness authority in section
1842(b)(8) of the Act. In the proposed
rule, we indicated that we could use
these studies to identify products where
CMS pays excessively and where we
could potentially achieve savings.
Excessive payments are only one
factor to consider when evaluating
whether savings will be realized by the
application of competitive bidding to an
item. However, these studies offer us a
guide regarding which items may have
the greatest potential for savings. We
also recognize that some studies are
older than others and that recent MMA
and FEHP reductions in fees may affect
whether the results of these studies are
still relevant.
Comment: Many commenters objected
to the proposed definition for OTS
orthotics that would be subject to
competitive bidding in accordance with
section 1847(a)(2)(C) of the Act. They
specifically objected to the discussion in
the proposed rule that states that the
expertise required to trim, bend,
assemble, mold, or custom fit an
orthotic device for an individual would
be that of a certified orthotist. They
pointed out that occupational therapists,
physical therapists, and physicians are
licensed and trained to trim, bend,
mold, assemble, and customize some
orthotics to fit a beneficiary. They
indicated that under the Act,
occupational and physical therapists are
recognized as Medicare practitioners
who furnish orthotics to Medicare
beneficiaries pursuant to a written plan
of care. The commenters added that the
Act recognizes orthotists as suppliers of
DMEPOS only and not as practitioners.
They recommended revising the
language to read: ‘‘ ‘Minimal selfadjustment’ means an adjustment that
the beneficiary, caretaker for the
beneficiary, or supplier of the device
can perform without the assistance of a
physician, physical therapist,
occupational therapist, orthotist, or
other professional designated by the
Secretary.’’
In addition, many commenters stated
that there is no Federal definition of
orthotists or their scope of practice and
that a limited number of States have
licensure or certification laws for
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orthotists. They added that, for those
States that have such laws, the scope of
practice varies considerably. The
commenters recommended including
the statutory definition of ‘‘qualified
practitioner’’ located in section
1834(h)(1)(F)(iii) of the Act to identify
those individuals with expertise in
custom fitting orthotics. They believed
that linking OTS orthotics to the work
of a certified orthotist would
dramatically expand the list of products
that are considered OTS orthotics that
would be subject to competitive
bidding. They further noted that the list
of OTS orthotics has yet to be
published.
Response: We appreciate the
comments. Section 1847(a)(2) of the Act
describes OTS orthotics as those
orthotics described in section 1861(s)(9)
of the Act for which payment would
otherwise be made under section
1834(h) of the Act, which require
minimal self-adjustment for appropriate
use and do not require expertise in
trimming, bending, molding,
assembling, or customizing to fit to the
individual. Orthotics that are currently
paid under section 1834(h) of the Act
and are described in section 1861(s)(9)
of the Act are leg, arm, back, and neck
braces. The Medicare Benefit Policy
Manual, Chapter 15, Section 130
provides the longstanding Medicare
definition of ‘‘braces.’’ Braces are
defined in this section as ‘‘rigid or semirigid devices which are used for the
purpose of supporting a weak or
deformed body member or restricting or
eliminating motion in a diseased or
injured part of the body.’’ To clarify the
definition of OTS orthotics for purposes
of competitive bidding, in this final rule
we are defining the term ‘‘minimal selfadjustment’’ to mean an adjustment that
the beneficiary, caretaker for the
beneficiary, or supplier of the device
can perform and that does not require
the services of a certified orthotist (that
is, an individual who is certified by the
American Board for Certification in
Orthotics and Prosthetics, Inc., or by the
Board for Orthotist/Prosthetist
Certification) or an individual who
possesses specialized training. These
individuals possess specialized skills
and knowledge used to custom fit braces
for individual beneficiaries so that they
function appropriately. Therefore, if an
adjustment to an OTS orthotic that
requires expertise in trimming, bending,
molding, assembling, or customizing to
fit the individual such that it must be
performed by a certified orthotist (that
is, an individual who is certified by the
American Board for Certification in
Orthotics and Prosthetics, Inc. or by the
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Board for Orthotist/Prosthetist
Certification) or someone who possesses
specialized training, it would not be an
OTS orthotic that is eligible to be
included in a competitive bidding
program.
As we proposed, we will identify
specific OTS orthotics that will be
included in specific competitive
bidding programs through program
instructions.
Comment: Several commenters
requested exemption of OTS orthotics
that have the HCPCS codes L3908–
L3954 (wrist, hand, and finger orthoses)
and L3980–L3985 (upper extremity
fracture orthoses). They believed that
these codes should be exempted
because clinicians and practitioners use
them for short-term protection and
stabilization of a joint or limb. They
further indicated that practitioners do
not dispense these items as a product or
supply item but rather as part of the
evaluation and treatment of
beneficiaries.
Response: Section 1847(a)(2) of the
Act provides that OTS orthotics
described in section 1861(s)(9) of the
Act, for which payment would
otherwise be made under section
1834(h) of the Act, are to be included in
the Medicare DMEPOS Competitive
Bidding Program if they require
minimal self-adjustment for appropriate
use and do not require expertise in
trimming, bending, molding,
assembling, or customizing to fit the
individual. Although the items
identified by the commenters are
orthotics as described in section
1861(s)(9) of the Act for which payment
is made under section 1834(h) of the
Act, we have not yet determined
whether they require minimal selfadjustment. We have also not yet
determined whether one or more of
these items might not be appropriate for
inclusion in the Medicare DMEPOS
Competitive Bidding Program because it
is not likely to produce significant
savings. We will consider the
commenters’ suggestions and designate
the items that will be included in each
competitive bidding program through
program instructions or by other means,
such as the RFB or our Web site.
Comment: Several commenters
believed that the selection of items for
competitive bidding is being driven by
allowed charges and utilization only.
They believed that this poses a risk and
allows competitive bidding to become a
substitute for appropriate coverage
policies as a way of controlling
expenditures. The commenters believed
that consideration of clinical and
service factors specific to the product
should be part of the selection criteria.
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Response: We do not have data on
which we could evaluate clinical and
service factors specific to individual
items nor were any data submitted
through the public comment process. In
addition to allowed charges and
utilization, we identified in the
proposed rule the following variables
that we will use to select items for
competitive bidding: Annual growth in
expenditures; number of suppliers;
savings in the DMEPOS competitive
bidding demonstrations; and reports
and studies. We stated that we would
use all of these variables to make
determinations about an item’s potential
to reduce costs for the Medicare
program. We note that the Medicare
DMEPOS Competitive Bidding Program
is not a coverage program, and that this
final rule does not supersede in any way
Medicare coverage laws, regulations, or
policies.
Comment: Several commenters
believed that ostomy products and
supplies do not meet the definition of
DME and, therefore, are not part of the
items and services subject to the
competitive bidding programs described
in section 1847(a)(2)(A) of the Act.
Response: We believe that section
1847(a)(2)(A) of the Act is ambiguous
regarding whether ostomy products and
supplies are to be included in the
Medicare DMEPOS Competitive Bidding
Program because the term ‘‘medical
supplies’’ in the section heading could
be interpreted either to modify the term
‘‘durable medical equipment’’ (meaning
that the medical supplies would have to
be associated with the DME to be
included), or to be a separate category
of items that are not associated with
DME. In addition, although the
definition of ‘‘covered item’’ in section
1834(a)(13) of the Act means ‘‘durable
medical equipment (as defined in
section 1861(n) [of the Act]), including
such equipment described in section
1861(m)(5) [of the Act] * * *,’’ the term
‘‘such equipment’’ in section 1861(m)(5)
of the Act could be interpreted to refer
either to the term ‘‘durable medical
equipment’’ or to the term ‘‘medical
supplies’’ (which would include ostomy
supplies) in that section. In light of
these ambiguities, we believe we have
discretion to interpret section
1847(a)(2)(A) of the Act to include or
exclude ostomy products and supplies
in the competitive bidding programs.
We are not planning to exercise our
authority to include these items at this
time and will continue to review this
issue.
Comment: Many commenters believed
that the following items that are integral
to beneficiary care should be exempted
from competitive bidding: diabetic
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supplies; diabetic shoes; diabetic inlays;
prosthetics for the foot; crutches;
walkers; fracture ankle-foot orthoses;
braces; splints; and surgical dressings. A
few commenters requested exemption of
products commonly provided directly
by manufacturers. They believed that
the products are available from
relatively few suppliers and would not
produce Medicare savings.
A few commenters requested the
exemption of oxygen, continuous
positive airway pressure devices, and
invasive and noninvasive ventilation
devices. They believed that these items
are technologically complex devices.
Several commenters recommended
exempting negative pressure wound
therapy (NPWT) devices from the first
round of competitive bidding. They
reported that in October 2000, a new
HCPCS code (E2402) was established for
NPWT. Since 2003, more than 3,000
physicians have ordered NPWT devices
more than 36,000 times. They reported
that new products have been added to
HCPCS code E2402 despite the fact that
these new products are clinically
different from the original NPWT
product. The commenters believed that
the newer items are not yet wellunderstood or well-established and
physician choice in selecting an item
must be respected.
Many commenters requested
exemption of power wheelchairs,
including complex rehabilitative and
assistive technology devices, for the first
round of competitive bidding. They
believed that competitively bidding
these devices would result in a negative
impact on the clinical outcome for the
beneficiary. They described these items
as being uniquely prescribed for the
beneficiary. The commenters
recommended exempting wheelchair
cushions, adaptive seating, and
positioning products. They indicated
beneficiaries who require complex
rehabilitative or assistive technology
require a complete system to meet their
functional and medical needs. The
commenters pointed out that a complete
system requires several pieces of
equipment, each meeting a specific
medical or functional need and
determined to be compatible
technologies. They believe that the
recent changes in HCPCS codes for
power mobility devices, a new local
coverage determination policy, and new
fee schedules will significantly impact
the utilization and allowed charges for
these items. They believe that, in light
of these changes, there will be a lack of
allowed charges and volume data that
will make it difficult to determine
which codes have the highest allowed
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18023
charges and highest volume or potential
for savings.
Many commenters requested the
exemption of manual wheelchairs
because as early as CY 2007, the HCPCS
codes will be subjected to a recoding
process that is similar to the recoding
process that CMS recently undertook for
power mobility devices. Under the
proposed rule, a supplier that bids on
the category of manual wheelchairs
must be prepared to provide all types of
manual wheelchairs including standard,
ultra lightweight, bariatric, or manual
tilt-in-space. They believed that the
current HCPCS codes are too broad,
encompassing items that represent
vastly different technologies.
Several commenters requested the
exemption of speech generating devices
(SGDs). They stated the functional,
physical, operational, and support
characteristics of a specific SGD model
are selected based on the individual
needs of the beneficiary. The
commenters reported that Medicare has
purchased fewer than 5,000 SGDs since
2001. They indicated that, on average,
1,211 SGDs are purchased per year, and
that in 2004, Medicare spent only
$4,562 on SGDs (code E2511), less than
$220,000 on mounting systems (code
E2512), and less than $280,000 on all
SGD accessories.
Some commenters requested that
CMS not create a product category that
consists of ‘‘infusion pumps and related
drugs.’’ They pointed out that infusion
drugs are covered under the DMEPOS
benefit because they go through the
pump, which is DME. They added that
managed care plans include home
infusion therapy coverage under either
their major medical benefit or their
prescription drug benefit and that
Medicare Part D covers hundreds of
home intravenous drugs. The
commenters believed that there is
confusion among beneficiaries who
require Medicare Part B and Part D
drugs, and that adding infusion pumps
that are used for drug administration to
competitive bidding will confuse both
beneficiaries and referral agents further.
They also indicated that these devices
vary in drug therapy, technology, length
of treatment, and site of care, and that
the devices range from critical acute
care to chronic infusion.
Some commenters requested the
exemption of enteral nutrition
equipment and supplies. They believed
that the use of competitive bidding to
set prices under Medicare has not been
tested sufficiently or successfully. The
commenters indicated that Medicare
allowed charges for enteral nutrition
decreased by approximately 5 percent
from CY 2003 to CY 2004. They
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reported that there is confusion among
beneficiaries who require Medicare Part
B and Part D drugs, and believed that
adding competitive bidding will only
confuse beneficiaries and referral agents
further.
A few commenters requested the
exemption of transcutaneous electrical
nerve stimulator (TENS) devices from
competitive bidding. They believed that
these devices constitute a miniscule
percentage of Medicare charges, and
that including these devices in one
product category will induce
beneficiaries to purchase inferior
services. They reported that some
manufacturers include a post-sale
periodic monitoring service, whereas
others do not.
Some commenters requested the
exemption of support surfaces until the
completion of the Support Surface
Standards Initiative. They indicated that
data from the Agency for Healthcare
Research and Quality showed an
increase in hospitalizations for
beneficiaries with pressure ulcers up to
63 percent during the period 1993
through 2003. The commenters
recommended that if support surfaces
are selected for competitive bidding,
CMS subdivide the codes and evaluate
separate bids for each subcategory. They
also recommended that stakeholders be
consulted regarding the subcategories.
Several commenters stated that
Medicare should not subject visionrelated DMEPOS commonly dispensed
by optometrists to competitive bidding.
They believed that optometrists should
not be required to submit a bid.
Many commenters recommended the
following sources for gathering
information about various homecare
services and allowed charges: American
Society for Parenteral and Enteral
Nutrition (ASPEN), American
Association for Respiratory Care
(AARC), American Nurses Association
(ANA), American Dietetic Association
(ADA), National Home Oxygen Patients
Association (NHOPA), American Lung
Association (ALA), American Diabetes
Association (ADA), Joint Commission
on the Accreditation of Healthcare
Organizations (JCAHO), and other
accrediting organizations.
Response: Section 1847(a)(3)(B) of the
Act grants us the authority to exempt
items and services for which the
application of competitive bidding is
not likely to result in significant
savings. Section 1847(a)(1)(B)(ii) of the
Act gives us the authority to phase in
competitive bidding ‘‘first among the
highest cost and highest volume items
and services or those items and services
that the Secretary determines have the
largest savings potential.’’ As we stated
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in the May 1, 2006 proposed rule, we
will consider annual Medicare allowed
charges, annual growth in expenditures,
the number of suppliers furnishing the
item, reports and studies, and data
showing whether we realized savings by
including the item in the competitive
bidding demonstrations to determine
whether including an item(s) under the
competitive bidding programs is likely
to result in significant savings. As we
evaluate specific items for inclusion in
competitive bidding programs, we will
also consider the recommendations
offered by these commenters. We note
that diabetic shoes and inserts,
prosthetics for the foot, splints and
casts, prosthetic devices that aid vision,
and surgical dressings are not among the
items and services described in section
1847(a)(2) of the Act and, therefore,
cannot be included in the competitive
bidding programs.
Comment: Some commenters
recommended that CMS publish the
items that will be included in the initial
competitive bidding programs in an
interim final rule. They also believed
that a meeting should be scheduled with
the PAOC to solicit additional public
comment after product selections are
announced.
Response: We intend to announce the
product categories for competitive
bidding on or shortly after the date of
issuance of this final rule, and we will
designate the items to be included in
each competitive bidding program
through program instructions or by
other means, such as the RFB, and post
them on our Web site. We do not believe
that we need to publish the list of items
in the form of an interim final rule in
the Federal Register. We also note that
the PAOC provided feedback on the
criteria for item selection that we
proposed in the May 1, 2006 proposed
rule. Further, the public had the
opportunity to comment on our
proposed methodology for item
selection through the public notice and
comment rulemaking process, and the
opportunity to participate in PAOC
meetings that dealt with this subject. We
will take under consideration the
commenters’ suggestion to hold future
PAOC meetings on item selection.
Comment: Several commenters
requested an explanation of the specific
measure that will be used to identify an
item’s true potential savings after
accounting for any recent policy
changes and rate cuts. They asked if any
thresholds would be used to measure
the actual savings. They reported that
changes in payment policy significantly
decreased CY 2003 allowed charges for
oxygen equipment, nebulizers, and
inhalation drugs. The commenters also
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reported that payment for glucose
meters, test strips, and lancets were
previously frozen in CYs 1998, 1999,
and 2000 and again in CY 2002. They
indicated that these payment freezes
call into question the feasibility of
achieving significant additional
Medicare savings through competitive
acquisition. The commenters believed
that the annual growth in expenditures
for the above items could be attributed
to other factors such as an increase in
the number of new beneficiaries or the
elimination of Medicare Advantage
Plans in various markets. Many
commenters recommended establishing
a savings threshold that would use
ongoing administrative allowed charges
to assess the appropriateness of
competitive bidding for each product
category. They recommended using a
threshold of a 10-percent margin to
determine the net savings after
excluding administrative costs
associated with the ongoing support of
the competitive bidding programs from
the total savings incurred.
Response: We will determine which
items offer the best savings potential.
We disagree that an exact dollar
threshold is appropriate for determining
if significant savings will be achieved
for an item under a competitive bidding
program because it would be logistically
difficult to set an exact number for what
the savings will be for a particular item
until we receive the bids. Once we
receive the bids, we can estimate the
dollar savings amount to determine
whether that represents an appropriate
savings. In addition to allowed charges
and utilization, we identified in the
proposed rule the following variables
that we will use to select items for
competitive bidding: annual growth in
expenditures; number of suppliers;
savings in the DMEPOS competitive
bidding demonstrations; and reports
and studies. We stated that we would
use all of these variables to make
determinations about an item’s potential
to reduce costs for the Medicare
program. We will also assure savings
because we will not accept a bid to
furnish an item unless the submitted bid
price is at or below the fee schedule
amount for the item.
Comment: Some commenters
suggested that the greatest potential for
savings to the Medicare program could
be achieved by eliminating coverage of
specific DME items or entire product
categories.
Response: We appreciate the
comment. However, competitive
bidding is a program for determining
Medicare payment for covered items
and services and does not supersede any
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Medicare rules, policies, or procedures
relating to coverage.
Comment: Some commenters reported
that the proposed rule indicates
Medicare expenditures for DME
infusion pumps and related drugs in CY
2003 were approximately $149 million.
They indicated that this number appears
to include expenditures made for
insulin and insulin pumps for
beneficiaries with diabetes, which are
not provided by infusion pharmacies
and largely serve a different beneficiary
market than infusion pumps and related
drugs used by beneficiaries for other
medical conditions. They believe that
the more accurate amount of Medicare
expenditures for CY 2003 for DME
infusion pumps and related drugs was
approximately $87 million.
Response: Insulin pumps are a type of
infusion pump used by beneficiaries
with diabetes and currently are
included in the SADMERC policy group
for external infusion pumps and related
drugs. Although we will be using the
SADMERC policy groups to identify
groups of items that we will consider
including in one or more competitive
bidding programs, the actual product
categories that we develop might be a
subset of items from a SADMERC policy
group or a combination of items from
different SADMERC policy groups. In
determining which items are
appropriate to include in a product
category, we will also evaluate its
savings potential, as discussed above.
Comment: Many commenters believed
that the OIG and GAO reports and
studies focus largely on a narrow issue
or a small subset of issues, and as a
result, the reports often reflect a skewed
perspective of the particular problem
and the suggested solution to that
problem. They believed that none of the
historical OIG studies reflects the cost of
accreditation or complying with the
quality standards that are the bases of
accreditation. They believed that the
OIG studies do not focus on the services
and functions required of suppliers, the
allowed charges associated with these
services and functions, or whether
payment rates are limited to the allowed
charges of items and equipment. In
addition, they indicated that the OIG
reports generally collect information
from across the United States, while
competitive bidding is market-specific.
In light of these discrepancies, they
recommended that our decisions should
not rely heavily on OIG reports when
we select items for inclusion in the
competitive bidding programs.
Response: We believe that the OIG
and GAO reports and studies provide
useful information for identifying items
with high expenditures. However, we
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will not rely solely on these reports. As
we indicated in the proposed rule, we
would rely on several variables in
determining the savings potential for
specific items or categories of items.
Those variables include annual allowed
charges, annual growth in expenditures,
number of suppliers, savings under the
demonstrations, and various reports and
studies conducted by CMS and other
Federal agencies.
After consideration of the public
comments we received, we are adding a
definition of the term ‘‘minimal selfadjustment’’ under § 414.402. We are
also finalizing § 414.406(d), with a
technical change. We are specifying that
when we designate the items that will
be included in each competitive bidding
program, we will do so by program
instructions or by other means, such as
the RFB or our Web site.
G. Submission of Bids for Competitively
Bid DMEPOS (§§ 414.404, 414.408,
414.412, and 414.422)
Sections 1847(b)(6)(A)(i) and
(b)(6)(A)(ii) of the Act provide that
payment will not be made under
Medicare Part B for items furnished
under a competitive bidding program
unless the supplier has submitted a bid
to furnish those items and has been
selected as a contract supplier.
Therefore, in order for a supplier that
furnishes competitively bid items in a
CBA to receive payment for those items,
the supplier must have submitted a bid
to furnish those particular items and
must have been awarded a contract to
do so by CMS (proposed § 414.412). In
section II.C.6. of the May 1, 2006
proposed rule (71 FR 25664), we
proposed that there would be limited
exceptions to this requirement for items
required by beneficiaries who reside in
a CBA but are out of the area and need
items (proposed § 414.408(f(2)(ii))). We
also proposed that there would be an
exception for suppliers that are
grandfathered to continue to provide
and service certain items
(§ 414.408(f)(2)(i), as discussed in
section VI.D.3. of this final rule.
1. Furnishing of Items (§§ 414.412(c)
and 414.422(e))
In the May 1, 2006 proposed rule,
under proposed § 414.422(e) we
proposed that a contract supplier must
agree to furnish the items included in its
contract to all beneficiaries who
maintain a permanent residence in, or
who visit, the CBA and who request
these items from the contract supplier.
However, as we explained in the
proposed rule (71 FR 25672 and 25681),
we proposed that a skilled nursing
facility (SNF) as defined in section 1819
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of the Act that is also a contract supplier
must only agree to furnish the items
included in the contract to patients to
whom it would otherwise provide
Medicare Part B services (proposed
§ 414.422(e)(2)(i)). In addition, we
proposed that a physician who is also a
contract supplier must only agree to
furnish the items included in the
contract to his or her patients (proposed
§ 414.422(e)(2)(ii)). Because suppliers
will have to factor this requirement into
their responses to the RFBs, we have
chosen to discuss this requirement in
this section of the final rule.
a. Furnishing of Items to Medicare
Beneficiaries Who Maintain a
Permanent Residence in a CBA
In the May 1, 2006 proposed rule (71
FR 25681), we proposed that a contract
supplier cannot refuse to furnish items
and services to a beneficiary residing in
a CBA based on the beneficiary’s
geographic location within the CBA
(proposed § 414.422(e)(1)). We indicated
that this rule would prohibit a contract
supplier from refusing to furnish items
to beneficiaries because they are not in
close proximity to that supplier. In
order to ensure beneficiary access to
competitively bid items that are rented,
we proposed that the contract supplier
must agree to accept as a customer a
beneficiary who began renting the item
from a different supplier regardless of
how many months the item has already
been rented. This is particularly
important in those cases where a
supplier or noncontract supplier does
not elect to continue furnishing the item
in accordance with the grandfathering
provisions discussed in section VI.D.3.
of this final rule. Suppliers must factor
the cost of furnishing items in these
situations into their bid submissions.
In addition, in order to ensure
beneficiary access to the competitively
bid items in the inexpensive or
routinely purchased DME payment
category, or to a competitively bid
power wheelchair, we proposed that the
contract supplier must agree to give the
beneficiary or his or her caregiver the
choice of either renting or purchasing
the item and must furnish the item on
a rental or purchase basis as directed by
the beneficiary or the beneficiary’s
caregiver. Suppliers must factor the cost
of furnishing these items on both a
rental and purchase basis into their bid
submissions.
Comment: One commenter requested
that CMS clarify that a contract supplier
can limit the number of items it
provides in each category to its
contracted capacity.
Response: As part of a supplier’s
response to the RFB, a supplier will be
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expected to state its projected capacity
to furnish the items in each product
category for which it is submitting a bid.
The projected capacity submitted by a
supplier would not become a binding
term of the contract because contract
suppliers will be required to furnish the
items in their contract to all
beneficiaries who maintain a permanent
residence in the CBA, or who visit the
CBA, and who request the items from
them unless one of the exceptions
discussed in this final rule applies.
b. Furnishing of Items to Medicare
Beneficiaries Whose Permanent
Residence Is Outside a CBA
In the May 1, 2006 proposed rule (71
FR 25681), we proposed that in order to
obtain medically necessary DMEPOS
items, a Medicare beneficiary whose
permanent residence is located outside
of a CBA must use a contract supplier
to obtain all items subject to competitive
bidding in the CBA that he or she visits.
We considered allowing beneficiaries
whose residence is outside of a CBA to
obtain these items from noncontract
suppliers when coming into a CBA.
However, consistent with section
1847(b)(6) of the Act, we proposed that
beneficiaries would be required to use a
contract supplier because we believe
that new business for competitively bid
items should be directed only to
contract suppliers. Noncontract
suppliers would be allowed to continue
servicing current beneficiaries who
maintain a permanent residence in a
CBA if they qualified for the
grandfathering program discussed in
section VI.D.3. of this final rule.
Comment: One commenter stated that
CMS should indicate how the provision
to furnish competitively bid items to
Medicare beneficiaries whose
permanent residence is outside a CBA
will be communicated to beneficiaries
who are visiting a CBA.
Response: Noncontract suppliers
located in a CBA will be informed that
they are not eligible to furnish
competitively bid items to beneficiaries
visiting the CBA and as we discussed
earlier in this final rule, beneficiaries
will not be held liable to make a
payment for an item furnished in
contravention of this rule, unless the
beneficiary signs an ABN indicating the
beneficiary’s knowledge and
understanding that Medicare will not
pay for that item. Noncontract suppliers
will be educated to refer beneficiaries to
contract suppliers in these situations.
We are also planning an extensive
educational campaign to inform the
public of the requirement that an item
must be obtained from a contract
supplier when a beneficiary is visiting
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a CBA, if the item that the beneficiary
needs is included in the competitive
bidding program for the CBA that the
beneficiary is visiting. A list of all
contract suppliers along with other
competitive bidding information will be
on the CMS and CBIC Web sites. This
information will also be available to
beneficiaries through the toll-free
telephone number 1–800 Medicare.
Comment: One commenter stated that
it was confused as to whether certain
products might be drop-shipped into the
area where the beneficiary is visiting.
The commenter requested clarification
on this because the commenter believed
there are many types of equipment such
as oxygen equipment that should not be
drop-shipped. Another commenter
stated that a beneficiary visiting in the
CBA should not be required to use a
contract supplier because such a
requirement would confuse
beneficiaries. The commenter
recommended that CMS not adopt the
proposed rule or modify it so that it
only applies to beneficiaries who have
resided in the CBA for 3 or more
months. Two commenters stated that
there will be an undue impact on
‘‘snowbirds’’ as a result of the
requirement that contract suppliers
furnish items to Medicare beneficiaries
whose permanent address is outside the
CBA and that this provision should not
be adopted.
Response: The proposed requirement
would establish a process whereby
beneficiaries visiting a CBA must get a
competitively bid item for that CBA
from a contract supplier that furnishes
the item in the CBA. If, however, the
beneficiary needs an item that is
included in the competitive bidding
program for the CBA that the beneficiary
is visiting (even if the item is not
included in the competitive bidding
program for the CBA where the
beneficiary maintains a permanent
residence), the beneficiary would be
required to obtain the item from a
contract supplier in the CBA where the
beneficiary is visiting. Therefore, if a
beneficiary is visiting a CBA, he or she
may obtain the item from a contract
supplier, and there would be no reason
to drop-ship a product. As we explained
in our response to the previous
comment, we plan to implement a
process by which beneficiaries will be
able to locate contract suppliers in a
CBA where they are visiting. We believe
that a beneficiary who visits a CBA
should be required to obtain
competitively bid items for that CBA
only from contract suppliers for that
CBA because we believe that new
business for these items should only be
directed to contract suppliers. The
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purpose of competitive bidding is to
award contracts to certain suppliers
based upon their winning bids and to
ensure the beneficiaries receive items
from these suppliers.
Comment: One commenter suggested
that CMS establish a system to ensure
that all beneficiaries will continue to
have access to their DMEPOS supplies,
even while visiting an area that is not
the beneficiary’s CBA. The commenter
stated that CMS should require that
suppliers aggressively educate
beneficiaries on the proper procedures
for obtaining their supplies while away
from home, and should allow
beneficiaries to purchase extra supplies
for extended vacations or temporary
changes of residence. The commenter
also urged CMS to allow beneficiaries to
purchase their supplies from
noncontract suppliers in the event of an
emergency.
Response: As we discussed above, we
will conduct an extensive education
campaign to educate beneficiaries,
suppliers, and referral agents on how
beneficiaries who are away from home
can obtain medically necessary items.
As we proposed, our contract supplier
selection methodology will ensure there
are enough contract suppliers in each
CBA to ensure beneficiary access to
needed items and services. In addition,
beneficiaries on vacation or who have
temporary changes of residence will be
able to obtain competitively bid items
that are included in the competitive
bidding program for the CBA that they
are visiting from contract suppliers for
that CBA. Contract suppliers will be
listed on the Internet in order for
beneficiaries to determine who the
contract suppliers are in the CBA they
are visiting. As we explained above, we
will require that contract suppliers
assist Medicare beneficiaries in locating
contract suppliers while visiting other
CBAs. We do not believe an exception
is needed in the event of an emergency
because we will ensure that there will
be a sufficient number of contract
suppliers in a CBA to meet the access
needs of beneficiaries.
2. Requirements for Providers to Submit
Bids (§§ 414.404(a) and 414.422(e)(2))
In the May 1, 2006 proposed rule (71
FR 25672), we proposed in § 414.404(a)
that the Medicare DMEPOS Competitive
Bidding Program would apply to
suppliers, and in proposed § 414.404(b)
that the program would apply to
providers that furnish items under
Medicare Part B as suppliers.
Accordingly, providers that furnish
Medicare Part B items are located in a
competitive bidding area, and that are
also DMEPOS suppliers would be
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required to submit bids in order to
furnish competitively bid items to
Medicare beneficiaries. We also
proposed that providers that are not
awarded contracts must use a contract
supplier to furnish these items to
Medicare beneficiaries to whom they
provide services. However, we proposed
in new proposed § 414.422(e)(2)(i) that a
SNF, as defined in section 1819(a) of the
Act, would not be required to furnish
competitively bid items to beneficiaries
outside of the SNF if it elected not to
function as a commercial supplier. We
stated that this rule is consistent with
the current practice of some SNFs to
furnish Medicare Part B services only to
their own residents.
Comment: Several commenters
recommended that CMS exclude
institutional providers, such as SNFs
and other long-term care facilities, from
competitive bidding or exempt products
that are primarily used in institutional
settings from competitive bidding. They
stated that because the residents of these
institutions are often among the most
frail and critically ill the level of care
required for these patients should not be
threatened or compromised by rules
whose impact, although well-intended,
are not conducive to the long-term care
environment. The commenters believed
that competitive bidding may distort
current institutional purchasing patterns
and result in higher prices. Several
commenters also suggested that CMS
postpone bidding in long-term care
settings until CMS convenes a working
group of key stakeholders to examine
how the requirements for competitive
bidding impact these facilities. They
further stated that CMS should phase in
the program over at least 4 years. Others
suggested delaying implementation of
the program.
Response: Congress specifically
provided that certain categories of items
and services, specifically certain DME,
medical supplies, enteral nutrients,
equipment, and supplies, and OTS
orthotics are subject to the Medicare
DMEPOS Competitive Bidding Program
and established phase-in
implementation rules. Items and
services may only be excepted from the
program if we determine that they are
not likely to result in significant savings
if they are included. A large volume of
enteral nutrients, equipment, and
supplies are furnished to patients in
SNFs and nursing facilities (NFs along
with some OTS orthotics. Currently, we
allow SNFs and nursing facilities (NFs)
to choose whether to provide these
services directly or under contract with
an outside supplier. To avoid disruption
of this practice, we will continue to
provide SNFs and NFs with this choice.
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We continue to believe that Medicare
DMEPOS Competitive Bidding Program
should apply to institutional providers
to the extent they furnish items under
Part B because section 1847 of the Act
does not distinguish these providers
from other types of Part B suppliers.
However, we believe that SNFs and NFs
should be treated differently from other
providers in terms of who they must
furnish items to because they generally
do not use a commercial model of
providing services throughout the
community. Instead, they generally
provide items only to patients that
reside in their facility. We do not
believe it would be in the best interest
of the program to exempt institutional
providers from participating or delay
implementation in these settings
because these providers furnish items
subject to competitive bidding to their
residents, and the category of enteral
nutrition, as a whole, is made up of
high-cost, high-volume items.
Therefore, we are finalizing our
proposal under § 414.422(e)(2) to permit
SNFs as defined in section 1819(a) of
the Act, to furnish competitively bid
items only to their own residents. We
are extending this provision to NFs, as
defined in section 1919(a) of the Act,
because we believe the services they
furnish, the customers they serve, and
their business model are parallel to
SNFs. A SNF or NF will still be required
to submit a bid and have a bid in the
winning range and the SNF or NF must
indicate in its response to the RFB it
intends to elect this option. If the SNF
or NF is not selected as a contract
supplier, it will have to use a contract
supplier within the CBA to furnish
competitively bid items to its residents.
In addition, should a SNF or NF
indicate in its response to the RFB that
it plans to furnish items to beneficiaries
who are not residents of its facility, this
special rule will not apply and the SNF
or NF will be required to furnish items
to all beneficiaries who maintain a
permanent residence in, or who visit,
the CBA where the SNF or NF is
located.
Comment: One commenter stated that
section 1847 of the Act was never
intended to apply to institutional
providers and that the phrase ‘‘items
and services’’ means those that are
purchased directly by individuals and
not by institutions on behalf of
individuals. The commenter further
stated that section 1847(b)(4)(A) of the
Act requires that CMS ‘‘take into
account the ability of bidding entities to
furnish items and services in sufficient
quantities to meet the anticipated needs
* * * in the geographical area covered
under the contract on a timely basis.’’
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The commenter believed that this
sentence could be interpreted to mean
that institutional providers are outside
the scope of the competitive bidding
program. The commenter indicated that
institutions already purchase items for
their patients through arrangements
made in a variety of ways and that
requiring them to participate in the
Medicare DMEPOS Competitive Bidding
Program could result in actually raising
prices of items purchased by
institutions.
Response: We do not agree that
sections 1847(a) and (b) of the Act only
apply to items and services directly
purchased by Medicare beneficiaries
and does not apply to institutions that
purchase on behalf of beneficiaries.
Indeed, these sections identify the items
and services subject to competitive
bidding and provide that the program
applies when these items are furnished
under Medicare Part B. Therefore, to the
extent that institutional providers are
furnishing items as Part B suppliers, we
believe that the Medicare DMEPOS
Competitive Bidding Program should
apply to them. However, as we
explained above, we are allowing SNFs
and NFs to elect to only furnish
competitively bid items to residents in
their facilities if they are selected as
contract suppliers.
Comment: Several commenters stated
that hospital-based suppliers should not
have to bid, as hospital-based suppliers
are not structured to compete for all
beneficiaries in the region. Some
commenters stated that hospital-based
suppliers should be eligible to
participate in the competitive bidding
program, if they are willing to accept the
single payment amount. Other
commenters stated that CMS should
exclude hospital-based suppliers from
having to serve all beneficiaries in a
CBA.
Response: Hospital-based suppliers
provide the same ranges of items and
services as other commercial suppliers.
We believe hospital-based suppliers are
different than SNFs and NFs because
they do use a commercial model and do
provide items to patients who do not
reside in a hospital. Therefore, the
hospital-based suppliers are competing
with other commercial suppliers in the
same area and should be considered as
part of the same competitive bidding
program for this reason.
Comment: One commenter stated that
CMS should not combine SNFs and
physicians in the same competition
with commercial DMEPOS suppliers.
The commenter believed that including
all of these provider/supplier types in
the same bidding will distort the bid
evaluation and selection because SNFs
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and physicians will have significantly
lower operating costs arising from the
fact that because they do not have to
serve all beneficiaries and they do not
have to accept beneficiaries from
noncontract suppliers, regardless of
rental month.
Response: We are establishing
provisions that treat SNFs, NFs,
physicians, and certain other
nonphysician practitioners differently
from other suppliers. As we discussed
above, we are allowing SNFs and NFs
that are selected as contract suppliers to
furnish items only to their own patients.
In addition, as we discuss more fully
below, we will permit physicians and
certain nonphysician practitioners to
furnish certain competitively bid items
to their own patients without submitting
a bid and being selected as a contract
supplier. We believe that it is
appropriate to allow SNFs (and, as
discussed above, NFs) to compete to
serve their own patients, but we believe
it is appropriate to include them in the
same bidding process as other suppliers
because the statute requires us to
conduct bidding for items in which we
expect savings.
Comment: One commenter stated that
the requirement that suppliers that are
not awarded contracts must use a
contract supplier to furnish
competitively bid items to Medicare
beneficiaries to whom they do provide
services conflicts with current Medicare
policies. The commenter asked how
such a supplier would be able to
subcontract to use a contract supplier to
furnish supplies without violating
current policies.
Response: We do not believe that this
requirement conflicts with current
policy. Specifically, SNFs are currently
allowed to have arrangements under
which outside suppliers come to their
facilities to provide enteral nutrients,
equipment, and supplies. SNFs
routinely engage in this practice. Under
competitive bidding, SNFs that are not
winning contractors must make
arrangements to use a contract supplier
in the community to furnish
competitively bid items to residents of
the facility.
Accordingly, we are revising
§ 414.404(a) to specify that the Medicare
DMEPOS Competitive Bidding Program
applies to providers that furnish items
under Part B. In addition, we are
redesignating proposed
§ 414.422(e)(2)(i) as § 414.422(e)(2) and
finalizing that section with the
modifications discussed above. Finally,
as we discuss below, we are deleting
§ 414.422(e)(2)(ii) because we have
modified our proposal regarding the
applicability of the Medicare DMEPOS
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Competitive Bidding Program to
physicians, and, as discussed below,
placing the new provisions in
§ 414.404(b).
3. Physicians and Certain Nonphysician
Practitioners (§§ 414.404(a) and (b))
In the May 1, 2006 proposed rule (71
FR 25672), we proposed in proposed
§ 414.404(c) that the Medicare DMEPOS
Competitive Bidding Program would
apply to physicians who furnish items
under Medicare Part B as suppliers.
Accordingly, physicians who are also
DMEPOS suppliers would be required
to submit bids and be awarded contracts
in order to furnish items included in the
competitive biding program for the area
in which they provide medical services.
We proposed that physicians who do
not become contract suppliers must use
a contract supplier to furnish
competitively bid items to Medicare
beneficiaries. However, in proposed
§ 414.422(e)(2)(ii), we proposed that
these physicians would not be required
to furnish these items to Medicare
beneficiaries who are not their patients.
In proposing this policy for physicians
who are also DMEPOS suppliers, we
recognized that the physician selfreferral law (section 1877 of the Act,
also known as the Stark law) generally
prohibits physicians from furnishing to
their office patients a variety of common
DMEPOS items. Therefore, we proposed
that physicians who choose to
participate in the competitive bidding
process must ensure that their
arrangements for referring for and
furnishing DMEPOS items under a
competitive bidding program comply
with the physician self-referral law as
well as any other Federal or State law
or regulation governing billing or claims
submission.
Comment: Several commenters
suggested that CMS not require
physicians, including podiatric
physicians, to participate in the
competitive acquisition program for
certain DMEPOS. The commenters
noted that under the physician selfreferral (‘‘Stark’’) provisions under
section 1877 of the Act, a physician in
a group practice may not refer Medicare
beneficiaries to the group practice, and
the group practice may not bill for any
DME except crutches, canes, walkers,
folding manual wheelchairs, and blood
glucose monitors. The commenters also
requested that CMS not require
physician assistants, physical therapists,
or occupational therapists to participate
in the Medicare DMEPOS Competitive
Bidding Program because those health
care professionals are licensed by State
boards. According to the commenters, if
a physician or non-physician
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practitioner does not participate in the
competitive bidding program, he or she
should be reimbursed at the single
payment amount for any DME items that
are furnished to his or her own patients.
In addition, the commenters requested
that CMS clarify how the requirement
for physicians to submit bids and
provide all items within a product
category does not violate the physician
self-referral law.
Response: After considering the
comments, in this final rule, we are
deleting proposed § 414.404(c) and
revising § 414.404(b) to give physicians
(as defined at section 1861(r) of the Act,
which includes podiatric physicians)
and treating practitioners (defined in
§ 414.404 as physician assistants,
clinical nurse specialists, and nurse
practitioners) the option to furnish
certain types of competitively bid items
without participating in the Medicare
DMEPOS Competitive Bidding Program,
provided that certain conditions are
satisfied. First, the items that may be
furnished are limited to crutches, canes,
walkers, folding manual wheelchairs,
blood glucose monitors, and infusion
pumps that are DME. Second, the items
must be furnished by the physician or
treating practitioner to his or her own
patients as part of his or her
professional service. Third, the items
must be billed using a billing number
assigned to the physician, the treating
practitioner (if possible), or a group
practice to which the physician or
treating practitioner has reassigned the
right to receive Medicare payment. We
are adding a new § 414.404(b)(3)
providing that the items furnished and
billed in this manner will be paid at the
single payment amount, which is the
rate at which these items would
otherwise be paid if this exception did
not apply. We believe that physicians
engaged in the practice of medicine (and
their medical practices) should have the
option not to participate in the
competitive bidding program because,
to comply with the physician selfreferral prohibition, they generally
provide to their own patients only the
DMEPOS items noted above. Because
physician assistants, clinical nurse
specialists, and certified nurse
practitioners furnish services under the
supervision of, or in collaboration with,
a physician, we believe they (and the
group practices that may bill for their
services) should similarly have the
option to not become a contract
supplier.
We are also modifying the regulation
by adding § 414.404(b)(2) to give
physical therapists in private practice
and occupational therapists in private
practice the option to furnish certain
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types of competitively bid items without
participating in the Medicare DMEPOS
Competitive Bidding Program, provided
that certain conditions are satisfied.
First, the items that they may furnish
without becoming a contract supplier
are limited to OTS orthotics. Second,
the items must be furnished only to
their own patients as part of their
professional service. OTS orthotics
furnished in accordance with
§ 414.404(b) by physical and
occupational therapists who are not
contract suppliers will be paid at the
single payment amount. We are limiting
this exception to the bidding
requirement to OTS orthotics because
we have determined that these are the
items that would ordinarily be
furnished as an integral part of
occupational therapy or physical
therapy services.
We note that if a physician, treating
practitioner, physical therapist in
private practice, or occupational
therapist in private practice wishes to
furnish in a CBA a competitively bid
item not specifically authorized by this
rule, and can otherwise legally do so,
the physician, treating practitioner,
physical therapist in private practice, or
occupational therapist in private
practice would have to submit a bid and
be awarded a contract to do so.
The Medicare DMEPOS Competitive
Bidding Program does not affect the
applicability of the physician selfreferral provisions in section 1877 of the
Act. All provisions of the physician selfreferral law remain fully in effect. In
other words, notwithstanding the
requirement that a contract supplier
must furnish all items in a product
category, a contract supplier cannot
furnish an item as a result of a referral
prohibited under section 1877 of the
Act. We are revising proposed
§ 414.422(e) to provide that a contract
supplier must furnish all items in each
product category to which the contract
applies, ‘‘except as otherwise prohibited
under section 1877 of the Act or any
other applicable law or regulation.’’
Comment: Several commenters stated
that there is no reason to treat
occupational therapists and physical
therapists differently from physicians.
They stated that occupational therapists
are not like ‘‘commercial suppliers’’ and
should only have to furnish
competitively bid items to their own
patients. Several commenters requested
that CMS exempt physical therapists in
private practice from competitive
bidding or give them special
consideration under the competitive
bidding program. They stated that
physical therapists should be exempt
from having to provide every item in a
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product category and CMS should allow
them to participate even if they do not
submit exactly the same type of bid
required of large suppliers. Several
commenters suggested that CMS
exclude all occupational and physical
therapists and hand therapists that
provide pre-fabricated splints to
Medicare beneficiaries from the
competitive bidding program. They
stated that CMS should ensure that
occupational and physical therapists
can continue to furnish orthotics to their
patients. The commenters added that if
they cannot dispense OTS orthotics to
patients during visits, beneficiaries will
need to make other arrangements to
obtain the items.
Response: As we stated above, we are
revising § 414.404(b) to give
occupational therapists in private
practice and physical therapists in
private practice the option to furnish
OTS orthotics to their own patients as
part of their professional practice
without participating in the Medicare
DMEPOS Competitive Bidding Program.
We agree with these comments, but only
as they relate to furnishing of OTS
orthotics by occupational and physical
therapists that provide these items in
the course of therapy. There is a specific
statutory benefit to pay for the services
of occupational therapists and physical
therapists. However, there is no
comparable benefit that only pertains to
hand therapists. We are limiting this
exception to the bidding requirement to
OTS orthotics because we have
determined that these are the items that
would ordinarily be furnished as part of
occupational therapy or physical
therapy professional services. In
addition, physical and occupational
therapists in private practice who elect
to operate under this special exception
may not furnish these items and
services to beneficiaries outside of their
normal practice without submitting a
bid and being awarded a contract to do
so.
After consideration of the public
comments, we are revising § 414.404(a)
to specify that the Medicare DMEPOS
Competitive Bidding Program generally
applies to physicians, treating
practitioners, physical therapists, and
occupational therapists that furnish
items under Part B. However, we are
revising proposed § 414.404(b) to
specify the terms and conditions under
which physicians, treating practitioners,
physical therapists, and occupational
therapists do not have to participate in
the program. Finally, to be consistent
with our changes to § 414.404(b), we are
not finalizing proposed
§ 414.422(e)(2)(ii).
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4. Product Categories for Bidding
Purposes (§§ 414.402 and
414.412(b)(1),(c) Through (e))
In the May 1, 2006 proposed rule (71
FR 25672), we proposed in
§§ 414.412(b) through (d) to conduct
bidding for items that are grouped into
product categories. We proposed to
require suppliers to submit a separate
bid for all items that we specify in a
product category. The submitted bid
must include all costs related to the
furnishing of each item such as delivery,
set-up, training, and proper
maintenance for rental items. However,
we proposed to require suppliers to only
submit bids for the product categories
that they are seeking to furnish under
the program. All items that would be
included in a product category for
bidding purposes would be detailed in
the RFBs. We proposed to define the
term ‘‘product category’’ (proposed
§ 414.402) as a group of similar items
used in the treatment of a related
medical condition (for example,
hospital beds and accessories). We
explained that we believe the use of
product categories will allow Medicare
beneficiaries to receive all of their
related products (for example, hospital
beds and accessories) from one supplier,
which will minimize disruption to the
beneficiary.
We also discussed in the proposed
rule other design options that we
considered but did not propose. One
option was to require suppliers to
submit a bid for all items in every
defined product category. Another
option was for suppliers to bid at the
HCPCS level and submit a bid only for
the individual items that they were
seeking to furnish under the program.
There are currently approximately 55
separate policy groups already
established by the DME MACs.
However, these policy groups were not
established for the purpose of
competitive bidding. We proposed to
specifically develop product categories
for the purpose of competitive bidding.
Each group would be defined and
comprised of individual HCPCS codes.
Section 1847(a)(3)(B) of the Act gives
us the authority to exempt items for
which the application of competitive
bidding is unlikely to result in
significant savings. We proposed not to
include items in a product category if
they are rarely used or billed to the
program. In addition, we did not
propose to include items within a
product category if we believed that
these were items for which we might
not realize savings. Therefore, under
this approach, we proposed to establish
product categories to identify those
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items included in competitive bidding
and stated that we might choose to
establish different product categories
from one CBA to another, as well as in
different rounds of competitive bidding
in the same CBA.
We proposed to allow suppliers to
submit bids only for the product
categories they are seeking to furnish
under a competitive bidding program
because this option accommodates
DMEPOS suppliers that want to
specialize in one or a few product
categories. For example, if a supplier
wanted to specialize in the treatment of
respiratory conditions, the supplier
could choose to bid on all items that fall
within the oxygen product category, the
continuous positive airway pressure
product category, or the respiratory
assist device product category. We
believe that specialization at the
product category level will make it
easier for referral agents (entities that
refer beneficiaries to health care
practitioners or suppliers to obtain
DMEPOS items) and other practitioners
to order related products from the same
supplier.
Establishing a bidding process that
promotes specialization would allow
suppliers to realize economies of scope
within a product category, which means
that a supplier may be able to furnish
a bundle of items at a lower cost than
it can produce each individual item. In
our view, this approach would also be
more favorable to small suppliers
because they could choose to specialize
in only one product category. It would
be more difficult for a small supplier, as
opposed to a large supplier, to furnish
all product categories. This approach
would also be more convenient for
Medicare beneficiaries, as they could
choose to receive all their related
supplies from one supplier and would
not have to deal with multiple suppliers
to obtain the proper items for a single
condition. We recognized the
importance of the relationship between
a DMEPOS supplier and the Medicare
beneficiary. The supplier delivers the
item to the beneficiary, sets up the
equipment, and also educates the
beneficiary on the proper use of the
equipment. The use of product
categories would facilitate the transition
for those beneficiaries who have to
change suppliers. We stated in the
proposed rule that it was our goal to
establish a productive relationship
between the supplier and the
beneficiary, and we believe we can
accomplish this goal by designing the
Medicare DMEPOS Competitive Bidding
Program in a manner that would give
the beneficiary the option of selecting
one supplier that would be responsible
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for the delivery of all medically
necessary items that fall within a
product category.
Comment: Some commenters
recommended revising proposed
§ 414.412(c) to read, ‘‘Product categories
include items that are used to treat a
related medical condition. The list of
product categories, and the items
included in each product category are
identified in the RFBs document. The
product categories should be consistent
with the policy groups of the
SADMERC, unless there is good cause to
align items differently for a particular
competitive bidding program.’’ The
commenters also recommended revising
§ 414.412(d) to read, ‘‘Suppliers must
submit a separate bid for every item
included in each product category that
they are seeking to furnish under a
competitive bidding program unless a
bid is determined for a sub-category for
bidding purposes.’’ Many commenters
believed it will cause confusion if new
product categories are developed. They
reported that the CMS Web site is
organized by policy groups and
accessed by suppliers frequently for
information. The commenters believed
that keeping track of old categories and
new categories in a single market or
State would be next to impossible.
Many commenters believed combining
medical policies may affect beneficiary
access or quality of services. They
believed the only providers and
suppliers that are eligible to bid are
those that carry the broadest product
offerings, and sometimes these are not
the providers or suppliers with the
strongest expertise in a specific product
or HCPCS code. One commenter
suggested that CMS include
subcategories within a product category.
Response: We have revised our
proposed definition of ‘‘product
category’’ to provide that product
category is a grouping of related items
that are used to treat a similar medical
condition. The list of product categories
and the items included in each product
category that is included in each
competitive bidding program will be
identified in the request for bids
document for that competitive bidding
program and by other means. The DME
MACs establish policy groups for the
purposes of developing Medical review
policies and for data analysis, and these
policy groups will serve as the starting
point for establishing product
categories. Product categories will
generally be consistent with these
policy groups unless CMS determines
that a policy group should be redefined
for the purposes of competitive bidding
because there may be items in the policy
group that are either not subject to
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competitive bidding or that we would
want to exempt from competitive
bidding using our authority to exempt
items. For this reason, the product
categories for which we would request
bids could also be a subset of items from
a DME MAC policy group or a
combination of items from different
policy groups.
In response to the suggestion that we
create subcategories within a product
category, we do not believe this
approach is necessary because if we
believed that we needed to separate
items in a policy group, we would
create a new product category for each
set of items instead of a product
category with subcategories.
Comment: A few commenters
believed that a product category such as
‘‘oxygen equipment and related
supplies’’ is likely to contain different
oxygen delivery modalities such as
stationary oxygen concentrators and
liquid oxygen systems. They indicated
that, while this may appear logical on
the surface, the groupings are, in fact,
incompatible with accurate bidding.
The commenters added that the costs of
acquisition, beneficiary support, and
equipment maintenance and servicing
are different for modalities.
Response: We appreciate the
comments and recognize that there are
different costs associated with the
different type of equipment that are
used to furnish oxygen therapy. The
standard payment methodology and
monthly payment amount for oxygen
and oxygen equipment have been
modality neutral since 1989. It is our
intention at this time to maintain the
policy of modality neutral payments
under the competitive bidding programs
because this guards against suppliers
attempting to furnish only the most
expensive modalities that result in
higher profits. For example, suppliers
that submit bids for stationary oxygen
and oxygen equipment will need to
factor in the costs of furnishing all of the
different modalities or delivering
stationary oxygen to beneficiaries in the
CBA because physicians may specify a
specific oxygen modality when ordering
the equipment.
Comment: One commenter stated that
the majority of its clients do not
purchase items from just one policy
group but rather from several groups.
The commenter believed that bidding
per product category sends clients from
one supplier to another as their needs
change and is not favorable to
beneficiaries.
Response: As stated above, we are
revising § 414.402 to define a product
category as a grouping of related items
that are used to treat a similar medical
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condition, for example, hospital beds
and accessories. It is our goal to give
beneficiaries an opportunity to receive
all competitively bid items used to treat
an individual medical condition from
the same contract supplier, which will
make the program convenient for them.
This will be accomplished by requiring
a supplier that chooses to bid on a
particular product category to bid on
every item within that category and to
furnish every item within a product
category for which it is awarded a
contract. Suppliers currently specialize
in particular products, and we do not
see this process being interrupted by
competitive bidding. In addition,
suppliers will be able to choose which
product categories for which they want
to submit a bid.
Comment: Several commenters raised
concerns regarding the development of
product categories. The commenters
believed that product categories should
be defined narrowly, to make sure they
are consistent and representative of the
products that a supplier might actually
furnish. One commenter suggested, for
example, a broad category for
wheelchairs or power wheelchairs could
be problematic. The commenter added
that suppliers that do not specialize in
rehabilitation may not carry every brand
name of power wheelchairs that fall
under a particular code. The
commenters stated that CMS should not
combine products from multiple
medical review policies into one
product category because it adds
complexity and risks to the beneficiary
because it may not allow suppliers to
specialize in certain products. The
commenters further stated that bidding
by specific medical policies ensures that
suppliers that specialize can address the
needs of individuals with specific
disease states/conditions. Several
commenters requested that CMS not
establish broad product categories. They
further stated that many suppliers
structure their business around specific
disease states and conditions. The
commenters noted that CMS should
identify the quantities of each item
within the product category that CMS
expects will be required by Medicare in
the respective CBA. Several commenters
indicated that the core product
categories should have codes that
include sufficiently similar items in
terms of capability, function, and other
relevant characteristics. Some
commenters believed that having broad
product categories will restrict a
specialty practitioner’s ability to submit
a bid.
Response: As we stated above, we will
generally make the product categories
consistent with the policy groups that
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have been defined by our contractors
and, in the future, will be established by
our contractors. We do not plan to make
product categories overly broad, and we
do not intend to combine products from
various policy groups into a single
product category unless the product
already falls in several policy groups.
However, the use of product categories
instead of policy groups will allow us to
exclude from a product category lowvolume items or items that we believe
will not result in significant savings,
and to add items that we believe are
appropriate for inclusion because we
believe that they are related items used
to treat a similar medical condition. As
we explain below, we will identify in
the RFB and by other means such as our
Web site or program instruction, the
product categories for each competitive
bidding programs, the items within each
product category, the historic
beneficiary demand for each item in the
applicable CBA, and the item weight for
each item within each product category.
Comment: One commenter noted that
the requirement to bid on all HCPCS
codes in a product category would be a
major problem for manufacturers that
also serve as suppliers. The commenter
also recommended that CMS adopt
special rules for manufacturers wishing
to bid, permitting them to only bid on
products they manufacture.
Response: The goal of product
categories is to minimize the disruption
to beneficiaries by allowing them to
receive all related competitively bid
items for a similar medical condition
from one contract supplier. Therefore,
we believe it would be in the best
interest of beneficiaries if we require a
contract supplier that is also a
manufacturer to furnish all items within
a product category. We also believe it
would not be equitable to adopt special
rules for manufacturers while requiring
all other suppliers that are not
physicians or certain nonphysician
practitioners to furnish all items in a
product category as defined for
purposes of competitive bidding.
Comment: Several commenters were
concerned that a supplier that wins a
bid in the wheelchair category may lose
the bid for the associated cushions that
are necessary for wheelchairs. They
believed this would cause the patient to
need to deal with two or more suppliers
for a single rehabilitation wheelchair.
Response: As explained above,
product categories will be comprised of
related items used to treat a similar
medical condition. Our goal is to
minimize beneficiary disruption.
Therefore, product categories will
generally be established so that
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18031
beneficiaries can receive related items
from the same contract supplier.
Comment: Some commenters stated
that complex rehabilitation products
such as wheelchairs should not be
competitively bid. They indicated that
the accessory codes are the same for the
accessories whether they are provided
for a standard wheelchair or a complex
mobility system. Therefore, they
believed that the same HCPCS code may
fall into several categories.
Response: We recognize that certain
accessories that can be used on manual
wheelchairs can also be used with
complex mobility systems. Under our
revised definition of ‘‘item’’ a product
might be identified by a HCPCS code
that has been specified for competitive
bidding (such as when the product is
furnished through the mail). One way
that we might choose to specify a
product identified by a HCPCS code for
competitive bidding is when an
accessory such as the one identified by
the commenters is needed for use with
a particular item. When we announce
the product categories and the items
included in each product category, we
will identify any items specified for
purposes of competitive bidding, such
as accessories used with certain base
equipment in a specific product
category. In this way, we will be able to
ensure that each product category
properly includes all the related items
that are used to treat a similar medical
condition.
Comment: One commenter argued
that CMS should limit bids to one bid
per supplier. The commenter expressed
concerns regarding national chains with
multiple supplier numbers and
indicated that these chains could
potentially submit multiple bids in a
CBA and compromise competition. The
commenter suggested that CMS require
that a single entity that has multiple
supplier numbers only be allowed to
submit one bid in each CBA. Under the
commenter’s suggestion, affiliated
entities that do not have their own
Medicare supplier number, but that are
part of a national supplier and operate
under the national supplier’s 6-digit
supplier number, would not be allowed
to bid separately in a CBA. The
commenter further suggested that CMS
include a requirement in the regulations
that suppliers with common ownership
of 5 percent may only submit a single
bid for each product category in a given
CBA.
Response: We agree with the
commenter that commonly-owned
suppliers or a supplier that has a
controlling interest in another supplier
should not be allowed to submit
different bids for the same product
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category in the same CBA. Therefore, we
are requiring under revised § 414.412(e)
that all bidding suppliers must disclose
as part of their bid whether they have
an ownership or controlling interest in
one or more other suppliers or if one or
more other suppliers has an ownership
or controlling interest in it, CMS will
reject multiple bids submitted by
commonly-owned or controlled
suppliers for the same product category
in the same CBA because we believe
that allowing these suppliers to bid
against themselves will undermine the
integrity of the bidding process. For
purposes of this disclosure requirement,
two or more suppliers are commonlyowned if one or more of them has an
ownership interest totaling at least 5
percent in the other(s). We are defining
the term ‘‘ownership interest’’ as ‘‘the
possession of equity in the capital, the
stock, or the profits of another
supplier.’’ This is consistent with how
the term ‘‘ownership interest’’ is defined
in 42 CFR § 420.201 of our regulations,
which contains terms relevant to what
certain entities, including DMEPOS
suppliers, must currently disclose
regarding ownership and control
information. We believe it is a logical
and appropriate approach to adapt
definitions that apply to disclosure
requirements in other parts of the
Medicare program. In addition, the 5
percent requirement is consistent with
what constitutes a ‘‘person with an
ownership or control interest’’ in
§ 420.201. Finally , a supplier controls
another supplier for purposes of these
disclosure requirements if one or more
of its owners is an officer, director, or
partner in the other. This is also
consistent with the definition of a
‘‘person with an ownership or control
interest’’ in § 420.201.
Commonly-owned or controlled
suppliers with multiple locations in the
same CBA will be required to submit a
single bid on behalf of all the locations
and must indicate the combined
capacity for all those locations. The bid
must also include any locations outside
the CBA that would be furnishing items
in the CBA if a contract is awarded.
Therefore, if we award a contract based
on the single bid submitted by the
commonly-owned or controlled
suppliers, all of these suppliers would
become contract suppliers. As stated
above, we believe that these rules are
necessary to prevent commonly-owned
or controlled suppliers from bidding
against themselves and undermining the
integrity of the bidding process. In
addition, contracting with all or none of
the suppliers that are commonly-owned
or controlled as described above will
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make it easier for beneficiaries to be
informed regarding who is or who is not
a contract supplier for their CBA.
We are also revising our definition of
‘‘product category’’ in § 414.402. We
have combined proposed § 414.412(e)
and proposed § 414.412(c) into a new
§ 414.412(c), but deleted the first
sentence of proposed § 414.412(c) as
redundant because we include the
definition of ‘‘product category’’ in
§ 414.402, specified that the bid must
include all costs related to furnishing an
item to any beneficiary who maintains
a permanent residence in, or who visits,
the CBA where those items will be
furnished and made additional
technical changes. We are renumbering
proposed § 414.412(b) a final
§ 414.412(b)(1), and finalizing
§ 414.412(d) with technical changes.
Finally, we are finalizing § 414.412(e),
which set forth our ownership rules, as
discussed above.
We are redesignating proposed
§ 414.412(e) as final §§ 414.412(d) and
adding a new § 414.412(e) to require
that all bidding suppliers must disclose
as part of their bid whether they have
an ownership interest in one or more
other suppliers that would be
considered as contract supplier for the
same CBA.
5. Bidding for Specific Types of Items
and Associated Payment Rules
(§§ 414.408(f) Through (j))
In the May 1, 2006 proposed rule (71
FR 25673 and 25674), we proposed that,
in preparing a bid in response to the
RFBs, suppliers would use our existing
regulations at 42 CFR Part 414, Subparts
C and Subpart D to determine whether
a rental or purchase payment would be
made for the item and whether other
requirements would apply to the
furnishing of that item, as further
explained below.
a. Inexpensive or Other Routinely
Purchased DME Items (§§ 414.408(f) and
(h)(6))
The current fee schedule amounts for
inexpensive or other routinely
purchased DME items are based on
average reasonable charges for the
purchase of new items, purchase of used
items, and rental of items from July 1,
1986, through June 30, 1987. In those
cases where reasonable charge data from
1986/1987 are not available, the fee
schedule amounts for the purchase of
new items are currently based on retail
purchase prices deflated to the 1986/
1987 base period by the percentage
change in the CPI-U, the fee schedule
amounts for the purchase of used items
are generally based on 75 percent of the
fee schedule amounts for the purchase
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of new items, and the fee schedule
amounts for the monthly rental of items
are generally based on 10 percent of the
fee schedule amounts for purchase of
new items. This method of establishing
fee schedule amounts in the absence of
reasonable charge data has been in use
since 1989. Under the Medicare
DMEPOS Competitive Bidding Program,
we proposed that bids be submitted
only for the furnishing of new items in
this category that are included in a
competitive bidding program. Based on
the bids submitted and accepted for
these new items, we proposed to also
calculate a single payment amount for
used items based on 75 percent of the
single payment amount for new items.
In addition, we proposed to calculate a
single payment amount for the rental of
these items based on 10 percent of the
single payment amount for new items.
We stated our belief that calculating
single payment amounts for used items
and items rented on a monthly basis
based on bids submitted and accepted
for new items will simplify the bidding
process and will not create problems
with access to used items or rented
items in this category.
Comment: One commenter stated that
inexpensive and routinely purchased
DME items included in competitive
bidding should be purchased items
only. The commenter believed that the
additional expense for contract
suppliers to bill for rental items is
prohibitive. The commenter added that,
for inexpensive and routinely purchased
items, the cost of billing and collection
must be done numerous times at a
substantial cost to the supplier.
Response: There are certain items,
such as pneumatic compression devices,
that are routinely purchased but very
expensive and may only be needed on
a short-term basis. We believe that the
option for renting these items is
necessary in order to enable
beneficiaries to save money, and we will
allow beneficiaries to continue to do so
under the competitive bidding
programs.
b. DME Items Requiring Frequent and
Substantial Servicing (§ 414.408(h)(7))
In the May 1, 2006 proposed rule (71
FR 25673), we proposed that bids be
submitted for the monthly rental of
items in this payment category with the
exception of continuous passive motion
exercise devices. We proposed that bids
be submitted for the daily rental of
continuous passive motion exercise
devices. For items in this category other
than continuous passive motion
exercise devices, we stated that this
proposal would be consistent with
§ 414.222(b) of our existing regulations.
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Coverage of continuous passive motion
exercise devices is limited to 21 days of
use in the home following knee
replacement surgery. Therefore,
payment can only be made on a daily
basis as opposed to a monthly basis for
this item.
Based on the bids submitted and
accepted for these items, we would
calculate single payment amounts for
the furnishing of these items on a rental
basis.
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c. Oxygen and Oxygen Equipment
(§ 414.408(i))
If included under a competitive
bidding program, we proposed that the
single payment amounts for oxygen and
oxygen equipment would be calculated
based on separate bids submitted and
accepted for furnishing on a monthly
basis of each of the oxygen and oxygen
equipment categories of services
described in § 414.226(b)(1)(i) through
(b)(1)(iv).
Subsequent to the publication of the
May 1, 2006 proposed rule, we issued
a final rule that implemented new
payment classes for oxygen and oxygen
equipment furnished for years after
2006 (CMS–1304–F: Home Health
Prospective Payment System Rate
Update for Calendar Year 2007 and
Deficit Reduction Act of 2005; Changes
to Medicare Payment for Oxygen
Equipment and Capped Rental Durable
Medical equipment (71 FR 65884)). In
accordance with these new rules, we
will now calculate the single payment
amounts for oxygen and oxygen
equipment based on the separate bids
submitted and accepted for the
furnishing on a monthly basis of each of
the oxygen and oxygen equipment
payment classes described in
§§ 414.226(c)(1)(i)–(v).
We refer the reader to section VI.D.1.
of this final rule where we discuss a
new provision at § 414.408(i)(2) relating
to additional payments to contract
suppliers that must begin furnishing
oxygen equipment after the rental
period has already begun to a
beneficiary who is no longer renting the
item from his or her previous supplier
because the previous supplier elected
not to become a grandfathered supplier
or the beneficiary elected to change
suppliers.
d. Capped Rental Items (§ 414.408(h))
With the exception of power
wheelchairs, payment for items that fall
into this payment category is currently
made on a rental basis only. The rental
fee schedule payments for months 1
through 3 are based on 10 percent of the
purchase price for the item as
determined under § 414.229(c) of our
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existing regulations. The rental fee
schedule payments for months 4
through 15 are based on 7.5 percent of
the purchase price for the item as
determined under § 414.229(c) of our
existing regulations. Section 5101(a) of
the DRA of 2005 amended section
1834(a) of the Act to require that on the
first day that begins after the 13th
continuous month during which
payment is made for a capped rental
item, the supplier of the item must
transfer title to the item to the
individual. Since this change does not
apply to beneficiaries using a capped
rental item prior to January 1, 2006,
these beneficiaries may still elect either
to take ownership of the item after 13
months of continuous use or to continue
renting the item beyond 13 months of
continuous use. In addition, the DRA
leaves intact the rule under which a
supplier must offer the beneficiary the
option to purchase a power wheelchair
at the time the supplier initially
furnishes the item (in which case
payment would be made for the item on
a lump-sum basis). However, with
regard to all other capped rental items
for which the rental period begins after
January 1, 2006, the DRA requires the
supplier to transfer title to the item to
the beneficiary after 13 months of
continuous use.
We proposed that the lump sum
purchase option for power wheelchairs
be retained under the Medicare
DMEPOS Competitive Bidding Program.
At the time we issued the May 1, 2006
proposed rule, this purchase option
could be found in § 414.229(d) of our
regulations. In accordance with a final
rule that we subsequently published in
the Federal Register on November 9,
2006 (71 FR 65884), the purchase option
for power wheelchairs furnished
beginning on or after January 1, 2006,
can be found in § 414.229(h). We also
proposed that separate payment for
reasonable and necessary maintenance
and servicing only be made for
beneficiary-owned DME and that
payment for maintenance and servicing
of rented items would be included in
the single payment amount for rental of
the item.
We also proposed in the May 1, 2006
proposed rule that ‘‘purchase’’ bids be
submitted for the furnishing of new
items in the capped rental category.
Based on these bids, a single payment
amount for purchase of a new item will
be calculated for each item in this
category for the purpose of determining
both the single payment amount for the
lump sum purchase of a new power
wheelchair, and for calculating the
single payment amounts for the rental of
all items in this category. In cases where
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18033
the beneficiary elects to purchase a used
power wheelchair, the single payment
amount for the lump sum purchase of
the used power wheelchair would be
based on 75 percent of the single
payment amount for a new power
wheelchair. In the case of all items in
this category that are furnished on a
rental basis, the single payment amount
for rental of the item for months 1
through 3 would be based on 10 percent
of the single payment amount for
purchase of the item, and the single
payment amount for rental of the item
for months 4 through 13 would be based
on 7.5 percent of the single payment
amount for purchase of the item. We
stated our belief that calculating single
payment amounts for used items and
items rented on a monthly basis based
on bids submitted and accepted for new
items will simplify the bidding process
and will not result in problems with
access to used items or rented items in
this category.
Comment: One commenter believed
that the rule does not address situations
when a supplier has to rent an item to
a beneficiary and the item is defined by
the manufacturer as ‘‘single patient use
only.’’ The commenter also believed
that the rule does not address what
happens to those products should the
patient die. The commenter also
questioned how CMS will handle the
rental of products that have limited
manufacturer warranties.
Response: If a beneficiary dies during
the period in which he or she is renting
an item, the contract supplier would
retain ownership of the item. As is the
case today, if the item is designated by
the manufacturer for a ‘‘single patient
use only,’’ meaning that it cannot be
used by other beneficiaries, the contract
supplier may not furnish it to a new
beneficiary. Medicare currently does not
pay for costs that are covered by
manufacturers’ warranties and this
policy will not change under
competitive bidding.
Comment: One commenter suggested
that CMS limit to discrete situations a
requirement that contract suppliers of
power wheelchairs offer rental items.
The commenter was concerned that this
rule would require suppliers to float a
large volume of loans to subsidize
rentals. The commenter further believed
that most beneficiaries requiring power
mobility have chronic progressive
conditions that require them to keep the
equipment for a long period of time.
Response: We disagree with the
commenter. Power wheelchairs are very
expensive and may only be needed on
a short-term basis. The option for
renting these items is necessary to
enable beneficiaries to save money, and
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for this reason, we will allow them to be
rented under the competitive bidding
programs.
We refer readers to section VI.D.1. of
this final rule where we discuss
additional payments to contract
suppliers for capped rental DME when
a contract supplier must begin
furnishing a capped rental item during
the rental period to a beneficiary who is
no longer renting the item from his or
her previous supplier because the
previous supplier elected not to become
a grandfathered supplier or the
beneficiary elected to change suppliers.
e. Enteral Nutrients, Equipment, and
Supplies (§§ 414.408(f), (g)(2)–(3), and
(h)(4))
Enteral nutrients, equipment, and
supplies are currently paid under
Medicare Part B on a purchase or rental
basis. Section 6112(b)(2)(A) of the
OBRA ’89 limits the rental payments to
15 months. To be generally consistent
with the bidding requirements
discussed above for capped rental DME,
in the May 1, 2006 proposed rule (71 FR
25674), we proposed that bids be
submitted for the purchase of new items
in this category. Based on the bids
submitted and accepted for new items,
we would calculate a single payment
amount for rented items for months 1
through 3 based on 10 percent of the
single payment amount for new items.
The single payment amount for rented
items for months 4 through 15 would be
based on 7.5 percent of the single
payment amount for new items. In cases
where the beneficiary elects to purchase
enteral nutrients, equipment, and
supplies the single payment amount for
new enteral nutrients, equipment, and
supplies would be based on the bids
submitted and accepted for new enteral
nutrients, equipment, and supplies, and
the single payment amount for used
enteral equipment would be based on 75
percent of the single payment amount
for the purchase of new enteral
equipment.
Based on the bids submitted and
accepted for new items, we would
calculate a single payment amount for
purchase of enteral nutrients,
equipment, and supplies.
Comment: One commenter noted that
intravenous medication and enteral
nutrients, equipment, and supplies
should not be included in competitive
bidding. The commenter did not believe
it is appropriate to revise the payment
methodology in this rule. The
commenter suggested that CMS should
not revise the enteral nutrients,
equipment, and supplies fee schedule
without formal comments from the
industry.
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The commenter stated that because
parenteral nutrients, equipment, and
supplies were never intended to be
included in competitive bidding, it is
unclear why CMS proposed to revise
this payment methodology at this time
when some beneficiaries are attempting
to coordinate their intravenous therapy
needs between Medicare Part B and Part
D.
Several commenters stated that, under
the proposed rule, payment for enteral
pumps would be determined as if
enteral pumps were a capped rental
item. They stated that enteral pumps fall
under the prosthetic device benefit and
are paid under a specific fee schedule.
These commenters added that there is
no basis for the change in payment
methodology for enteral nutrients,
equipment, and supplies. Another
commenter noted that CMS should
modify the proposed payment structure
for enteral pumps consistent with
current fee schedule policy.
Response: In accordance with section
1847(a)(2)(B) of the Act, parenteral
nutrients, equipment, and supplies
cannot be part of the Medicare DMEPOS
Competitive Bidding Program. However,
the same section directs that enteral
nutrients, equipment, and supplies be
included in the program. In accordance
with section 1847(a)(6) of the Act, the
payment basis determined under the
Medicare DMEPOS Competitive Bidding
Program for enteral nutrients,
equipment, and supplies replaces the
payment basis that would otherwise
apply under section 1842(s)(1) of the
Act and 42 CFR Part 414, Subpart C of
our regulations. Therefore, the payment
methodology we establish for enteral
nutrients, equipment, and supplies
furnished under this program will
replace the fee schedule methodology
for those items. We proposed to retain
many of the same rules that currently
govern the rental or purchase of enteral
nutrients, equipment, and supplies to
make the transition to competitive
bidding easier for both suppliers and
beneficiaries. However, under
§ 414.408(f), we are establishing a
process for a supplier to bid on the
purchase price for a new enteral pump.
However, payments will be made on a
rental basis if the beneficiary chooses to
obtain the item on a rental basis or a
purchase basis if the beneficiary chooses
to obtain the item on a purchase basis.
We also note that this rule does not
supersede any laws for rules that govern
whether a particular drug is covered
under Medicare Part B or Part D.
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f. Maintenance and Servicing of Enteral
Nutrition Equipment (§ 414.408(h)(5))
Section 6112(b)(2)(B) of OBRA ’89
requires that we pay for maintenance
and servicing of enteral nutrition
equipment after monthly rental
payments have been made for 15
months. The maintenance and servicing
payments are to be made in amounts
that we determine are reasonable and
necessary to ensure the proper operation
of the equipment. Since October 1,
1990, program instructions have
specified when and how these payments
are made. These program instructions
are currently found at section 40.3 of
Chapter 20 of the Medicare Claims
Processing Manual (Pub. 100–04). These
instructions provide that maintenance
and servicing payments may be made
beginning 6 months after the last rental
payment for the equipment and no more
often than once every 6 months for
actual incidents of maintenance where
the equipment requires repairs and/or
extensive maintenance. Extensive
maintenance involves the breaking
down of sealed components or
performance of tests that requires
specialized testing equipment not
available to the beneficiary or nursing
facility. The program instructions also
state that the maintenance and servicing
payments cannot exceed one-half of the
rental payment amounts for the
equipment.
Under the Medicare DMEPOS
Competitive Bidding Program, we
proposed at § 414.408(i)(3) (redesignated
as § 414.408(h)(4) in this final rule) that
the monthly rental payments for enteral
nutrition equipment for months 1
through 3 be equal to 10 percent of the
single payment amounts for the
purchase of the new enteral nutrition
equipment. We proposed that for
months 4 through 15, the monthly rental
payment amounts would be equal to 7.5
percent of the single payment amounts
for the purchase of new items. We
proposed that the contract supplier to
which payment is made in month 15 for
furnishing enteral nutrition equipment
on a rental basis must continue to
furnish, maintain, and service the pump
for as long as the equipment is
medically necessary. In addition, we
proposed to establish the maintenance
and service payments under proposed
§ 414.408(i)(4) (redesignated as
§ 414.408(h)(5) in this final rule) for
enteral nutrition equipment so that they
are equal to 5 percent of the single
payment amounts for the purchase of
new enteral nutrition equipment. This
would limit the payment rate for
maintenance and service to one-half of
the rental payment amount for the first
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month of rental, which is similar to the
program instructions mentioned above.
The provisions of the proposed rule are
similar to current Medicare payment
rules in section 40.3 of Chapter 20 of the
Claims Processing Manual.
g. Supplies Used in Conjunction With
DME (§ 414.408(g)(1))
We proposed under proposed
§ 414.408(h)(1) that bids be submitted
for the purchase of supplies necessary
for the effective use of DME, including
drugs (other than inhalation drugs).
Based on the bids submitted and
accepted for these items, we would
calculate single payment amounts for
the furnishing of these items on a
purchase basis.
h. Off-the-Shelf (OTS) Orthotics
(§ 414.408(g)(4))
We proposed under proposed
§ 414.408(h)(4) that bids be submitted
for the purchase of OTS orthotics. Based
on the bids submitted and accepted for
these items, we would calculate single
payment amounts for the furnishing of
these items on a purchase basis.
Comment: One commenter agreed
with the proposed distinction for
prosthetics and orthotics.
Response: We agree with the
commenter because the statute
distinguishes between prosthetics and
orthotics.
In summary, after consideration of all
of the public comments received on the
bidding requirements and associate
payment rules described above, we are
renumbering proposed §§ 414.408((g)
through (j) as §§ 414.408(f) through (i),
respectively, and finalizing these
sections (with the exception of
§ 414.408(h)(2) and (i)(2)), which have
been added and finalized as described
above, and with additional changes.
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VII. Conditions for Awarding Contracts
for Competitive Bids
In proposed § 414.414, we set forth a
series of proposals regarding how we
would evaluate and select suppliers for
contract award purposes under the
Medicare DMEPOS Competitive Bidding
Program. Proposed § 414.414(a)
provides generally that the rules in
§ 414.414 govern the evaluation and
selection of suppliers under the
program. The specifics of our other
proposals are discussed below:
A. Quality Standards and Accreditation
Section 1847(b)(2)(A)(i) of the Act
specifies that a contract may not be
awarded to any entity unless the entity
meets applicable quality standards
specified by the Secretary under section
1834(a)(20) of the Act. Section
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1834(a)(20) of the Act instructs the
Secretary to establish and implement
quality standards for all DMEPOS
suppliers in the Medicare program, not
just for suppliers subject to competitive
bidding or in CBAs. All suppliers must
meet these quality standards to be
eligible to submit claims to the
Medicare program, irrespective of the
Medicare DMEPOS Competitive Bidding
Program. The quality standards are to be
applied by recognized independent
accreditation organizations that have
been designated by the Secretary under
section 1834(a)(20)(B) of the Act.
Section 1834(a)(20)(E) of the Act
explicitly authorizes the Secretary to
establish the quality standards by
program instruction or otherwise after
consultation with representatives of
relevant parties. We proposed that a
grace period may be granted for
suppliers that have not had sufficient
time to obtain accreditation before
submitting a bid. If a supplier does not
then successfully attain accreditation,
we will suspend or terminate the
supplier contract. The length of time for
the grace period will be determined by
the accrediting organizations’ ability to
complete the accrediting process within
each competitive bidding area. The
length of time of the grace period will
be specified in the RFB for each
competitive bidding program.
In the May 1, 2006 proposed rule, we
indicated that we had consulted with
the PAOC and determined that it is in
the best interest of the industry and
beneficiaries to select the accreditation
organizations and publish the quality
standards through program instructions
in order to ensure that suppliers that
wish to participate in competitive
bidding will know what standards they
must meet in order to be awarded a
contract. We proposed in § 414.414(c)(1)
that all bidding suppliers must satisfy
the quality standards in order to be
eligible to participate in the Medicare
DMEPOS Competitive Bidding Program.
In proposed § 414.414(c)(2), we
proposed that all bidding suppliers
must be accredited by a CMS-approved
accreditation organization, as defined
under 42 CFR 424.57(a), but stated that
a supplier would be considered to be
grandfathered if it had received a valid
accreditation before the CMS-approved
accreditation organizations were
designated and the accreditation was
granted by an organization that CMS
designates as a CMS-approved
accreditation organization under 42 CFR
424.58.
To expedite the accreditation process
for contract suppliers under the
Medicare DMEPOS Competitive Bidding
Program, we finalized the requirements
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18035
for accreditation organizations as a new
§ 424.58 as part of the DMEPOS
provisions in the FY 2007 IRF final rule
(71 FR 48354). We published the list of
the selected accreditation organizations
and the final quality standards through
program instructions and posted the
response to comments document on the
quality standards. The names of the
accreditation organizations and the final
quality standards and our responses to
public comments on the quality
standards and on the portion of the
proposed rule pertaining to the quality
standards are posted on the CMS Web
site at: https://www.cms.hhs.gov/
competitiveAcqforDMEPOS.
B. Eligibility (§ 414.414(a) Through (c))
In the May 1, 2006 proposed rule (71
FR 25675), we proposed in
§ 414.414(b)(1) that all bidders must
meet enrollment standards to be
considered for selection as a contract
supplier under the Medicare DMEPOS
Competitive Bidding Program. These
standards are included in the supplier
standards regulation at § 424.57. In
addition, we proposed § 414.414(b)(2),
that each bidder must certify in its bid
that its high level employees, chief
corporate officers, members of board of
directors, affiliated companies and
subcontractors are not now and have not
been sanctioned by any governmental
agency or accreditation or licensing
organization. In the alternative, the
bidding supplier must disclose
information about any prior or current
legal actions, sanctions, or debarments
by any Federal, State or local program,
including actions against any members
of the board of directors, chief corporate
officers, high-level employees, affiliated
companies, and subcontractors.
In the preamble to the May 1, 2006
proposed rule (71 FR 25675) we stated
that sanctions would include, but are
not limited to, debarment from any
Federal program, OIG sanctions, or
sanctions issued at the State or local
level. In addition, we proposed that the
bidder must have all State and local
licenses required to furnish the items
that are being bid (proposed
§ 414.414(b)(3)). Finally, we proposed
that the supplier must agree to all of the
terms in the contract outlined in the
RFBs (proposed § 414.414(b)(4)). We
stated in the preamble to the May 1,
2006 proposed rule (71 FR 25675) that
we would suspend or terminate a
contract if a supplier loses its good
standing with us or any other
government agency.
Comment: Several commenters
suggested that CMS require all contract
suppliers to be physically located in the
CBA for which they were awarded a
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contract. Other commenters believed
that relying on physical location would
prevent participation of many suppliers,
including several suppliers with
capacity to operate on a national scale.
The commenters believed that relying
on physical location could cause
product supply issues. Other
commenters requested that CMS clarify
whether a supplier can submit a bid if
the supplier is not physically located in
the CBA, but can show that it has a
presence within the CBA. They asked
whether CMS would quantify this for
evaluation purposes.
Response: We continue to believe that
it is appropriate to allow suppliers that
do not maintain a physical location in
a CBA to submit a bid to furnish items
in that CBA. One of the purposes of the
program is to create a competitive
bidding payment structure that is more
reflective of a competitive market. By
accepting bids from all suppliers that
can meet the requirements of the
program, regardless of their physical
location, we believe that we will
encourage a more robust competition
that will result in the best possible
prices for beneficiaries without
compromising their access to DMEPOS.
It is our intent to review each bidder to
determine whether it can meet the
requirements of the competitive bidding
program for which they submit a bid.
One of these requirements will be that
the supplier must be able to
demonstrate that it maintains a presence
in the CBA. In other words, the supplier
must be able to furnish items to all
beneficiaries who maintain a permanent
residence in the CBA, regardless of
where that beneficiary is located,
including delivering items and
providing necessary training and
ensuring that items are appropriately
set-up in the beneficiary’s home. Thus,
a supplier’s ability to furnish items to
all beneficiaries in the CBA, and not its
physical location, will be evaluated to
determine whether the supplier meets
this requirement. We would reject a bid
if we determined that the bidding
supplier did not meet this bidding
requirement, or any other bidding
requirement.
Comment: Several commenters stated
that CMS should apply an appropriate
screening process to determine which
bidder qualifies for consideration. They
recommended that the bidding process
include a 3-step elimination process in
this order: Accreditation; financial
standards; capacity assessment. The
commenter suggested that only after this
3-step screening is applied should CMS
accept a bid.
One commenter asserted that a
supplier’s financial stability and
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accreditation must take place before bid
prices are arrayed and the pivotal bid
selected. Otherwise, the commenter
believed the bidding pool will be
tainted by bids from suppliers that are
not qualified. The commenter suggested
that bids from suppliers that have not
satisfied the quality standards, are not
accredited, and/or that do not meet
CMS’ financial and eligibility standards
should not be considered in selecting
winning bids and setting payment
amounts. The commenter also suggested
that the rule should clarify that the
establishment of a composite bid should
only be completed for suppliers that
meet the bidding requirements.
Response: We will not award a
contract to any supplier that does not
meet our bidding requirements. Those
requirements include complying with
our eligibility standards, including
compliance with the enrollment
standards in § 424.57(c) of our
regulations and disclosure of certain
compliance-related issues, financial
standards, quality standards, and
accreditation standards unless a grace
period for obtaining accreditation
applies. We may allow a grace period
for suppliers that have not yet been
accredited at the time they submit their
bid. To qualify for this grace period, a
supplier must have submitted its
application for accreditation to a CMSapproved accreditation organization and
be waiting for the accreditation process
to be completed by that organization.
We expect that suppliers will have
obtained their accreditation before they
are awarded a contract under the
Medicare DMEPOS Competitive Bidding
Program. We will evaluate a supplier’s
compliance with our bidding
requirements before we finalize the
pivotal bids as well as the single
payment amounts. We will reject a bid
that does not demonstrate that the
supplier has met our bidding
requirements. As a result, only bids
from eligible, qualified, and financially
sound suppliers will be used to
determine the single payment amounts
and select contract suppliers.
We note that although we will be
considering each supplier’s projected
capacity as part of our determination of
where to set the pivotal bid.
Comment: One commenter stated that
the proposed rule indicated that
suppliers would have to disclose
information on debarments, sanctions,
or other legal actions affecting them.
However, Form A, the application
section of the RFB, requires suppliers to
disclose information about pending or
prior investigations. The commenter
noted that investigations are merely
fact-finding tools that do not presume
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guilt and should not be used to
negatively impact a supplier’s bid
evaluation. Another commenter stated
that the term ‘‘sanctioned’’ is subject to
being interpreted differently by each
supplier. The commenter suggested that
CMS detail what specific types of
‘‘sanctions’’ should be included in the
disclosure. In addition, the commenter
suggested that CMS more clearly define
what it meant when it stated that
bidding suppliers would have to
‘‘certify’’ in their bids that they, their
high-level employees, chief corporate
officers, members of the board of
directors, affiliated companies, and
subcontractors are not, and have not
been, sanctioned by any governmental
agency or accreditation or licensing
organization. The commenter also
wanted to know if CMS intends for the
certification to take the form of a simple
attestation or whether CMS would
require suppliers to sign a prescribed
legal statement testifying to the veracity
of the disclosures or lack of disclosures.
Response: We agree with this
comment that investigations are not in
themselves evidence of guilt. We did
not propose in the May 1, 2006
proposed rule to require a bidding
supplier to disclose information in its
bid about pending and prior
investigations, and this final rule
likewise does not require such
disclosures. The RFB will conform to
this final rule. We are revising proposed
§ 414.414(b)(2)(ii) so that it clarifies
what disclosures a supplier must make
in its response to the RFB. Specifically,
we will require that each bidding
supplier must disclose information
regarding—(1) Any revocations of a
supplier number; and (2) sanctions,
program-related convictions as defined
in section 1128(a)(1) through (a)(4) of
the Act, exclusions, or debarments
imposed against the supplier, its highlevel employees, chief corporate
officers, members of the board of
directors, affiliated companies, and
subcontractors by any Federal, State, or
local agency. We are finalizing proposed
§ 414.414(b)(2)(i) to require a supplier to
certify in its bid that this information is
complete and accurate. We might reject
a bid based on these disclosures. As
discussed more fully below, we might
conclude that a contract supplier has
breached its contract if we discover that
the contract supplier did not fully
comply with these disclosure
requirements, or if it is sanctioned or
debarred, has legal action taken against
it, or falls out of compliance with the
Medicare program requirements
(compliance with which we
characterized in the proposed rule as
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the supplier being in ‘‘good standing’’
with CMS), including enrollment
requirements set forth at §§ 424.500 et
seq., during the contract term.
We have added a cross-reference to
final § 414.414(b) to indicate that
networks (discussed more fully in
section XII. of this final rule) must also
meet the network requirements found in
final § 414.418.
After consideration of public
comments, we are finalizing
§ 414.414(a) without modification. We
are finalizing §§ 414.414(b)(1)–(3) with
the changes discussed above and with
additional technical changes.
C. Financial Standards (§ 414.414(d))
Section 1847(b)(2)(A)(ii) of the Act
specifies that we may not award a
contract to an entity unless the entity
meets applicable financial standards
specified by the Secretary, taking into
account the needs of small providers.
Applying financial standards to
suppliers assists us in assessing the
expected quality of suppliers, estimating
the total potential capacity of selected
suppliers, and ensuring that selected
suppliers are able to continue to serve
market demand for the duration of their
contracts. Ultimately, we believe that
financial standards for suppliers will
help maintain beneficiary access to
quality services.
Therefore, as part of the bid selection
process, we proposed that the RFBs
would identify the specific information
we will require to evaluate suppliers
(proposed § 414.414(d)). We noted that
this information may include: a
supplier’s bank reference that reports
general financial condition, credit
history, insurance documentation,
business capacity and line of credit to
fulfill the contract successfully, net
worth, and solvency. We welcomed
comments on the financial standards, in
particular the most appropriate
documents that would support these
standards. We found that, in the
demonstration, general financial
condition, adequate financial ratios,
positive credit history, adequate
insurance documentation, adequate
business capacity and line of credit, net
worth, and solvency were important
considerations for evaluating financial
stability.
Comment: Several comments argued
that the financial standards were too
strict for certain suppliers and should be
flexible enough to regulate mail order
suppliers, small local suppliers, SNFs,
departments of hospitals, retail
pharmacies, and publicly-traded and
privately-held family firms. The
commenters stated that if financial
standards are too restrictive, qualified
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suppliers might not be able to
participate in the Medicare DMEPOS
Competitive Bidding Program. They
added that, conversely, if financial
standards are too lax, suppliers may be
financially unable to meet the
challenges of a competitive market.
Response: We have revised proposed
§ 414.414(d) to indicate that the RFB
form will specify the documents
required as part of the bid application
and that each supplier must submit this
documentation along with its bid. We
agree with the commenters that it is
important to have financial standards
that ensure suppliers are able to meet
the challenges of competitive bidding
and can fulfill their contract obligations.
However, we also agree that our
financial standards should not be so
burdensome that suppliers, and
especially small suppliers, cannot
satisfy them. After further consideration
and in response to comments, we
believe that the proposed financial
documentation discussed in the
preamble to the proposed rule (71 FR
25675) would be too burdensome,
particularly for small suppliers.
Therefore, in order to obtain a sufficient
amount of information about each
supplier while minimizing the burden
on both bidding suppliers and the bid
evaluation process, we will require that
for the initial round of competition,
suppliers must submit certain schedules
from their tax returns, a copy of the 10K
filing report from the immediate 3 years
immediately prior to the date on which
the bid is submitted (if the supplier is
publicly traded) certain specified
financial statement reports, such as cash
flow statements, and a copy of their
current credit report, which must have
been completed within 90 days prior to
the date in which the supplier submits
its bid and must have been prepared by
one of the following: Experian; Equifax;
or TransUnion. All documents that are
not prepared as part of a tax return must
be certified as accurate by the supplier
and must be prepared on an accrual or
cash basis of accounting. This financial
information will allow us to determine
financial ratios, such as a supplier’s
debt-to-equity ratio, and credit
worthiness, which will allow us to
assess a supplier’s financial viability.
We will generally require that
suppliers submit the same types of
information for subsequent
competitions, but we might choose to
add or delete specific document
requests as we gather experience on
what financial information most
accurately predicts whether a suppler is
financially stable enough to participate
in the Medicare DMEPOS Competitive
Bidding Program.
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Comment: One commenter suggested
that CMS also publish the criteria it will
use to assess supplier’s financial
stability and how it will rank suppliers
based on these criteria. The commenter
stated that bank statements should only
be requested when we need to resolve
doubts about the supplier’s other
submissions. The commenter believed
that if we maintain the requirement for
bank statements, the statements need to
be defined for the period for which we
are requesting the financial information.
Response: As we explained above, we
recognize that our collection of financial
information must be comprehensive
enough to allow us to assess a supplier’s
financial soundness, but not so
burdensome as to encumber the bidding
process (especially for small suppliers)
and the bid evaluation process.
Therefore, as stated above, we will
require that for the initial round of
competition, suppliers must submit
certain schedules from their tax returns,
a copy of their 10K filing report from the
3 years immediately prior to the date on
which the bid is submitted (if the
supplier is publicly traded), certain
specified financial statement reports,
such as cash flow statements, and a
copy of their current credit report,
which must have been completed
within 90 days prior to the date in
which the supplier submits its bid and
must have been prepared by one of the
following: Experian; Equifax; or
TransUnion.
We will generally require that
suppliers submit the same types of
information for subsequent
competitions, but we might choose to
add or delete specific document
requests as we gather experience on
what financial information most
accurately predicts whether a suppler is
financially stable enough to participate
in the Medicare DMEPOS Competitive
Bidding Program.
Comment: Several commenters stated
that CMS should consider the supplier’s
debt-to-equity ratio (long-term debt
divided by shareholders’ equity). They
indicated that this is a measurement of
a supplier’s capacity to borrow and
expand. One commenter indicated,
however, that this measurement will be
problematic when applied to private
firms. The commenters suggested that
an alternative would be to require the
EBITDA (earnings before interest, taxes,
depreciation and amortization)-to-debt
ratio because this is more difficult to
manipulate. The commenter suggested
that CMS could also use the quick ratio
(current assets minus inventory divided
by current liabilities) because this
measurement is favored by lending
institutions. Some commenters
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indicated that CMS should also define
the accounts receivable as the quick
ratio (less than 180 days sales
outstanding). They indicated that this
ratio shows how long it takes the
supplier to collect money owed and
measures a supplier’s liquidity and
ability to meet short-term operating
needs. Some commenters also suggested
that CMS inquire as to how long a
supplier has been in business.
Commenters also suggested that the
information that CMS collects should
include 2 years of financial statements
prepared in accordance with generally
accepted accounting principles. Some
commenters recommended the financial
statements be accompanied by a
compilation, review, or audit report
from an independent certified public
accountant, a certificate of insurance
verifying a minimum of $1 million of
liability coverage, and a letter from a
primary institutional lender verifying
current lending relationship and the
potential borrowing capacity of the
supplier. Commenters also
recommended that CMS receive a credit
report from a recognized credit rating
organization. One commenter wanted
CMS to define a set ratio, for example,
asset ratio should be not be higher than
(X percent) and the asset to liability
ratio should be no lower than (X
percent).
Response: We will use appropriate
financial ratios to evaluate suppliers. If
suppliers do not meet certain ratios,
they could be disqualified from the
competition. Examples of ratios we
might consider include a supplier’s
debt-to-equity ratio and a financial
credit worthiness score from a reputable
financial services company. The
supplier standards in § 424.57(c)(10)
require that the supplier carry a
$300,000 comprehensive liability
policy. We believe that imposing an
additional cost for maintaining $1
million in liability coverage is not
necessary. We will be reviewing all
financial information in the aggregate
and will not be basing our decision on
one ratio but rather overall financial
soundness.
As we noted above, we will require
for CY 2007 competition that suppliers
submit a credit report from one of three
credit bureaus identified above to assist
in determining a supplier’s financial
soundness. For all competition rounds,
we will specify in the RFB what
financial information must be
submitted.
Comment: Several commenters
recommended that CMS consider using
Dunn and Bradstreet accounts payable
ratings (paydex score) which measures
how quickly a company pays its
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accounts payable. The commenters
indicated that this information provides
an additional measure of whether the
supplier is, in fact, able to meet its
current obligations.
Response: We will require suppliers
to provide us with information which is
included on a supplier’s credit report
when they submit their bids to assist us
in determining their financial
soundness.
Comment: One commenter argued
that CMS must recognize that publicly
traded companies are different from
privately held community pharmacies,
as they have fiduciary obligations to
shareholders. Other commenters argued
that the financial standards proposed
are too burdensome and discourage
small suppliers from participating. They
recommended that CMS define different
standards for small suppliers and
pharmacies. The commenters suggested
that the standards be limited to credit
report, lien searches, credit references
and 3 years’ worth of tax returns.
Response: We are committed to
ensuring the financial soundness of
contract suppliers in the competitive
bidding program. In previous responses,
we have described the financial
documentation that will generally be
required for the competitions. We have
determined that we can obtain the
necessary information through
collection of a limited number of
financial documents and believe that
the submission of this information will
be less burdensome for all suppliers,
including small suppliers. We believe
we have balanced the needs of small
suppliers and the needs of the
beneficiaries in requesting
documentation that will provide us with
sufficient information to determine the
financial soundness of a supplier.
After consideration of the public
comments received, we are revising
discussed proposed § 414.414(d) so that
it now specifies that a supplier must
submit the financial information
specified in the RFB. For purposes of
the CY 2007 competition, the financial
documents discussed in this section
will be those that the RFB will require.
These requirements are as follows:
• Suppliers that file individual tax
returns that include business taxes are
required to submit the Schedule C (the
Profit and Loss Statement) from their
1040 Tax Return for the 3 years
immediately prior to the date on which
the bid is submitted. In addition to the
tax return information, these suppliers
are also required to submit a Compiled
Balance Sheet (Statement of Financial
Position), a Statement of Cash Flow
(Statement of changes in Financial
Position) and a Statement of Operations
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(Income Statement) for the three years
immediately prior to the date on which
the bid is submitted. Suppliers are also
required to submit a copy of their
current credit report, which must have
been completed within 90 days prior to
the date on which the bid is submitted.
The credit report must be prepared by
one of the following: Experian; Equifax;
or TransUnion.
• Limited partnerships and
partnerships must submit their
Schedule L from their 1065, U.S. Return
of Partnership Income for the 3 years
immediately prior to the date on which
the bid is submitted, along with all
other financial documentation that must
be submitted by a supplier that files an
individual tax return.
• Suppliers that file corporate tax
returns are required to submit the
Schedule L (Balance Sheet) from their
tax return for the 3 years immediately
prior to the date on which the bid is
submitted. In addition to the tax return
information, these suppliers are also
required to submit a Statement of Cash
Flow (Statement of Changes in Financial
Position), and a Statement of Operations
(Income Statement) for the 3 years
immediately prior to the date on which
the bid is submitted. Suppliers are also
required to submit a copy of their
current credit report, which must have
been completed within 90 days prior to
the date on which the supplier submits
its bid. The credit report must be
prepared by one of the following:
Experian; Equifax; or TransUnion.
• All documents that are not prepared
as part of a tax return must be certified
as accurate by the supplier and must be
prepared on an accrual or cash basis of
accounting.
• Suppliers that are publicly traded
companies must additionally submit a
copy of their 10–K Filing Reports filed
with the Securities Exchange
Commission for the 3 years immediately
prior to the date on which the bid is
submitted. If a supplier is a wholly
owned subsidiary of a publicly traded
company, it must submit the parent
company’s 10-K reports.
• If a supplier does not have financial
documentation for one or more of the 3
years immediately prior to the date on
which the bid is submitted, then in
addition to submitting the financial
documentation for the years in which it
is available, the supplier must also
submit projected financial statements.
The projected financial statements must
show what is likely to occur in the
future based on key financial and
business assumptions of the present,
and must include a description of the
financial and business assumptions.
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• For networks, the legal entity that
submits the bid must submit financial
statements on behalf of each network
member in one complete package.
• If a supplier is submitting an
individual bid and is also part of a
network, the supplier must submit
financial statements along with both the
individual bid and the network bid.
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D. Evaluation of Bids (§ 414.414(e))
In the May 1, 2006 proposed rule (71
FR 25675), we proposed to select the
product categories that include
individual items for which we will
require competitive bidding. We stated
that individual products would be
identified by the HCPCS codes and
would be further described in the RFBs.
We proposed that suppliers would be
required to submit bids for each
individual item within each product
category they are seeking to furnish
under the program, but would not be
required to bid for every product
category.
1. Market Demand and Supplier
Capacity (§§ 414.414(e)(1) and (e)(2))
Section 1847(b)(4)(A) of the Act
requires that in awarding competitive
bidding contracts, the Secretary may
limit the number of contract suppliers
in a CBA to the number necessary to
furnish items to meet the projected
demand for items covered under the
contract for the CBA. Therefore, we
proposed in proposed § 414.414(e)(1) to
calculate expected beneficiary demand
in a CBA for items in a product
category. We stated that in order to
fulfill this statutory mandate, the first
step would be to determine the expected
demand for an item in a CBA. We
proposed to calculate expected demand
in each CBA in a relatively
straightforward way using existing
Medicare claims. We proposed to
examine claims data to determine the
number of units of each item supplied
to Medicare beneficiaries during the
past 2 years, and then to determine the
number of new beneficiaries who have
entered the market during the last 2
years. We believed that 2 years’ worth
of data would be sufficient to allow us
to identify trend analyses and
utilization measurements. We also
indicated that we would gather data on
the number of new FFS Medicare
enrollees coming into a CBA and use
this number to project the number of
new enrollees.
We discussed in the preamble to the
May 1, 2006 proposed rule (71 FR
25675) how we proposed to calculate 2
years of claims on a monthly basis to
determine beneficiary demand. We
stated that we would take into
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consideration the expected demand over
the total duration of the contract and the
seasonal effects (for example, an
increase in beneficiary population in
Florida during the winter), and
proposed to use 2 years of data to
identify any time trends. If there were
no seasonal effects or time trends, we
proposed to use the average monthly
total and new patient figures as the
market demand measures. However, if
there were seasonal effects or changes
identified only during certain months,
we proposed that the maximum
monthly total and new patient figures
would be used as the market demand
measures. If trends showed that there
was noticeable growth or reduction in
beneficiary demand for products in an
area, we proposed to take these factors
into consideration when developing
estimates of beneficiary demand for
competitively bid items.
We proposed to adopt the following
approach to estimate supplier capacity
to meet the projected demand in a CBA.
First, we proposed to analyze Medicare
claims to determine how many items a
supplier was currently providing in the
CBA, as well as in total. Second, as part
of the bid, we would ask suppliers to
indicate how many units they were
willing and capable of supplying at the
bid price in the CBA. We would
compare this information to what the
supplier has dispensed to Medicare
beneficiaries in the past and what it
specified in its response to the RFB as
its projected capacity. We proposed to
require evidence of financial resources
to support market expansion, such as
letters from investors or lending agents.
We would use this information to
evaluate the capacity of the bidder.
Third, we proposed to compare
expected capacity and Medicare volume
to determine how many suppliers we
would need in an area. For new
suppliers, we would ask them for their
expected capacity, look at trend data for
new suppliers in that area, and examine
the capacity of other suppliers in that
area. We would need to use these data
to make estimates about capacity
because we believe that suppliers might
have more capacity potential than they
are currently exhibiting.
During the DMEPOS competitive
bidding demonstrations, demonstration
suppliers were able to expand their
output to meet market demand and
replace market share previously
provided by nondemonstration
suppliers; indeed, some demonstration
suppliers were disappointed that they
did not gain more market share during
the demonstration. We presented
numerous issues to the PAOC where we
requested advice on issues such as
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18039
market capacity and demands. During
the February 28, 2005 PAOC meeting,
we asked the panel to discuss the issue
of demand and capacity. Several
members of the committee, based upon
their expertise and knowledge of the
industry, suggested that most DMEPOS
suppliers would be able to easily
increase their total capacity to furnish
items by up to 20 percent and the
increase could be even larger for
products like diabetes supplies that
require relatively little labor.
We welcomed comments on our
proposed approach for calculating
market demand and estimating supplier
capacity. We were especially interested
in any information that would help us
compare current Medicare volume with
potential capacity, including potential
formulas we could apply to determine
capacity.
Comment: Several commenters argued
that there was insufficient information
given as to how CMS will determine a
supplier’s capacity. The commenters
wanted to know if the projected
capacity that suppliers must identify in
their responses to the RFB form was a
bid commitment or estimation. The
commenters also noted that CMS did
not describe what criteria it will use to
compare bidders (aside from bid price)
and how these criteria will be applied.
They further suggested that CMS look at
a supplier’s history and allow a 20percent growth rate to determine the
supplier’s capacity.
Response: We proposed that suppliers
would have to estimate in their response
to the RFB how many items they would
be able to furnish in the CBA for the bid
price. We also proposed that suppliers
would be required to submit
documentation evidencing any planned
business expansion, such as letters from
investors or lending agents. We will
look at this documentation, as well as
the supplier’s other financial
documentation to determine the ability
of that supplier to furnish its projected
capacity. The capacity identified in the
supplier’s response to the RFB form
should represent the supplier’s best
estimation of the number of items it can
provide to Medicare beneficiaries in a
given CBA. We might, however, make
two types of adjustments to a supplier’s
projected capacity for purposes of
finalizing the pivotal bid. First, if a
supplier estimates that it can furnish
more than 20 percent of what we
determine to be the expected beneficiary
demand for the product category in the
CBA, we will lower that supplier’s
capacity estimate to 20 percent. We
believe that this capacity adjustment is
necessary to ensure that at least 5
suppliers have composite bids at or
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below the pivotal bid for the product
category, which will then enable us to
award contracts to at least those 5
suppliers. By awarding contracts to at
least 5 suppliers per product category,
we expect that there will be sufficient
contract suppliers in the CBA to provide
beneficiaries with more variety and
choice. However, we are confident that,
due to the nature of supplies that can be
furnished via mail order (for example,
diabetic supplies) national or regional
mail order suppliers will easily be able
to expand to meet very large demands.
Therefore, we do not believe it is
necessary to ensure that there are at
least five national or regional mail order
suppliers. If we were to require at least
five such suppliers, we believe it would
dilute our savings.
Second, we might further adjust a
supplier’s capacity if, after making the
initial adjustment discussed above, we
conclude that the supplier’s financial
and business expansion documentation
do not support the projected capacity
stated in its bid. In determining whether
this further adjustment is necessary, we
will give consideration to the suggestion
of the PAOC that a supplier’s capacity
could easily be increased by up to 20
percent. We believe, however, that this
further adjustment may be necessary to
limit the potential that we would award
contracts to an inadequate number of
suppliers based on inflated capacity
projections that the suppliers would not
be able to actually meet. If we believe
that this further adjustment is necessary,
we will lower the supplier’s projected
capacity to its historical capacity, as
evidenced by its financial
documentation and past claims data.
We note that after making these
adjustments, if we are still unable to
award five contracts in a CBA because
there are not enough qualified suppliers,
we will award at least 2 contracts to
qualified suppliers for the furnishing of
that product category under a
competitive bidding program.
We also note that the adjustments we
might make to a supplier’s projected
capacity would not impact the
supplier’s ability to actually furnish
items if it is awarded a contract. In other
words, a contract supplier will be able
to furnish items to all beneficiaries who
wish to receive them from it.
Comment: Some commenters stated
that CMS must consider how changes in
coding, utilization, and documentation
may affect the utilization data for the
last 2 years. They cited, for example,
that changes in wheelchair cushions
and respiratory coding may affect the
utilization data.
Response: We proposed that we
would calculate the expected
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beneficiary demand for a product
category in a CBA by using two years of
existing Medicare claims data, which
we believe is sufficient to allow us to
identify changing trends in utilization.
In calculating the expected beneficiary
demand for a product category in a
CBA, we might also evaluate data
showing beneficiary demand for key
high volume items in the product
category.
After consideration of the comments
received, we are adopting as final
§ 414.414(e)(1), which provides that we
will calculate the expected beneficiary
demand for items within a product
category in each CBA as part of the bid
evaluation process. In addition, we are
adding a new § 414.414(e)(2) to finalize
our proposal to evaluate the total
supplier capacity that would be
sufficient to meet beneficiary demand
for items in the CBA for the items in a
product category.
2. Composite Bids (§§ 414.402,
414.414(e)(3) and (4))
Because suppliers will be bidding for
multiple items in a product category,
the lowest bid for each item will not
always be submitted by the same
supplier. In this case, looking at the bids
for individual items would not tell us
which suppliers should be selected
since different suppliers may submit the
lowest bids for different items.
Therefore, in proposed §§ 414.414(e)(2)
and (e)(3) (redesignated as
§ 414.414(e)(3) and (e)(4) in this final
rule), we proposed to use a composite
bid to compare all of the suppliers’ bids
submitted for an entire product category
in a CBA. We stated that using a
composite bid would be a way to
aggregate a supplier’s bids for
individual items within a product
category into a single bid for the whole
product category. This would allow us
to determine which suppliers can offer
the lowest expected costs to Medicare
for all items in a product category. To
compute the composite bid for a
product category, we would multiply a
supplier’s bid for each item in a product
category by the item’s weight and sum
these numbers across items. The weight
of an item would be based on the
utilization of the individual item
compared to other items within that
product category based on historic
Medicare claims. Item weights would be
used to reflect the relative market
importance of each item in the product
category. We would select item weights
that ensure that the composite bid is
directly comparable to the costs that
Medicare would pay if it bought the
expected bundle of items in the product
category from the supplier. The sum of
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each supplier’s weighted bids for every
item in a product category would
become the supplier’s composite bid for
that product category.
We sought comment on the best
method of weighting individual items
within a product category to determine
the composite bid. We indicated that
one approach we were considering
would be to set the weight for each item
based on the volume of the individual
item’s share compared to the total
utilization of the product category.
Under this weighting system, the
composite bid would be exactly
proportional to the expected cost of
furnishing the entire bundle of items.
Therefore, if supplier 1 had a lower
composite bid than supplier 2, it would
also have a lower expected cost of
furnishing the entire product bundle
that makes up the product category.
Another approach we considered was to
set the weight based on the payment
amounts attributable to each DMEPOS
fee schedule item relative to the overall
payment amount for the total product
category. We stated that this approach
might better reflect the relative value of
each item because it is based on how
much we actually pay for an item, and
that this was the approach that we used
in the first round of bidding in Polk
County under the competitive bidding
demonstration program. However, we
stated that we also found that this
approach could result in too much
weight being placed on low-volume and
high-priced items. The first year
evaluation report also found that using
the allowed charges as the weights
could result in a supplier that offered
lower bids having a higher composite
bid than a supplier that offered a higher
bid for individual items.
In the May 1, 2006 proposed rule, we
used the volume of items or units
displayed in Table 5 of that rule (and as
republished below) as the basis of our
examples, but we requested comments
on which weighting method should be
used in calculating the composite. We
also requested comments on other
methods of weighting that could be
applied to individual items.
TABLE 5.—ITEM WEIGHTS
Item
Units ............
Item Weight
A
B
5
0.5
3
0.3
C
2
0.2
All
10
1
The example above shows how our
proposed weight-setting methodology
would work. The expected volume for
Items A, B, and C are 5, 3, and 2 units,
respectively, for a total volume of 10
units. The item weight for Item A is 0.5
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(5/10), the weight for Item B is 0.3
(3/10), etc.
As explained above, the composite
bid for a supplier would equal the item
weight times the item bid amount
summed across all items in the product
category. The item weights would be the
same for bidders for the same product
categories. In our example, supplier 1
bid $1.00 for item A, $4.00 for item B,
and $1.00 for item C. The composite bid
for Supplier 1 = (0.5 * $1.00) + (0.3 *
$4.00) + (0.2 * $1.00) = $1.90. Table 6
shows the expected cost of the bundle
based on each supplier’s bids. The
expected costs are directly proportional
to the composite bids; the factor of
proportionality is equal to the total
number of units (10) in the product
category. We used the composite bid to
determine the expected costs for all of
the items in the product category based
upon expected volume.
TABLE 6.—COMPOSITE BIDS
Item
A
Units ...............................................................................
Item weight .....................................................................
Supplier 1 bid .................................................................
Supplier 2 bid .................................................................
Supplier 3 bid .................................................................
Supplier 4 bid .................................................................
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Under the proposed methodology, bid
selection would proceed by ranking the
composite bids from lowest to highest
(Table 6). In order to ensure that we
would pay less under competitive
bidding than we would under the
current fee schedule, as is required
under section 1847(b)(2)(A)(iii) of the
Act, we would compute the expected
cost of the bundle of goods for
comparison purposes. This would
require us to calculate the bid amount
times the expected number of units that
we expect suppliers will furnish based
on the most current Medicare claims
data and sum across each item by
supplier. For example, if supplier 1 bid
$1.00 for item A and we expected to
purchase 5 units—$1.00 × 5 units =
$5.00, item B—$4.00 × 3 units = $12.00,
item C—$1.00 × 2 units = $2.00, the sum
for these 3 items would be $19.00. As
previously noted, prior to selecting a
supplier for a contract, we would ensure
that suppliers meet quality and financial
standards.
Comment: One commenter stated that
the bidding should not be so complex.
The commenter stated that the use of a
weighted composite bid is confusing
and cumbersome. The commenter also
stated that the weights should be
provided to each supplier prior to
bidding. Other commenters indicated
that if the median methodology is used,
bids should be weighted by proposed
capacity so that payment rates more
accurately represent the market of
successful bidders.
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B
5
0.5
$1.00
$3.00
$2.00
$1.00
3
0.3
$4.00
$3.00
$2.00
$2.00
Response: We understand the
commenters’ concern and believe we
have simplified the methodology as
much as possible. We plan to provide
the weights for each item prior to
bidding, so that bidders will be aware of
the weight given to each item. We stated
in the proposed rule that using a
composite bid would be a way to
aggregate a supplier’s bids for
individual items within a product
category into a single bid for the whole
product category. This would allow us
to determine which suppliers can offer
the lowest expected costs to Medicare
for all items in a product category. To
compute the composite bid for a
product category, we would multiply a
supplier’s bid for each item in a product
category by the item’s weight and sum
these numbers across items. In the
proposed rule, we defined the term
‘‘item weight’’ as a number assigned to
an item based on its beneficiary
utilization rate in a competitive bidding
area when compared to other items in
the same product category.’’ We are
revising this definition to indicate that
we will use national beneficiary
utilization data to determine the item
weights for the CBA because we believe
that it results in a more representative
number that reflects the utilization rate
for the item. We believe that this
weighting methodology will best reflect
the relative market importance of each
item in the product category.
After consideration of the comments
received, we are redesignating proposed
§ 414.414(e)(2) and (e)(3) as
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Composite bid
C
2
0.2
$1.00
$2.00
$2.00
$2.00
Expected cost
of bundle
........................
........................
$1.90
$2.80
$2.00
$1.50
........................
........................
$19.00
$28.00
$20.00
$15.00
§ 414.414(e)(3) and (e)(4) and adopting
them as final with a technical change to
paragraph (e)(4) to clarify that we will
array the composite bids from the
lowest ‘‘composite bid price’’ to the
highest ‘‘composite bid price.’’ We are
also revising the definition of ‘‘item
weight’’ in § 414.402.
3. Determining the Pivotal Bid
(§§ 414.414(e)(5) and (e)(6))
We proposed that the pivotal bid
would be the point where expected
combined capacity of the bidders would
be sufficient to meet expected demands
of beneficiaries for items in a product
category. In the example below, the
projected demand would be for 1,000
units. Therefore, the supplier 10’s
composite bid would represent the
pivotal bid, because that supplier’s
cumulative capacity of 1,100 would
exceed the projected demand of 1,000.
The statute requires multiple winners,
so in all cases where we award
contracts, we stated that we would need
to accept at least two winning bidders.
All bidders that were eligible for
selection and whose composite bid for
the product category was less than or
equal to the pivotal bid would be
selected as winning bidders. In the
Table 7 below, for example, $135.00
would be the pivotal bid. Suppliers 2,
3, 1, and 10 would then be selected as
winning bidders with supplier 10’s
composite bid becoming the pivotal bid.
We acknowledged that this approach
may leave out other suppliers with very
close, but slightly higher bids.
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TABLE 7.—DETERMINING THE PIVOTAL BID
[Point where beneficiary demand is met by supplier capacity—For this example, beneficiary expected demand is 1,000 units—Supplier 10’s bid is
the pivotal bid]
Eligible for
selection
Supplier No.
2 ..................................................................................................
3 ..................................................................................................
1 ..................................................................................................
10 ................................................................................................
4 ..................................................................................................
7 ..................................................................................................
Yes
Yes
Yes
Yes
Yes
Yes
Composite bid
...................
...................
...................
...................
...................
...................
Supplier capacity
Cumulative
capacity
$100
115
120
135
140
150
100
300
400
300
500
100
100
400
800
1100
1600
1700
120
130
175
200
n.c.
n.c.
n.c.
n.c.
n.c.
n.c.
n.c.
n.c.
No longer being considered
5
6
8
9
..................................................................................................
..................................................................................................
..................................................................................................
..................................................................................................
No
No
No
No
.....................
.....................
.....................
.....................
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n.c. = not calculated.
We also noted that we had considered
the use of a competitive range to
determine the contract suppliers. In this
approach, we would determine a
competitive range for the composite bid.
We would array all suppliers by their
bids and eliminate all suppliers whose
composite bid is greater than the
competitive range. We would then
evaluate the quality and financial
standards only for those remaining
suppliers.
During the demonstration, evaluating
quality and financial standards was
time-consuming for the bid evaluation
panel and required bidders to provide
extensive information on quality and
finances. The last two rounds of the
demonstration used a competitive range
to reduce the burden on the bid
evaluation panel and bidders. After
evaluating basic eligibility
requirements, the composite bids were
calculated and arrayed, and a
competitive range was selected with
more than enough suppliers to serve the
market. Suppliers whose composite bids
were clearly outside of this range were
not required to provide detailed
financial information, and the bid panel
was not required to evaluate the
eligibility of these suppliers to
participate. Suppliers within the
competitive range provided detailed
financial information and had their
quality rigorously evaluated. The
remaining suppliers were only selected
as contract suppliers if they met the
quality and financial standards and
their composite bids were at or below
the pivotal bid.
We also discussed in the proposed
rule other options that we considered to
determine the pivotal bid. One of these
options would have been to make the
pivotal bid depend on one of the
summary statistics (for example, mean,
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median, 45th percentile) associated with
the distribution of bids from eligible
suppliers. For example, the pivotal bid
could have been set equal to the median
bid submitted by eligible suppliers. We
stated that the advantage of this option
would have been that the pivotal bid
could be set near the central distribution
of bids. We also considered including
additional suppliers whose bids were
close to the central distribution as being
eligible to become a contract supplier.
Both options would likely have affected
the number of contract suppliers.
Finally, we noted that the exact
summary statistic or percentile could
have been increased or decreased to
reflect the trade-off between the number
of winners and program costs. One
negative aspect of this approach would
have been that winners might have
insufficient capacity. In addition, with a
given percentile cutoff, the pivotal bid
might have included an excessive
number of winning bidders. As the
number of eligible bidders increased, so
would the number of winners. If
additional bidders had higher costs, and
their bids fell into the upper half of the
distribution, the pivotal bid would
increase, resulting in greater payments
by the Medicare program and a loss of
savings.
Another option we discussed would
have been to base the pivotal bid on a
target number of winners. For example,
we might have decided to select five
winners in each product category.
Suppliers might have responded to this
approach by bidding aggressively,
knowing that only a fixed number of
winners would be guaranteed to be
selected. A negative aspect of this
approach would have been that there is
no assurance that a predetermined target
number of winners would have had
sufficient capacity to meet projected
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market demand. In addition, the target
number of winners must somehow be
selected and this could have resulted in
selecting an arbitrary number. If too
high, suppliers might have had little
incentive to bid aggressively.
We also considered an option to base
the pivotal bid on a target composite
bid; for example, we could have chosen
a target that was 20 percent below the
DMEPOS fee schedule amount for that
product category. A possible advantage
of this approach would have been that
the target composite bid could be set to
ensure savings for the program. On the
other hand, we believed that suppliers
might perceive this approach to be
anticompetitive. Rather than letting
bidding and the market forces determine
the pivotal bid and fee schedule, we
might have been viewed as preordaining the outcome. In addition,
suppliers that bid below the target
composite bid might have had
insufficient capacity to meet projected
market demand.
Comment: One commenter requested
additional explanation as to what
cumulative capacity is and how it is
calculated in the competitive bidding
program.
Response: The cumulative capacity is
determined by arraying the composite
bids from the lowest to the highest, then
calculating the pivotal bid for the
product category by ensuring that the
number of suppliers selected to furnish
items for that product category in a CBA
have sufficient cumulative capacity to
do so. We will determine the
cumulative capacity of bidding
suppliers for the product category by
adding each supplier’s projected or
adjusted capacity. For example, if
supplier 1 states it can provide 15 units,
supplier 2 states it can provide 40 units,
and supplier 3 states it can provide 35
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units, the cumulative capacity of those
suppliers is 90 units.
After consideration of the public
comments we received, we are
redesignating proposed § 414.414(e)(4)
as § 414.414(e)(5), and finalizing newly
redesignated § 414.414(e)(5) with the
changes discussed above. We also are
redesignating proposed § 414.414(e)(5)
as § 414.414(e)(6) and revising newly
redesignated § 414.414(e)(6) so that it
now provides that the only suppliers we
will select for contract award purposes
will be those suppliers that have
satisfied our eligibility, quality,
accreditation (unless a grace period
applies), and financial requirements.
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4. Assurance of Savings (§ 414.414(b)(2),
414.414(f))
Section 1847(b)(2)(A)(iii) of the Act
prohibits awarding contracts to any
entity for furnishing items unless the
total amounts to be paid to contractors
in a CBA are expected to be less than
the total amounts that would otherwise
be paid. Under proposed § 414.414(f),
we proposed to interpret this
requirement to mean that contracts will
not be awarded to any entity unless the
amounts to be paid to contract suppliers
in a CBA are expected to be less for a
competitively bid item than would have
otherwise been paid. Therefore, we
stated that we would not accept any bid
for an item that is higher than the
current fee schedule amount for that
item. This approach would ensure that
the single payment amount for each
item in a product category is equal to or
less than our current fee schedule
amount for that item.
We acknowledged that an alternative
interpretation of ‘‘less than the total
amounts that would otherwise be paid’’
could mean contracts would not be
awarded to an entity unless the amounts
paid to contract suppliers in a CBA for
the product category are expected to be
less than what would have otherwise
been paid for the entire product
category. During the demonstration,
several product categories received
overall savings, whereas payment
amounts increased for a few individual
items within those product categories.
One concern we had with this approach
was that there might be a greater
potential for shifting of utilizations from
one item to another higher priced item.
We stated that this approach might not
result in adequate savings, and that we
believed a reasonable interpretation of
the Act would be one in which ‘‘the
total amounts’’ mean payment at the
item level.
We specifically requested comments
on the various methods for assuring
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savings under the Medicare DMEPOS
Competitive Bidding Program.
Comment: Numerous commenters
disagreed with the proposed
requirement that bids must be at or
below the current fee schedule for an
item. The commenters believed that this
places artificial constraints on a process
that is designed to harness market
forces. They indicated that, if bids are
submitted higher than the current fee
schedule, CMS should choose not to
include that particular item in the
bidding product category.
Response: Section 1847(b)(2)(A)(iii) of
the Act prohibits CMS from awarding a
contract to a supplier under a
competitive bidding program unless the
total amounts to be paid to contractors
in a CBA are expected to be less than
the total amounts that would otherwise
be paid. In order to ensure that the
requirement is met and to guarantee
savings for the Medicare program, we
must require the bids for each item to
be at or below the current fee schedule
amount for the item in order to preclude
increases that may occur due to shifting
to items priced above the fee schedule.
Without this safeguard, we are
concerned that suppliers might simply
start furnishing the items priced above
the fee schedule rather than those that
would normally be furnished because of
the potential for higher profits. In
addition to increased expenditures,
because of a shift to items with higher
payment amounts, we might exceed the
total amounts that we had been paying
for particular products as a group within
a product category. This could also
result in less appropriate products being
furnished to Medicare beneficiaries. We
believe that this requirement is
necessary to structure a competitive
bidding program that reflects the
requirements of the statute.
Accordingly, we are adding a new
§ 414.412(b)(2), which provides that the
bid for an item cannot exceed the
payment amount that would otherwise
apply if the item was not included in
the competitive bidding program. In
addition, we are finalizing proposed
§ 414.414(f) with only technical
changes.
5. Assurance of Multiple Contractors
(§ 414.414(h))
Section 1847(b)(4)(B) of the Act
specifies that the Secretary will award
contracts to multiple entities submitting
bids in each area for an item. In
addition, section 1847(b)(2)(A)(iv) of the
Act specifies that contracts may not be
awarded unless access of individuals to
a choice of multiple suppliers is
maintained. As a result, we proposed
under proposed § 414.414(g)
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18043
(redesignated as § 414.414(h) in this
final rule) that we would have multiple
contract suppliers in each CBA for each
product category if at least two
suppliers met all requirements for
participation, and the single payment
amounts to be paid to those suppliers
did not exceed the fee schedule
amounts for the items that were bid. We
acknowledged that offering choices to
beneficiaries, referral agents, and
treating practitioners that order
DMEPOS for Medicare beneficiaries is
important to maintain competition
among suppliers based on the quality of
items. We stated that we had to weigh
that advantage against the disincentive
for a supplier to submit its best bid if
we select too many suppliers to service
a CBA. We believe we will be able to
have multiple suppliers servicing one
product category in a CBA and still
accomplish the goals of competitive
bidding.
Comment: Several commenters
recommended that CMS select more
suppliers than necessary to meet
minimum demand. The commenters
believed that this will ensure a
sufficient number of suppliers to
address contingency or emergency
situations, such as a natural disaster.
Several commenters recommended that
CMS use 130 percent of anticipated
capacity. A few commenters requested
that CMS cap estimated capacity per
supplier when selecting winning
bidders to preserve competition and
beneficiary choice. Some commenters
recommended that CMS cap each
supplier’s capacity at 20 percent, or 25
percent, of anticipated demand to
ensure that a small number of very large
suppliers do not become the only
winning bidders.
Response: We anticipate that we will
select a sufficient number of suppliers
to ensure beneficiary access. As we have
explained above, we may make
adjustments to a supplier’s projected
capacity in order to ensure that we
award contracts to a sufficient number
of suppliers. As explained below, we are
also modifying our proposed rule for
participation by small suppliers to set a
small supplier target which will be
calculated by multiplying 30 percent
times the number of winning suppliers
at or below the pivotal bid for each
product category. As a result, we will be
able to ensure that small suppliers have
an opportunity to participate in the
programs.
Comment: Several commenters
observed that the proposed rule does
not mention whether CMS will consider
the geographic distribution of suppliers
when determining the number of
contract suppliers for each product
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category in each CBA. They believed
that geographic distribution is important
to maintain local presence and for
beneficiary convenience. They
suggested that CMS analyze capacity at
the zip code level to ensure that each
zip code is served by several contract
suppliers. They also stated that there is
precedent for determining geographic
distribution, citing that the TRICARE
standard and the Medicare Part D
program have established guidelines for
the required number of retail
pharmacies, depending on the type of
area. One commenter also suggested that
any competitive bidding program for
diabetic testing supplies include a
requirement that a minimum number of
community-based suppliers be included
and those suppliers be geographically
dispersed within the CBA to provide
convenient access for Medicare
beneficiaries.
Response: We believe that we have
created a contract supplier selection
methodology that will ensure that
beneficiaries have convenient access to
competitively bid items. Contract
suppliers will also be required to
furnish all items to all beneficiaries who
maintain a permanent residence in a
CBA (or who visit a CBA) unless an
exception set forth in this final rule
applies. If a beneficiary is unable to
come to the storefront of the contract
supplier, we would expect that the
contract supplier would deliver the item
to the beneficiary and, if necessary, set
up the item in the beneficiary’s
residence and train the beneficiary how
to use the item. This will ensure
beneficiary convenience and access to
competitively bid items. We reviewed
the TRICARE access standards and
believe the standards are not
appropriate for meeting the purposes of
the Medicare DMEPOS Competitive
Bidding Program. The retail pharmacy
industry is different from the DMEPOS
supplier industry. The retail pharmacy
industry provides access through
storefront presence where they provide
a variety of consumer products. In
contrast, most DMEPOS suppliers
deliver medical products to the
beneficiaries’ homes.
After consideration of the public
comments we received, we are
redesignating proposed § 414.414(g) as
§ 414.414(h)(1) and revising it to
provide that CMS will award at least
five contracts for the furnishing of a
product category under a competitive
bidding program if the requirements in
§§ 414.414(b) through (f) are met by at
least 5 suppliers. We are also adding a
new § 414.414(h)(2), which provides
that if the requirements in §§ 414.414(b)
through (f) are not by at least 5
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suppliers, we will award contracts to at
least 2 qualified suppliers. Finally, we
are adding a new § 414.414(h)(3), which
provides an exception for mail order
suppliers to the requirement that if there
are at least 5 qualified suppliers, we will
award contracts to at least 5 qualified
suppliers.
6. Selection of New Suppliers After
Bidding (§ 414.414(i))
In the May 1, 2006 proposed rule (71
FR 25678), we proposed to select only
as many suppliers as necessary to
ensure we have enough capacity to meet
projected demand. However, we noted
that we might have to suspend or
terminate a contract supplier’s contract
if that supplier falls out of compliance
with any of the requirements identified
in the regulation and in the bidding
contract. Alternatively, we recognized
that we could later determine that the
number of contract suppliers we
selected to furnish a product category
under a competitive bidding program
was insufficient to meet beneficiary
demand for those items. In situations
where CMS determines that there is an
unmet demand for items, for example, if
CMS terminates a contract supplier’s
contract, we proposed to contact the
remaining contract suppliers for that
product category to determine if they
could absorb the unmet demand. If the
remaining contract suppliers could not
absorb the unmet demand in a timely
manner, we proposed to refer to the list
of suppliers that submitted bids for that
product category in that round of
competitive bidding in that CBA, use
the list of composite bids that we
arrayed from lowest to highest, and
proceed to the next supplier on the list.
We would contact that supplier to
determine if it would be interested in
becoming a contract supplier. If the
supplier was interested, we proposed to
require the supplier to provide updated
information to ensure its continued
eligibility for participation. A condition
for acceptance of a contract would be
that the supplier must agree to accept
the already determined single payment
amounts for the individual items within
the product category in the CBA. We
would continue to go down the list until
we were satisfied that the expected
demand would be met and beneficiary
access to the items in the product
category would not be a problem. After
consultation with the DMEPOS industry
and PAOC, we were informed that
additional capacity should not be a
problem as suppliers would be willing
and able to handle the expected
demand.
Another option that we considered,
but did not propose, was to conduct a
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new round of bidding to select
additional suppliers. However, we did
not choose this option because it would
delay the resolution of an access
problem and place an additional
administrative burden on the program.
Comment: One commenter argued
that it would be a violation of the statute
to award contracts to a new supplier
after contracts have been awarded
without conducting a new competition.
The commenter stated that the law
requires that CMS conduct a
competition for the award of any
contracts for a competitively bid item.
Therefore, the commenter believed an
award to the bidder next-in-line when a
contract supplier leaves the program or
CMS find that it needs additional
suppliers would not constitute a
competitive acquisition.
Response: We agree that contracts
cannot be awarded to a supplier that did
not compete. We disagree that this
regulation requirement results in
awarding a contract to a supplier that
did not submit a bid. These suppliers
have competed and met all applicable
eligibility, quality, financial, and
accreditation requirements to be
awarded a contract. We intend to only
use this methodology when we find that
there is a need for additional contract
suppliers because a contract supplier’s
contract is suspended or terminated or
when CMS finds it needs additional
contract suppliers to meet beneficiary
demand for a particular product
category in a CBA. It would not be in
the best interest of beneficiaries to delay
awarding the additional contracts when
we need to ensure sufficient capacity
because a contract supplier’s contract
has been suspended or terminated or
there is greater need in an area than we
anticipated.
Comment: One commenter stated that
CMS should have a process identified if
there are no suppliers located in a CBA
willing to accept the single payment
amount and enter into a competitive
bidding contract.
Response: We would not be able to
have competitive bid pricing in a CBA
in which no suppliers could accept the
single payment amount.
In summary, after consideration of the
public comments received, we are
redesignating proposed § 414.414(h) as
§ 414.414(i) and adopting it as final with
only technical changes.
VIII. Determining Single Payment
Amounts for Individual Items
A. Setting Single Payment Amounts for
Individual Items (§§ 414.416(a) and (b))
Section 1847(b)(5)(A) of the Act
requires that the Secretary determine a
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single payment amount for each item in
each CBA based on the bids submitted
and accepted for that item, and we
proposed in § 414.416(a) and (b) to
implement this statutory requirement.
Once contract suppliers are selected for
a product category based on their
composite bid and the pivotal bid,
single payment amounts for individual
items in the product category must be
determined. We considered several
different methodologies for determining
the single payment amounts. Each of the
options we considered is discussed in
detail in this section. After careful
consideration of these options, we
proposed to adopt the following
principles to determine the single
payment amounts for individual items
in a product category:
Principle 1
Bid amounts from all winning bids for
an item in a CBA will be used to set the
single payment amount for that item in
the CBA.
Principle 2
We must expect to pay less for each
individual item than we would have
otherwise paid for that item under the
current fee schedule. Single payment
amounts cannot be higher than our
current fee schedule amounts for
individual items within a product
category.
To satisfy these principles, we
evaluated several different approaches
to setting payment amounts. As a result
of our review, we decided on a preferred
approach that would determine the
single payment amounts for individual
items by using the median of the
supplier bids that are at or below the
pivotal bid for each individual item
within each product category. The
individual items would be identified by
the appropriate HCPCS codes. The
median of the bids submitted by the
18045
contract suppliers for a particular item
would be the single payment amount
that we would establish under the
competitive bidding program for the
HCPCS code that describes that item. In
cases where there is an even number of
winning bidders for an item, we would
employ the average (mean) of the two
bid prices in the middle of the array to
set the single payment amount. In
addition, we proposed that the single
payment amount for each item must be
less than the current fee schedule
amount for that item.
We believe that setting the single
payment amount based on the median
of the contract suppliers’ bids satisfies
the statutory requirement that single
payment amounts are to be based on
bids submitted and accepted. This will
result in a single payment for an item
under a competitive bidding program
that is representative of all acceptable
bids, not just the highest or the lowest
of the winning bids for that item.
TABLE 8.—MEDIAN OF THE WINNING BIDS
Item
A
Supplier 4 bid ...................................................................................................
Supplier 1 bid ...................................................................................................
Supplier 3 bid ...................................................................................................
Median of winning bids—Single payment amount ..........................................
While this was our proposed
approach, we solicited comments on
other methodologies for setting the
single payment amount, including using
an adjustment factor as part of the
methodology for setting the single
payment amount. This was the
methodology we used for the
competitive bidding demonstrations,
and it would have required the
following steps. The first step of this
methodology would have been to
calculate the average of the winning
B
$1.00
1.00
2.00
1.00
bids per individual item. The second
step would have been to calculate the
average of the composite bids by taking
the sum of the composite bids for all
contract suppliers in the applicable CBA
and dividing that number by the
number of contract suppliers. The third
step would have been to determine an
adjustment factor, the purpose of which
would be to bring every winner’s overall
bids for a product category up to the
pivotal bidder’s composite bid. Once we
determined the adjustment factor, we
Actual composite bid
C
$2.00
4.00
2.00
2.00
$2.00
1.00
2.00
2.00
$1.50
1.90
2.00
would have taken the average of the
winning bids per item and multiplied
that by the adjustment factor to adjust
all bids up to the point of the pivotal
bid, so that all winners would be paid
by Medicare as much for the total
product category as the pivotal bidder.
This amount would have become the
single payment amount for the
individual item. This is the price that all
contract suppliers within a CBA would
have been paid for that product as
illustrated in Table 9. ?≤
TABLE 9.—ADJUSTING THE AVERAGE WINNING BIDS
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Item
A
Supplier 4 bid .......................................................................
Supplier 1 bid .......................................................................
Supplier 3 bid .......................................................................
Supplier 2 bid .......................................................................
Average of winning bids ......................................................
Adjustment factor = (Pivotal Composite Bid)/(Average
Composite Bid) .................................................................
Adjusted average bids-single payment amount per item ....
This approach would have ensured
that the overall payment amounts that
contract suppliers received were at least
as much as their bids. As a result, this
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B
Frm 00055
Actual composite bid
$1.00
1.00
2.00
N/A
1.33
$2.00
4.00
2.00
N/A
2.67
$2.00
1.00
2.00
N/A
1.67
........................
........................
........................
........................
1.80
$1.50
1.90
2.00
N/A
........................
1.11
1.48
1.11
2.96
1.11
1.85
........................
........................
........................
........................
may have guarded against suppliers
leaving the Medicare program because
the payment amounts are not sufficient.
However, we did not favor this
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C
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alternative because, in general, most
payment amounts would have been
higher than the actual bids as a result of
the adjustment factor being greater than
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zero. This would have been true because
the purpose of the adjustment factor
would have been to make the composite
bid of all winning suppliers equivalent
to the composite bid of the pivotal
supplier. We chose not to propose this
approach because we believe that this
approach is not reflective of all of the
winning bids accepted. In addition, we
stated that we were concerned that this
methodology might be confusing and
overly complicated.
We also considered taking the
minimum winning bid for each item in
a CBA and not applying an adjustment
factor. We did not favor this alternative
because we also did not consider it as
being reflective of the actual bids
accepted because it is only reflective of
the lowest bid. The lowest bid would
not be reflective of what suppliers
would sell the item for as most of them
bid higher.
Finally, we considered taking the
maximum winning bid for each item.
However, this approach would have led
to program payment amounts that were
higher than necessary because some
suppliers were willing to provide these
items to beneficiaries at a lower cost.
In the proposed rule, we indicated
that we were still in the process of
determining the appropriate approach
for setting payment amounts, as well as
the alternatives considered and outlined
above, and invited comments on our
proposed methodology.
Comment: Several commenters
expressed concerns that the proposed
method to determine the single payment
amount would result in suppliers
submitting low bids and only offering
the lowest cost devices. They believed
that quality and access would be
impacted by the use of the median bid.
They further indicated that requiring
savings on each item rather than in the
aggregate encourages suppliers to bid on
the oldest, lowest priced product within
each HCPCS code. The commenters
suggested that CMS base savings at the
product category level and not for each
individual code.
Response: We disagree with these
commenters. We recognize the necessity
for a process to identify and eliminate
irrational, infeasible bids. As required in
§ 414.414(b)(4), each supplier must
submit a bona fide bid that is complies
with all the terms and conditions
contained in the RFB. Also, as discussed
in section XIV of this final rule, we will
establish a formal complaint and
monitoring system for each CBA.
Specifically, we will direct the CBIC to
establish a monitoring program that
includes beneficiary satisfaction
indicators and supplier performance
indicators.
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The Medicare DMEPOS Competitive
Bidding Program is designed to ensure
that the Medicare payment amounts are
appropriate and reasonable. In addition,
competitive bidding will harness market
forces and create competition among
suppliers. We believe that this
competition will prevent suppliers from
offering the lowest cost devices, as
suppliers will be interested in
increasing their market share by offering
appropriate services and high quality
products to maintain and increase their
customer base.
In addition, and as discussed more
fully in section IX. of this final rule, we
will include a nondiscrimination clause
in the contracts we enter into with
contract suppliers. Under that
provision, contract suppliers will be
obligated to make the same items
available to beneficiaries under the
Medicare DMEPOS Competitive Bidding
Program that they make available to
other customers. We believe that the
inclusion of this clause will help to
ensure that Medicare beneficiaries have
access to the highest quality DMEPOS
items. Section 1847(b)(2)(A)(iii) of the
Act states that the total amounts to be
paid to contractors in a competitive
acquisition area are expected to be less
that the total amounts that would
otherwise be paid. In order to guarantee
that we implement this section to
ensure that we achieve savings for the
Medicare program, we must require bids
to be at or below the current fee
schedule for the item. This will
preclude our setting single payment
amounts for certain items above the fee
schedule and causing contract suppliers
to attempt to shift utilization to these
items because of the higher payment
amounts. Without this safeguard, we are
concerned that suppliers might simply
start furnishing an alternative item,
because the physician’s order may not
be item specific, within the same
product category because the item may
have a greater potential for higher
profits. In addition to increased
expenditures, this could also result in
less appropriate items being furnished
to Medicare beneficiaries.
In addition, we believe that basing
product savings at the item level will
guarantee assurance of savings for the
Medicare DMEPOS Competitive Bidding
Program because accepting bids above
the fee schedule for certain products
may result in these items being
furnished as an alternative to other
items within the product category,
which would increase their utilization
and expenditures compared to the
current levels.
Comment: Several commenters argued
that the use of the median bid to set the
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single payment amount is flawed
because the median bid could be
vulnerable to a variety of gaming
strategies. They noted that, when using
the median, 50 percent of winning
bidders would have to accept less than
their bids to participate. They indicated
that if a contract supplier is not able to
provide the items at the median,
demand would not be met and access
would be impaired. The commenters
raised concerns that all bids would have
the same weight, and bids from small
suppliers, which only serve a few Part
B beneficiaries, would have the same
impact on the calculation as bids from
suppliers responsible for a large number
of beneficiaries, which would give too
much weight to small suppliers. Other
commenters suggested that the use of
the median bid favors large chain
suppliers that deliver large volume of
items. Other commenters suggested that
CMS include a mechanism to
‘‘rationalize’’ bids to ensure there are no
unreasonably low bids. They added that
CMS should have a mechanism to
eliminate outlier bids. One commenter
suggested that CMS calculate the single
payment amount only from among those
bids that are ‘‘reasonable.’’ Numerous
commenters suggested that CMS use the
Adjustment Factor Method (AFM) that
was used during the demonstration.
Because suppliers were paid at least as
much as they bid in aggregate,
commenters believed that the AFM
would provide sufficient protections to
encourage small suppliers to bid. One
commenter suggested setting the
payment amount at the 90th percentile
of winning bids or not lower than 5
percent below the highest winning bid.
Another commenter recommended
calculation of the single payment
amount only from those bids that lie
within one standard deviation of the
mean of the bids. One commenter
supported the use of a median
calculation as a statistically valid
method for determining the single
payment amount. Lastly, some
commenters recommended that CMS
pay contract suppliers their bid amounts
or the single payment amount,
whichever is lower. These commenters
believed that this would be consistent
with the statutory payment basis of the
fee schedule or the actual charge,
whichever is less.
Response: We disagree with the
concerns raised by commenters
regarding the use of median bid to set
the single payment amount. We believe
that the use of the median takes into
consideration all bids submitted and
accepted and not just the high and low
bids. We further believe that the median
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is not influenced by outliers at the
extremes of the data set. For this reason,
the median is often used when there are
a few extreme values that could greatly
influence the mean and distort what
might be considered typical. We believe
the median of the accepted bids would
represent a reasonable payment amount
and does not favor large or small
suppliers, and we believe this approach
is more equitable than other approaches
suggested in the comments. Regarding
access, if a winning supplier does not
enter into a contract because it is not
able to furnish the items at the median,
we believe that access will not be
adversely affected because we will be
selecting a sufficient number of contract
suppliers to ensure that demand is met
in the CBA. In addition, we believe that
most, if not all, of the winning suppliers
will be willing to furnish items in the
product category at the single payment
amounts.
In addition, section 1847(b)(5)(A) of
the Act states that payment shall be
based on bids submitted and accepted.
The single payment amount will be
determined from only those bids that
are considered ‘‘acceptable,’’ meaning
that the supplier meets all quality,
financial, and eligibility standards and
that the bid is in the wining range. For
this reason, we believe that the single
payment amount should be
representative of all of the accepted bids
and not just the highest or the lowest
bids. We further believe that using the
adjustment factor is not reflective of the
actual bids accepted because it is only
reflective of the pivotal bid. We do not
believe that the adjustment factor is
necessary to ensure that small suppliers
have the opportunity to be considered
for participation in the competitive
bidding program because the median
represents a reasonable payment based
on accepted bids from suppliers that are
at or below the pivotal bid. We note that
we discuss special provisions for small
suppliers in section XI. of this final rule.
We will only be entering into contracts
with those suppliers that agree to accept
the single payment amount. Moreover,
as we explain above, we believe that
using the median bid would not result
in an insufficient payment, and we also
believe that our contract supplier
selection methodology will ensure that
we have a sufficient number of contract
suppliers to meet the demand for
competitively bid items in each product
category in each CBA.
Further, we disagree with the
commenters’ suggestion that we would
have the authority under the Act to pay
suppliers the lower of their bid amounts
or the single payment amount. Section
1847(b)(5)(A) of the Act requires the
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Secretary to determine a single payment
amount for each item in each CBA based
on the bids submitted and accepted for
that item. A ‘‘single payment amount’’
is one amount, and does not lend itself
to an interpretation that would allow us
to pay the lesser of the two amounts.
We recognize the necessity for a
process to identify and eliminate
irrational, infeasible bids. Accordingly,
we will be evaluating bids to ensure that
they are bona fide, and we may request
that a supplier submit additional
financial information, such as
manufacturer invoices, so that we can
verify that the supplier can provide the
product to the beneficiary for the bid
amount. If we conclude that a bid is not
bona fide, we will eliminate the bid
from consideration.
Comment: Several commenters
suggested that a flaw in using the
median methodology is that it is highly
dependent on whether there are an even
or odd number of suppliers in the final
array.
Response: As included in our
discussion in the preamble of the
proposed rule regarding the use of the
median, in cases where there is an even
number of winning bidders for an item,
we would employ the average (mean)
for the two bid prices in the middle of
the array to set the single payment
amount. We are adding this rule to the
final regulations at § 414.416(b)(1). As
noted in the response to the previous
comment, we believe that the use of the
median is not a flawed methodology.
Comment: One commenter suggested
that CMS follow defined procedural
rules to select winning suppliers and
determine the single payment amount,
similar to the process that it has
developed for the National Coverage
Determination (NCD) process. For
example, the commenter suggested that
CMS ensures that the public is informed
at the time it initiates the process,
provides for public input, and arranges
for all of these processes to occur during
a defined time period.
Response: This final rule outlines a
defined process that we will follow to
select contract suppliers and determine
the single payment amounts for each
item in each product category in each
CBA. In addition, we are developing an
extensive educational program that will
educate and inform the public about the
processes that will be used to conduct
the bidding and to determine the
winning suppliers. Our plans for
education are described in more detail
in the DMEPOS section of the FY 2007
IRF final rule (71 FR 48354).
After consideration of the public
comments we received, we are
finalizing our methodology for setting
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the single payment amount in
§§ 414.416(a) and (b), by adopting
paragraph (a) in final (with technical
revisions), revising paragraph (b)(1) to
address how the single payment will be
computed when there is an even
number of winning bids. We are also
adding new § 414.414(b)(4), which
provides that each supplier must submit
a bona fide bid that complies with all of
the terms and conditions in the RFB.
B. Rebate Program
In the May 1, 2006 proposed rule (71
FR 25680), we proposed to allow
contract suppliers that submitted bids
for an individual item below the single
payment amount to provide the
beneficiary with a rebate (proposed
§ 414.416(c)). We stated in the preamble
of the proposed rule that the rebate
would be equal to the difference
between their actual bid amount and the
single payment amount. The following
example illustrates how the rebates
would be applied under this proposed
approach:
If, based on the bids received and
accepted for an item, we determined
that the single payment amount for the
item was $100, Medicare payment for
the item would be 80 percent of that
amount, or $80, and the coinsurance
amount for the item would be 20
percent, or $20. However, if a contract
supplier submitted a bid of $90 for this
item and chose to offer a rebate, the
rebate amount would be equal to the
difference between the single payment
amount ($100) and the contract
supplier’s actual bid ($90), or $10.
Therefore, after the contract supplier
received the Medicare payment of $80
and the $20 coinsurance, the contract
supplier would be responsible for
providing the beneficiary with a $10
rebate. We solicited comments on how
to handle those cases in which the
rebates would exceed the copayment
amount.
Before deciding to propose this
methodology, we considered whether to
make the rebates mandatory or
voluntary. We proposed that the rebates
be voluntary but that contract suppliers
could not implement them on a case-bycase basis. If a contract supplier
submitted a bid below the single
payment amount and chooses to offer a
rebate, it must offer the rebate to all
Medicare beneficiaries receiving the
competitively bid item to which the
rebate applies. This commitment would
be incorporated into the contract
supplier’s contract. Stated another way,
while the decision to offer rebates might
be voluntary, once a contract supplier
decides to provide rebates, the rebates
would become a binding contractual
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condition for payment during the term
of the contract with CMS. Moreover, the
contract supplier could not amend or
otherwise alter the provision of rebates
during the term of the contract. Contract
suppliers would also be prohibited from
directly or indirectly advertising these
rebates to beneficiaries, referral sources,
or prescribing health care professionals.
However, this would not preclude CMS
from providing to beneficiaries
comparative information about contract
suppliers that offer rebates.
We proposed that only contract
suppliers that submitted bids below the
single payment amount for a
competitively bid item would have the
choice to offer rebates. Contract
suppliers that submitted bids above the
single payment amount would not be
allowed to issue rebates because their
actual bids for an individual item would
be above this amount.
Our reason for proposing to allow
these contract suppliers to offer rebates
was to allow beneficiaries the ability to
realize additional savings and the full
benefits of the Medicare DMEPOS
Competitive Bidding Program.
We solicited comments concerning
the rebate process outlined in the
proposed rule. We indicated that we
would continue to evaluate the fraud
and abuse risks of the proposed rebate
program, and we specifically solicited
comments on such risks.
Following is a summary of the public
comments received.
Comments: Several commenters
expressed concern over the proposed
rebate program. They argued that the
rebate program would be illegal and
violate the antikickback statute, the
beneficiary inducement statute, and the
Medicare provisions of the Social
Security Act governing the waiver of
copayments. They argued that the rebate
program would promote fraud and
abuse by encouraging beneficiaries to
purchase unnecessary supplies and the
program will entice suppliers to ‘‘game’’
the program. They further stated that the
OIG has issued numerous opinions that
emphasize ‘‘that providing things of
value to beneficiaries in exchange for
referrals is unlawful.’’ The commenters
believed that rebates also create tension
with the Federal Anti-Kickback safe
harbor statute. They pointed out that, to
qualify for a safe harbor, a rebate must
be disclosed in writing prior to the
initial purchase. They added that the
proposed rule expressly prohibits a
supplier from advertising either directly
or indirectly to beneficiaries. One
commenter supported the inclusion of
the rebate provision in the program as
an innovative means to control
beneficiary’s out-of-pocket expenses and
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to reward bidders that submit good
faith, competitive bids.
Several commenters suggested that
rebates encourage suppliers to offer
lower cost, less innovative products,
particularly from large manufacturers.
Several commenters suggested that the
use of rebates leads to beneficiaries
selecting suppliers based solely on
availability of rebates, rather than
quality of care. The commenters
indicated that this could lead to poorer
patient outcomes. They added that large
manufacturers can spread the cost of
discounts across many products, but
small manufacturers may have only one
or two products that would not support
rebates. The commenters asserted that
OIG states that the use of giveaways also
favors large providers with greater
financial resources for such activities,
disadvantaging smaller providers and
businesses. They further added that the
rebate program may provide an
incentive to large suppliers to ‘‘lowball’’
their bids, resulting in reduced
marketplace competition by small
suppliers.
One commenter suggested that if CMS
offers a rebate, it should not be
voluntary. Requiring suppliers to supply
a rebate would assure that the suppliers
are not bidding low just to be selected
and then have their payments raised to
the median level automatically. The
commenter believed that this would
prevent deliberate low-ball bidding.
Several commenters questioned
whether rebates should become a
binding contractual commitment when
an express contractual provision would
not exist.
Several commenters suggested that a
rebate would be logistically impossible
for a supplier to implement in its
information system, branch operation,
and accounts receivable processes. They
added that physicians would have no
way of keeping the rebate logistics
straight. The commenters believed that
CMS would also experience difficulties
in monitoring the program. Another
commenter inquired in what form CMS
would require the rebate to be
distributed, that is, gift certificate to
family store, a money order, check,
cash, among others. The commenter also
asked if claims are denied and a rebate
already paid, who would be responsible
for collecting from the patient.
Several commenters suggested that
suppliers that pay rebates are less likely
to provide service in those areas where
the supplier has bid above the contract
price and will focus on those items
where the payment amount is greater
than the supplier’s bid amount.
Several commenters suggested that
logistical challenges would exist with
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implementation of rebates. The
commenters stated that one supplier
serving beneficiaries within the CBA
and outside the CBA would have two
different sets of rules because only CMS
may inform the beneficiaries which
suppliers offer a rebate. They asked how
a supplier should answer a direct
question about rebates when posed by a
referral source or patient. They added
that often the cost to issue a rebate
check exceeds the value of the check
issued and asked how suppliers will
integrate a rebate with the patient’s Part
B supplemental insurance plan where
the plan pays 100 percent of the
copayment or when the copayment is
waived because of financial hardship.
One commenter suggested that the
rebate provision violates the single
payment amount provision of the Act by
permitting different payment amounts
for different contract suppliers.
One commenter suggested that the
rebate proposal may also have the effect
of allowing retail store DMEPOS
suppliers to ‘‘cherry pick’’ that portion
of the DMEPOS business that is least
costly to provide, driving up the costs
of providing full-line services without
any comparable savings to the program.
Several commenters suggested that
rebates should not exceed the
copayment amount in order to reduce
risks of overutilization. They believed
that the current proposal could
eliminate all copayments in some cases
and lower the copayment below the
amount that would otherwise typically
apply in every case. Several commenters
suggested that the rebate runs counter to
a fundamental principle of the Medicare
program that requires beneficiary
coinsurance. They pointed out that the
purpose behind the 20-percent
copayment is to discourage excessive or
unnecessary utilization and stated that
CMS is not authorized to change the
Medicare Part B plan design by using
rebates that would reduce or eliminate
copayments.
Although we proposed that the rebate
program be voluntary, one commenter
suggested that our proposal to
disseminate information about suppliers
that participate in the rebate program
would create an unfair marketing
advantage to those suppliers.
Response: After considering the
comments we received, we have
decided that rebates will not be
authorized under the Medicare
DMEPOS Competitive Bidding Program
and the provisions of proposed
§ 414.416(c) are not included in this
final rule. We believe that competition
will drive suppliers to compete for
beneficiaries based on value and
quality. We also recognize that requiring
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rebates might raise fraud and abuse
concerns. In addition, we have concerns
that rebates may provide incentives to
beneficiaries to obtain unnecessary
items.
In summary, we are not adopting in
this final rule the provisions of
proposed § 414.416(c).
IX. Terms of Contracts
Section 1847(b)(3)(A) of the Act gives
the Secretary the authority to specify the
terms and conditions of the contracts
used for competitive bidding and we
proposed in § 414.422(a) to implement
this provision. Section 1847(b)(3)(B) of
the Act requires the Secretary to
recompete contracts under the Medicare
DMEPOS Competitive Bidding Program
at least every 3 years and we proposed
in § 414.422(b) to implement this
provision. The length of the contracts
may be different for different product
categories, and we proposed to specify
the length of each contract in the RFBs.
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A. Terms and Conditions of Contracts
(§§ 414.422(a) Through (c))
In the May 1, 2006 proposed rule (71
FR 25680), we proposed that the
competitive bidding contracts will
contain, at a minimum, provisions
relating to the following:
• Covered product categories and
covered beneficiaries operating policies.
• Subcontracting rules.
• Cooperation with us and our agents.
• Potential onsite inspections.
• Minimum length of participation.
• Terms of contract suspension or
termination.
• Our discretion not to proceed if we
find that the Medicare program will not
realize significant savings as a result of
the program.
• Compliance with changes in
Federal laws and regulations during the
course of the agreement.
• Nondiscrimination against
beneficiaries in a CBA (so that all
Medicare beneficiaries inside and
outside of a CBA area receive the same
products that the contract supplier
would provide to other customers).
• Supplier enrollment and quality
standards.
• The single payment amounts for
covered items.
• Other terms as CMS may specify.
Comment: One commenter asked if a
supplier that is a subcontractor to
another supplier can submit a bid to
furnish items in one product category in
a CBA and also be a subcontractor to
another supplier that submits a bid to
furnish items under another product
category. Another commenter also asked
if a losing bidder can become a
subcontractor to a contract supplier.
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One commenter asked about the
ramifications to a subcontractor if the
contract supplier violates its contract
with CMS. One commenter stated that
the requirements for subcontractors
need to be clearly defined. The
commenter asked if subcontractors
would need to satisfy the same
accreditation and financial standards
required of contract suppliers and, if so,
how CMS would enforce this.
Response: Our rules would not
preclude a supplier from submitting an
individual bid for a product category in
a CBA and also becoming a
subcontractor to another supplier that
submits a bid in the same CBA for the
same product category. As an example,
a supplier can bid to become an oxygen
contract supplier and be awarded a
contract and still be a subcontractor for
another oxygen contract supplier. In
addition, a supplier that submits a bid
and loses can become a subcontractor to
a contract supplier. We will not evaluate
subcontractors to determine if they meet
the accreditation, quality, financial, and
eligibility standards because a
subcontractor to a contract supplier
cannot itself be a contract supplier and
cannot submit claims under the
Medicare DMEPOS Competitive Bidding
Program. However, a supplier may not
subcontract with any supplier that has
been excluded from the Medicare
program, any State health program or
any other government executive branch
procurement or nonprocurement
activity. In addition, the subcontractor
will not have to submit a bid to be a
subcontractor. However, the contract
supplier will be responsible for
fulfilling all of the terms of its contract,
even if it uses one or more
subcontractors. In other words, if a
contract supplier breaches its contract
due to its subcontractor’s failure to
perform, the contract supplier will be
held liable for the breach. Therefore, the
contract supplier needs to ensure that
the subcontractor is performing its
duties appropriately. In their response
to the RFB, bidders must submit any
plans for subcontracting.
Comment: One commenter stated that
a number of different proposed contract
terms were not listed in the proposed
rule. The commenter presumed that the
actual contract provisions will be
subject to a separate notice of proposed
rulemaking in order to permit suppliers
to offer more productive comments. One
commenter suggested that CMS clearly
define contract requirements so that
suppliers can ensure that they meet
Medicare guidelines.
Response: In the proposed rule, we
discussed the details of the Medicare
DMEPOS Competitive Bidding Program
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and identified a number of provisions
that will be included in the contract. We
also stated that we might specify other
terms in the contracts themselves. We
do not believe that an additional
rulemaking is required in order to
specify other terms and conditions that
might be included in the contracts. In
addition, we believe that our discretion
to specify the contract terms and
conditions would allow us to specify
the terms and conditions for each new
competition.
Comment: One commenter stated that
some bidders are likely to be large
nationwide or regional entities that are
publicly traded companies. The
commenter encouraged CMS to limit
information concerning ownership to
those owners required to be disclosed in
regular filings with the Securities and
Exchange Commission.
Response: Our purpose for requesting
information about key personnel is not
the same as that for the Securities and
Exchange Commission. We need to
obtain information about key personnel,
both corporate and local, in order to
determine the appropriateness of the bid
submission and to ensure no key
personnel have been the subject of legal
actions, or have been sanctioned or
convicted of a crime. This information
will also be useful in determining
common ownership to ensure that
companies are not bidding against
themselves to furnish the same product
categories in the same CBA by
submitting different bids for commonly
owned separate locations.
Comment: Numerous commenters
urged that the contract length be the
same for all products in a CBA to
minimize confusion among
beneficiaries, referring physicians, and
suppliers. The commenters stated that,
because there are many variables that
stakeholders will have to understand
(such as which products are part of
competitive bidding, boundaries of
CBAs, among others), contracts of
different lengths of time within a CBA
will be time consuming, costly, and
confusing for all involved. One
commenter stated that the length of each
contract should be specified in the RFB.
Another commenter recommended that
CMS recompete the contracts more
frequently in the early stages of the
competitive bidding program, in order
to capitalize on what it learns during
this initial period.
Response: We agree that it is
important that we capitalize on what we
learn during the early stages of
competitive bidding. However, we want
to retain the option for staggering the
contract period for different product
categories to allow for any changes in
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coding or in technology and to facilitate
use of the authority to phase in items
under the programs. We would not have
different contract lengths for items
within the same product category
within the same CBA. The length of
each contract will be specified in the
RFB; however, no contract will be
longer than 3 years because section
1847(b)(3)(B) of the Act requires us to
recompete the competitive bid contracts
no less often than every 3 years.
Comment: One commenter proposed
that CMS require all suppliers in a
single CBA to be accredited in the same
year and then to place the contracts for
all product categories in that CBA on
the same 3-year cycle as the
accreditation requirement.
Response: We believe that this
commenter’s suggestion would be too
difficult to implement from a logistical
standpoint and too regimented an
approach to adopt. Suppliers have the
option of pursuing accreditation at any
time. However, they must be accredited
before we can award contracts under the
Medicare DMEPOS Competitive Bidding
Program, unless a grace period applies.
As we explained above, in the first
round of bidding, a supplier’s
accreditation must at least be pending
before a bid can be submitted. In
addition, a contract supplier that
obtains its accreditation must maintain
that accreditation for the remainder of
the contract period.
Comment: One commenter
recommended that no new products
should be added during a contract term.
The commenter stated that suppliers
may or may not have access to the new
products and, as a result, may not be
able to furnish them.
Response: We agree with this
comment. If a new product does not fit
under a code for which we have
conducted competitive bidding a single
payment amount will not be applied
until we conduct another round of
bidding A further discussion of our
rules regarding HCPCS codes changes
can be found in section VI.D.4 of this
final rule Under section 1847(b)(3)(B) of
the Act, we are required to recompete
the contracts no less often than every 3
years. For purposes of competitive
bidding, we cannot add additional
codes for items for which we have not
done bidding because we need to
conduct bidding before we can
determine the single payment amount
for these items. We would pay for these
codes under the DMEPOS fee schedule.
Comment: Several commenters stated
that our proposal to include in each
contract a nondiscrimination provision,
which would require that the
competitively bid items furnished by a
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contract supplier to Medicare
beneficiaries be the same items that the
contract supplier furnishes to other
customers is unrealistic. The
commenters argued that this provision
would impair beneficiary access to
DMEPOS and would limit the savings
that otherwise would be achieved
through competitive bidding. Another
commenter stated that the proposed rule
provided very little detail about what
would be expected or how CMS would
ensure that the nondiscrimination
contract provision is being met and
urged CMS to discuss the
nondiscrimination clause in more detail
so that suppliers and beneficiaries will
be able to understand what CMS has in
mind, and know what protections are
being afforded to beneficiaries by this
provision.
Response: We believe that Medicare
beneficiaries should receive the same
items that the contract supplier would
furnish to other customers and,
therefore, we proposed to include a
nondiscrimination provision in the
contracts. One of the main objectives of
the Medicare DMEPOS Competitive
Bidding Program is to ensure that
beneficiaries have access to quality
DMEPOS. Therefore, we have built
safeguards into the competitive bidding
program to ensure there is continued
access to quality medical equipment
and supplies. We believe the
nondiscrimination clause will ensure
that Medicare beneficiaries have access
to the same items as other individuals.
One mechanism that we would use to
enforce the nondiscrimination clause is
the complaint and monitoring system
that we plan to implement. Under this
system, which is discussed more fully
in section XIV. of this final rule,
beneficiaries, referral agents, providers,
and suppliers can assure us that the
supplier conducts business in a manner
that is beneficial to Medicare and
beneficiaries. We have added this
proposed requirement to the final
regulation at § 414.422(c).
Comment: One commenter noted that
CMS should consider nonprice
variables, such as a supplier’s
compliance with Medicare program
requirements when awarding contracts
for certain DMEPOS. The commenter
also recommended that CMS revise
§ 414.422(a) of the proposed regulations
so that it would require a contract
supplier to comply with the
accreditation requirements specified in
§ 414.414(c) for the duration of the
contract period. One commenter
suggested that CMS retain the discretion
to determine the likely value a
particular supplier’s compliance
program brings Medicare and consider
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its value as an individual variable in
determining whether the supplier is
eligible to receive a contract award.
Response: As proposed in
§ 414.422(a), contract suppliers must
comply with all the terms of their
contracts, including any option
exercised by CMS, for the full duration
of the contract period. Once accredited,
contract suppliers will be required to
retain that accreditation throughout the
duration of the contract. Accreditation
requirements are mandatory and an
important step forward to make sure we
have quality suppliers. Compliance
plans may be helpful to suppliers in
meeting Medicare requirements;
nevertheless, all suppliers have to meet
our applicable standards and
accreditation requirements. Therefore,
we do not consider it appropriate to give
extra weight in the selection process to
suppliers with compliance programs.
Comment: One commenter suggested
that CMS require contractors to
subcontract portions of contracts to
minority or female-owned businesses to
comply with Federal contracting
requirements.
Response: Due to size, complexity and
nature of this program, we do not
believe it would be feasible to require
subcontracting with minority or female
owned businesses and still meet our
other goals. We also note that these
contracts are not procurement contracts
and, therefore, are not subject to the
SBA or FAR requirements. Pursuant to
section 1847(b)(6)(D) of the Act, we are
only required to give small suppliers
certain considerations.
Comment: One commenter urged
CMS not to prohibit contract suppliers
from turning away beneficiaries, since
there will be more than one contract
supplier per CBA. The commenter
stated that there may be circumstances
in which a contract supplier is already
operating beyond capacity and would
not be able to furnish items to
additional beneficiaries. In addition, the
commenter noted that a contract
supplier may not believe that a
requested item is appropriate for the
beneficiary.
Response: We continue to believe that
contract suppliers should not be able to
turn away beneficiaries because we do
not want to create an opportunity for
contract suppliers to turn away
beneficiaries who have the most
difficult medical conditions or are
otherwise difficult to serve. We note
that we proposed that there would be a
limited exception to this requirement if
there is a particular item that a
physician or treating practitioner has
ordered to avoid an adverse medical
outcome, but is an item that the contract
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supplier does not normally furnish. In
this case, if the contract supplier could
not furnish the item, the requirements at
§ 414.420(b) of this final rule would
apply.
Comment: One commenter suggested
there be some mechanism in place to
prevent the awarding of contracts to
suppliers that do not provide at least
some percentage of the services
themselves. The commenter believed
that quality will be lost if winning
bidders are allowed to subcontract the
entire or a large portion of the product
category, and that beneficiaries will
receive lower quality items because the
winning bidder will make a profit on
items that it does not actually furnish.
Another commenter suggested that in
order to prevent abuse of the bidding
process, the competitive bidding
contracts should allow a winning
supplier to subcontract a portion of its
services only if the subcontractor
entities satisfy the same quality and
accreditation standards that must be
satisfied by the winning suppliers.
Response: As explained above, we
will request information on the RFBs
about the use of subcontractors. We
believe that the eligibility standards,
applicable accreditation standards and
financial standards will ensure that
contract suppliers are reputable, viable
businesses and not just companies that
subcontract their work. In addition, we
will hold the contract supplier
responsible for meeting all the terms
and conditions of its contract, whether
or not one of those terms is actually
performed by a subcontractor.
Comment: One commenter stated that
lack of timely DMEPOS access would be
harmful for beneficiaries who are
clinically ready to return to home or to
the community from the hospital. The
commenter also noted that delaying the
discharge of Medicare beneficiaries due
to restricted and untimely availability of
specific DMEPOS would produce
serious problems for beneficiaries’
continuity of care and also for the
hospital. The commenter stated that,
from a hospital perspective, it is
essential for CMS to ensure that
DMEPOS be available on a timely basis
and to sanction providers for untimely
service. The commenter recommended
that CMS take additional steps to
prevent these problems, including
imposing specific sanctions on contract
suppliers that fail to timely furnish
DMEPOS to these hospital patients,
because such delays would delay
discharge and jeopardize a patient’s
clinical progress. Another commenter
stated that beneficiaries should be
guaranteed prompt receipt of items, if in
stock, within a specified period of time
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after the order is received. The
commenter stated that delays could lead
to adverse events for beneficiaries.
Response: We do not believe it is
appropriate to establish a general
timeframe within which all
competitively bid items must be
delivered to beneficiaries. Due to the
individual characteristics of the
products and beneficiary circumstances,
the items will vary widely in terms of
whether they are in stock and must be
customized. However, a contract
supplier should furnish items to
beneficiaries in accordance with
timeframes that meet the ordering
physician’s, or treating practitioner’s,
prescription. We also note that under
the final quality standards (under
Consumer Services) that we issued, in
August 2006, and with which suppliers
must comply in order to participate in
the Medicare DMEPOS Competitive
Bidding Program, the supplier must
ensure it provides beneficiaries with
information regarding expected
timeframes for receipt of delivered items
and the supplier must verify that
beneficiaries have received the items. In
addition, under § 424.57(c)(12) of our
regulations, which suppliers must also
satisfy in order to participate in the
program, suppliers are responsible for
the delivery of Medicare-covered items
to beneficiaries and must maintain proof
of delivery. The quality standards also
require the supplier to ensure that it
provides beneficiaries with the
necessary information and instructions
on how to use Medicare-covered items
safely and effectively.
Comment: One commenter stated that
FDA regulations require manufacturers,
not suppliers, to evaluate product
complaints and inform the FDA if the
problems are considered to be
reportable events. The commenter noted
that CMS should require suppliers to
inform the relevant DMEPOS
manufacturer of any problem with
equipment or supplies, including any
adverse effects involving Medicare
beneficiaries, so that the manufacturers
will be in a position to address the
problem, report to the FDA, or take
other corrective action if needed. The
commenter also noted that CMS should
in no way imply that a product warranty
is the supplier’s legal obligation, as
opposed to that of the product
manufacturer.
Response: The Medicare Claims
Processing Manual, Chapter 20-Section
40.1 provides that suppliers are
prohibited from submitting a claim for
a payment for items and services that
are covered by manufacturer or supplier
warranties. The supplier on record is
responsible for ensuring that a claim is
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18051
not submitted for items covered under
a manufacturer’s product warranty. To
be eligible to submit a bid, DMEPOS
suppliers must meet the supplier
standard found in 42 CFR 424.57(c)(1),
which require them to comply with
applicable Federal and State licensure
and regulatory requirements. FDA
regulations and requirements are
applicable to items paid for under the
competitive bidding program just as
they currently apply to items paid for
under the fee schedule methodology.
Comment: One commenter noted that
the proposed rule would require
suppliers to provide information as
requested regarding the integrity of each
product sold and billed under the
Medicare DMEPOS Competitive Bidding
Program, as well as information on the
integrity of the suppliers’ businesses as
a whole. The commenter believed that
suppliers should not be required to
provide information on product
integrity as long as there is a SADMERC
coding verification that the product has
been approved for billing under a
particular HCPCS code. The commenter
also believed that a rule that would
require suppliers to provide information
on their business integrity was
inappropriate because it would
duplicate information provided during
certification and accreditation.
Several commenters requested that
CMS clarify whether it intends for all
suppliers to have a corporate
compliance program, a mission
statement and operating principles, and/
or other ethical aspects of their
business; or clearly defined
organizational conflicts of interest. One
commenter recommended that the
definition of ‘‘affiliate’’ be simplified for
public companies with multiple
locations tied to a single tax
identification number so that suppliers
do not have to provide the names or
supplier numbers of all locations on an
application for a single CBA. The
commenters requested that CMS
provide additional detail regarding the
level of employee information it expects
to be specified, for example, the highest
ranking local manager and title or the
chief executive officer or chief operating
officer of a public company; and that
CMS define the term ‘‘customer service
protocol’’ because different companies
define the customer service process
differently.
Several commenters recommended
that CMS also require each supplier to
provide: a description of its corporate
compliance program; its procedure for
ensuring that it does not knowingly
employ any individuals who have been
debarred from participating in
government programs; its procedure for
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conducting background checks on
employees who will have direct contact
with beneficiaries; awards, honors, or
other distinctions issued to the
company; a description of its
credentialing program if a subcontractor
will be used to furnish items to
beneficiaries; a description of its
emergency preparedness plan; and a
description of its process for selecting
products. These commenters also
recommended that CMS independently
verify each supplier’s disclosure by
using objective measures. Two
commenters suggested that CMS explain
and define the requirements and terms
that would be included in the RFBs,
including the conflicts of interest and
affiliated companies of the supplier.
One commenter suggested that CMS
consider requesting complete disclosure
on corporate integrity agreements,
entered into by the supplier as well as
OIG convictions against the supplier,
and that CMS conduct criminal
background checks.
Response: We appreciate these
comments. After consideration of the
comments, we believe that the most
appropriate place to list the specific
information that we will need from each
supplier is in the RFB. Our purpose in
collecting such information is to
evaluate suppliers’ bids, and we have
attempted to minimize the burden on
bidders as much as possible. Therefore,
the specific information to be collected
will be detailed in the RFB. We will be
requesting information such as: the
supplier’s identifying information;
information regarding the items that the
supplier would furnish if awarded a
contract; financial information; and
corporate integrity information
We believe that many of these items
are best addressed in the quality
standards and accreditation standards.
We are using the RFB notice and
comment period to finalize the list of
items that we are going to require.
We are adding a clause to § 414.422(a)
which provides that we will specify the
terms and conditions in the competitive
bidding contacts, and finalizing the
remainder of § 414.422(a) which
provides that a contract supplier must
comply with all terms of its contract,
including any option exercised by CMS
for the full duration of the contract
period and adopting revised
§ 414.422(a) as final.
We are adopting as final, without
modifications, § 414.422(b), which
provides that we will recompete the
competitive bidding contacts at least
once every 3 years.
We are finalizing § 414.422(c) which
provides that a nondiscrimination
provision will be included in each
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contract we enter into with a supplier
under the Medicare DMEPOS
competitive bidding program.
B. Change in Ownership (§ 414.422(d))
In the May 1, 2006 proposed rule,
under proposed § 414.422(d), we
proposed to evaluate a supplier’s
ownership information, its compliance
with appropriate quality standards, its
financial status, and its compliance
status with government programs before
we determine that a supplier can qualify
as a contract supplier if there is a
change of ownership. For this reason,
we proposed that suppliers would not
be granted winning status by merely
merging with or acquiring a contract
supplier’s business. We do not want to
allow suppliers to adopt a strategy of
circumventing the regular bidding
process by gaining winning status
through acquisitions of or mergers with
contract suppliers or to violate any
anticompetition prohibitions. Therefore,
we proposed that contract suppliers
must notify CMS in writing 60 days
prior to any changes of ownership,
mergers, or acquisitions being finalized.
We proposed that we would have the
discretion to allow a successor entity,
after a merger with or acquisition of a
contract supplier, to function as contract
supplier when—
• There is a need for the successor
entity as a contractor to ensure
Medicare’s capacity to meet expected
beneficiary demand for a competitively
bid item; and
• We determine that the successor
entity meets all the requirements
applicable to contract suppliers.
We proposed that the successor entity
must agree to assume the contract
supplier’s contract, including all
contract obligations and liabilities that
may have occurred after the awarding of
the contract to the previous supplier.
The successor entity is legally liable for
the nonfulfillment of obligations of the
original contract supplier.
In addition, we proposed to only
allow the successor entity to function as
a contract supplier if it executed a
novation agreement with CMS.
Comment: Numerous commenters
objected to the proposed provision that
would require contract suppliers to
notify CMS in writing 60 days prior to
any changes of ownership, mergers, or
acquisitions being finalized and
recommended that the 60-day prior
notice provision be modified to a notice
period of no more than 30 days. The
commenters also recommended that if
the transaction is set to close within less
than 30 days, the parties should have an
obligation to provide notice as soon as
the parties sign a letter of intent to
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change ownership. One commenter
suggested that notification regarding
change of ownership be required within
30 days after change has occurred. The
commenters believed that the proposed
rule fails to take into consideration the
short time period in which acquisitions/
mergers occur. The commenters added
that the 60-day requirement is a
burdensome restraint on legitimate
corporate transactions, and that
acquisitions and mergers frequently
occur in a much more compressed
timeframe. They believed that our
proposed timeframes are unrealistic,
and as a result, CMS could be notified
of numerous acquisitions that are not
consummated. They emphasized that it
is important that the prior notice
requirement be optional and that notice
promptly after transaction would be
appropriate to protect the Medicare
program and beneficiaries.
The commenters pointed out that
there generally is no advance notice
requirement prior to completing an
acquisition and/or merger. They
requested clarification that any such
notices furnished to Medicare will
remain confidential until the successor
entity notifies CMS that the transaction
has been completed. To the extent
notice is required they recommended
that the final rule should make it clear
that notice will be confidential and
exempt from disclosure under
Exemption 4 of the Freedom of
Information Act (FOIA) and
implementing HHS regulations as trade
secrets. The commenters also
recommended that commercial or
financial information obtained from a
person should be privileged or
confidential and that this is necessary so
that public companies can appropriately
maintain sensitive nonpublic
information and at the same time ensure
that disclosure is made appropriately
when that disclosure is timely under
applicable securities regulations that
protect shareholders.
Response: We continue to believe that
sufficient advance notice is necessary to
allow us to evaluate whether a new
owner will meet all of the requirements
to be a contract supplier under the
Medicare DMEPOS Competitive Bidding
Program. However, we are revising the
language under § 414.422(d)(1) to clarify
what a contract supplier’s obligations
are in the event of a change of
ownership. Specifically, § 414.422(d)(1)
now provides that if a contract supplier
is considering or negotiating a change in
ownership, the contract supplier must
notify CMS 60 days before the
anticipated effective date of the change.
Under § 414.422(d)(2), if the supplier
that acquires or merges with the
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contract supplier wishes to itself
become a contract supplier, it must meet
all of our requirements, including
compliance with applicable quality
standards, accreditation, eligibility
standards, and financial standards, and
must submit the documentation
required in § 414.414. The new supplier
that seeks to become a contract supplier
must also submit a novation agreement
to CMS 30 days prior to the anticipated
effective change of ownership,
indicating that it will assume all duties
and obligations of the previous contract
supplier. We have clarified in
§ 414.422(d) that if a new entity will be
formed as a result of the merger or
acquisition, the existing contract
supplier submits to CMS, at least 30
days before the anticipated effective
date of the change of ownership, its
final draft of a novation agreement for
CMS review. The successor entity shall
submit to CMS within 30 days after the
effective date of the change of
ownership an executed novation
agreement acceptable to CMS. We
understand that the change of
ownership information is highly
confidential, and will make every effort
to protect it as required by law.
Comment: Numerous commenters
recommended that CMS retain the
authority to disallow a successor entity
to participate as a contract supplier only
if CMS determines that allowing the
successor entity to participate as a
contract supplier would have significant
anticompetitive effects. The commenters
indicated that CMS should not
unreasonably withhold its approval of a
change of ownership and that CMS does
not have the authority to, and, in any
event, should not deny winning
supplier status to a new owner on the
basis that its capacity is not necessary
within the CBA. They added that
contract suppliers in CBAs will most
likely experience an increase in the
value of their business and, therefore,
should be able to take advantage of the
marketplace without interference from
government agencies if they wish to
lawfully transfer ownership.
Several commenters agreed that CMS
should not allow a supplier to
circumvent the bidding process through
mergers or acquisitions, but suggested
that the proposed rule creates a restraint
of trade situation and/or devalues the
business of a supplier that decides to
sell the company.
In addition, several commenters
recommended that CMS revise the
proposed change in ownership rules so
that they are consistent with existing
requirements for DMEPOS suppliers.
Other commenters suggested that CMS
apply the change of ownership rules
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found in 42 CFR 489.18(a), which
provides that a change of ownership for
a corporation occurs when the merger or
provider corporation merges into
another corporation or the consolidation
of two or more corporations, results in
the creation of a new corporation, and
states that the transfer of corporate stock
or the merger of another corporation
into the provider corporation does not
constitute change of ownership.
Response: We want to evaluate
whether a supplier that acquires or
merges with a contract supplier and that
wants to become a contract supplier
itself meets our standards for being a
contract supplier under the Medicare
DMEPOS Competitive Bidding Program.
These requirements serve the needs of
the program because we do not want to
encourage suppliers to adopt a strategy
of circumventing the regular bidding
process by gaining winning status
through acquisitions of or mergers with
contract suppliers not to violate any
anticompetitive prohibitions.
We disagree with the commenter that
suggested that we apply the change of
ownership rules found in 42 CFR
489.18(a) because this section of our
regulation applies only to Medicare Part
A providers, such as hospitals, SNFs,
and HHAs, but competitive bidding
applies to Medicare Part B suppliers.
Comment: One commenter stated that
the change of ownership provision
should not apply when a contract
supplier, as opposed to a noncontract
supplier, purchases or acquires another
supplier. The commenter noted that if a
supplier that purchases or acquires a
contract supplier does not intend to be
a contract supplier, there is no reason
for this requirement to apply, and if the
acquiring supplier is already a contract
supplier, there is no reason to require an
additional review as to its
qualifications. The commenter stated
that while it understands the need to
conduct oversight and diligence if the
acquiring supplier is not a contract
supplier, it requested that CMS clearly
specify requirements for approval of the
acquisition if the acquiring party is a
contract supplier but does not intend for
the supplier it acquires to be a contract
supplier.
The commenter also urged that the
final rule clarify that the requirements
for an acquirer would be no more
burdensome than the requirements to be
a contract supplier because such
requirements could result in an unequal
burden on entities that acquire contract
suppliers. The commenter stated that, if
additional requirements are to be
imposed, CMS should state what they
are explicitly so that the public
understands and can comply with them
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in advance of incurring substantial
transaction costs.
Response: As stated in response to the
previous set of comments, we plan to
evaluate the same information required
to be submitted by a bidding supplier if
a contract supplier purchases a
noncontract supplier or if a noncontract
supplier purchases a contract supplier.
However, if a contract supplier
purchases another contract supplier, we
will not ask the contract supplier to
duplicate information we already have
on file.
Comment: One commenter stated that
CMS should be able to assure itself that
the acquired supplier continues to meet
all obligations and requirements for
contract suppliers, and its review
should be limited to a consideration of
whether, post acquisition, the acquired
supplier: (1) Meets all the requirements
of a contract supplier; (2) is willing to
assume all obligations under the
contract; and (3) has executed a
novation agreement. The commenter
stressed that if CMS desires to
encourage all suppliers to bid, the
contract supplier’s status as the winning
bidder should be preserved as a
valuable asset for consideration in any
commercial transaction.
Other commenters were concerned
about the following issues: the
successor’s liability for potentially
fraudulent activities that could have
occurred on the previous company’s
watch; instances where the new contract
supplier determines a revised Certificate
of Medical Necessity (CMN) is needed
and the physician or treating
practitioner is no longer in practice or
refuses to execute a new CMN; and the
tax implications of restricting change of
ownership transactions to only stock
transactions. The commenter observed
that there may be instances where the
sale of a supplier because of the death
of the owner would be prohibitively
expensive if executed as a stock
transaction, leaving the widow with
little money and no recourse to dispose
of the business.
Response: As we stated earlier, our
requirements regarding change of
ownership are intended to provide us
with assurance that the successor entity
meets all of our requirements before we
can consider it to be eligible to assume
the previous contract supplier’s
contract. A new contract supplier will
be responsible for meeting all CMS
program requirements.
After consideration of the public
comments received, in this final rule we
are finalizing § 414.422(d) as discussed
above.
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C. Suspension or Termination of a
Contract (§§ 414.422(f) and (g))
In the May 1, 2006, proposed rule (71
FR 25682), we specified that contract
suppliers would be held to all the terms
of their contracts for the full length of
the contract period (proposed
§ 414.422(f)). Any deviation from
contract requirements, including a
failure to comply with governmental
agency or licensing organization
requirements, would constitute a breach
of contract. We indicated that, if we
conclude that the contract supplier has
breached its contract, the actions we
might take include, but are not limited
to, asking the contract supplier to
correct the breach condition,
suspending the contract, terminating the
contract for default (which might
include reprocurement costs),
precluding the supplier from
participating in the competitive bidding
program, or availing ourselves of other
remedies permitted by law. We
indicated that we also would have the
right to terminate the contract for
convenience (proposed § 414.422(g)).
Comment: Several commenters
believed that CMS must include
additional procedural safeguards for
contract suppliers before terminating
their contracts. The commenters
suggested that CMS give a contract
supplier notice that it believes the
supplier has breached its contract, an
opportunity and adequate timeframe for
the contract supplier to cure the breach,
and a review or appeal mechanism if the
contract supplier’s contract is
terminated. One commenter stated that
contract suppliers should only be
terminated for ‘‘material breach’’ of their
contracts.
Another commenter noted that the
proposed rule grants CMS the unilateral
right to terminate a contract without
cause which eliminates a principal
advantage for contract suppliers. The
commenter stressed that without
modification of the proposed rule,
suppliers would be dissuaded from
submitting the lowest bid possible
because they would have to calculate
the financial risk of termination and
compensate for this uncertainty in their
bid prices.
Another commenter stated that it is
reasonable for CMS to expect that
contract suppliers will be held to all the
terms of their contracts for the full
length of the contract period. Two
commenters objected to the provision
stating that CMS may include
reprocurement costs if a contract
supplier’s contract is terminated
because the contract supplier cannot
know Medicare’s reprocurement cost
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structure. One commenter asked
whether the provision stating that CMS
could preclude a contract supplier that
breached its contract from participating
in the competitive bidding program
referred only to the program in the
supplier’s CBA or the entire Medicare
DMEPOS Competitive Bidding Program.
Response: We believe that defining a
breach of contract as any deviation from
contract requirements, including a
failure to comply with governmental
agency or licensing organization
requirements, will help ensure that
contract suppliers do not breach their
contract requirements. We have set out
a variety of potential actions of varying
levels of severity that we could take in
the event of a breach of contract, such
as requiring that contract supplier
submit a plan to correct the deficiency
that created the breach of contract,
suspending the contract, precluding the
contract supplier from participating in
the competitive bidding program in the
future, revoking the supplier number of
the contract supplier, and/or availing
ourselves of other remedies allowed by
law. In deciding which course of action
to take, we will consider the nature of
the breach, including whether the
breach is indicative of a substantial
failure to comply with the terms of the
supplier’s contract, and the extent to
which the efficient and effective
administration of the Medicare program
has been compromised by the breach.
We are making several changes to the
proposed rule. In response to the
comments which addressed the
potential problems that might stem from
our proposal to permit CMS to require
terminated suppliers to reimburse CMS
for reprocurement costs, proposed at
§ 414.422(f)(2)(iii), we are deleting that
proposal. We are also making several
revisions to our proposal to permit CMS
to terminate a contract with a contract
supplier in the event of a breach of
contract or to take other action against
a supplier after a breach of contract has
occurred. We have eliminated the
phrase ‘‘for default’’ from
§ 414.422(f)(iii). We have revised the
wording to state that CMS may
‘‘[t]erminate the contract.’’ We believe
that this is consistent with CMS’
approach to contracts and agreements
with providers, suppliers and other
contracted entities in other areas of the
Medicare program. CMS will have the
authority to terminate a contract with a
contract supplier where a breach of
contract has occurred.
CMS is making several other minor
clarifications to the language at
§ 414.422(f). Specifically, at
§ 414.422(f)(2)(i), we proposed that CMS
could require a contract supplier to
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‘‘correct the breach condition’’ where a
breach of contract had occurred. We are
revising this language to state that CMS
may ‘‘[r]equire the contract supplier to
submit a corrective action plan.’’ Also,
at § 414.422(f)(2)(ii), we proposed that
in the event of a breach of contract, CMS
could ‘‘[s]uspend performance under
the contract.’’ We are revising this
language to state that in the event of a
breach of contract, CMS can ‘‘suspend
the contract supplier’s contract.’’
CMS agrees with the need for
procedural safeguards where CMS is
taking action to terminate a contract
supplier’s contract. CMS will provide
further guidance regarding the appeal
procedures available to contract
suppliers for termination actions, as
well as other enforcement actions
involving contract supplier contracts, at
a future date.
Comment: One commenter requested
greater clarification of the phrase ‘‘for
convenience’’ used in the preamble to
the proposed rule (71 FR 25682) to
describe a basis for CMS to terminate a
contract. The commenter stated that at
a minimum there should be an explicit
notice period required prior to
termination. Another commenter
recommended deleting this provision.
Response: In response to comments,
CMS has decided to delete this
provision.
Comment: One commenter stated that
the proposed rule does not explicitly
prohibit the Secretary from unilaterally
changing the price of an item in a CBA
during the term of the competitive
bidding contract. Several commenters
also stated that there should be a
provision that allows suppliers to
terminate, without being in breach of
contract, in cases of hardship or
material change in circumstances that
are not the fault of or within the control
of the supplier if unexpected
circumstances arise that hinder its
ability to render performance. Another
commenter stated that the lack of parity
in the ability of the contracting parties
to terminate may serve as an
impediment to many potential bidders’
submission of the lowest possible bid.
Response: Each supplier contract
under each competitive bidding
program will identify the product
categories, items, and single payment
amounts for items furnished under that
program. The single payment amount
for each item in each contract will not
change for the duration of the contract,
with the only exception being in limited
cases where a HCPCS code is divided or
merged as provided in § 414.426.
However, even where § 414.426 applies,
the total single payment amounts for the
sum of the item components, the newly
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separated item(s), or the newly
combined item will be equal to the
single payment amounts that were
originally listed in the contract. Contract
suppliers will be held to all of the terms
of their contracts for the length of the
contract period and we will not allow
them to suspend their performance
under their contracts without
consequences because of the potential
hardship that the Medicare program and
beneficiaries could suffer if there were
no longer enough contract suppliers to
furnish one or more product categories
in a CBA. If a supplier breaches its
contract with CMS, we have the right to
ask the contract supplier to correct the
breach, suspend the contract, terminate
the contract, or preclude the supplier
from participating in the Medicare
Competitive Bidding Program. We do,
however, recognize the hardships may
arise for contract suppliers and we will
take this into consideration as we
decide what appropriate actions should
be taken in the event of a breach.
Comment: One commenter suggested
that contract suppliers should have the
ability to exit the program with a 90-day
notice. The commenter stated that this
will allow the bidders that may have
failed to meet quality standards and
reach their market expectations to exit
in a business-like manner.
Response: As we explained above, we
are selecting a sufficient number of
contract suppliers to furnish each
product category in each CBA, and
allowing contract suppliers to terminate
their contracts may impede beneficiary
access to competitively bid items and
otherwise result in a hardship for the
Medicare program. Contract suppliers
are expected to comply with their
contracts for their entire duration.
After consideration of the public
comments received, in this final rule,
we are finalizing the breach of contract
and termination provisions in
§§ 414.422(f) and (g) with the changes
described above.
X. Administrative or Judicial Review of
Determinations Made Under the
Medicare DMEPOS Competitive
Bidding Program (§ 414.424)
Section 1847(b)(10) of the Act
provides that there will be no
administrative or judicial review of
determinations made under section
1869, section 1878, or any other section
of the Act, for the—
• Establishment of payment amounts
under a competitive bidding program;
• Awarding of contracts under a
competitive bidding program;
• Designation of CBAs for the
Medicare DMEPOS Competitive Bidding
Program;
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• Phased-in implementation of the
Medicare DMEPOS Competitive Bidding
Program;
• Selection of items for a competitive
bidding program.
• Bidding structure and number of
contract suppliers selected under a
competitive bidding program.
In the May 1, 2006, proposed rule (71
FR 25682), we proposed to incorporate
in a new proposed § 414.424 the
provisions for no administrative or
judicial review of the determinations
specified in section 1847(b)(10) of the
Act listed above. We indicated that the
proposed regulation would have no
impact on the current beneficiary or
supplier right to appeal denied claims.
However, neither the beneficiary nor the
supplier would be able to bring such an
appeal if a competitively bid item was
furnished in a CBA in a manner not
authorized by this rule.
Comment: A number of commenters
agreed that the proposed rule tracked
the provisions of the Act, which does
not provide for administrative or
judicial review under the Medicare
DMEPOS Competitive Bidding Program.
However, many of the commenters
believed that CMS should establish
some type of grievance and review
process to provide contract suppliers an
opportunity to review the competitive
bidding process and to challenge the
outcome of the bid evaluation process
and the selection of contract suppliers.
One commenter added that because
Medicare is required to make available
to the public the final process
documentation under the Freedom of
Information Act requirements, it is only
fair that CMS also provide an
opportunity for suppliers to challenge
any decisions in this documentation.
Two commenters asserted that the
statutory limitations on administrative
and judicial review do not preclude the
establishment of a process that would
give suppliers an opportunity to
communicate with CMS regarding
grievances and seek redress. They
asserted that the implementation of
such a process would be consistent with
Constitutional due process rights. One
commenter recommended that CMS
establish some type of expedited review
process specific to contract award
decisions and urged full transparency of
factors influencing contract award
decisions in order to support the highest
level of integrity in the process. One
commenter recommended that CMS
keep in place all current mechanisms to
defend the supplier’s rights, including
the Administrative Law Judge review.
One commenter believed that the
nonavailability of administrative review
violates not only the Administrative
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18055
Procedure Act but also individual and
corporate rights to due process and to
redress grievances. The commenter
recommended that appeal rights be
restored as these rights exist elsewhere
in the Medicare program.
Response: We understand the
commenters’ concerns. However, we
believe that Congress enacted section
1847(b)(10) of the Act to avoid any
delay or disruption in the
implementation of the program caused
by challenges and appeals regarding
specified aspects of the Medicare
DMEPOS Competitive Bidding Program.
We intend to conduct an extensive
education and outreach program to
ensure that the suppliers are educated
about the rules and provisions of the
program and understand the contract
selection process and what is required
of bidding suppliers. In addition, we
will be providing the suppliers with a
60-day open bidding period during
which they can change, update, or
correct their bid packages before
certifying their final submissions.
Comment: Numerous commenters
recommended that CMS include a
procedure for debriefing suppliers that
were not selected as contract suppliers
and provide an opportunity for a review
to determine, at a minimum, whether an
error on the part of CMS or its
contractors was the reason that the
supplier lost the bid.
Several commenters recommended
that CMS put appropriate procedures in
place for bidders to ensure that
calculations related to their bids are
reviewed for accuracy and that these
procedures provide suppliers an
opportunity to redress issues such as
simple calculation errors. One
commenter pointed out that because the
review and award of contracts under the
competitive bidding program will be
labor intensive, it is likely that there
will be many inadvertent human and
computer errors and/or indisputably
arbitrary decisions. The commenter
pointed out that while the statute grants
CMS discretion in making
determinations under the competitive
bidding program, Congress has not
granted CMS the authority to render
moot the authority of published
regulations by using known improper or
erroneous information to implement
those regulations. Therefore, the
commenter recommended a
‘‘reconsideration process’’ with regard
to the award of contracts only, and
delegation of authority to the Provider
Reimbursement Review Board or some
similar body within the Medicare
program to hear such requests for
reconsideration. The commenter
acknowledged that under this process,
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the agency’s decisions would not be
administratively or judicially appealed.
However, the commenter pointed out
that the establishment of a
reconsideration process would, at least,
enable errors to be corrected.
Response: In accordance with section
1847(b)(10) of the Act, we proposed that
there will be no administrative or
judicial review for the awarding of
contracts or the establishment of
payment amounts under a competitive
bidding program. We believe that
Congress enacted section 1847(b)(10) of
the Act to avoid any delay or disruption
in the implementation of the program
that could arise if we had to defend
numerous challenges and appeals
brought by losing bidders. We intend to
conduct an extensive education and
outreach program to ensure that
suppliers are educated about the rules
and provisions for the program. In
addition, we are developing a quality
assurance system to ensure that bids
submitted to us are correctly identified
and recorded. We intend to allow
bidders to submit electronic bids.
Bidders will have an opportunity to
review their bids and certify their
accuracy prior to submission. Bidders
will be able to modify or change their
bids at any time during the bidding
window. In addition, the CBIC will have
in place an auditing system and quality
assurance program to monitor and
ensure that it accurately records and
calculates the information furnished by
suppliers. We will also be notifying all
losing bidders, but believe it would not
be administratively feasible to provide
debriefings for all losing bidders, due to
logistics, volume of bidders, and time
constraints.
Comment: One commenter strongly
objected to the lack of administrative or
judicial oversight of the process. The
commenter stated that the Medicare
DMEPOS Competitive Bidding Program
is a procurement program by which
CMS seeks to acquire the same types of
commercial items that it acquires for
itself in accordance with the FAR. The
commenter firmly believed that
considering the number of
procurements that are set aside each
year by GAO and the United States
Court of Federal Claims based on
government error, CMS should allow
administrative or judicial review. The
commenter believed that the proposal
could lead to arbitrary and erroneous
awards, if not fraud. The commenter
suggested that CMS clarify that all
contract awards and invitations to
participate will be subject to the
traditional review of procurements
conducted by the Government. The
commenter added that regardless of
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whether CMS possesses the right to
waive the FAR and avoid judicial or
administrative oversight, prudence and
the obligation to maintain integrity in
the procurement process that it is
developing require that CMS open the
process up to protect review.
Response: We disagree with these
comments. The Medicare DMEPOS
Competitive Bidding Program is a
unique program that differs in many
ways from traditional government
procurement. We are bound to
implement this program in accordance
with the statute, which as noted earlier
in this section, provides that there will
be no administrative or judicial review
of certain functions. In the proposed
rule we provided notice to the public of
how we intend to implement the
Medicare DMEPOS Competitive Bidding
Program, and this final rule responds to
the public’s comments.
Comment: A number of commenters
pointed out that even though CMS
acknowledged in the preamble of the
proposed rule that the existing rights of
beneficiaries and suppliers to appeal
denied claims are undisturbed by
competitive bidding, the proposed
regulatory language of § 414.424 as
written does not make clear that these
existing rights are unaffected. The
commenters suggested the addition of
language in § 414.424 to clarify that
these rights would be preserved. Three
commenters also indicated that the
statement in the regulation that ‘‘[a]
denied claim is not appealable if CMS
determines that a competitively bid item
was furnished in a CBA in a manner not
authorized by this subpart’’ is vague as
written and suggested that the statement
be rewritten for clarification or
removed. One commenter suggested that
CMS add language to state that ‘‘A claim
is not appealable if the denial is based
on a determination by CMS that a
competitively bid item was furnished in
a CBA in a manner not authorized by
this subpart.’’
Response: In this final rule, we have
revised the language in § 414.424(b) to
clarify that there are no appeal rights for
claim denials if the denial is based on
our determination that a competitively
bid item was furnished in a CBA in a
manner not authorized by 42 CFR Part
414 Subpart F.
After consideration of the public
comments we received, we are adopting
as final, with technical clarifications,
the provisions of proposed § 414.424.
XI. Opportunity for Participation by
Small Suppliers (§§ 414.402, 414.414(g))
Section 1847(b)(6)(D) of the Act
requires us, in developing bidding and
contract award procedures, to take
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appropriate steps to ensure that small
suppliers of items have an opportunity
to be considered for participation in the
Medicare DMEPOS Competitive Bidding
Program. Section 1847(b)(2)(A)(ii) of the
Act also states that the needs of small
suppliers must be taken into account
when evaluating whether an entity
meets applicable financial standards.
Size definitions for small businesses
are, for some purposes, developed by
the Small Business Administration
(SBA) based on annual receipts or
employees, using the North American
Industry Classification System (NAICS).
Based on the advice from the SBA, we
expect that most DME suppliers will fall
either into NAICS Code 532291, Home
Health Equipment Rental, or NAICS
Code 446110, Pharmacies, since the
SBA defines these small businesses as
businesses having less than $6.5 million
in annual receipts.
In the May 1, 2006 proposed rule (71
FR 25682), we proposed using the SBA’s
small business definition when
evaluating whether a DMEPOS supplier
is a small supplier. We relied on the
expertise of the SBA to determine what
constitutes the appropriate definition of
a small supplier. We proposed that all
contract suppliers would be expected to
service the whole CBA. However, we
considered allowing a small supplier
that has fewer than 10 full-time
equivalent (FTE) employees to designate
a geographic service area that is smaller
than the entire CBA. We did not
propose this approach because we want
to ensure that beneficiaries have the
choice of going to any contract supplier
in their respective CBA. Carved-out
areas could lead to confusion for
beneficiaries faced with multiple
competitive bidding subareas. Further,
we believe such an approach would
allow selection of more favorable market
areas by smaller businesses potentially
leading to an unfair market advantage.
We sought comments on this issue.
Information available to us on the size
distribution of businesses that provide
DMEPOS indicates that the majority of
suppliers in the DMEPOS industry
qualify as small businesses according to
the SBA definitions. Our analysis of
DMEPOS claims data suggests that at
least 90 percent of DMEPOS suppliers
had Medicare allowed charges of less
than $1 million in CY 2003. The figure
of $1 million could be an underestimate
of total receipts because it does not
include non-Medicare receipts and nonDMEPOS receipts, but it does suggest
that most DMEPOS suppliers are small.
Although section 1847(b)(6)(D) of the
Act focuses on ensuring participation in
the bidding, and not on bidding
outcomes, we believe that it is worth
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noting how small suppliers fared in the
bidding in the Medicare competitive
bidding demonstration projects. Both
small and large suppliers were selected
as demonstration suppliers. Some small
suppliers that were selected as
demonstration suppliers were able to
increase their market share substantially
during the demonstration. Others
experienced little change in market
share.
We recognize the importance,
benefits, and convenience offered by the
local presence of small suppliers. In the
May 1, 2006 proposed rule, we
proposed to take the following steps to
ensure that small suppliers have the
opportunity to be considered for
participation in the program.
First, as required by section
1847(b)(4)(B) of the Act, we will select
multiple winners in each CBA. If a
single winner was selected in an area,
a small supplier would have difficulty
participating in the competition because
the supplier, as a minimum, would have
to demonstrate that it could rapidly
expand to serve the entire projected
demand in the area. Selecting multiple
suppliers should make it easier for small
suppliers to participate in the program.
Second, we proposed to conduct
separate bidding competitions for
product categories, allowing suppliers
to decide how many product categories
for which they want to submit bids,
rather than conduct a single bidding
competition for all DMEPOS items and
other equipment. We believe that
separate competitions for product
categories will encourage participation
by small suppliers that specialize in one
or a few product categories. If a single
competition was held for all DMEPOS
items and other equipment, small,
specialized suppliers would have to
either significantly expand their product
and service offerings or submit bids for
items they currently do not provide.
We stated that we recognize the
importance of small suppliers in the
DMEPOS industry, and we welcomed
comments on the options identified in
the proposed rule. We also expressed
interest in other ways to ensure that
small suppliers have opportunities to be
considered for participation in the
program.
To collect additional information on
this issue, we contracted with RTI
International to conduct focus groups
with small suppliers. The purpose of the
focus groups was to gather input on
ways to facilitate participation by small
suppliers in the program. The focus
groups also discussed the impact of the
requirement for the quality standards
and accreditation, which will affect all
small suppliers, regardless of whether
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they seek to participate in a competitive
bidding program. As we indicated in the
proposed rule, we reviewed our efforts
to ensure participation by small
suppliers in the Medicare DMEPOS
Competitive Bidding Program after we
reviewed public comments on the
proposed rule and the results of the
focus groups. We also considered the
findings of the focus groups, along with
the additional options and comments
presented on the proposed rule, in
developing this final rule.
Comment: Several commenters
requested that CMS share the findings of
the focus groups.
Response: Nine focus groups were
conducted, during April and May 2005,
with DMEPOS suppliers that had less
than $3 million in gross revenue and
employed up to 10 FTE employees. The
purpose of the focus groups was to
explore small DMEPOS suppliers’
thoughts and opinions on the potential
impact of quality standards,
accreditation, competitive bidding, and
financial standards requirements on
their businesses. We presented an
overview and results of the focus groups
related to quality standards and
accreditation to the PAOC on September
26, 2005. This PowerPoint Presentation
can be accessed at https://www.cms.
hhs.gov/CompetitiveAcqforDMEPOS/
PAOCMI/list.asp#TopOfPage.
The results of the focus groups related
to competitive bidding and financial
standards were presented to the PAOC
on May 23, 2006. Several focus group
participants remarked that the
competitive bidding process would
force many small suppliers out of
business. The participants suggested
alternatives to competitive bidding,
including: (1) CMS should determine
product prices and allow all willing
suppliers to provide products at the set
price; and (2) CMS should reserve a
percentage of winning bids for small
suppliers. Many participants believed
that lower payment rates for suppliers
would inevitably lead to lower quality
goods and services. Participants were
particularly emphatic in their belief that
CMS continues to neglect the valuable
service component that small suppliers
provide to their customers. They
believed that it is their commitment to
service that sets them apart from the
national companies. A number of
participants were concerned about the
possibility of requiring small supplier
bid winners to furnish items in the
entire MSA, given the fact that some
MSAs cross State boundaries. There was
also a consensus among these small
suppliers that the impact of competitive
bidding would differ by product line.
They believed that items involving high-
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end technology equipment, respiratory
equipment, and customized products
are more service intensive than other
products, such as standard wheelchairs,
that involve fewer repairs, set-up time,
and patient education.
Inclusion of mail order businesses in
competitive bidding was also a
controversial issue for many
participants. Because mail order
businesses often do not have a physical
storefront and do not provide patient
education, small suppliers argued that
such businesses are in violation of the
21 Medicare supplier standards.
Finally, many participants in the
focus groups believed that tax returns,
quarterly standard financial statements,
and Dun & Bradstreet were helpful
sources of information about a
business’s credit history and cash flow.
The participants noted that suppliers
that grossed over $3 million in revenue
used audited financial statements,
whereas suppliers that grossed less than
$3 million in revenue used cash basis
accounting principles. A summary of
the PAOC discussion related to the
focus group results can be accessed at
https://www.cms.hhs.gov/Competitive
AcqforDMEPOS/downloads/
PAOC_summary.pdf. We have used the
comments from the focus groups and
the public comment process in
developing our final policies for the
Medicare DMEPOS Competitive Bidding
Program.
Comment: Several commenters noted
that section 1847(b)(6)(D) of the Act is
entitled ‘‘protection’’ of small suppliers
and not the mere identification of small
suppliers. They reported that there are
currently 40,000 practitioners, providers
and suppliers enrolled as Medicare
suppliers, including approximately
1,078 physical therapists. They agreed
with the option to define small supplier
as fewer than 10 FTE employees. The
commenters stated that health care
practitioners who provide DMEPOS as
an integral part of their professional
services specialize in providing items
for specific conditions. They added that
these suppliers offer considerable
expertise in evaluating both the patient
and the item in order to provide the
patient with the best possible outcome.
They also believe that small suppliers
serve rural and underserved urban
communities where larger suppliers
may not operate.
The commenters proposed the
following alternative policies: (1) At
least 50 percent of suppliers that receive
a contract should be small suppliers
(based on $3 million or less in revenue
or less than 10 FTE employees); (2) CMS
should allow suppliers with less than 10
FTE employees to furnish items to less
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than the entire CBA; (3) CMS should
award contracts to small suppliers with
the lowest bids that exceed the pivotal
bid; (4) CMS should allow truly small
suppliers to promise to accept the single
payment amount; and (5) CMS should
establish a certain volume of items in
each geographic area that will be ‘‘setaside’’ for small suppliers.
Response: We agree that section
1847(b)(6)(D) of the Act is entitled
‘‘Protection of Small Suppliers.’’ We
recognize the concerns raised by the
commenters and have considered the
suggested alternatives provided during
the small supplier focus groups and
through the public comment process.
We also recognize the importance of
maintaining storefront capabilities to
meet the needs of beneficiaries. In this
final rule, we are revising our proposed
policies to ensure that small suppliers
have an opportunity to be considered
for participation in the Medicare
DMEPOS Competitive Bidding Program.
As of January 2006, the SBA defines a
small business as generating less than
$6.5 million in annual receipts. The
SBA definition refers to small
businesses rather than ‘‘small
suppliers.’’ We believe that $6.5 million
is not representative of small suppliers
that provide DMEPOS items to Medicare
beneficiaries, as it would encompass too
many suppliers. In coordination with
the SBA, we are defining a small
supplier as a supplier that generates
gross revenue of $3.5 million or less in
annual receipts and we are revising
§ 414.402 to include this definition. We
would accept relevant documentation
from a supplier that shows its sales
volume, including information that
would qualify as a ‘‘receipt’’ under 13
CFR 121.104 to determine if the
supplier meets this definition. Before
we receive supplier bids, we would not
have information on each supplier’s
total revenue. We only have information
on suppliers’ Medicare revenues. As a
result, we had to make an assumption
about what percent of a supplier’s
revenues come from Medicare. We
looked at filings by public DMEPOS
companies and, based on that
information, we assume one-half of the
average supplier’s revenues come from
Medicare DMEPOS.
To ensure the participation of
multiple suppliers and storefront
locations, beneficiary access, and
increased participation by small
suppliers, we have revised our rules as
noted below:
• The definition of a ‘‘small supplier’’
is a supplier that generates gross
revenue of $3.5 million or less in annual
receipts.
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• To help small suppliers to have an
opportunity to participate in the
Medicare DMEPOS Competitive Bidding
Program and to generally support HHS’
goals for contracting with small
businesses, we have also established a
target number for DMEPOS small
supplier participation in each
competitive bidding program. Our target
number for small supplier participation
will be determined by multiplying 30
percent times the number of suppliers
that have met our bidding requirements
and whose composite bids are at or
lower than the pivotal bid for each
product category in each CBA. The
number resulting from this
multiplication represents our goal for
small supplier participation for that
product category. We will then count to
see if the number of suppliers whose
composite bids are at or below the
pivotal bid is equal or greater than the
target number we have computed for
that product category. If the number of
suppliers is lower than the target
number, we will give the small supplier
whose composite bid is above the
pivotal bid, but closest to it of all the
small suppliers whose composite bids
are above the pivotal bid for the product
category, the option of accepting a
contract to furnish the product category
at the single payment amounts. If the
target number is still not met, we will
offer a contract to the small supplier
whose composite bid is the next closest
to, but above, the pivotal bid, and will
use this methodology until we reach the
target number or there are no additional
small suppliers that submitted a bid for
the product category. We are codifying
this methodology in final
§ 414.414(g)(1).
Comment: Many commenters
disagreed with using the definition of
the SBA for a ‘‘small business’’ (less
than $6 million in annual receipts)
because the CY 2003 Medicare data
showed that at least 90 percent of
suppliers had less than $1 million in
allowed charges. They recommended
defining a small supplier as a supplier
that generates less than $3 million in
annual receipts. The commenters
believed that a lack of small supplier
participation would negatively impact
patient care. They added that small
businesses would have to endure large
expenses in order to participate in the
Medicare DMEPOS Competitive Bidding
Program.
Response: We agree with the
commenters and, as we explained
above, we have modified our definition
of a small supplier so that it now means
a supplier that generates gross revenue
$3.5 million or less in annual receipts.
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Comment: A few commenters
indicated that conducting separate
bidding processes for individual
product categories is administratively
burdensome. They stated that CMS’
assumption that large suppliers could
expand their products by offering
supplies and equipment easier or more
quickly than small suppliers is a false
view of a company’s ability to expand.
They also reported that large
organizations must seek approval from
their boards or other stakeholders before
they can undertake certain business
expansion activities.
Response: We appreciate the
comment but believe that conducting
separate bidding processes for
individual product categories will
encourage the participation of small
suppliers that specialize in one or a few
product categories. It is our goal to
allow Medicare beneficiaries an
opportunity to receive all related
equipment from the same supplier,
thereby minimizing disruption to the
beneficiary. Suppliers currently
specialize in particular products, and
we do not see this process being
interrupted by competitive bidding.
After consideration of the public
comments received, in this final rule,
we are adding a definition of ‘‘small
supplier’’ at § 414.402 and finalizing
§ 414.414(g), with revisions sets forth
our methodology for ensuring that a
sufficient number of small suppliers
have an opportunity to participate in the
Medicare DMEPOS Competitive Bidding
Program.
XII. Opportunity for Networks
(§§ 414.402, 414.418)
In the May 1, 2006 proposed rule (71
FR 25683), we proposed to allow
suppliers the option to form networks
for bidding purposes (proposed
§ 414.418). In the proposed rule, we
refer to networks as several companies
joined together through some type of
legal contractual relationship to submit
bids for a product category under
competitive bidding. This option would
allow suppliers to band together to
lower bidding costs, expand service
options, or attain more favorable
purchasing terms. We recognize that
forming a network may be challenging
for suppliers, and it also poses
challenges for bid evaluation and
program monitoring. Networking was
included as an option in the Medicare
competitive bidding demonstration
project, but no networks submitted bids.
Still, we believe that networking may be
a useful option for suppliers in some
cases. Therefore, we proposed to offer it
as an option. If suppliers decide to form
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networks, we proposed that the
following rules must be met:
• A legal entity must be formed for
the purpose of competitive bidding,
such as a joint venture, limited
partnership, or contractor/subcontractor
relationship, which would act as the
applicant and submit the bid. We
specifically requested comments
regarding other types of suitable
arrangements that would not require
suppliers to form a new legal entity but
would allow them to form a network for
purposes of submitting bids. For
example, one supplier could be
designated as a primary contractor and
the other suppliers in the group would
function as subcontractors. In this
example, if the contract with the
primary contractor was terminated, the
contracts with the subcontractors would
also be terminated, thus nullifying the
entire contract.
• All legal contracts must be in place
and signed before the network entity
can submit a bid for the Medicare
DMEPOS Competitive Bidding Program.
• Each member of the network must
be independently eligible to bid. If a
member of the network is determined to
be ineligible to bid, the network would
be notified and given 10 business days
to resubmit its application.
• Each member must meet any
accreditation and quality standards that
are required. Each member is equally
responsible for the quality of care,
service, and items that it delivers to
Medicare beneficiaries. If any member
of the network falls out of compliance
with this requirement, CMS would have
the option of terminating the network
contract.
• The network cannot be
anticompetitive. We proposed that the
network members’ market shares for
competitively bid item(s), when added
together, cannot exceed 20 percent of
the Medicare market within a CBA. We
believe that, by setting the maximum
size of the network’s market shares at 20
percent of the marketplace, firms will be
able to gain the potential efficiencies of
networking while at the same time
ensure that there would continue to be
competition in the area. If the 20percent rule were adopted and suppliers
joined networks, there would still be at
least 5 networks competing in a
DMEPOS competitive bidding program,
which we believe would allow for
sufficient competition among suppliers.
In particular, we requested comments
about what percentage of the
marketplace would be appropriate for
networks for suppliers.
• A supplier may only join one
network and cannot submit individual
bids if it is part of a network. The
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network must identify itself as a
network and identify all members in the
network.
• The legal entity would be
responsible for billing Medicare and
receiving payment on behalf of the
network suppliers. The legal entity
would also be responsible for
appropriately distributing payments to
the other network members.
Comment: Many commenters
expressed concern about potential
violations of Federal antitrust laws that
could arise under the proposed network
provisions. For example, they expressed
concern that forming a network could
violate the Federal antitrust laws
because those laws do not permit
suppliers to reach a mutual consensus
on pricing. They also stated that the
proposed rule would require suppliers
to agree on proposed prices for all items
within a competitive bidding product
category. A commenter expressed
concern that networks consisting of a
large number of suppliers would not be
legitimate under the antitrust laws. The
commenter also expressed concern that
the proposed network policy could be
falsely interpreted as providing a safe
harbor from the antitrust laws.
Many commenters believed that the
option to form a network is not a
realistic solution for ensuring that small
suppliers participate in the competitive
bidding program. They further believed
the proposed rule is complex, and that
suppliers would not have sufficient time
to form a network and comply with all
the requirements to meet the
competitive bidding implementation
timelines. A commenter indicated that
the network option would reduce
potential burdens on small suppliers
and specifically recommended limiting
the network option to small suppliers.
Response: We strongly agree that
networks must not violate antitrust laws
and that networks must take steps to
ensure that they are not in violation of
Federal antitrust laws. We emphasize
that suppliers that pursue the network
option must comply with all applicable
Federal antitrust laws, and we will
reject a network bid if we believe it has
been prepared in violation of those
laws. We will also refer any suspected
cases of Federal antitrust violations to
the Department of Justice for further
review. In response to comments
voicing concern that the network
formation process could implicate the
Federal antitrust laws, we will now
require that each network member sign
a statement in the bid submitted by the
network certifying that the supplier
joined the network because it is unable
to furnish all of the items in the product
category for which the network is
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submitting a bid to beneficiaries
throughout the entire geographic area of
the CBA. The inclusion of this
certification from all network members
will help assure us that each network
member joined the network for a
legitimate, legal purpose (that is, it
cannot otherwise compete because it is
unable to furnish the product category
throughout the entire geographic area of
the CBA).
The network option is a key piece of
our efforts to ensure that small suppliers
have an opportunity to be considered
for participation in the Medicare
DMEPOS Competitive Bidding Program.
In response to comments requesting that
networks be limited to small suppliers,
we will limit network participation to
small suppliers which, as we explained
previously, will now be defined as
suppliers that generate gross revenue of
$3.5 million or less in annual receipts.
We have revised § 414.418 to add this
provision. We believe that this
modification to our proposal will help
ensure that the competition in each CBA
is actually a competition between
suppliers of all sizes and that it is not
dominated by a limited number of
networks comprised only of large
suppliers that, in our estimation, should
be able to compete independently. In
addition, in response to concerns that
networks would be anti-competitive if
they had excessively large number of
members, the size of each network will
be limited to 20 suppliers because with
20 suppliers, each network member
would generally be responsible for
furnishing items to no more than 5
percent of the geographic area of the
CBA. We believe that this limit would
protect against excessively large, anticompetitive networks while allowing
small suppliers to have an opportunity
to be considered for participation under
the Medicare DMEPOS Competitive
Bidding Program.
Finally, to further implement
networking rules that promote a robust
competition and protect the Medicare
DMEPOS Competitive Bidding Program
against anticompetitive behavior, we are
deleting the provision at proposed
§ 414.418(b)(2) that would have allowed
networks 10 business days to resubmit
bids that CMS rejected because we
determined that a network member was
ineligible to bid. In order not to allow
networks with an unnecessary
advantage over other suppliers, we are
deleting this provision because we do
not allow other suppliers not in a
network this opportunity. Also, we are
finalizing our proposal that at the time
of bidding, the network’s total market
share for each product category that is
the subject of the network’s bid cannot
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exceed 20 percent of the Medicare
demand for that product category in that
CBA.
Once again, we stress that these rules
are intended to assist us in evaluating
network bids and to protect the
Medicare program against
anticompetitive behavior, and they
should not be interpreted as
superseding any Federal laws or
regulations that protect against
anticompetitive behavior.
We acknowledge that forming a
network may pose some challenges.
However, we believe that networks are
a realistic solution for small suppliers
because we recognize that it may be
difficult for small suppliers to service
the entire CBA independently. We
continue to believe that networks are an
appropriate option for small suppliers
that cannot independently service the
entire CBA to be able to participate in
the Medicare DMEPOS Competitive
Bidding Program and to promote
competition and efficiencies that could
improve services to beneficiaries. The
proposed rule was published May 1,
2006. We believe sufficient notice has
been given for these suppliers to
consider network options and plan
accordingly. Forming a network is a
business decision, and we believe that
our network policy is constructed in a
way that will help ensure that small
suppliers have an opportunity to be
considered for participation in the
Medicare DMEPOS Competitive Bidding
Program.
Comment: A few commenters agreed
with our proposal to require that
suppliers participating in a network
form a discrete legal entity and stated
that this would prevent the
commingling of Medicare funds, as well
as violations of the Federal antikickback statute, self-referral rules and
regulations, and allegations of unfair
business practices among the
participating network suppliers. Other
commenters believed that requiring
each network to bid independently
defeats the entire purpose of
networking. They disagreed with the
primary legal entity being responsible
for billing Medicare and receiving the
payments. They believed that each
supplier should be responsible for its
own finances.
Response: We appreciate the support
for our proposal that each network must
form a legal entity. Each member of the
network must meet all the applicable
eligibility, financial, and accreditation
requirements in order to be awarded a
contract and this information must be
included with the network bid. The
legal entity that submit a bid on behalf
of the network must provide all the
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information required for each member
of the network. We agree that a primary
supplier should not be responsible for
submitting claims to Medicare and
receiving payment on behalf of all
network member suppliers and are
deleting that requirement. We will now
require each network member to submit
its own Medicare claims and receive
payment for those claims.
Comment: A few commenters
believed that networks that submit bids
to furnish more than one product
category could create access problems
for beneficiaries because not all the
network members will furnish all the
product categories. They recommended
that CMS add requirements to ensure
that network bids are scrutinized to
ensure that each network has
appropriate mechanisms to service the
entire CBA.
Response: All the members of a
network must be able to jointly service
an entire CBA. While networks can
choose the product categories for which
they will submit a bid, once a contract
is awarded to a network, each member
of the network must furnish all of the
items within the product categories for
which the network is awarded a
contract. Also, we will consider each
product category separately and ensure
there is sufficient supplier capacity
within a CBA to meet beneficiary
demand for items within all product
categories.
Comment: A few commenters
requested that CMS disclose the
methodology that will be used to
calculate the market share and monitor
changes over the course of the contract.
A few commenters questioned why a
limit of 20 percent of the market share
was assigned to the network, leaving 80
percent of the Medicare market for a
large company. They suggested allowing
network members to obtain market
share not to exceed 35 percent, as
specified in the Department of Justice
monopoly guidelines.
Response: We believe that by setting
the maximum size of a network’s shares
at 20 percent of the marketplace at the
time of bidding, we will be able to
ensure that there will continue to be
competition in the area because if all of
the winning suppliers are networks,
there would still be at least 5 networks.
However, once a supplier/network
receives a contract, there is no limit on
what percentage of the demand in the
CBA that the supplier/network can
furnish. After winning suppliers are
selected, we will not exclude networks
or suppliers from expanding and
exceeding the 20 percent capacity. We
believe that this will ensure sufficient
suppliers, provide beneficiaries with
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more variety and choice, and will
ensure that we select a sufficient
number of contract suppliers for each
product category in each CBA.
Comment: Some commenters
suggested that CMS allow suppliers to
join up to two networks, stating that
many suppliers currently participate in
several networks. They believed that
this would ensure that the participating
supplier is not disadvantaged by a
requirement to commit to a single
network bid.
Response: We agree with the
commenters. We will allow small
suppliers to join more than one
network, but a small supplier cannot
join more than one network that submits
a bid to furnish items in the same
product category in the same CBA. We
believe that this rule is necessary
because, without it, the competitive
bidding process would be undermined
if small suppliers were allowed to bid
against themselves to furnish the same
product category in the same CBA. In
addition, a small supplier would not be
able to submit an individual bid to
furnish the same product category in the
same CBA for which the network in
which it is a member is also submitting
a bid. However, a small supplier that
wishes to furnish two different product
categories in a single CBA would be able
to join one network that submits a bid
to furnish one of the product categories,
and another network that submits a bid
to furnish the other product category.
Provided the small supplier did not join
a network to furnish the same product
category in the same CBA, the small
supplier would also be able to submit an
individual bid to furnish the product
category.
Comment: A few commenters asked
how networks would obtain a supplier
billing number.
Response: The Medicare competitive
bidding implementation contractor will
assign each network a bidder number
that will be used to monitor the
network. As stated earlier, each member
of the network will be allowed to submit
its own claims and receive Medicare
payments directly.
Comment: A few commenters
requested that CMS clarify whether each
supplier that is a member of a network
would be required to furnish all of the
items for the product category for which
the network submits a bid.
Response: Each member of the
network would be required to furnish
all the items within the product
category for which the network submits
a bid. This is consistent with our
requirement that all contract suppliers
must furnish all items in a product
category. However, as explained above,
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network members would not be
required to furnish the items in the
product category throughout the entire
geographic area of the CBA, provided
that the network as a whole can fulfill
this requirement.
After consideration of the public
comments we received, we are adding a
definition of the term ‘‘network’’ to
§ 414.402 that provides that a network is
an entity meeting the requirements of
§ 414.418. We are also finalizing
§ 414.418 as discussed above and with
additional technical changes.
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XIII. Education and Outreach for
Suppliers and Beneficiaries
In the May 1, 2006 proposed rule (71
FR 25683 through 25684), we proposed
to undertake a proactive education
campaign to provide suppliers and
beneficiaries with information about the
Medicare DMEPOS Competitive Bidding
Program. In the DMEPOS provisions of
the FY 2007 IRF final rule (71 FR
48354), we responded to public
comments we received on the May 1,
2006 proposed rule on our education
and outreach services proposal and
finalized our rule. We refer readers to
the FY 2007 IRF final rule for a full
discussion of these provisions.
As we indicated in the proposed rule,
we have established the following Web
site; https://www.cms.hhs.gov/
competitiveacqfordmepos/
01_overview.asp where RFBs and other
pertinent program information will be
posted and we plan to alert the supplier
community by email of all postings on
this Web site. In addition, we will be
providing education and outreach to
suppliers on requirements for
submitting RFBs. Suppliers must fully
complete the RFB in order to be
considered for participation in a
competitive bidding program. The RFBs
will require suppliers to complete, at a
minimum, such documents as an
application, bidding sheet, bank and
financial information, and referral
source references. We stated that we
will establish an administrative process
to ensure that all information that the
supplier submitted is accurately
captured and considered in the bid
evaluation process. This process will
ensure that all the information
submitted by each supplier is included
as part of the bid evaluation process.
XIV. Monitoring and Complaint
Services for the Medicare DMEPOS
Competitive Bidding Program
In the May 1, 2006 proposed rule (71
FR 25684), we stated that moving to a
competitive bidding environment would
not adversely affect CMS’ program
integrity efforts in reviewing claims and
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rooting out fraud, waste, or abuse.
Claims would still be reviewed for
medical necessity, coordination of
benefits status, and benefits integrity.
Any suspected instances of DMEPOS
competitive bidding market
manipulation and collusion would be
referred to the appropriate Federal
agencies that are responsible for
addressing these issues.
We also proposed to establish a
formal complaint monitoring system to
address complaints in each CBA.
Beneficiaries, referral agents, providers,
and suppliers, including physicians,
hospitals, nurses, and HHAs, would be
able to report problems or difficulties
that they encounter regarding the
ordering and furnishing of DMEPOS in
a CBA. Some examples of problems that
we would consider serious include:
contract suppliers refusing to furnish
items to beneficiaries in the CBA for
which they were awarded a contract;
contract suppliers furnishing items that
are inferior in quality to those that they
bid to furnish; and contract suppliers
violating assignment and billing
requirements.
In addition, we proposed to monitor
Medicare claims data to ensure that
competitive bidding does not negatively
affect beneficiary access to medically
necessary items. Claims data would be
monitored to identify trends, spikes, or
decreases in utilization and changes in
utilization patterns within a product
category.
Comment: One commenter strongly
supported CMS’ efforts to detect any
abuse that may occur under competitive
bidding and urged CMS to be especially
aggressive and timely in its oversight for
monitoring equipment safety. The
commenter believed that there is a
potential for one supplier to harm
thousands of beneficiaries and
recommended that CMS notify affected
beneficiaries if a breach of quality has
been identified.
Response: Equipment safety is
addressed in the DMEPOS quality
standards under the heading ‘‘Product
Safety.’’ The CMS-approved
accreditation organizations will monitor
supplier compliance with these
requirements as part of the accreditation
process. In addition, as we proposed,
the CBIC will develop and implement a
complaint monitoring system for
competitively bid items and services.
This system will be outlined in more
detail through sub-regulatory guidance
and enable beneficiaries, referral agents,
providers, and suppliers to report
problems or difficulties they experience
with respect to the furnishing of items
under the competitive bidding
programs. Additional details will be
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posted on our Web site, or made
publicly available by other means.
Comment: Two commenters believed
that beneficiary avoidance of certain
contract suppliers would provide a
strong indication that the Medicare
DMEPOS Competitive Bidding Program
is not meeting physician and beneficiary
needs in the area. The commenters
stated that this activity should be
monitored as a measure of whether
contract suppliers are providing
beneficiaries with a suitable level of
quality and access.
Response: We appreciate this
comment and will consider it as we
develop our monitoring program. The
CBIC will be monitoring items furnished
by contract suppliers to ensure they are
the same quality as the items for which
the contract supplier submitted a bid
and was awarded a contract. The RFB
will require suppliers to indicate the
manufacturer, make and model numbers
for each type of item the supplier would
furnish if awarded a contract. In
addition, we will require under the
contracts that each contract supplier
submit a quarterly report that indicates
the items that were actually furnished to
beneficiaries. We also note that we will
be conducting a comprehensive
education campaign to ensure that
suppliers, beneficiaries, providers, and
referral agents understand that Medicare
will only pay for competitively bid
DMEPOS items and services if they are
furnished by contract suppliers, unless
an exception outlined in this final rule
applies. For more information about our
plans for education on the Medicare
DMEPOS Competitive Bidding Program,
we refer readers to the DMEPOS
provisions of the FY 2007 IRF final rule
(71 FR 48354).
Comment: One commenter
encouraged CMS to specify clearly in
the final rule or require CBICs to
identify the necessary telephone and
Internet resources that beneficiaries may
use to raise questions and concerns
related to the Medicare DMEPOS
Competitive Bidding Program. The
commenter stated that it is extremely
important that beneficiaries have readily
available access to information during
their transition from their former
suppliers to their new contract
suppliers. The commenter
recommended that CMS establish a
survey mechanism so that beneficiaries
will be able to rate their satisfaction
with contract suppliers they have
chosen, as recommended in the
September 2004 GAO report entitled
‘‘Past Experience Can Guide Future
Competitive Bidding for Medical
Equipment and Supplies.’’ The
commenter also stated the proposed rule
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fails to provide a method to obtain
feedback from beneficiaries concerning
their satisfaction level with contract
suppliers and disseminate this valuable
information to other beneficiaries. The
commenter noted that, without such an
evaluation system, CBICs would be illequipped to judge and, thus, monitor
either the quality of products that
contract suppliers are furnishing or the
accessibility of needed supplies for
beneficiaries.
Response: We are establishing an
ombudsman program that will require
ombudsmen to identify, investigate, and
resolve complaints made by, or on
behalf of beneficiaries. The telephone
numbers and resources will be
published through program instructions
or by other means, including postings
on our Web site. We agree that
beneficiaries must have readily
available access to information during
their transition from their former
suppliers to new contract suppliers. We
plan to implement an extensive
education campaign for beneficiaries as
well as for suppliers and referral agents.
Our plans for education are described in
more detail in the DMEPOS provisions
of the FY 2007 IRF final rule (71 FR
48354). We note that the CBIC would
administer beneficiary surveys
throughout the program to regularly
monitor beneficiary experiences with
the program. We also expect to have two
ombudsmen assigned to each DME MAC
region. The CBIC will be providing
oversight of this program. We are in the
process of assessing the appropriate
vehicles to disseminate the information
that we collect through the beneficiary
survey.
Comment: One commenter supported
CMS’s plans to establish a formal
complaint monitoring system and
believed that the information collected
will be particularly helpful as CMS
prepares to expand competitive bidding.
The commenter recommended that CMS
include in its complaint monitoring
system a collection of brand-specific
information on medical complications
related to competitively bid items,
especially for blood glucose monitoring
products and enteral products (if
included in competitive bidding)
because of the potential for
complications to arise with these items.
The commenter also recommended that
CMS collect data on contract suppliers
that do not furnish particular brands of
equipment specified by physicians. The
commenter further recommended that
CMS release timely reports on the
results of its complaint monitoring
system to encourage public dialogue
and analysis regarding the competitive
bidding program, and ensure that
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adequate data are available to guide
development of subsequent phases of
the program.
Response: We appreciate the
suggestions of the commenters and will
consider them as we operationalize the
monitoring program. As we stated
above, we will direct the CBIC to
establish a monitoring program that
includes beneficiary satisfaction
indicators and supplier performance
indicators. All parties affected by
competitive bidding (for example,
beneficiaries, referral agencies,
suppliers, and providers) will be able to
report problems or difficulties that they
encounter regarding the ordering and
furnishing of DMEPOS in CBAs.
However, in the event we receive
complaints regarding medical
complications with products, we will
convey that information to the FDA.
Comment: One commenter urged
CMS to monitor contract suppliers
aggressively to ensure that they are not
providing a different item than
prescribed by the physician or treating
practitioner, pressuring the physician to
revise his or her order, or delaying
delivery of the item. The commenter
stated that such actions could result in
delays in patient care and increase the
risk that the patient will be injured.
Another commenter urged CMS to
monitor aggressively the impact of the
Medicare DMEPOS Competitive Bidding
Program on patient access to care. The
commenter stated that this is an entirely
new and complex program that will
significantly change the market
dynamics for furnishing certain
DMEPOS to beneficiaries, and CMS
must ensure that these market changes
do not unintentionally limit the current
variety of DMEPOS available, thereby
adversely affecting beneficiary access to
these important Medicare items.
Response: If the contract supplier
provides an item that does not match
the written prescription from the
physician or treating practitioner, the
contract supplier should not bill
Medicare, as this is considered a
noncovered item. Our complaint and
monitoring system will ensure that
contract suppliers either furnish the
items prescribed by a physician or
treating practitioner, or assist the
beneficiary in finding another contract
supplier to furnish the item under the
circumstances. We expect that contract
suppliers will advise beneficiaries
regarding the expected time frames for
delivery of items, as required under the
‘‘Consumer Services’’ section of the
quality standards, and that beneficiaries
will receive competitively bid items in
a timely fashion. In addition, we will, as
part of our monitoring system, be
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evaluating beneficiary access to
competitively bid items, for example,
through beneficiary surveys and
quarterly reports that will require
contract suppliers to disclose exactly
what items they have furnished to
beneficiaries.
Comment: One commenter asked
CMS to clarify how it will monitor the
quality of items based on the bid
submissions. Another commenter
suggested that CMS monitor complaints
to ensure there are no problems with
inferior products being furnished to
beneficiaries. The commenter stated that
if the HCPCS codes were too vague,
CMS would have problems with
monitoring the quality of items. Another
commenter acknowledged that although
it agrees that it would be a serious
problem if a contract supplier furnished
items inferior in quality to those for
which it bid but urged CMS to monitor
this or address complaints if the HCPCS
codes are too vague or include multiple
technologies. The commenter suggested
that, in order for the monitoring policy
to be effective, the HCPCS codes that are
associated with competitively bid items
must include the necessary level of
detail and specificity.
Response: As part of the RFB
requirements for submission of bids, we
are asking suppliers to list the items
they will furnish by manufacturer,
make, and model number. Under the
contracts, we are requiring contract
suppliers to submit a quarterly report in
which they are required to indicate the
items they have supplied under the
Medicare DMEPOS Competitive Bidding
Program. We note that the MMA
requires the Secretary to submit a report
to Congress evaluating this program.
This report will be finalized in July
2009 and, based on beneficiary surveys,
will include information on access to
and quality of items and services, and
satisfaction of individuals. As discussed
in section IX.A. of this final rule,
suppliers will be required to allow
beneficiaries to select items from the
same range of items furnished to nonMedicare beneficiaries.
Comment: One commenter stated that,
while claims monitoring may be
effective for some purposes, using it to
suggest that a spike in certain items’
utilization may be attributable to
competitive bidding is narrow-minded.
The commenter stated that product
utilization may have nothing to do with
competitive bidding for various reasons,
such as baby boomers entering the
Medicare program in disproportionately
high numbers, the higher incidence of
certain diseases in specific areas of the
United States, and the development of
new products and technologies that
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enable a larger number of patients to
remain independent at home.
Response: We continue to believe that
it is useful to conduct claims
monitoring, and we would expect to
monitor claims for each CBA. If we
identify a utilization spike in a
particular item, we can further
investigate the cause of the spike, to
identify whether the spike happened
because of competitive bidding. Our
claims monitoring system will allow us
to review claims data for each item
within a CBA.
Comment: One commenter stated that
in a September 2004 report entitled
‘‘Past Experience Can Guide Future
Competitive Bidding for Medical
Equipment and Supplies,’’ the GAO
emphasized the importance of ensuring
continued quality, especially given that
the implementation of competitive
bidding will create an added incentive
for suppliers to cut costs. The
commenter noted that, in GAO’s view,
the central focus of these efforts should
be ‘‘continued monitoring of beneficiary
satisfaction,’’ perhaps through a toll-free
complaint hotline and through
beneficiary surveys. The commenter
stated that it would be unrealistic to
expect beneficiaries to monitor and
provide feedback on the quality of the
enteral formula they receive, through a
hotline, through surveys, or otherwise.
The commenter further noted that, given
the importance of assuring continued
quality during a transition to a
significantly revised pricing system, it
would be prudent for CMS initially to
focus on those items and supplies for
which quality can be readily assessed
and assured through monitoring efforts.
Response: As part of the monitoring
system, we will collect data to evaluate
changes in beneficiary satisfaction,
service, quality, access and cost-sharing
as a result of the new program. Several
questions will be customized to suit the
particular product line surveyed. These
data will also be used to prepare the
congressionally mandated study and
report due in July 2009, under section
1847(d) of the Act.
Comment: Two commenters urged
CMS to ensure that suppliers are
distributed throughout the CBAs to
ensure beneficiary access. The
commenters stated that patients
(especially when injured) or the
caretaker should not have to travel long
distances to obtain needed DMEPOS, as
this could put patients at risk and
increase Medicare costs.
Response: We are requiring contract
suppliers to service the entire CBA,
which means that if a beneficiary cannot
travel to his or her chosen contract
supplier, the contract supplier will still
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be required to furnish the item to the
beneficiary, whether by delivery or
mail. Suppliers must include in their
bids the cost of providing the item and
any requisite services directly
associated with the item, such as
delivery, set-up, and retrieval.
Therefore, we do not believe it is
necessary to create special provisions
regarding geographic distribution of
contract suppliers.
Comment: One commenter agreed that
an effective complaint monitoring
system is needed as part of the
competitive bidding program. The
commenter noted that this should be a
simple process that incorporates
existing mechanisms that allow
Medicare beneficiaries to voice
complaints, such as an ombudsman
program, and should not attempt either
to recreate what exists in another
section of the program or
overcomplicate the process. The
commenter noted that the current
supplier standards require that
suppliers show the NSC the complaint
resolution process through onsite
inspection prior to the issuance of a
supplier number. The commenter also
suggested that patients be directed to
call their suppliers first regarding any
alleged service issues before calling the
ombudsman or other contractor.
In addition, the commenter asked that
CMS define ‘‘items of inferior quality.’’
The commenter believed that, in
determining whether a supplier is
experiencing a high level of complaints,
CMS must view complaints not in an
isolated, numerical manner but
expressed as a percentage of the total
number of in-home deliveries made to
Medicare patients in a given month.
Another commenter stated that the
proposed rule provides no specifics
about the proposed monitoring system.
The commenter asked that the final rule
provide more information about this
system. The commenter urged CMS to
assure that ombudsmen are designated
for each CBA because they play an
important role in addressing and
resolving beneficiary complaints.
Response: We agree that an effective
complaint monitoring system is needed
as part of the Medicare DMEPOS
Competitive Bidding Program. As we
currently do, we plan to use competitive
bidding ombudsmen who will be
geographically distributed in each of the
DME MAC regions to assist with
monitoring activities. The CBIC is
responsible for the monitoring program
and will be issuing additional
information. We plan to have a
complaint process in place so that
everyone affected by the Medicare
DMEPOS Competitive Bidding Program,
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18063
including beneficiaries, referral agents,
suppliers, and providers, will be able to
report problems or difficulties that they
encounter regarding the ordering and
furnishing of DMEPOS in a CBA. The
monitoring system will also include a
complaint resolution process, as well as
a process by which we can track claims
data to ensure that items are being
properly furnished under the program.
CMS or the CBIC will issue additional
details regarding this process through
program instruction or by other means,
such as the RFB, and post them on our
Web site. When we referred in the
proposed rule to an item being of
‘‘inferior quality,’’ we meant items that
beneficiaries or referral agents
complained were of inferior quality,
which would include any product that
the contract supplier furnishes to the
beneficiary that does not meet the
medical needs of the patient.
After consideration of the public
comments received, we are finalizing
our proposal to implement a monitoring
and complaint system under the
Medicare DMEPOS Competitive Bidding
Program.
XV. Physician or Treating Practitioner
Authorization and Consideration of
Clinical Efficiency and Value of Items
in Determining Categories for Bids
Section 1847(a)(5)(A) of the Act
provides authorization to the Secretary
to establish a process for certain items
under which a physician may prescribe
a particular brand or mode of delivery
of an item within a particular HCPCS
code if the physician determines that
use of the particular item would avoid
an adverse medical outcome on the
individual. In the May 1, 2006 proposed
rule (71 FR 25684), we proposed to
implement this statutory provision in
proposed § 414.420 (in the proposed
rule, the regulatory provision was
erroneously cited in the preamble as
§ 414.440), and to also apply it to certain
treating practitioners, including
physician assistants, nurse practitioners,
and clinical nurse specialists, because
these practitioners also order DMEPOS
for which Medicare makes payment.
Because a HCPCS code may contain
many brand products made by a wide
range of manufacturers, we expect that
suppliers will choose to offer only
certain brands of products within a
HCPCS code. This is a common practice
used by suppliers to reduce the amount
of inventory they maintain. However,
we proposed that the physician or
treating practitioner would be able to
determine that a particular item would
avoid an adverse medical outcome, and
that the physician or treating
practitioner would have discretion to
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specify a particular product brand or
mode of delivery.
We proposed that when a physician
or other treating practitioner requests a
particular brand, or mode of delivery of
an item, contract suppliers would be
required to furnish that particular brand
or mode of delivery, assist the
beneficiary in finding another contract
supplier in the CBA that can provide
that brand item or mode of delivery, or
consult with the physician or treating
practitioner to find a suitable alternative
product or mode of delivery for the
beneficiary. If, after consulting with the
contract supplier, the physician or
treating practitioner is willing to revise
his or her order, that decision must be
reflected in a revised written
prescription. However, if the contract
supplier decides to provide an item that
does not match the written prescription
from the physician or treating
practitioner, the contract supplier
should not bill Medicare, as this would
be considered a non-covered item under
Medicare.
For the Medicare DMEPOS
Competitive Bidding Program, we did
not propose to require a contract
supplier to provide every brand of
products included in a HCPCS code.
However, regardless of what brands the
contract supplier furnishes, the single
payment amount for the HCPCS code
would apply. Nonetheless, we noted
that this issue will be studied in more
detail by the OIG in 2009. At that time,
we will evaluate the need for a specific
process for certain brand names or
modes of delivery.
In addition, section 1847(b)(7) of the
Act provides authority to establish
separate categories for items within
HCPCS codes if the clinical efficiency
and value of items within a given code
warrants a separate category for bidding
purposes. Currently, HCPCS codes are
developed for items that are similar in
function and purpose. For this reason,
items within the same code are paid at
the same rate. We believe that the
HCPCS process has worked well in the
past, and we believe that it adequately
separates items based on their function.
Comment: One commenter stated that
CMS should address the quite-common
situations in which a supplier does not
carry a particular item, or does not
know how it works or how it must be
maintained. The commenter noted that
mandating a contract supplier to furnish
an item it does not routinely supply
could raise concerns about patient and
employee safety and other liability
concerns. The commenter further stated
that as long as some contract suppliers
in the CBA can supply that particular
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item, this situation should be acceptable
to CMS.
Response: We recognize the
commenter’s concerns, and we note that
we did not propose that a contract
supplier would be required, no matter
what the circumstance, to furnish a
brand name item or specific mode of
delivery to a beneficiary. We also
recognize that the wording of proposed
§§ 414.420(b)(1) and (b)(2) and the
preamble to the proposed rule may not
have been sufficiently clear regarding
whether a contract supplier must
furnish an item that it does not
routinely carry to a beneficiary.
Therefore, we are clarifying, in final
§§ 414.420(b)(1) through (b)(3) the
process that contract suppliers must
follow to address the situation where a
physician or treating practitioner orders
a specific brand or mode of delivery to
avoid an adverse medical outcome. If a
physician or treating practitioner
prescribes a brand name item or specific
mode of delivery to avoid an adverse
medical outcome, the contract supplier
must make a reasonable effort to furnish
that brand name item or mode of
delivery. If the contract supplier cannot
furnish that brand name item or mode
of delivery, it must contact the
physician or treating practitioner to
determine if a substitution can be made
(and if so, the contract supplier must
obtain a revised written prescription). If
a substitution cannot be made, the
contract supplier must assist the
beneficiary in finding another contract
supplier that can furnish the brand
name item or mode of delivery
prescribed by the physician or treating
practitioner.
Comment: One commenter stated that
the proposed rule does not establish an
appeal or dispute resolution system for
cases when the contract supplier in a
CBA fails to provide the specific
equipment selected by the physician.
Response: As we state in this final
rule in § 414.420(d), a contract supplier
would be prohibited from billing
Medicare if it furnishes an item different
from that specified in the written
prescription from the beneficiary’s
physician or treating practitioner.
Comment: One commenter stated that
CMS should exercise its discretion
under section 1847(a)(5) of the Act, and
not permit such brand-specific
prescriptions for items within a CBA. As
an alternative, the commenter suggested
that CMS consider making a finding
that, under such circumstances, the
competitive bidding is not likely to
result in significant savings and,
accordingly, exempt these items from
the competitive bidding process under
section 1847(a)(5) of the Act. The
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commenter indicated that there is
concern that if CMS implements section
1847(a)(5) of the Act, the demand for
brand-specific items, will increase even
though the ‘‘brand name’’ may have the
same clinical benefits of other products.
Several commenters opposed the
manner in which CMS interpreted the
authority of the treating practitioner to
order brand-specific items and
equipment. They believed that the
proposed rule mandates serious
financial consequences for the supplier
and creates unnecessary uncertainty in
the bids to be submitted. They added
that forcing suppliers to carry all
possible items and equipment will be
burdensome and costly for suppliers.
The commenters stated that contract
suppliers may be financially responsible
to provide items outside their normal
product line. However, they added that,
if a contract supplier does not carry that
product, the contract supplier may refer
the beneficiary to another contract
supplier. The commenters asked that
CMS consider an exception process to
compensate contract suppliers for
provisions of items that are very
expensive compared to other products
within the same HCPCS code. They also
suggested that CMS define ‘‘what is a
reasonable effort to locate an alternative
supplier.’’
Response: We disagree with the
commenters. Section 1847(a)(5) of the
Act provides the Secretary with the
authority to establish a process for
certain items and services under which
a physician may prescribe a particular
brand or mode of delivery of an item or
service to the beneficiary to avoid an
adverse medical outcome. We proposed
that this process would also apply to
certain treating practitioners, including
physician assistants, nurse practitioners,
and clinical nurse specialists, because
these practitioners also order DMEPOS
for which Medicare makes payment. We
stress that this process can only be used
when a physician or treating
practitioner determines that there is a
need for the use of a particular item or
mode of delivery to avoid an adverse
medical outcome. Because bids will be
submitted for HCPCS codes, which are
carefully written to include items that
perform the same therapeutic function,
we do not believe there will be many
instances in which a particular brand or
mode of delivery is necessary to avoid
an adverse medical outcome.
Nevertheless, because it is possible such
a prescription may be necessary in a few
cases, we believe it is important for
patient safety to retain this provision.
Therefore, we are clarifying that a
physician or treating practitioner must
document in the beneficiary’s medical
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records the medical necessity of a
particular brand or mode of delivery of
an item or service to avoid an adverse
medical outcome, if a particular brand
or mode of delivery is prescribed. We
note that section 1847(a)(5)(B) of the Act
provides that a prescription written for
a particular brand of item or mode of
delivery will not affect the amount of
payment otherwise applicable for the
item under the HCPCS code involved,
and that we do not currently pay a
supplier an additional amount for
furnishing a particular brand of item or
mode of delivery. We also note that a
contract supplier would not be required
to furnish every brand of item. It would
be able to work with the physician or
treating practitioner to find a suitable
alternative and, if that effort is
unsuccessful, to help the beneficiary
find another contract supplier that can
furnish the item.
We agree that the use of the term
‘‘reasonable effort’’ is nebulous and may
be subject to misinterpretation. We are
deleting the term ‘‘reasonable effort’’.
Because of the importance for
beneficiaries to receive medically
appropriate items, we are now requiring
that a supplier follow the process set out
in final § 414.420(b)(1) though (b)(3).
Comment: Several commenters argued
that physician choice for determining
appropriate wound care products is of
paramount importance. They were
concerned that physician choice and
access to certain wound care products
could be restricted as a result of
competitive bidding, specifically
Negative Pressure Wound Therapy
(NPWT), code E2402. In recent months,
new products have been added to code
E2402 despite the fact that these new
products are clinically different from
the original NPWT product. The
commenters stated that because of the
newer items, it is conceivable that
wound healing would be compromised.
Response: A physician or treating
practitioner may prescribe a particular
brand or mode of delivery to avoid an
adverse medical outcome for the
beneficiary. We note that HCPCS codes
are carefully defined to ensure that only
items that have the same therapeutic
function fall within particular codes.
Therefore, we believe it is unlikely that
there would be many instances in which
a particular brand within a HCPCS code
would be necessary to avoid an adverse
medical outcome.
Comment: Several commenters
requested that CMS add language to the
rule acknowledging that physical
therapists and occupational therapists
play a key role in specifying the need
for a particular brand.
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Response: Although we recognize that
physical therapists and occupational
therapists may furnish certain DMEPOS
as part of their professional practice,
current Medicare rules only allow
physicians, nurse practitioners, clinical
nurse specialists, and physician
assistants to prescribe DMEPOS items.
Comment: Several commenters
asserted that it is not fair that contract
suppliers be required to furnish any
item within a HCPCS code if their bid
was accepted based on an item that they
carry in their stock. The commenters
stated that if no additional payments
would be made for more specific
expensive products that are ordered by
physicians or treating practitioners, this
may result in significant financial losses
for the contract supplier if the contract
supplier is required to furnish the
particular brand or mode of delivery at
the single payment amount. Several
commenters supported the physician/
treating practitioner authorization
proposal because it provides a safety net
for the beneficiary. Another commenter
argued that when a physician or treating
practitioner specifies a product for his
or her patient, the physician or treating
practitioner should have continuous
access to the latest innovative
technologies.
Response: As stated earlier in this
section, we believe that it will rarely be
necessary for a physician or treating
practitioner to prescribe a particular
brand or mode of delivery to avoid an
adverse medical outcome. Furthermore,
in this final rule, we are specifically
providing the contract supplier with a
specific process to follow when a
physician or treating practitioner
requests a specific brand item or mode
of delivery to avoid an adverse medical
outcome. Under this process, the
supplier is required to furnish the item
or mode of delivery as prescribed, and
if it cannot furnish the item or mode of
delivery as prescribed consult with the
physician or treating practitioner to find
a suitable alternative and have the
physician or treating practitioner revise
his or her order, and if the physician or
treating practitioner does not revise the
order, assist the beneficiary in finding
another contract supplier. We do not
believe these requirements will place an
undue financial burden on a contract
supplier because there are provisions in
this process that give the contract
supplier the opportunity to substitute
the item or arrange to have another
contract supplier furnish the item. We
agree that physicians and treating
practitioners should have continuous
access to the latest innovative
technologies and be able to order them
for their patients.
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Comment: Several commenters stated
that the physician/treating practitioner
authorization proposal does not provide
sufficient details. They pointed out that
the term ‘‘adverse medical outcome’’
has not been defined. The commenters
urged CMS to develop a streamlined
and quick process to facilitate the role
of a physician or treating practitioner as
a key decision maker for each patient.
Several commenters argued that it is
crucial for the Medicare DMEPOS
Competitive Bidding Program to allow
health care providers to prescribe
specific items with special features
when medically necessary. They stated
that the proposed rule does not
adequately ensure that beneficiaries
with diabetes will have access to the
products for which their health
professionals find are most appropriate
and medically necessary for their
individualized needs. The commenters
remained concerned that contract
suppliers will limit products to a
narrow range that do not account for a
wide spectrum of diabetes-related
medical needs, and they will not receive
additional payment for providing such
items.
The commenters recommended that
CMS modify the rule to allow for an
adequate variety of diabetes supplies to
suit a range of individualized needs of
beneficiaries with diabetes. They stated
that CMS must create a less burdensome
process to ensure that these supplies are
rapidly available upon documentation
of medical need. The commenters added
that it is possible that adjusting the
payment rate for these special items
upward will encourage contract
suppliers to provide them in all cases.
Response: We believe that it is
appropriate for physicians and treating
practitioners to have the discretion to
determine when it is medically
necessary to prescribe a particular brand
or mode of delivery of an item to avoid
an adverse medical outcome. We
consider the adverse medical outcome
determination to be part of the more
general medical necessity requirement
that must be met in order for Medicare
to pay for an item under section
1862(a)(1)(A) of the Act. As with all
medical necessity determinations, there
must be documentation in the
beneficiary’s medical record to support
the need for the particular brand or
mode of delivery. Therefore, the
physician or treating practitioner must
note in the beneficiary’s medical record
the reason why the specific brand or
mode of delivery is necessary to avoid
an adverse medical outcome so that
contract suppliers can make a
reasonable effort to furnish the item,
then consult with the physician or
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treating practitioner to find a suitable
alternative, and then make a reasonable
effort to assist the beneficiary in locating
a contract supplier that can furnish the
item. We believe that these
requirements, along with other
requirements that we have previously
discussed in this final rule, will ensure
that beneficiaries have access to the
most appropriate items for their medical
condition under the Medicare DMEPOS
Competitive Bidding Program.
Comment: One commenter objected to
the statement in the proposed rule that
suppliers should not discriminate
against beneficiaries in a CBA and that
contract suppliers must furnish the
same items to beneficiaries that they do
to other individuals. The commenter
argued that this appears to conflict with
the requirement that a supplier must
provide product-specific items, if
ordered by the physician or treating
practitioner.
Response: The nondiscrimination
provision in this final rule (§ 414.422(c))
specifies that discrimination against
beneficiaries is prohibited under the
Medicare DMEPOS Competitive Bidding
Program. All Medicare beneficiaries to
whom a contract supplier furnishes
competitively bid items must have the
same choice of items that the contract
supplier provides to other customers.
We proposed to implement this
provision to protect beneficiaries from
receiving sub-standard or inferior items
in terms of quality. However, we do not
believe that this provision conflicts with
the physician/treating practitioner
authorization rules being implemented
in this final rule. Under these rules, a
physician or treating practitioner can
prescribe a brand name item or mode of
delivery to avoid an adverse medical
outcome for the beneficiary, and the
contract supplier must follow the
process outlined in § 414.420(b) upon
receiving the prescription. Nothing in
these rules would prevent a contract
supplier that furnishes a particular
brand or mode of delivery from making
that brand or mode of delivery available
to other beneficiaries or customers.
Comment: One commenter noted that
the rule requires a contract supplier get
a revised written prescription if the
physician treating practitioner allows
for a modification of a brand-specific
product. The commenter stated that
verbal orders are acceptable in most
States, and this imposes a significant
administrative burden on contract
suppliers and physicians/treating
practitioners.
Response: The requirement of a
written order is consistent with current
Medicare rules. The item provided must
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match the written order in order for the
contract supplier to bill Medicare.
After consideration of the public
comments we received, we are revising
and finalizing proposed § 414.420 as
discussed above.
XVI. Other Public Comments Received
on the May 1, 2006 Proposed Rule
Comment: Several commenters
suggested issuing an interim final rule,
with a full 60-day notice and comment
period to allow for a more detailed
proposal for public comment. In
addition, several commenters suggested
publishing initial responses to the
public comments as a new proposed
rule. The commenters believed that this
suggestion is consistent with section
1871(a)(4) of the Act that states that a
final rule will be treated as a proposed
rule if it includes provisions that are not
logical outgrowths of a previously
published notice of proposed
rulemaking. The commenters indicated
that another proposed regulation would
allow the public to consider and
comment on CMS’ responses to issues
on which CMS requested comment in
the May 1, 2006 proposed rule. Other
commenters requested that the comment
period on the proposed rule be extended
until at least 90 days following the
publication of the final DMEPOS quality
standards.
Several commenters were concerned
about Administrative Procedure Act
compliance, which states that
administrative rulemaking must be
sufficiently descriptive of subjects and
issues involved so that interested parties
may offer informed criticism and
comments. The commenters also gave
other cites: Agency notices must
describe the range of alternatives being
considered with reasonable specificity;
otherwise, interested parties will not
know what to comment on, and notice
will not lead to better-informed agency
decision making. Finally, the
commenters noted that an agency
commits a serious procedural error
when it fails to reveal portions of
technical basis for a proposed rule in
time to allow for meaningful
commentary.
Response: The proposed rule
presented for public comment our
proposed rules that will govern the
Medicare DMEPOS Competitive Bidding
Program. This final rule does not
include any provisions that are not
logical outgrowths of our proposals in
the May 1, 2006 proposed rule. In
addition, we believe that our proposed
rules were sufficiently detailed to
enable the public to provide meaningful
comments on them. Indeed, we received
over 2,000 comments on the proposed
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rule, and we have both considered and
responded to those comments in this
final rule. Therefore, we believe that
issuance of an interim final rule is not
necessary. We also note that this rule
does not finalize the DMEPOS quality
standards and that section
1834(a)(20)(E) of the Act explicitly
permits us to establish the DMEPOS
quality standards by program
instruction or otherwise. The quality
standards were published on August 15,
2006, and are available on the following
Web site: https://www.cms.hhs.gov/
CompetitiveAcqforDMEPOS/
04_New_Quality_Standards.asp. We
note that the draft quality standards
were published on September 26, 2005,
which was more than 7 months prior to
the publication of the proposed rule. We
also note that the quality standards
apply to all suppliers, not just suppliers
that wish to participate in the Medicare
DMEPOS Competitive Bidding Program,
and that we provided a 60-day period
for the public to comment on them.
Comment: Several commenters
suggested that CMS schedule a meeting
of the PAOC (1) After we publish an
interim final rule; (2) when we publish
the MSAs and the DMEPOS items
subject to competitive bidding; and (3)
when the final regulation is issued. The
commenters noted that scheduling a
PAOC meeting following publication of
an interim final rule would allow CMS
to obtain industry input before
publishing a final rule and initiating
program implementation. Further,
several commenters suggested that CMS
include the PAOC in the review of the
public comments received during the
comment period on the proposed rule
and in the development of the final rule.
They stated that excluding the
important counsel and advice of the
PAOC in a critical process would not be
consistent with the purpose for which
the PAOC was established.
Response: The PAOC meets
periodically to review policy
considerations and to provide advice on
the development and implementation of
the Medicare DMEPOS Competitive
Bidding Program. Since its
establishment, the PAOC has met on
five occasions and will continue to be
available to provide us with advice until
the end of 2009. Section 302 of the
MMA gives CMS discretion on when to
schedule PAOC meetings. We also
discussed with the PAOC the full range
of competitive bidding issues, and we
continued to consider its advice and
counsel as we reviewed the comments
and developed this final rule.
Comment: Several commenters noted
that the Web site address for the PAOC
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that was in the proposed rule was
incorrect.
Response: We recognize the
importance of having a Web site
available to distribute information in a
timely manner and regret the error. Our
PAOC Meeting Information Web site can
be found at the following link: https://
www.cms.hhs.gov/CompetitiveAcqfor
DMEPOS/PAOCMI/list.asp. Included on
the Web site are materials relating to
each PAOC meeting such as agendas,
meeting summaries, and presentations.
Comment: One commenter suggested
that the PAOC be subject to the Federal
Advisory Committee Act (FACA), which
requires public access to meetings and
proceedings. The commenter believed
that the PAOC has great power within
the DMEPOS industry and that other
affected members of the industry have
not had an opportunity to review or
respond to PAOC assertions or
recommendations.
Response: Section 1847(c)(4) of the
Act provides that the provisions of the
FACA do not apply to the PAOC.
However, the PAOC meetings have been
open to the public, and we have
published summaries of the meetings on
our PAOC Web site https://www.cms.
hhs.gov/CompetitiveAcqforDMEPOS/
PAOCMI/list.asp. Information about the
Medicare DMEPOS Competitive Bidding
Program has also been made available
through other methods, such as
electronic supplier listserv messages
and open door forums. CMS offers an
electronic mailing list service for those
interested in receiving news from CMS.
From the following link, individuals can
subscribe to the ‘‘Homehealth_Hospice
DMEODF–L’’ listserv to receive notices
of upcoming open door forums: https://
www.cms.hhs.gov/apps/mailinglists/.
Comment: Numerous commenters
requested that CMS publish an updated
implementation timeline with expected
completion dates. The commenters
expect that the publication of such a
timeline will highlight the significant
problems that lie ahead based on an
overly aggressive implementation plan.
The commenters suggested that the
timeline should identify and provide
expected completion dates for items
such as the publication of the quality
standards, approval of the accrediting
organizations, and issuance of final
regulations. The commenters further
suggested that CMS push back the
implementation date of October 1, 2007,
to a more reasonable timeframe. The
commenters believed that a delay in
implementation will allow adequate
time for small suppliers to create
networks and to prepare their
organizations for accreditation.
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Response: Section 1847(a)(1)(B)(i)(I)
of the Act requires that the Medicare
DMEPOS Competitive Bidding Program
be phased in such that competition
under the programs occurs in 10 of the
largest MSAs in CY 2007. We are
committed to meeting this statutory
mandate. We are mindful of the many
key tasks that must be completed to
ensure the success of this program and
are moving forward to complete these
tasks expeditiously. We note that the
final DMEPOS quality standards were
issued on August 15, 2006, and that
applications for participation in the
DMEPOS accreditation program were
solicited from independent accrediting
organizations in a Federal Register
notice published on August 16, 2006 (71
FR 47230). Therefore, we do not believe
it is necessary to publish a specific
timetable of expected completion dates
for other activities. However, we will
provide the public with sufficient notice
as we proceed with implementation
activities.
Comment: One commenter suggested
that CMS allow all beneficiaries to opt
out of the Medicare DMEPOS
Competitive Bidding Program, select the
supplier of their choice, and receive
DMEPOS items for which payment is
made based on the current fee schedule
amounts.
Response: Under section 1847(a) of
the Act, we are required to establish and
implement competitive bidding
programs throughout the United States
for the furnishing of certain items for
which payment is made under Part B of
the Medicare program. To the extent
that we implement a competitive
bidding program in a particular CBA,
we do not believe that we have
authority to allow any beneficiary who
need items in that CBA to ‘‘opt out’’ of
receiving those items from contract
suppliers and receive Medicare
payment. We also note that section
1847(a)(6) of the Act provides that, for
each CBA in which a competitive
bidding program is implemented, the
payment basis established under the
competitive bidding program shall be
substituted for the payment basis that
would otherwise apply (which, in most
cases, would be based on a fee
schedule). In accordance with section
1847(b)(5)(A) of the Act, we are required
to establish a new payment amount for
each item in each CBA. This new
payment amount is what we would pay
to contract suppliers. Under the
Medicare DMEPOS Competitive Bidding
Program, beneficiaries will be able to
select among the winning suppliers.
However, we believe that permitting
beneficiaries to opt out of the program
would create an exception that would
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18067
significantly undermine the goal of the
program to achieve savings.
Comment: One commenter stated that
one aspect of the DMEPOS competitive
bidding demonstration projects that was
never studied was Medicare patient
rehospitalization and/or emergency
room visit rates. The commenter stated
that this is a key outcome measure that
CMS should have evaluated to
determine if savings created through
Medicare Part B were actually resulting
in expenditures under Medicare Part A.
The commenter believed that it is
possible that a price-oriented DMEPOS
model might actually lead to higher
levels of institutional care. The
commenter indicated that it would be
prudent for CMS to study this aspect in
the CY 2007 round of bidding.
Response: We do not agree that
competitive bidding savings will result
in higher expenditures under Medicare
Part A. Under the Medicare DMEPOS
Competitive Bidding Program,
beneficiaries will receive items from
contract suppliers that have satisfied
our quality, accreditation, financial, and
eligibility standards. In addition,
contract suppliers will be required to
furnish to beneficiaries in a CBA the
same level of services and quality items
that they furnish to other customers.
Through our physician and treating
practitioner authorization rules,
beneficiaries who maintain a permanent
residence in a CBA will continue to
receive items that meet their medical
needs. Because we are enacting
safeguards to ensure the quality of items
that are furnished under the competitive
bidding programs by contract suppliers,
as well as rules that we expect will
ensure that beneficiaries have access to
new technology, we do not believe that
expenditures under Medicare Part A
will rise or that it is necessary to
undertake a study. Moreover, we will
monitor the entire program to make sure
that complaints are addressed and
resolved. We also believe that it would
be difficult to develop a study
evaluating increases in Medicare Part A
costs as a result of adverse competitive
bidding outcomes because there are too
many intervening variables, such as
physician and treating practitioner
quality, that affect final patient
outcome.
XVII. Collection of Information
Requirements
Under the Paperwork Reduction Act
of 1995 (PRA), we are required to
provide 30-day notice in the Federal
Register and solicit public comment
before a collection of information
requirement is submitted to the Office of
Management and Budget (OMB) for
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review and approval. In order to fairly
evaluate whether an information
collection should be approved by OMB,
section 3506(c)(2)(A) of the PRA
requires that we solicit comment on the
following issues:
• The need for the information
collection and its usefulness in carrying
out the proper functions of our agency.
• The accuracy of our estimate of the
information collection burden.
• The quality, utility, and clarity of
the information to be collected.
• Recommendations to minimize the
information collection burden on the
affected public, including automated
collection techniques.
In response to the May 1, 2006
proposed rule (71 FR 25654), we
received several public comments that
were submitted on the proposed rule
that more appropriately pertain to
provisions on the PRA process. We note
that specific information requested from
suppliers as part of the bid submission
and many of the terms and conditions
that will be included in the contracts
under the Medicare DMEPOS
Competitive Bidding Program are
discussed in detail in sections VI.G.,
VII.C., and IX.A. of this final rule. In
these sections, we summarize the public
comments we received on these specific
information requirements and respond
to those comments. Other comments
and responses on the general paperwork
burden that we outlined in the proposed
rule follow:
Comment: Two commenters
submitted general comments on the
specific paperwork burden outlined in
the proposed rule. The commenters
believed that, due to the lack of
specificity in the proposed rule, it is
impossible for commenters, or CMS, to
estimate accurately the amount of
incremental time that will be required of
suppliers to complete the bid process to
participate in the program. The
commenters indicated that only two
demonstration projects were performed,
and they did not include many of the
requirements that we have proposed.
The commenters also indicated that,
overall, competitive bidding is an
administratively burdensome program
for suppliers, Medicare, and its
contractors, and represents an
incremental administrative process that
is layered on top of an already complex
Medicare Part B system. The
commenters urged CMS to adopt
existing accreditation standards,
existing patient satisfaction tools,
existing patient complaints and
resolution processes, and existing
financial reports, rather than attempt to
‘‘reinvent the wheel,’’ in order to reduce
both the paperwork and administrative
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burden. The commenters believed that
competitive bidding will increase costs
for both suppliers and CMS in the form
of increased staff and reporting
procedures.
Two commenters stated that they
assumed CMS arrived at its estimate of
70 hours per bid for each supplier to
furnish information by using the median
of the hours that suppliers estimated
were required during the two less
complicated demonstration projects,
and that this estimate was per location.
The commenters pointed out that it is
unclear as to whether this 70-hour
estimate includes time spent attending
bidders conferences and preparing
internal analyses or whether it is simply
an estimate of the amount of time
needed to complete the application
bidding process. The commenters
indicated that if they considered in the
estimate the time that executive and
mid-level management spent reviewing,
analyzing, and responding to the
proposed rule, plus an estimated 70
hours per their 25 branches for the
application process and the first round
of competitive bidding for CY 2007, the
companies would invest 1,750 hours in
preparing competitive bids.
In regard to the total number of hours
that suppliers would invest in regard to
the CY 2007 programs, one commenter
pointed out that CMS’ own estimate is
that 1,158,150 hours would be needed
by the industry (16,545 bids). The
commenters pointed out that if a
conservative $35 per hour average salary
rate is used, this amounts to an
incremental $41 million attributable to
the first 10 CBAs alone. The commenter
added that, in CY 2008, this escalates
dramatically to an incremental
5,100,550 hours needed to prepare
72,865 bids, which in turn computes to
$178.5 million in supplier labor, and
that these costs have to be accounted for
in the bid that suppliers submit to CMS.
Two commenters stated that the
proposed bid process and certain other
provisions of the proposed rule are too
paper-intensive and gave
recommendations for ways in which
CMS could save a significant amount of
paperwork for itself and suppliers: (1)
Automating the supplier bid process
and accreditation organization
application process by making it Webbased and allowing an attachment
feature; (2) allowing the bid review team
to start reviewing those bids that meet
the quality and financial standards first
before proceeding to review the bid
prices; (3) allowing any multi-site
supplier that is owned by the same
corporate parent or tied to the same tax
number to provide certain standard
information only one time; (4) adopting
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a standardized Medicare patient
satisfaction questionnaire for DMEPOS;
(5) keeping the beneficiary and supplier
education simple and low cost; (6)
eliminating the brand-specific
requirement and associated paperwork;
(7) rather than requiring a separate bid
for every competitively bid product
category in a given MSA, consolidating
the application form itself into a checkbox format; and (8) rather than creating
an all-new government infrastructure
that essentially duplicates what exists in
the private sector, subcontracting with
several large managed care
organizations to administer the program
for Medicare beneficiaries nationwide.
Response: We need detailed
information on suppliers with whom we
may enter into a contract. This
information will be used to evaluate the
suppliers. This is important because
both Medicare and the beneficiaries will
be dependent on the contract suppliers.
We need to evaluate capacity issues in
order to ensure that suppliers’ capacity
meets beneficiary demand; we need to
evaluate financial stability in order to
ensure that contract suppliers are
solvent and will be in business during
the contract period; and we need to
obtain identification information in
order to ensure management is
dependable and that the bidding
supplier is not excluded from
participating as a Medicare supplier.
Our estimate of the time burden
required for filling out the forms is
based on reports from suppliers that
participated in the DMEPOS
competitive bidding demonstrations,
which implemented competitive
bidding in two MSAs. The
demonstrations included RFB forms
similar to those that will be included in
this program and both small and large
suppliers filled out the forms. Estimates
of the required time ranged from 40 to
100 hours, and we used the midpoint
for our estimates. The estimates include
internal decision-making processes but
do not include the time spent attending
bidders’ conferences. Based on our
consideration of the public comments
received, we have eliminated the
requirement to submit reviewed and/or
audited financials, as well as
information regarding investigations.
We believe this will lessen the burden
on suppliers.
Section 414.412 Submission of Bids
Under a Competitive Bidding Program
Section 414.412 outlines the
requirements associated with submitting
bids under the competitive bidding
process. Specifically, § 414.412(a) states
that unless an exception applies,
suppliers must submit a bid and be
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awarded a contract under a competitive
bidding program in order to receive
payment from Medicare for furnishing
the items.
The burden associated with this
requirement is the time and effort
associated with drafting, completing,
and submitting a bid. We estimate that,
on average, it will take a supplier 68
hours to complete and submit a bid. We
believe that we will receive 15,973 bids
for a total annual burden of 1,086,164
hours.
In addition, as part of the Medicare
DMEPOS Competitive Bidding Program,
beneficiaries will be surveyed to gather
information pertaining to their
experiences with suppliers. We estimate
that the burden associated with
completing the survey is 15 minutes per
beneficiary. We estimate that the total
annual burden associated with this
information collection requirement is
2,000 hours.
Section 414.414 Conditions for
Awarding Contracts
Section 414.414 contains the rules
pertaining to the evaluation and
selection of suppliers for contract award
purposes under the Medicare DMEPOS
Competitive Bidding Program.
Specifically, § 414.414(b)(1) states that
each supplier must meet the enrollment
standards specified in § 424.57. The
burden associated with this requirement
is subject to the PRA. This requirement
is currently approved under OMB
control number 0938–0717, with an
expiration date of November 30, 2007.
Section 414.420 Physician or Treating
Practitioner Authorization and
Consideration of Clinical Efficiency and
Value of Items
Section 414.420(a) states that a
physician or treating practitioner may
prescribe, in writing, a particular brand
of an item for which payment is made
under competitive bidding or a
particular mode of delivery for an item,
if he or she determines that the
particular brand or mode of delivery
would avoid an adverse medical
outcome for the beneficiary and
documents this determination in the
beneficiary’s medical record. The
burden associated with this requirement
is the time and effort associated with
evaluating the beneficiary and, if
necessary, determining the best brand
item or mode of delivery to avoid an
adverse medical outcome. In addition,
there is burden associated with the time
and effort involved in writing the
prescription for the brand item or the
mode of delivery and documenting the
medical record. The burden associated
with this requirement is not subject to
the PRA as stated under 5 CFR
1320.3(b)(2) and (h)(5).
Section 414.422
18069
Terms of Contracts
Section 414.422(d) requires contract
suppliers to notify CMS if they are
considering or negotiating a change of
ownership. The notification must be
made 60 days prior to the anticipated
effective date of the change. In addition,
a supplier must submit a novation
agreement to CMS 30 days before the
anticipated change of ownership takes
effect, stating that it will assume
responsibility for meeting all of the
terms and conditions of the competitive
bidding contract. The new supplier
must submit the same documentation
required of the original contract
supplier unless it has already submitted
such documentation during the bidding
process and that documentation is still
current.
The burden associated with this
requirement is the time and effort
associated with drafting and submitting
the required notification to CMS. While
this burden is subject to the PRA, we
currently have no way to quantify the
number of potential respondents. We
will continue to monitor the program
requirement and seek OMB approval
should the number of respondents
surpass the threshold of 10 individuals
or entities as specified in 5 CFR
1320.3(c)(4).
TABLE 10.—ESTIMATED ANNUAL REPORTING AND RECORDKEEPING BURDEN
Requirement
OMB control
No.
§ 414.412(a) ............................................................................
0938—New
0938—New
0938—New
0938—0717
§ 414.414(b)(1) .......................................................................
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Total ................................................................................
As required by section 3504(h) of the
PRA, we have submitted this final rule
to OMB for its review and approval of
the information collection requirements.
If you comment on these information
collection requirements, please mail
copies directly to the following:
Centers for Medicare & Medicaid
Services, Office of Strategic
Operations and Regulatory Affairs,
Regulations Development and
Issuance Group, Attn.: William N.
Parham, III, CMS–1270–F, Room C5–
14–03, 7500 Security Boulevard,
Baltimore, MD 21244–1850; and
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10235, New Executive
Office Building, Washington, DC
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.....................
Respondents
68
.25
.166667
8
1,086,164
2,000
2662
280,000
........................
........................
........................
1,370,826
A. Overall Impact
We have examined the impacts of this
final rule as required by Executive
Order 12866 (September 1993,
Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA)
(September 19, 1980, Pub. L. 96–354),
section 1102(b) of the Social Security
Act, the Unfunded Mandates Reform
Act of 1995 (Pub. L. 104–4), and
Executive Order 13132.
Fmt 4701
Total annual
burden
(in hours)
15,973
8000
15,973
35,000
XVIII. Regulatory Impact Analysis
Frm 00079
Burden per
response
(in hours)
15,973
8000
15,973
35,000
20503, Attn.: Carolyn Lovett, CMS
Desk Officer, CMS–1270–F, E-mail:
carolyn_lovett@omb.eop.gov, Fax:
(202) 395–6974.
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Responses
Sfmt 4700
1. Executive Order 12866
Executive Order 12866 (as amended
by Executive Order 13258, which
merely reassigns responsibility of
duties) directs agencies to assess all
costs and benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity). A regulatory impact analysis
(RIA) must be prepared for major rules
with economically significant effects
(that is, a final rule that would have an
annual effect on the economy of $100
million or more in any 1 year, or would
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adversely affect in a material way the
economy, a sector or the economy,
productivity, competition, jobs, the
environment, public health or safety, or
communities). We have determined that
this final rule is an economically
significant major rule and thus have
prepared a regulatory impact analysis.
2. Regulatory Flexibility Act (RFA)
The RFA requires agencies to analyze
options for regulatory relief of small
businesses. For purposes of section 604
of the RFA, small entities include small
businesses, nonprofit organizations, and
small governmental jurisdictions.
Approximately 85 percent of DMEPOS
suppliers are considered small
businesses according to the Small
Business Administration’s size
standards, with total revenues of $6.5
million or less in any 1 year. Individuals
and States are not included in the
definition of a small entity. We expect
that this final rule will have a
significant impact on a substantial
number of small suppliers. The RFA
requires that we analyze regulatory
options for small businesses and other
entities. The analysis must include a
justification concerning the reason
action is being taken, the kinds and
numbers of small entities the rule
affects, and an explanation of any
meaningful options that achieve the
objectives with less significant adverse
economic impact on the small entities.
We have provided this analysis in
section XVIII.B. of the preamble to this
final rule.
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3. Small Rural Hospitals
In addition, section 1102(b) of the Act
requires us to prepare a regulatory
impact analysis if a rule may have a
significant impact on the operations of
a substantial number of small rural
hospitals. For purposes of section
1102(b) of the Act, we define a small
rural hospital as a hospital that is
located outside of an MSA and has
fewer than 100 beds. We have
determined that this rule will not have
a significant effect on small rural
hospitals. Rural health care facilities
should not be significantly impacted as
the program is expected to operate
primarily within relatively large MSAs.
4. Unfunded Mandates
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
also requires that agencies assess
anticipated costs and benefits before
issuing any rule whose mandates
require spending in any 1 year of $100
million in 1995 dollars, updated
annually for inflation. That threshold
level is currently approximately $120
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million. We do not expect this final rule
will result in direct costs that exceed
$120 million per year on State, local, or
tribal governments in the aggregate or
the private sector, and thus the UMRA
would not apply.
5. Federalism
Executive Order 13132 establishes
certain requirements that an agency
must meet when it promulgates a
proposed rule (and subsequent final
rule) that imposes substantial direct
requirement costs on State and local
governments, preempts State law, or
otherwise has Federalism implications.
We have determined that this final rule
will not have substantial direct effects
on the rights, roles, and responsibilities
of States.
B. Regulatory Flexibility Analysis
1. Summary
The May 1, 2006 proposed rule did
not include a separate initial Regulatory
Flexibility Analysis. However,
information concerning small suppliers
was included throughout the proposed
rule preamble and regulatory impact
analysis. This document consolidates
and summarizes components of the
regulation concerning small businesses
into a single RFA. Its contents are
included in more detail in various parts
of the regulatory impact analysis and
the regulation preamble.
2. The Need for and Objectives of the
Final Rule
Payment for DMEPOS is currently
based generally on fee schedule
amounts. Section 302(b)(1) of the
Medicare Prescription Drug,
Improvement, and Modernization Act of
2003 (MMA) (Pub. L. 108–173), requires
the Secretary of Health and Human
Services to replace the current fee
schedule methodology for certain items
with a competitive acquisition
contracting program that will result in
an improved Medicare methodology for
setting payment amounts for certain
durable medical equipment and
supplies, enteral nutrition equipment,
nutrients and supplies, and off-the-shelf
orthotics. This new bidding process will
result in CMS awarding contracts with
to winning suppliers. Contracts will
stipulate the terms, conditions, and
payment rates for items and services for
under the program. Generally, only
suppliers that submit winning bids and
are awarded contracts will be permitted
to furnish items under the program and
reimbursement for those items from
Medicare.
In developing bidding and contract
award procedures, section 1847(b)(6)(D)
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of the Act requires us to take
appropriate steps to ensure that small
suppliers of items and services have an
opportunity to be considered for
participation in the Medicare DMEPOS
Competitive Bidding Program. Section
1847(b)(2)(A)(ii) of the Act also states
that the needs of small providers must
be taken into account when evaluating
whether an entity meets applicable
financial standards.
Set out below is a summary of the
significant issues raised by the public
comments in response to the initial
regulatory flexibility analysis, a
summary of the assessment of the
agency of such issues, and a statement
of any changes made in the proposed
rule as a result of such comments.
3. Comments Regarding Small Suppliers
The May 1, 2006 proposed rule did
not include a separate initial regulatory
flexibility analysis, but all information
required for an RFA was contained
elsewhere in the regulatory impact
analysis or the regulation preamble.
Below we list major comments on
aspects of the proposed rule which
directly concern small suppliers that are
included in the final rule.
a. Comments on Small Supplier Focus
Groups
Several commenters requested that
CMS share the findings from the 9 small
supplier focus group meetings that were
conducted during April and May 2005.
Representatives of DMEPOS suppliers
that had less than $3 million in gross
revenue and employed up to 10 FTE
employees met with CMS’ contractor
staff and were invited to share thoughts
and opinions on the potential impact of
quality standards, accreditation,
competitive bidding, and financial
standards requirements on their
businesses. We presented an overview
and results of the focus groups related
to quality standards and accreditation to
the PAOC on September 26, 2005
(access at https://www.cms.hhs.gov/
CompetitiveAcqforDMEPOS/PAOCMI/
list.asp#TopOfPage).
The results of the focus groups related
to competitive bidding and financial
standards were presented to the PAOC
on May 23, 2006. Several focus group
participants remarked that the
competitive bidding process would
force many small suppliers out of
business. The participants suggested
alternatives to competitive bidding,
including: (1) CMS should determine
product prices and allow all willing
suppliers to provide products at the set
price; and (2) CMS should reserve a
percentage of winning bids for small
suppliers. Many participants believed
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that lower payment rates for suppliers
would inevitably lead to lower quality
goods and services. Participants were
particularly emphatic in their belief that
CMS continues to neglect the valuable
service component that small suppliers
provide to their customers. They
believed that it is their commitment to
service that sets them apart from the
national companies. A number of
participants were concerned about the
possibility of requiring small winning
supplier to furnish items in the entire
MSA, given the fact that some MSAs
cross State boundaries. There was also
a consensus among these small
suppliers that the impact of competitive
bidding would differ by product line.
They believed that items involving highend technology equipment, respiratory
equipment, and customized products
are more service intensive than other
products, such as standard wheelchairs,
that involve fewer repairs, set-up time,
and patient education.
Finally, many participants in the
focus groups believed that tax returns,
quarterly standard financial statements,
and Dun & Bradstreet were helpful
sources of information about a
business’s credit history and cash flow.
The participants noted that suppliers
that grossed over $3 million in revenue
used audited financial statements,
whereas suppliers that grossed less than
$3 million in revenue used cash basis
accounting principles. A summary of
the PAOC discussion related to the
focus group results can be accessed at:
https://www.cms.hhs.gov/Competitive
AcqforDMEPOS/downloads/
PAOC_summary.pdf.
We have used the comments from the
focus groups as well as public comment
process in developing our final policies
for the Medicare DMEPOS Competitive
Bidding Program.
b. Comments on the Definition of Small
Suppliers
Some comments concerned the
definition of small suppliers. Some
commented on practitioner and
providers, reporting that there are
currently 40,000 practitioners and
providers enrolled as suppliers,
including approximately 1,078 physical
therapists. The commenters stated that
health care practitioners who provide
DMEPOS as an integral part of their
professional services specialize in
providing items for specific conditions.
They added that these suppliers offer
considerable expertise in evaluating
both the patient and the item in order
to provide the patient with the best
possible outcome.
Many commenters disagreed with
using the definition of the SBA (less
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than $6 million in annual receipts)
because the CY 2003 Medicare data
showed that at least 90 percent of
suppliers had less than $1 million in
allowed charges. They recommended
defining a small supplier as a supplier
that generates less than $3 million in
annual receipts. The commenters
believed that a lack of small supplier
participation would negatively impact
patient care. They added that small
businesses would have to endure large
expenses in order to participate in the
Medicare DMEPOS Competitive Bidding
Program. Most suggested that we define
a small supplier as a supplier having
fewer than 10 FTE employees. They also
believe that small suppliers serve rural
and underserved urban communities
where larger suppliers may not operate.
We agree with the commenters and
recognize the importance of small
supplier participation and understand
that there are upfront costs associated
with submitting a bid under the
program. In the final rule, we revised
our policies to ensure that small
suppliers have an opportunity to be
considered for participation in the
Medicare DMEPOS Competitive Bidding
Program. To assure multiple suppliers,
storefront locations, beneficiary access,
and increased participation by small
suppliers, we have in cooperation with
the SBA, revised the final rule such that
the definition of a ‘‘small supplier’’ is a
small supplier that generates gross
revenue of $3.5 million or less in annual
receipts, including Medicare and nonMedicare revenue (§ 414.402).
c. Comments on the Protections for
Small Suppliers
Several commenters noted that
section 1847(b)(6)(D) of the Act is
entitled ‘‘protection’’ of small suppliers
and not the mere identification of small
suppliers. The commenters proposed
the following policies: (1) At least 50
percent of suppliers that receive a
contract should be small suppliers
(based on $3 million or less in revenue
or less than 10 FTE employees); (2) CMS
should allow suppliers with less than 10
FTE employees to furnish items to less
than the entire CBA; (3) CMS should
award contracts to small suppliers with
the lowest bids that exceed the pivotal
bid; (4) CMS should allow truly small
suppliers to promise to accept the single
payment amount; and (5) CMS should
establish a certain volume of items in
each geographic area that will be ‘‘setaside’’ for small suppliers.
The statute at section 1847(b)(6)(D) of
the Act requires that the Secretary shall
take appropriate steps to ensure that
small supplies of items and services
have an opportunity to be considered
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18071
for participation in the program under
this section. We recognize the concerns
raised by the commenters and have
considered the suggested alternatives
provided during the small supplier
focus groups and through the public
comment process. We also recognize the
importance of maintaining storefront
capabilities to meet the needs of
beneficiaries. To help small suppliers
have an opportunity to participate in the
Medicare DMEPOS Competitive Bidding
Program and to support our
Departmental goals for contracting with
small suppliers, we have established a
target for small suppliers’ participation
in the final rule. Our target for small
supplier’s participation in each product
category will be determined by
multiplying 30 percent times the
number of suppliers that meet our
bidding requirements and whose
composite bids are at or lower than the
pivotal bid. The number resulting from
this multiplication represents our goal
for small supplier participation for the
product category (§ 414.414(g)(1)(i)). If
this 30-percent target is not achieved as
a result of this process, we will offer
contracts to small suppliers with
submitted bids that are above, but
closest to, the pivotal bid until we reach
the target number or there are no
additional small supplier bidders
(§ 414.414(g)(1)(iii)). In addition, we are
requiring that all contract suppliers
must service the entire CBA, and we
have clarified that this can be done
where appropriate either through home
delivery, mail order, or storefront.
However, small suppliers that cannot
service the entire area independently
can join together and bid as a network
(§ 414.418). The network, rather than
each individual supplier, would be
required to service the entire CBA.
d. Comments on Bidding Requirements
for Physicians and Other Providers
Several commenters suggested that
CMS not require physicians, including
podiatric physicians, to participate in
the competitive acquisition program for
certain DMEPOS. The commenters
noted that under the physician selfreferral (‘‘Stark’’) provisions under
section 1877 of the Act, a physician in
a group practice may not refer Medicare
beneficiaries to the group practice, and
the group practice may not bill for any
DME except crutches, canes, walkers,
folding manual wheelchairs, and blood
glucose monitors. The commenters also
requested that CMS not require
physician assistants, physical therapists,
and occupational therapists to
participate in the Medicare DMEPOS
Competitive Bidding Program because
those health care professionals are
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licensed by State boards. According to
the commenters, if a physician or nonphysician practitioner does not
participate in the competitive bidding
program, he or she should be
reimbursed at the competitive bid rate
for any DME items that are furnished to
his or her own patients. In addition, the
commenters requested that CMS clarify
how the requirement for physicians to
submit bids and provide all items
within a product category does not
violate the physician self-referral law.
Other commenters stated that there is no
reason to treat occupational therapists
and physical therapists differently from
physicians.
Based on these comments, we
modified the proposed rule by
expanding the definition of the term
‘‘physicians’’ and by exempting
physicians and other treating
practitioners from bidding requirements
to provide limited DMEPOS to their
own patients (§ 414.402 and
§ 414.404(b)(1)). We are also modifying
the regulation to give physical therapists
in private practice and occupational
therapists in private practice the option
to furnish certain types of competitively
bid items without participating in the
competitive bidding program
(§ 414.404(b)(2)).
e. Comments on Bidding by Product
Category
We received numerous comments
concerning the definition and use of
product categories. We believe that
conducting separate bidding processes
for individual product categories will
encourage the participation of small
suppliers that specialize in one or a few
product categories. It is our goal to
allow Medicare beneficiaries the
opportunity to receive all related
equipment from the same supplier,
thereby minimizing disruption to the
beneficiary. Suppliers currently
specialize in particular products, and
we do not see this process being
interrupted by competitive bidding. The
use of product categories is intended as
a compromise that will maximize
beneficiary convenience while still
permitting suppliers, particularly small
suppliers, to specialize in a certain
product category.
A few commenters indicated that
conducting separate bidding processes
for individual product categories is
administratively burdensome. They
stated that CMS’ assumption that large
suppliers could expand their products
by offering supplies and equipment
easier or more quickly than small
suppliers is an erroneous view of a
company’s ability to expand. They also
reported that large organizations must
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seek approval from their boards or other
stakeholders before they can undertake
certain business expansion activities.
We received comments arguing that
product categories should be defined
narrowly or broadly. Others stated that
the product categories should not differ
from the SADMERC policy groups,
believing that combining medical
policies may affect beneficiary access or
quality of services. Suppliers also noted
that suppliers are already familiar with
the policy groups as that is how the
CMS Web site is organized and this is
accessed by suppliers frequently for
information. Some commenters
suggested that product categories should
be uniform and as stable as possible
because keeping track of differently
defined categories would be very
difficult. Some commenters also called
for subcategories within product groups.
Based on public comments, we have
revised the proposed definition of the
term ‘‘product category’’ in § 414.402 to
mean, ‘‘a grouping of related items that
are used to treat a similar medical
condition’’. The list of product
categories and the items included in
each product category that is included
in each competitive bidding program
will be identified in the request for bids
document for that competitive bidding
program or by other means. The policy
groups will serve as the starting point
for establishing product categories.
Product categories may generally be
consistent with the policy groups that
are established by the SADMERC,
unless CMS determines that a policy
group should be redefined for the
purposes of competitive bidding. The
SADMERC established policy groups for
the purposes of developing Medical
review policies and for data analysis.
However, the product categories for
which we would request bids could be
a subset of items from a SADMERC
policy group or a combination of items
from different policy groups. There may
be items in a policy group that are not
subject to competitive bidding or that
we would want to exempt from
competitive bidding using our authority
to exempt items. In response to the
suggestion that we include
subcategories within a product category,
we do not believe this approach would
be consistent with the purpose and
definition of product categories because
a product category is a group of related
items used to treat a medical condition
and it would be designed to be
appropriate for Medicare competitive
bidding purposes. In addition, we do
not believe that there is a need for
subcategories because we would create
a new product category instead of a
subcategory.
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f. Comments on Financial Standards
Several comments argued that the
financial standards were too strict for
certain suppliers and should be flexible
enough to regulate mail order
companies, small local suppliers, SNFs,
outpatient departments of hospitals,
retail pharmacies, and publicly-traded
and privately-held family firms. Other
commenters argued that the reporting
requirements of the proposed financial
standards are too burdensome and
discourage small suppliers from
participating. They recommended that
CMS define different standards for small
suppliers and pharmacies. The
commenters stated that if financial
standards are too restrictive, qualified
suppliers may be eliminated from the
Medicare Part B program. They added
that, conversely, if financial standards
are too lax, suppliers may be financially
unable to meet the challenges of a
competitive market.
We agree with the commenters that it
is important to have financial standards
that ensure suppliers are able to meet
the challenges of competitive bidding
and can fulfill their contract obligations.
After further consideration and in
response to comments, we believe that
the financial documentation discussed
in the proposed rule is too burdensome,
particularly for small suppliers. We
have determined that we could obtain
the necessary information through
collection of a limited number of
financial documents and believe that
the submission of this information will
be less burdensome for all suppliers,
including small suppliers. We are
clarifying in the final rule that the RFB
will specify what financial documents
will be required (§ 414.414(d)) so that
we can obtain a sufficient amount of
information about each supplier while
minimizing the burden on both bidding
suppliers and the bid evaluation
process. This financial information will
provide enough information to allow us
to determine financial ratios, such as a
supplier’s debt-to-equity ratio, and
credit worthiness, which will allow us
to assess a supplier’s financial viability.
We believe we have balanced the needs
of small suppliers and the needs of the
beneficiaries in requesting
documentation that will provide us with
sufficient information to determine the
financial soundness of a supplier.
g. Comments on Supplier Networks
The May 1, 2006 proposed rule
included a proposal to permit small
suppliers to form a legally binding
network with other small suppliers for
the purpose of submitting a bid. Many
commenters believed that the option to
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form a network is not a realistic solution
for ensuring that small suppliers
participate in the competitive bidding
program. They expressed concern that
forming a network could violate the
Federal antitrust laws because those
laws do not permit suppliers to reach a
mutual consensus on pricing. They also
stated that the proposed rule would
require suppliers to agree on proposed
prices for all items within a competitive
bidding product category. They further
believed the proposed rule is complex,
and that suppliers would not have
sufficient time to form a network and
comply with all the requirements to
meet the competitive bidding
implementation timelines.
We agree that forming a network may
pose a challenge for some suppliers.
However, forming a network is a
business decision and we continue to
believe that networks should be an
option for small suppliers to promote
competition and efficiencies that could
improve services to beneficiaries. The
proposed rule was published May 1,
2006. We believe sufficient notice has
been given for suppliers to consider
network options and plan accordingly.
We believe that our network policy is
constructed in a way that maximizes
participation of suppliers.
Suppliers that pursue the network
option must comply with all applicable
Federal antitrust laws. We have taken
steps to ensure that each network is not
in violation of Federal antitrust laws or
exhibits otherwise anticompetitive
behavior by including the following
requirements:
Network participation will be limited
to small suppliers that cannot compete
in competitive bidding because they
cannot independently service the entire
CBA. A written certification will be
required from each network supplier
that it is unable to compete (that is,
cannot service the entire CBA on its
own) without joining a network
(§ 414.418(b)(6)). We believe this
provision will help ensure that a small
supplier has a legitimate need to
participate in a network. This will
minimize the potential for
anticompetitive behavior and will assist
small suppliers by expanding their
opportunity to participate. Network
members’ Medicare market share at the
time of bidding when added together
cannot exceed 20 percent of the
Medicare market (§ 414.418(b)(7)). This
would guard against excessive network
market share. Network membership in
any one network will be limited to 20
small suppliers to help promote
competition among suppliers. Our
rationale for limiting the number of
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small suppliers to no more than 20 is
the following:
• This would help avoid collusion
which could lead to less competition
and higher bids.
• It would ease administrative burden
and reduce the overall cost of evaluating
each network.
• A 20-supplier network would be
able to serve an entire CBA even if each
of its members is small. Networks are
required to form a legal entity that
functions as the bidder. We do not
believe that a network should include
more members than is necessary to
service an entire CBA because other
suppliers who are not in networks have
to service an entire CBA.
The network provisions do not
establish a safe harbor or a safety-zone
or in any way protect anticompetitive
behavior. All of the Federal laws and
regulations that govern anticompetitive
behavior, including the Federal antitrust
laws, will fully apply.
A few commenters agreed with our
proposal to require that suppliers
participating in a network form a
discrete legal entity and stated that this
would prevent the commingling of
Medicare funds, as well as violations of
the Federal anti-kickback statute, selfreferral rules and regulations, and
allegations of unfair business practices
among the participating network
suppliers. Other commenters believed
that requiring each network to
independently bid defeats the entire
purpose of networking. They disagreed
with the primary legal entity being
responsible for billing Medicare and
receiving the payments. They believed
that each supplier should be responsible
for its own finances.
We appreciate the support for our
proposal that each network must form a
legal entity. We agree that the primary
legal entity should not be responsible
for billing Medicare and receiving the
payments and have revised
§ 414.418(b)(4) to reflect this rule. We
are requiring each member of the
network to submit its own Medicare
claims and are specifying that each
member will be paid directly for
Medicare products and services
furnished as part of its individual
business. This is consistent with our
current Medicare policies for each
supplier to submit claims to receive
Medicare payments.
A few commenters believed that
networks that provide multiple product
categories pose a risk because not all the
network members will furnish all the
product categories; therefore,
beneficiaries may not have access to
services. They recommended that CMS
add requirements to ensure that
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18073
networks bids are scrutinized to ensure
that each network has appropriate
mechanisms to service the entire CBA.
The commenters recommended that
each beneficiary have a single point of
contact for the network to ensure
satisfactory resolution of performance
problems or other issues across the
CBA. They also asked if subcontractors
needed to meet the same requirements
as a contract supplier. Based on these
concerns we are requiring that networks
form a legal entity, such as a joint
venture or limited partnership. Each
network member will also be required to
satisfy all applicable bidding
requirements. Each network member is
equally responsible for the quality of
care, service, and items that it delivers
to Medicare beneficiaries. If any
member of the network falls out of
compliance with this requirement, we
have the option of terminating the
network contract.
A few commenters questioned why a
limit of 20 percent of the market share
was assigned to the network, leaving 80
percent of the Medicare market for a
large company. They suggested allowing
network members to obtain market
share not to exceed 35 percent, as
specified in the Department of Justice
monopoly guidelines. A few
commenters requested that CMS
disclose the methodology that will be
used to calculate the market share and
monitor changes over the course of the
contract.
In this final rule, we have decided to
finalize the proposed 20-percent market
share limitation on the capacity of
networks. However, once a network
receives a contract, there is no limit on
what percentage of the demand in the
CBA that the network can furnish. We
believe that this will ensure a sufficient
number of contract suppliers and
provide beneficiaries with more variety
and choice.
Some commenters suggested that
CMS allow suppliers to join up to two
networks, recognizing that many
suppliers currently participate in
several networks. They believed that
this would ensure that the participating
supplier is not disadvantaged by a
requirement to commit to a single
network bid. We agree with the
commenters. We will allow suppliers to
join more than one network, but a
supplier cannot join more than one
network for purposes of furnishing
items in the same product category in
the same CBA. We believe that this
policy is necessary because, without it,
the competitive bidding process would
be undermined by allowing suppliers to
bid against themselves for the same
product category. In other words, if a
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supplier wants to independently furnish
items for a product category, it would
not be able to join another network that
furnishes the same product category in
the same CBA. However, a supplier that
wishes to furnish products that are in
two different product categories would
be able to join a different network for
each product category or submit a bid as
an individual supplier for one product
category while joining a network for the
other product category.
A few commenters asked how
networks would obtain a supplier
billing number. The Medicare
competitive bidding implementation
contractor will assign each network a
bidder number that will be used to
monitor the network. As stated earlier,
each member of the network will be
allowed to submit its own claims and
receive Medicare payments directly.
A few commenters requested that
CMS clarify whether each supplier that
is a member of a network would be
required to provide all of the items for
the product category for which the
network submits a bid. The member of
the networks would be required to
provide all the items within the product
category for which the network submits
a bid. This is consistent with our
requirement that all winning suppliers
must furnish all items in a product
category. Therefore, each member of the
network must be able to provide all
items within the product categories for
which the network has submitted bids.
Although the network must provide
items to any beneficiary throughout a
CBA, each member of the network is not
responsible for providing an item
throughout the entire CBA.
4. Description and Estimate of the
Number of Small Entities
As of January 2006, the SBA defines
a small business as generating less than
$6.5 million in annual receipts. We
worked with the SBA to define small
supplier for the Medicare DMEPOS
Competitive Bidding Program. In this
final rule, we are defining a small
supplier as a supplier that generates
gross revenue of $3.5 million or less in
annual receipts. Before we receive
supplier bids, we do not have
information on each supplier’s total
revenue. We only have information on
suppliers’ Medicare revenues. As a
result, we had to make an assumption
about what percent of a supplier’s
revenues come from Medicare. We
looked at filings by public DMEPOS
companies and, based on that
information, we assume one-half of the
average supplier’s revenues come from
Medicare DMEPOS.
Suppliers that furnish products in a
CBA in at least one product category
selected for competitive bidding will be
affected by this program. A supplier that
does not furnish competitively bid items
and services to beneficiaries in a CBA
will not be affected. Based on analysis
of CY 2005 Medicare DMEPOS claims,
we estimate the number of suppliers
affected in the Regulatory Impact
Analysis as described below. This
analysis preceded finalization of the
product categories and selection of
bidding areas and is thus based on a
number of assumptions, as detailed in
the Regulatory Impact Analysis. Based
on CY 2005 claims data, the average
MSA in the top 25 MSAs, excluding
New York, Los Angeles, and Chicago,
has 2,896 DMEPOS suppliers that
furnish any DMEPOS product and 1,972
suppliers that furnish products subject
to competitive bidding and could
potentially be affected by competitive
bidding. We estimate that 28,960
suppliers will provide competitive bid
items in the CBAs that we initially
designate. If suppliers furnish products
in more than one MSA, we counted
them more than once because they are
affected in more than one MSA. Not all
products are subject to competitive
bidding; therefore, we estimate that 68
percent of suppliers will furnish
products subject to competitive bidding
and will be affected by competitive
bidding during the initial round of
competitive bidding. This means in CY
2007, the remaining 32 percent of
suppliers in the 10 selected CBAs will
not be affected by competitive bidding
because they do not furnish products
subject to competitive bidding.
However, the actual percentage of
affected suppliers may be smaller if we
do not select all eligible product
categories for competitive bidding.
NUMBER OF SMALL SUPPLIERS 1
[$3.5 million or less in Medicare allowed charges]
Number of
affected small
suppliers
Bidding year
2007
2008
2009
2010
2011
2012
.....................................................................................................................................
.....................................................................................................................................
.....................................................................................................................................
.....................................................................................................................................
.....................................................................................................................................
.....................................................................................................................................
1 Some
19,720
106,470
114,154
121,838
121,838
121,838
Percent
85
85
85
85
85
85
suppliers furnish products in more than one selected MSA. Consequently, some suppliers may be counted more than once.
5. Projected Reporting, Recordkeeping,
and Other Compliance Requirements
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16,762
90,500
97,031
103,562
103,562
103,562
Total number
of affected
suppliers
The primary compliance cost of the
proposed rule will be the cost of bid
submission. As part of a separate rule,
all DMEPOS suppliers will be required
to gain and maintain accreditation
which may lead to significant
compliance costs. However these costs
are not considered under the
competitive acquisition program, and
thus we concentrate on the costs of
bidding which includes time devoted to
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supplier education efforts, completing
forms, and providing documentation.
Bidders must decide whether to bid,
request or download an RFB, attend a
bidders conference (optional) and read
outreach materials, decide how much to
bid for each item, and prepare and
submit a bid. In the demonstration,
bidders in Polk County, Florida reported
spending a total of 40 to 100 hours
submitting bids. In the proposed rule we
assumed that suppliers would use the
midpoint number of hours, 70 hours.
We have reduced our estimate of the
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required hours to 68, due to changes we
made to condense the bidding forms
requirements, based on comments we
received on the proposed rule.
According to 2005 Bureau of Labor
Statistics (BLS) data, the average hourly
wage for an accountant and auditor was
$25.54 (National Compensation Survey:
Occupational Wages in the United
States, June 2005, U.S. Department of
Labor, Bureau of Labor Statistics,
Bulletin 2568, August 2006. https://
www.bls.gov/ncs/ocs/sp/ncbl0832.pdf).
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Accounting for inflation and overhead,
we assume suppliers will incur $33.87
per hour in wage and overhead costs.
Based on this information, we assume
that a supplier that bids will spend
$2,303.16 ($33.87 * 68) to prepare its
bid, taking into consideration that the
number of product categories included
in a bid, on average, will vary by
supplier. We calculate the total cost for
all supplier bids, including those of
both future winning and future losing
suppliers. Therefore, we expect that CY
2007 total supplier bidding costs for
15,973 bids will be $36,788,375
($2,303.16 * 15,973). This estimate is
clearly dependent on our assumption
that 81 percent of eligible suppliers will
bid. Our estimates incorporate the fact
that a single organization may submit
bids in more than one CBA in each
round. For example, a supplier that has
15 offices in the country and currently
serves all 10 of the CBAs to be included
in the initial round of bidding is
counted 10 times in our estimates. Our
estimate of the time required for bidding
assumes that suppliers in the
competitive bidding program will bid
on about the same number of individual
product categories as suppliers bid on
during the demonstration project. We
expect that supplier bidding costs will
rise with the number of product
categories bid upon; however, because
there are fixed costs associated with
deciding whether to participate in the
competitive bidding program and some
of the bidding forms are only filled out
once, the increase in costs associated
with each additional product category
may be relatively small. Therefore, our
estimate of the time required per bid
should be reasonably accurate unless
suppliers bid on significantly more or
fewer product categories than they bid
on during the demonstration.
6. Agency Efforts to Minimize the
Significant Economic Impact on Small
Entities
Small suppliers constitute the large
majority of DMEPOS firms, and we
anticipate they will form the majority of
contract suppliers. Therefore,
consideration of small suppliers
influenced virtually all aspects of the
final rule. We detailed the aspects of the
final rule that, in particular, are
intended to minimize the impact on
small entities. These aspects and the
respective section of the preamble of
this final rule are as follows:
• Grandfathering of suppliers (see
section VI.D.3.a of this final rule).
• Requirement for physicians and
certain nonphysician practitioners to
submit bids (see section VI.G.3 of this
final rule).
• Product categories for bidding
purposes (see section VI.G.4 of this final
rule).
• Financial standards (see section
VII.C, of this final rule)
• Selection of small suppliers (see
section XI. of this final rule).
• Opportunity for networks (see
section XII. of this final rule)
C. Anticipated Effects
We can anticipate the probable effects
of this final rule, but the actual effects
will vary depending on which CBAs
and product categories are ultimately
selected for competitive bidding under
the Medicare DMEPOS Competitive
Bidding Program. The analysis that
follows, taken together with the rest of
this preamble, constitutes the final
regulatory impact analysis.
As a result, for the purpose of this
impact analysis, it is necessary to make
several assumptions. These assumptions
are due to the uncertainty concerning
the actual number of suppliers that will
participate, the associated bid amounts,
and the specific items and areas for
which competitive bidding will be
conducted.
First, we assume that the first round
of bidding will occur in CY 2007, with
18075
prices taking effect in April 2008, and
the second round of bidding will occur
in CY 2008, with prices taking effect in
April 2009. We also assume rebidding
will only occur every 3 years.
Second, we assume that competitive
bidding will occur in 10 of the largest
MSAs in CY 2007, excluding New York,
Chicago, and Los Angeles. We exclude
the three largest MSAs in CY 2007
because we are not including them in
the initial phase of implementation. We
are excluding the three largest MSAs
because we would like to gain more
experience in smaller markets before we
enter into the largest markets. For the
initial competition, we assume that
bidding will take place in CY 2007, bids
will be evaluated in CY 2007, and prices
will go into effect on April 1, 2008. The
second round of bidding will take place
in 70 of the largest MSAs in CY 2008,
and the prices will go into effect on
April 1, 2009. The next round of
bidding will take place in 10 additional
MSAs and will occur in CY 2009, with
bid prices going into effect on January
1, 2010. An additional round of bidding
will include 10 MSAs and will occur in
CY 2010, with bid prices going into
effect on January 1, 2011.
Third, we made some assumptions
about which product categories would
be selected for competitive bidding. We
recognize that potential savings,
implementation costs, the number of
affected suppliers, and supplier bid
costs all depend on which product
groups are ultimately selected. The
product categories have yet to be
decided. We expect that approximately
10 product categories will be selected
for competitive bidding for CY 2007 and
as many as 7 or 8 of the selected product
categories will be among the 10 largest
in terms of allowed charges. The
remaining 2 or 3 product categories will
come from the top 20 policy groups
ranked by allowed charges. Table 11
shows the top 20 eligible DMEPOS
policy groups and their CY 2005
allowed charges.
TABLE 11.—CY 2005 ALLOWED CHARGES: TOP 20 ELIGIBLE DME POLICY GROUPS
Allowed charges
2005*
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Rank
Policy group
1 ..............................
2 ..............................
3 ..............................
4 ..............................
5 ..............................
6 ..............................
7 ..............................
8 ..............................
9 ..............................
10 ............................
Oxygen Supplies/Equipment ......................................................................................
Wheelchairs/POVs .....................................................................................................
Diabetic Supplies & Equipment ..................................................................................
Enteral Nutrition ..........................................................................................................
CPAP ..........................................................................................................................
Hospital Beds/Accessories .........................................................................................
Support Surfaces ........................................................................................................
Negative Pressure Wound Therapy ...........................................................................
Infusion Pumps & Related Drugs** ............................................................................
Respiratory Assist Device ..........................................................................................
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$2,669,015,203
1,512,581,843
1,176,121,037
582,085,753
378,084,371
320,372,566
184,266,860
169,012,105
157,396,292
135,023,095
10APR2
Percent of
eligible
DMEPOS
charges
34
19
15
7.5
4.9
4.1
2.4
2.2
2.0
1.7
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TABLE 11.—CY 2005 ALLOWED CHARGES: TOP 20 ELIGIBLE DME POLICY GROUPS—Continued
Rank
11
12
13
14
15
16
17
18
19
20
Allowed charges
2005*
Policy group
Percent of
eligible
DMEPOS
charges
................................................
................................................
................................................
................................................
................................................
................................................
................................................
................................................
................................................
................................................
Walkers ...................................................................................................
Nebulizers ...............................................................................................
Ventilators ...............................................................................................
Commodes/Bed Pans/Urinals ................................................................
Patient Lift ..............................................................................................
TENS ......................................................................................................
Seat Lift Mechanism ...............................................................................
CPM Device ...........................................................................................
Suction Pump .........................................................................................
Off-the-shelf Orthotics ............................................................................
106,661,034
97,574,696
70,625,578
47,861,299
27,768,236
23,536,834
17,159,455
17,023,378
14,096,633
13,807,205
1.4
1.3
0.9
0.6
0.4
0.3
0.2
0.2
0.2
0.2
Total for 20 Groups .............
.................................................................................................................
7,719,487,197
99
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* 2005 allowed charges projected based on 98 percent claims processed through March 2006.
** Includes $50 million in allowed charges for drugs.
However, we reiterate that the
discussion in this impact analysis
should in no way be interpreted as
signifying which product categories will
be selected for the actual competitive
bidding program. Our product category
selection for this impact analysis is only
to assist us in estimating the potential
savings, costs of implementation, and
supplier and beneficiary impacts.
Fourth, we assume that the Medicare
DMEPOS fee schedule will increase at
the rate of inflation for those years in
which a statutory freeze has not been
put in place by the Act. We base our
estimates on the expected growth in
Medicare Part B expenditures from the
Trustees Reports. (Tables IV.F.2 and
IV.F.3 of the 2004 Medicare Trustees
Report.).
This final rule is expected to affect the
Medicare program and its beneficiaries,
certain CMS contractors, and DMEPOS
suppliers. Although the workload of
referral agents, including hospital
discharge planners and some health care
practitioners, appeared to increase
during implementation of the
demonstration, we do not anticipate that
competitive bidding will result in a
large, ongoing burden on referral agents.
For many DMEPOS product categories,
referral agents play an important role in
helping beneficiaries select DMEPOS
suppliers that can meet the
beneficiaries’ needs. During the
demonstration, those referral agents
who previously referred beneficiaries to
non-demonstration suppliers had to
change their referral patterns. It is
difficult to quantify this burden because
we have no data on the number of
referral agents who will be affected, nor
do we have information on the effort
associated with identifying a new
supplier. We note that we plan to take
steps to mitigate any burden that might
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16:33 Apr 09, 2007
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arise for referral agents. For example, we
are planning an extensive educational
campaign for suppliers, referral agents,
and beneficiaries. Educational materials,
including an on-line supplier directory,
will expedite the process for identifying
and locating contract suppliers and
therefore minimizing any burden. In
addition, we will post on the internet
the list of brands that each contract
supplier furnishes. This brand
information should be extremely useful
for referral agents and may even reduce
burden under the program.
The DMEPOS supplier industry is
expected to be significantly impacted by
this final rule. However, not all
suppliers will be affected directly by the
competitive bidding program. Suppliers
that furnish products in a CBA in at
least one product category selected for
competitive bidding will be affected. A
supplier that does not furnish
competitively bid items and services to
beneficiaries in a CBA will not be
affected. Based on analysis of CY 2005
Medicare DMEPOS claims, we estimate
that approximately 30,000 suppliers
offer at least one product eligible for
competitive bidding and are located in
one of the largest 100 MSAs and,
therefore, could be impacted by the
program. Some of these suppliers will
be affected in multiple CBAs if they
offer products in more than one CBA.
Based on our analysis of CY 2005
claims data, we also estimate that
approximately 85 percent of registered
DMEPOS suppliers are considered small
according to the SBA definition.
According to the SBA, ‘‘A small
business is a concern that is organized
for profit, with a place of business in the
United States, and which operates
primarily within the United States or
makes a significant contribution to the
U.S. economy through payment of taxes
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or use of American products, materials
or labor. Further, the concern cannot be
dominant in its field, on a national
basis. Finally, the concern must meet
the numerical small business size
standard for its industry. SBA has
established a size standard for most
industries in the U.S. economy.’’ The
size standard for NAICS code 532291,
Home Health Equipment Rental, is $6.5
million. (See the Web site: https://
www.sba.gov/size/sizetable2002.html,
read November 30, 2006.)
Many of these suppliers provide
minimal amounts of DMEPOS, and thus
the remaining larger suppliers control
significant market share. We anticipate
that the fixed costs required to undergo
the bidding process may be a larger
deterrent to small businesses than larger
firms. Because suppliers can choose
whether to submit a bid for the
Medicare DMEPOS Competitive Bidding
Program, this final rule imposes no
direct costs and, therefore, does not
reach the $120 million direct cost
threshold under the UMRA. While not
included in this final rule, we expect
that the separate MMA requirement for
accreditation of suppliers will result in
added supplier costs beyond those
included in this final rule.
Comment: One commenter stated that
the RFA analysis of the impact of the
proposed regulation was incomplete
and inadequate because it did not
consider the impact of the proposed
regulation on long-term care hospitals
and Medicare beneficiaries who reside
in these facilities. Other commenters
suggested that long-term care facilities
would incur increased costs and the
quality of treatment received by their
patients would be diminished if they are
included in the Medicare DMEPOS
Competitive Bidding Program and
offered alternatives to competitive
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bidding that they believed would
achieve cost savings.
Response: We considered the impact
of the Medicare DMEPOS Competitive
Bidding Program on all suppliers. We
believe our estimates reflect the costs on
average that will be incurred by the
suppliers that participate in the
program. If a long-term care hospital
decides to submit a bid to furnish items
and services under the program, its bid
should reflect its costs to furnish those
items and services. In addition, the
quality standards for DMEPOS suppliers
require that suppliers furnish quality
items and services.
Comment: One commenter disagreed
with CMS’ assumption that the
DMEPOS fee schedule will increase at
the rate of inflation for those years in
which a statutory freeze is not in effect
and that total charges will increase at
the same rate as Medicare Part A and
Medicare Part B expenditures (71 FR
25691). The commenter suggested that
non-DME, non-home health care costs
are the driving forces causing increases
in these programs. Other commenters
suggested that home care expenditures
are not increasing and that rising
hospital, nursing home, physician, and
medication costs were the causes of
rising overall Medicare expenditures.
Response: Based on the public
comments we received, we have
clarified in this final revised impact
analysis that our estimates on expected
growth will be based on Medicare Part
B expenditures. DMEPOS expenditures
have been growing at varying rates in
recent years (expenditures for 26
product categories rose 5 percent
between 2004 and 2005 and 21 percent
between 2002 and 2005), and the rate of
growth has varied widely between
product categories, making precise
estimates of growth for DMEPOS
difficult. We believe that the overall
growth rate for Medicare Part Be
expenditures provides a reasonable
estimate of the growth rate for DMEPOS
because both growth rates are driven by
changes in Part B enrollment and
overall growth in medical care use. To
address inflation, we will be asking the
suppliers to submit bids that include all
costs associated with furnishing each
item for all 3 years of the contract.
Comment: A number of commenters
objected to the data in Table 11 of the
proposed rule (71 FR 25691) indicating
that 2003 allowed charges for infusion
pumps and related devices were
approximately $149 million. These
commenters believed that the correct
amount was approximately $87 million.
The commenters believed that the $149
million amount inappropriately
includes charges for insulin and insulin
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pumps which are not provided by
infusion pharmacies.
Response: The data in the proposed
analysis include allowed charges for
insulin and infusion pumps. Although
these items may not be furnished by
infusion pharmacies, they are included
because they are subject to competitive
bidding under the Act.
Comment: Several commenters
disagreed with the statement in the
preamble of the proposed rule (71 FR
25692) that the UMRA does not apply
to this rule. One commenter suggested
that virtually all affected suppliers
would submit bids (and thus would
incur costs) and even using CMS
estimates (that the commenter believed
to be too low), the costs for the CY 2008
round of bidding would be $178
million, an amount that the commenter
believed exceeded the UMRA’s
threshold of $120 million.
Response: We have updated our
estimates in this final rule using CY
2005 data. Based upon the estimated
number of suppliers that will submit
bids, the costs of submitting bids, and
the fact that the average number of
suppliers per CBA will decrease in
future rounds of competitive bidding,
we do not expect that costs will exceed
the UMRA’s $120 million threshold.
D. Implementation Costs
CMS will incur administrative costs
in connection with the implementation
and operation of the Medicare DMEPOS
Competitive Bidding Program, which
can affect the net savings that can be
expected under this final rule. However,
many of the variable costs associated
with bid solicitation and evaluation will
ultimately depend on how many
suppliers choose to participate in
competitive bidding. Because of this
uncertainty, we are not able to estimate
bid solicitation and evaluation costs at
this time.
We will incur initial startup costs.
CMS estimates internal costs and costs
to its contractors to be approximately $1
million in immediate fixed calendar
year costs for contractor startup and
system changes for the initial
competitive bidding phase in CY 2007.
In addition to the initial startup costs,
we will also incur maintenance costs
and bid solicitation and evaluation
costs. We will need to pay maintenance
costs every year for the running of the
program. However, we will only need to
pay bid costs in the years in which
competitive bidding is conducted.
Yearly maintenance costs will depend
on the number of CBAs in which the
program has been implemented, while
bid solicitation and evaluation costs
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18077
will depend on the number of sites that
have bidding that year.
Our maintenance costs will include a
small staff to oversee the program, office
costs for the staff, as well as staff travel
costs, and overhead. In addition, the
CBIC(s) will be responsible for most of
the program maintenance. The
maintenance costs could also include
the costs for an ombudsman(s) to assist
suppliers, beneficiaries, and referral
agents with the competitive bidding
process and questions. We also expect
to incur costs for education and
outreach expenses such as staff
resources and material costs for
producing education materials and
supplier directories.
We will incur bid costs in the years
in which we conduct competitive
bidding and when we evaluate bids.
These costs will be a direct result of the
bid solicitation and evaluation process.
Bid solicitation costs include costs
associated with mailing necessary
information to suppliers, printing,
duplicating, and the cost of
administering an electronic bidding
program. The actual costs will vary by
CBA and will depend on the number of
potential suppliers. We will incur bid
evaluation costs whenever bidding
occurs in a CBA. According to the
DMEPOS evaluation report, it took
about 9.4 hours during the
demonstration to evaluate each bid and
the supplier to ensure that only quality
suppliers were selected. However,
because the Medicare DMEPOS
Competitive Bidding Program uses
quality standards and accreditation as a
separate process, we expect that the
time required to evaluate bids will be
less than in the demonstration. The total
bid evaluation costs will ultimately
depend on the number of suppliers that
choose to submit bids.
Comment: Several commenters
believed that the regulatory analysis in
the proposed rule significantly
underestimated the administrative costs
associated with implementing the
competitive bidding program, further
reducing any net savings. One
commenter referred to a study that
estimated that CMS would need 1,600
new staff to implement the proposed
regulation.
Response: As explained in the
proposed rule, we are making the best
estimates based on the experience in the
demonstrations. Even though these
estimates will be affected by the number
of suppliers and items for which we do
competitive bidding, nevertheless they
represent our best estimates. After
careful review of the study referenced
by the commenter, we disagree with the
estimate of the number of extra staff
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Federal Register / Vol. 72, No. 68 / Tuesday, April 10, 2007 / Rules and Regulations
needed to implement the proposed
regulation. We believe our original
estimates better reflect the resource
needs for the competitive bidding
program.
E. Program Savings
We estimate significant savings from
the Medicare DMEPOS Competitive
Bidding Program. Our estimates of gross
savings utilize as a starting point the
results in the demonstration. Excluding
surgical dressings, which are not
eligible for competitive bidding, the
average product group savings rate in
the demonstration ranged from 9 to 30
percent per round, with most product
groups having about a 20-percent
savings. Table 12 shows the savings rate
for selected product groups and CBAs
by round during the DMEPOS
demonstration.
TABLE 12.—DMEPOS COMPETITIVE BIDDING DEMONSTRATION SAVINGS RATES
Product group
Polk County Round 1
Polk County Round 2
San Antonio
Oxygen Equipment and Supplies ..
Hospital Beds and Accessories .....
Urological Supplies ........................
Surgical Dressings .........................
Enteral Nutrition .............................
Wheelchairs and Accessories ........
General Orthotics ...........................
Nebulizer Drugs .............................
$2,364,811 (17%) .........................
$290,715 (23%) ............................
$36,169 (18%) ..............................
¥$30,321 (¥12%) .......................
$342,251 (17%) ............................
Not included ..................................
Not included ..................................
Not included ..................................
$1,525,490 (20%) .........................
$195,140 (31%) ............................
$12,585 (9%) ................................
¥$637 (¥1%) ..............................
Not Included .................................
Not included ..................................
Not included ..................................
Not included ..................................
$2,096,707 (19%)
$644,514 (19%)
Not included
Not included
Not included
$796,617 (19%)
$89,462 (23%)
$1,020,072 (26%)
Source: Evaluation of Medicare’s Competitive Bidding Demonstration for DMEPOS, Final Evaluation Report (November 2003), pages 90 and
92.
Under this final rule, we will set
prices for individual items equal to the
median winning bid for that item. In
contrast, the demonstration used a more
complicated pricing rule that adjusted
fees for each item to ensure that each
suppliers overall payment was equal to
the pivotal bid. In our estimates, we
have taken into account that some
DMEPOS prices have been adjusted
downward since CY 2000. We assume
that if prices for an individual item have
already been reduced by 10 percent after
the demonstrations were completed,
prices would most likely fall 10 percent
rather than 20 percent. Therefore, we
found that the median pricing rule
would have produced fees that were
approximately 5 percentage points
lower than those produced by the
demonstration method, assuming that
the median pricing rule would not have
affected the number of winning bidders
who signed contracts or the suppliers’
bidding strategies. We have
incorporated the effects of the median
pricing rule into our estimates of
savings from the program. We assumed
a 25 percent savings in the estimate
because of the median pricing
methodology. We netted out any
statutory reductions in prices that have
already occurred, such as the CY 2005
reductions in oxygen supplies and
equipment. These numbers also reflect
the reductions in Medicare payments
that resulted from the DRA provisions
on capped rental DME and oxygen
payment, as well as the wheelchair
recoding initiative recently undertaken
by CMS.
Table 13 shows the impact on the FFS
program for the 10 policy groups. In the
table, savings are reported as negative
values. The savings are attributable to
the lower payment amounts anticipated
from competitive bidding. The table
shows the reduction in Medicare
allowed charges, without any impact on
the Medicare Advantage program,
associated with the program for the
calendar year. The impact includes
reductions in Medicare payments (80
percent) and reductions in beneficiary
coinsurance (20 percent).
TABLE 13.—PROGRAM IMPACT FOR 10 POLICY GROUPS
[in millions] *
Calendar Year
2007
Allowed Charges ......................................................................................
Medicare Share of Allowed Charges (80 percent of allowed charges) ..
Beneficiary Costs (20 percent of allowed charges) .................................
2008
$0
0
0
2009
¥$108
¥86
¥22
¥$766
¥613
¥153
2010
2011
2012
¥$1126
¥901
¥225
¥$1224
¥979
¥245
¥$1301
¥1041
¥260
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* Numbers may not add up due to rounding.
Table 14 presents the impact
differently than Table 13. In contrast to
Table 13, which is on a Medicare
allowed charge-incurred basis and does
not consider the Medicare Advantage
program impact, Table 14 considers
fiscal year cash impact on the entire
Medicare program, including Medicare
Advantage for the fiscal year rather than
calendar year. The fiscal year–calendar
year distinction is an important one
when comparing savings. For example,
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the prices for the Medicare DMEPOS
Competitive Bidding Program will be in
effect for 6 months of fiscal year 2008,
but for 9 months of calendar year 2008.1
Table 14 considers the impact on
program expenditures, and does not
include beneficiary coinsurance.
1 Fiscal year 2008 will begin October 1, 2007, and
the Medicare DMEPOS Competitive Bidding
Program payments become effective on April 1,
2008.
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Finally, the estimates in Table 14
incorporate spillover effects from the
competitive acquisition program onto
the Medicare Advantage program. The
expectation is that lower prices for DME
products in FFS will lead to lower
prices in the Medicare Advantage
market.2
2 In addition, most managed care plan rates are
linked to FFS expenditures. Therefore, a decrease
in FFS expenditures should translate into a
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F. Effect on Beneficiaries
Possible impacts on beneficiaries are
a primary concern during the design
[in millions]
and implementation of the Medicare
DMEPOS Competitive Bidding Program.
Program
Beneficiary
Fiscal year
impact
costs
While there may be some decrease in
choice of suppliers, there will be a
2007 ..........
$0
$0 sufficient number of suppliers to ensure
2008 ..........
¥70
¥20 adequate access. We also expect there
2009 ..........
¥530
¥130 will be an improvement in quality
2010 ..........
¥1,000
¥250 because we will more closely scrutinize
2011 ..........
¥1,240
¥310 the suppliers before, during, and after
2012 ..........
¥1,370
¥340 implementation of the program. The
evaluation of the impact of the DMEPOS
Comment: Several commenters
competitive bidding demonstration on
believed that the regulatory analysis
patient access to care and quality
overstated the potential savings of the
showed minimal adverse results (Final
proposed rule because many of the
Report to Congress: Evaluation of
Medicare’s Competitive Bidding
savings in the earlier demonstrations
can no longer be achieved in other areas Demonstration For Durable Medical
Equipment, Prosthetics, Orthotics, and
of the country due to changes in
payment policies for major categories of Supplies; https://www.cms.hhs.gov/
DemoProjectsEvalRpts/downloads/
DMEPOS such as oxygen, subsequent
CMS_rtc.pdf). Moreover, because of the
CPI freezes, and increases in supplier
quality standards and the provisions in
costs in areas such as fuel and labor.
this final rule to ensure access to and
Another commenter suggested that
the furnishing of quality products, we
potential savings would be reduced if
suppliers submit higher bids in order to assume that there will be few negative
impacts on beneficiary access, as a
account for costs related to quality
sufficient number of quality suppliers
standards and accreditation costs. One
will be selected to serve the entire
commenter recommended that CMS
market.
recalculate these estimates. Another
We acknowledge that implementation
commenter stated that some of these
of competitive bidding may result in
factors also resulted in understating the
some beneficiaries needing to switch
adverse impact of the proposed
from their current supplier if their
regulations on suppliers.
current supplier is not selected for
Response: We have updated the tables competitive bidding. However, we
in the impact analysis of this final rule
anticipate that the necessity of
to reflect all of the recent changes in
switching suppliers will be minimized
policy related to items subject to
because of the existence of
competitive bidding, including any
grandfathering policies for rental
payment reductions. The impact
products such as capped rentals. For
analysis builds in the statutory
purchased items that are not
reimbursement cuts into the baseline
grandfathered, some beneficiaries
DME spending. For instance, the DRA
currently using DMEPOS will have to
switch from noncontract to contract
section 5101 is estimated to yield $880
suppliers. This switch will not be very
million savings over 5 years (2008
burdensome, because the beneficiaries
through 2012). The FEHBP reductions
will already be making new purchases.
are built into the baseline DME
We note that, if a beneficiary owns an
spending and yielded a 5 year savings
item subject to competitive bidding, the
(2008 through 2012) of $2,180 million.
beneficiary has the choice of having the
We believe that the demonstrations are
item serviced by either a noncontract or
an appropriate gauge for estimating
contract supplier. Beneficiaries who
projected savings. We also believe that
maintain a permanent residence in a
the competitive bidding financial
CBA who are traveling and need to rent
standards and the DMEPOS quality
or purchase DMEPOS during their
standards we have issued will result in
travels will have to make arrangements
more efficiently operating DMEPOS
to receive their equipment either from a
suppliers.
contract supplier in their CBA, from a
contract supplier in the visited area if
decrease in Medicare Advantage plan payment
that area is in a CBA and the item is
rates. The rate calculations for the Medicare
Advantage program reflect all the FFS adjustments,
included in the competitive bidding for
including the Medicare DMEPOS Competitive
that CBA, or—if the visited area is not
Bidding Program savings. The Managed Care addin a CBA—from a noncontract supplier
on increases the FFS savings by 24.9 percent in CY
who must accept the reimbursement
2008. This is a dynamic number that increases over
time.
rate from the beneficiaries home CBAs.
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TABLE 14.—FISCAL YEAR COST ON
THE MEDICARE PROGRAM
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18079
It is not clear whether this will have a
large impact on beneficiaries. There is
little evidence on how frequently
beneficiaries receiving DMEPOS travel
outside their CBA. Under current
policy, a traveling beneficiary must
already make arrangements for receipt
of his or her DMEPOS during travel and
payment is already based on the fee
schedule for the beneficiary’s residence.
We do not believe that our policy will
have a large impact on beneficiaries
because we will ensure that we have a
sufficient number of contract suppliers
to meet beneficiary demand.
Because beneficiaries face a 20
percent coinsurance rate for DMEPOS,
we assume that beneficiary out-ofpocket expenses will decrease by 20
percent of program gross savings for
those products for which we do
competitive bidding (Table 15).
TABLE 15.—BENEFICIARY COINSURANCE ANNUAL SAVINGS ESTIMATES
FOR 10 PRODUCTS
[in millions]
Calendar year
2007
2008
2009
2010
2011
2012
......................................
......................................
......................................
......................................
......................................
......................................
10 products
$0
22
153
225
245
260
Comment: One commenter argued
that since the analysis projects that 37
percent of suppliers will not become
contract suppliers, the impact on
beneficiaries, especially those requiring
diabetic supplies and equipment, will
be greater than the analysis indicates.
Response: Our methodology will
ensure that beneficiaries requiring
diabetic supplies and equipment will
have access to a sufficient number of
suppliers to meet their needs. As
explained in various sections of the
preamble to this final rule, we will be
taking several steps to ensure that there
will be a sufficient number of suppliers
to meet beneficiary demand. These steps
include the following:
• Evaluating the bidding suppliers’
capacity to ensure that there is enough
supplier capacity to meet the Medicare
demand for each product category in
each CBA.
• Implementing a small supplier
target under which we will attempt to
offer a sufficient number of small
suppliers the opportunity to participate
in the Medicare DMEPOS Competitive
Bidding Program.
• Requiring that all commonly owned
or controlled suppliers must submit a
single bid on behalf of all locations
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within the CBA, and additional
locations that would furnish items in
the CBA.
• Establishing a capacity calculation
methodology that caps the estimated
capacity of each bidding supplier
capacity at 20 percent for purposes of
determining the pivotal bid for the
product category.
In addition, our estimates indicate
that beneficiaries will save money on
their diabetic supplies and equipment
under the program.
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G. Effect on Suppliers
We expect DMEPOS suppliers to be
significantly impacted by the
implementation of this final rule. We
assume that suppliers may be affected in
one of three ways as follows:
• Suppliers that wish to participate in
competitive bidding will have to incur
the cost of submitting a bid.
• Noncontract suppliers that
furnished competitively bid items
before the Medicare DMEPOS
Competitive Bidding Program took
effect (including suppliers that do not
submit bids) will see a decrease in
revenues because they will no longer
receive payment from Medicare for
competitively bid items.
• Contract suppliers will see a
decrease in expected revenue per item
as a result of lower allowed charges
from lower bid prices. However,
because there will be fewer suppliers, a
contract supplier’s volume could
increase. As a result, because we do not
know which effect will dominate, the
net effect on an individual contract
supplier’s revenue is uncertain prior to
bidding. The increase in the supplier’s
volume could help offset the decrease in
revenue per item.
1. Affected Suppliers
Based on CY 2005 claims data, the
average MSA in the top 25 MSAs,
excluding New York, Los Angeles, and
Chicago, has 2,896 DMEPOS suppliers
that furnish any DMEPOS product and
1,972 suppliers that furnish products
subject to competitive bidding and
could potentially be affected by
competitive bidding.
We estimate that 28,960 suppliers will
provide DMEPOS items in the CBAs
that we initially designate. If suppliers
furnish products in more than one MSA,
we counted them more than once
because they are affected in more than
one MSA. Not all products are subject
to competitive bidding; we estimate that
68 percent of suppliers will furnish
products subject to competitive bidding
and will be affected by competitive
bidding during the initial round of
competitive bidding. This means in CY
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2007, the remaining 32 percent of
suppliers in the 10 selected CBAs will
not be affected by competitive bidding
because they do not furnish products
subject to competitive bidding.
However, the actual percentage of
affected suppliers may be smaller if we
do not select all eligible product
categories for competitive bidding.
Deciding whether or not to submit a
bid is a business decision that will be
made by each DMEPOS supplier. We
expect that most suppliers providing
competitively bid items will choose to
participate in order to maintain and
expand their businesses. For the
calculations in the proposed rule, we
assumed that 90 percent of suppliers
that furnish items that we choose to
include in the program would submit a
bid. We assumed the remaining 10
percent of suppliers would not bid
based on the low level of the Medicare
revenue received for the items subject to
competitive bidding or because they had
not received the necessary accreditation.
Based on comments we received on the
May 1, 2006 proposed rule, we will
permit physicians and certain
nonphysician practitioners to furnish
certain limited items as part of their
professional practice without submitting
a bid and being awarded a contract,
provided certain conditions are met.
These physicians and non-physician
practitioners would be required to
submit bids and be awarded contracts if
they wish to furnish other types of
competitively bid items. These
physicians and non-physician
practitioners account for about 10
percent of all DMEPOS suppliers,
according to the NSC. Therefore, we
now assume that 81 percent (= 0.9 *0.9)
of affected suppliers will submit bids.
Based on this assumption, 15,973
suppliers will submit a bid because they
will want the opportunity to continue to
provide these products to Medicare
beneficiaries and to expand their
business base. We also assume, based on
the results of the demonstration, that at
least 60 percent of bidding suppliers
will be selected as winners in at least
one product category. This assumption
is slightly different than our assumption
in the proposed rule, where we stated,
‘‘We also assume, based on the results
of the demonstration, that 50 percent of
bidding suppliers will be selected as
winners because approximately 50
percent of those who submitted bids
during the demonstration were selected
as contract suppliers.’’ The 50 percent
in the proposed rule was based on the
demonstration experience within
individual product categories;
approximately 50 percent of the bidders
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who submitted a bid in a product
category were selected as a winner in
that product category. Overall during
the demonstration, about 60 percent of
suppliers who submitted bids in any
categories were selected as winners in at
least one product category. We believe
the 60 percent figure represents a more
accurate assessment of the probability
that a bidding supplier will be selected
as a winning bidder in at least one
product category. The bidding DMEPOS
suppliers that are not awarded a
contract because they did not submit a
winning bid would represent about 22
percent of the total DMEPOS suppliers
in these CBAs. We expect that losing
bidders will be distributed roughly
proportionately across the selected
CBAs, but the exact distribution will
depend on the distribution of bids
received and the number of winners
selected in each CBA. We also note that
if a supplier submitted a bid in multiple
product categories, its probability of
becoming a contract supplier would
increase.
It is difficult to estimate the impact
the Medicare DMEPOS Competitive
Bidding Program will have on
noncontract suppliers. The effect will
depend on how much revenue the
supplier previously received from
Medicare and whether the supplier
continues to provide services to existing
beneficiaries under the grandfathering
policies. Estimates can be made by
making assumptions about these factors.
For example, if bidding occurred in 10
product categories, losing suppliers
previously provided 50 percent of
allowed charges in these product
categories, and losing suppliers did not
continue to serve any existing
beneficiaries, the average lost Medicare
allowed charges per losing supplier per
CBA would be between $35,000 and
$40,000. Under these assumptions, the
total allowed charges lost by losing
suppliers would be $275 million in CY
2008, the first full year after the prices
take effect, and increase to almost $2
billion in CY 2011. These estimates
reflect our best assumptions. As noted,
because of the nature of competitive
bidding, winning bidders will absorb
much of the allowed charges lost by
losing suppliers.
Suppliers that submit bids will incur
a cost of bidding. Bidders must decide
whether to bid, request or download an
RFB, read the RFB, attend a bidders
conference (optional) and read outreach
materials, decide how much to bid for
each item, and prepare and submit a
bid. In the demonstration, bidders in
Polk County, Florida reported spending
a total of 40 to 100 hours submitting
bids. In the proposed rule we assumed
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that suppliers would use the midpoint
number of hours, 70 hours. We have
reduced our estimate of the required
hours to 68, due to changes we made to
condense the bidding forms
requirements, based on comments we
received on the proposed rule.
According to 2005 Bureau of Labor
Statistics (BLS) data, the average hourly
wage for an accountant and auditor was
$25.54 (National Compensation Survey:
Occupational Wages in the United
States, June 2005, U.S. Department of
Labor, Bureau of Labor Statistics,
Bulletin 2568, August 2006. https://
www.bls.gov/ncs/ocs/sp/ncbl0832.pdf).
Accounting for inflation and overhead,
we assume suppliers will incur $33.87
per hour in wage and overhead costs.
Based on this information, we assume
that a supplier that bids will spend
$2,303.16 ($33.87*68) to prepare its bid,
taking into consideration that the
number of product categories included
in a bid, on average, will vary by
supplier. We calculate the total cost for
all supplier bids, including those of
both future winning and future losing
suppliers. Therefore, we expect that CY
2007 total supplier bidding costs for
15,973 bids will be $36,788,375
($2,303.16*15,973). This estimate is
clearly dependent on our assumption
that 81 percent of eligible suppliers will
bid. Our estimates incorporate the fact
that a single organization may submit
bids in more than one CBA in each
round. For example, a supplier that has
15 offices in the country and currently
serves all 10 of the CBAs to be included
in the initial round of bidding is
counted 10 times in our estimates. Our
estimate of the time required for bidding
assumes that suppliers in the
competitive bidding program will bid
on about the same number of individual
product categories as suppliers bid on
during the demonstration project. We
expect that supplier bidding costs will
rise with the number of product
categories bid upon; however, because
there are fixed costs associated with
deciding whether to participate in the
competitive bidding program and some
of the bidding forms are only filled out
once, the increase in costs associated
with each additional product category
may be relatively small. Therefore, our
estimate of the time required per bid
should be reasonably accurate unless
contract bidders bid on significantly
more or fewer product categories than
they bid on during the demonstration.
Comment: One commenter believed
that the statement in the impact section
of the proposed rule that not all
suppliers will be affected directly by the
competitive bidding process (71 FR
25691) is not accurate because the
commenter believed that costs for
mandatory accreditation alone will force
small suppliers out of business. The
commenter asked questions relating to
the basis for determining that an
accountant would prepare the bid and
that the cost per hour of $31.25 is
appropriate. The commenter believed
that it would cost small suppliers more
to prepare and submit bids because
large suppliers have more experience
with managed care contracts and may be
bidding in multiple MSAs.
Response: The accreditation program
is mandatory and affects all DMEPOS
suppliers; therefore, it is not a cost
attributable to the Medicare DMEPOS
Competitive Bidding Program. As we
explained in the proposed rule (71 FR
25694), we used 2003 BLS data,
adjusted for inflation and overhead, to
arrive at our estimate of $31.25 per hour
in wage and overhead costs for an
accountant and auditor to prepare a
supplier’s bid. In our current estimates,
we have used 2005 BLS data on wages,
and adjusted this number to account for
inflation through 2007. We took the
midpoint of the reported number of
hours to prepare bids for the
demonstration projects to develop our
estimate of the number of hours needed
to prepare a bid. We believe that these
average estimated costs would be the
same for large or small suppliers. We are
18081
not requiring that suppliers use
accountants or auditors to prepare the
bid submission form. However, to
calculate cost estimates for completing
the form, we used the wages for
accountants or auditors as a benchmark
to determine the estimated costs to the
supplier.
In CY 2008, we will conduct
competitive bidding in 70 MSAs, which
may include New York, Los Angeles,
and Chicago; and in CYs 2009 and 2010,
we will add additional areas. This will
increase the number of affected
suppliers, contract suppliers, and
noncontract suppliers. For the purposes
of the impact analysis, we assume that
there will be at least 10 additional large
CBAs added in both CYs 2009 and 2010.
We also assume bid cycles will be 3
years in length. Under our assumptions,
we will conduct bidding for the initial
10 CBAs in CY 2007, for 70 additional
CBAs in CY 2008, and for additional
areas in CYs 2009 and 2010. We note
that the estimated average number of
suppliers per CBA decreases over time.
This is because smaller CBAs with
fewer beneficiaries and/or lower
allowed charges have fewer suppliers.
Table 16 summarizes the effect on
suppliers for CYs 2007 through 2012.
The table includes the costs of rebidding
for the first 10 CBAs in 2010, for 70
CBAs in 2011, and for 10 CBAs in 2012.
We assume that rebidding will require
the same resources as the initial bids.
However, it is possible that suppliers
will need less time for bidding after
gaining experience during their initial
round of bidding. Table 16 differs from
the corresponding table in the proposed
rule because—(1) The number of
suppliers is now based on 2005 claims
data; (2) the cost per hour to prepare a
bid has been increased from $31.25 to
$33.87 to reflect wage increases through
2007; (3) the number of hours required
to submit bids has been reduced from 70
to 68; and (4) we now estimate that 81
percent (rather than 90 percent) of
suppliers will submit bids.
TABLE 16.—SUPPLIERS BIDDING YEARS: CYS 2007–2012
[10 product categories]
Bidding year
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CY 2007
Average number of suppliers per CBA ........
Average number of affected suppliers per
CBA ..........................................................
Total number of suppliers ............................
Total number of affected suppliers ..............
Number of bidding suppliers ........................
Cost of bidding .............................................
Number of contract suppliers .......................
Number of noncontract suppliers .................
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CY 2008
CY 2009
CY 2010
CY 2011
CY 2012
2,896
1,960
1,866
1,791
1,791
1,791
1,972
28,960
19,720
15,973
$36,788,375
9,584
10,136
1,331
156,767
106,470
70,268
*$161,838,447
51,744
54,726
1,268
167,921
114,154
6,224
$14,334,868
55,479
58,675
1,218
179,075
121,838
22,197
$51,123,243
59,213
62,625
1,218
179,075
121,838
70,268
$161,838,447
59,213
62,625
1,218
179,075
121,838
6,224
$14,334,868
59,213
62,625
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TABLE 16.—SUPPLIERS BIDDING YEARS: CYS 2007–2012—Continued
[10 product categories]
Bidding year
CY 2007
Noncontract suppliers as a percent of total
suppliers ...................................................
CY 2008
35%
CY 2009
35%
CY 2010
35%
35%
CY 2011
35%
CY 2012
35%
1 Actual
numbers will depend on CBAs selected, product groups selected, number of suppliers that choose to submit a bid, the prices bid, and
the number of contract suppliers selected.
2 Some suppliers furnish products in more than one selected CBA. Consequently, some suppliers may be counted more than once.
3 Numbers in the table are rounded.
* The spike in the private sector costs in CY 2008 is due to the addition of 70 additional CBAs that will be included in competitive bidding,
which would include the costs to suppliers submitting bids.
As noted in the start of this section,
affected suppliers will be impacted by
any reduction in Medicare allowed
charges that results from the
competitive bidding program. The
estimated overall reduction in allowed
charges is shown in the first row of
Table 13.
As previously noted, noncontract
suppliers that furnished competitively
bid items before the program took effect
(including suppliers that do not submit
bids) will see a decrease in revenues
because they will no longer receive
payment from Medicare for
competitively bid items. Contract
suppliers will see a decrease in
expected revenue per item as a result of
lower allowed charges from lower bid
prices, but this decrease may be offset
by an increase in volume. As a result,
because we do not know which effect
will dominate, the net effect on an
individual contract supplier’s revenue is
uncertain prior to bidding.
about what percent of a supplier’s
revenues come from Medicare. We
looked at filings by public DMEPOS
companies and, based on that
information, we assume one-half of the
average supplier’s revenues come from
Medicare DMEPOS. Table 17 shows our
estimate of the number of affected small
suppliers and total affected suppliers.
Some suppliers are counted more than
once if they are affected in more than
one CBA. These estimates are based on
10-digit National Supplier
Clearinghouse (NSC) identification
numbers. Some organizations have
multiple NSC codes representing
multiple locations; however, these
organizations tend to be larger
suppliers. For the purpose of
designating small suppliers for program
purposes on the basis of revenue,
revenue will be calculated based on an
organization’s tax identification
number.
2. Small Suppliers
As of January 2006, the SBA defines
a small business as generating less than
$6.5 million in annual receipts. The
SBA definition refers to small
businesses rather than ‘‘small
suppliers.’’ We worked with the SBA to
define small supplier for the Medicare
DMEPOS Competitive Bidding Program.
In cooperation with the SBA, we are
defining a small supplier as a small
business that generates gross revenue of
$3.5 million or less in annual receipts
in accordance with 13 CFR 121.104. We
are using this new small supplier
definition to focus on the smallest of the
DMEPOS suppliers in each CBA. Before
we receive supplier bids, we do not
have information on each supplier’s
total revenue. We only have information
on suppliers’ Medicare revenues. As a
result, we had to make an assumption
TABLE 17.—NUMBER OF SMALL SUPPLIERS 1
[$3.5 million or less in Medicare allowed charges]
Number of
affected small
suppliers
Bidding year
2007
2008
2009
2010
2011
2012
.............................................................................................................................................
.............................................................................................................................................
.............................................................................................................................................
.............................................................................................................................................
.............................................................................................................................................
.............................................................................................................................................
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1 Some
16,762
90,500
97,031
103,562
103,562
103,562
Total number
of affected
suppliers
19,720
106,470
114,154
121,838
121,838
121,838
Percent
85
85
85
85
85
85
suppliers furnish products in more than one selected CBA. Consequently, some suppliers may be counted more than once.
Small suppliers are likely to have
similar costs for submitting bids as large
suppliers. As discussed in the previous
section, the average cost of submitting a
bid in one CBA is $2,125. The cost of
bidding as a share of Medicare revenue
will depend on the size of the small
supplier’s Medicare revenue. The share
for a supplier with $50,000 in Medicare
revenue would be 4.4 percent; the totals
for suppliers with $100,000, $1 million,
and $3 million would be 2.2 percent, 0.2
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percent, and less than 0.01 percent,
respectively.
We considered the following options
for minimizing the burden of
competitive bidding on small
businesses. The first two options were
included in the demonstration project.
Some of the new options may increase
Medicare potential savings, while others
may lower or have no effect on potential
savings.
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• Networks: As stated in section XII.
of this final rule, we discuss the option
for suppliers to form networks for
bidding purposes. Networks are several
small suppliers joining together to
submit bids for a product category
under competitive bidding. This option
will allow small suppliers to band
together to lower bidding costs, expand
service options, or attain more favorable
purchasing terms. We recognize that
forming a network may be challenging
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for suppliers but believe it is still a
viable and worthwhile option.
Networking was allowed in the
demonstration project, but no networks
submitted bids. If suppliers can form
networks efficiently, they may be able to
submit lower bids than the individual
suppliers could submit, possibly
increasing Medicare savings.
• Not requiring bids for every product
category: As discussed in section VII. of
this final rule, we will conduct separate
bidding for items grouped together in
product categories rather than conduct a
single bidding program for all items.
Therefore, small suppliers will have the
option of deciding how many product
categories for which they want to
submit bids. We believe this will help
minimize the burden on small
suppliers. This option was available
during the demonstration projects, and
most suppliers did not bid in every
product category. We believe these
provisions will allow suppliers to bid
on the product category that they can
most efficiently supply, and therefore
contributes to Medicare savings.
• Small supplier target: Our goal for
small supplier participation in each
product category will be determined by
multiplying 30 percent times the
number of suppliers whose composite
bids are at or lower than the pivotal bid
for the product category. This target was
not included in the demonstration
project. However, small suppliers were
selected in most product categories. We
expect that this provision will not affect
potential Medicare savings because (1)
The target may be met through the
normal selection process; and (2) if the
target is not met, the additional small
suppliers that are selected will have to
agree to accept the single payment
amount.
• Capacity limit: The capacity limit
was not included in the demonstration
project. It is possible that the limit will
increase the pivotal bid because it may
take more suppliers to reach the
estimated need for capacity. The higher
pivotal bid will reduce potential
Medicare savings. We have established
a capacity limit for purposes of
calculating the pivotal bid such that no
supplier’s or network’s estimated
capacity can be considered to meet more
than 20 percent of the total need for
capacity. Once winning suppliers are
selected, we will not exclude networks
or suppliers from expanding and
exceeding the 20-percent capacity. This
will increase the opportunity for small
suppliers to be considered and
participate in the program. It will also
help ensure that we meet the
requirement at section 1847(b)(4) of the
Act that the Secretary shall award
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contracts to multiple entities and ensure
that we have sufficient contract
suppliers to meet the anticipated needs
of beneficiaries for competitive bid
items on a timely basis.
• Streamlined financial standards:
We have streamlined the financial
standards to require submission of
certain tax information and other basic
financial information such as a
compiled balance sheet. This provision,
which was not included in the
demonstration, should make it easier for
small suppliers to bid. This has the
potential to increase Medicare savings,
but it is not clear by how much.
• Permitting physicians and certain
non-physician practitioners to furnish
certain limited items. We will permit
physicians and certain practitioners to
furnish certain limited items that are
provided to beneficiaries as part of their
professional practice without submitting
a bid and being awarded a contract,
provided that certain conditions are
met. These physicians and nonphysician practitioners would be
required to submit bids if they wished
to furnish any other competitively bid
items. This provision was not included
in the demonstration projects. We do
not believe it will have a significant
effect on Medicare savings, because
relatively few items will be covered.
• Another option we considered but
did not adopt would have allowed small
suppliers to be exempted from the
requirement that a contract supplier
must service an entire CBA. However,
we note that if a small supplier joined
a network, an exception to this rule
would apply. This option is also
discussed in further detail in section XI.
of the preamble of this final rule.
Comment: Several commenters
believed that the analysis in the
proposed rule suggests potential
capacity issues for successful bidders.
These commenters argued that if 37
percent of existing suppliers will
become noncontract suppliers as a
result of not bidding or not submitting
successful bids as projected in Table 15
of the proposed rule (71 FR 25695), and
the current ratio of beneficiaries to
suppliers is roughly the same for
contract and noncontract suppliers,
each contract supplier will experience,
on average, a 59 percent increase in the
number of beneficiaries that it must
serve. The commenters stated that CMS
indicated in the preamble to the
proposed rule that the PAOC, during its
February 28, 2006 meeting, suggested
‘‘that most DMEPOS suppliers would be
able to easily increase their total
capacity to furnish items by up to 20
percent and the increase could be even
larger for products like diabetes
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18083
supplies that require relatively little
labor’’ (71 FR 25676). The commenters
argued that the proposal creates the
possibility that contract suppliers may,
therefore, need to expand capacity
beyond the 20-percent PAOC estimate.
Two commenters noted that such
expansions could raise accreditation
and licensure issues.
Response: Our methodology will
ensure that we select a sufficient
number of suppliers to meet the needs
of Medicare beneficiaries for
competitively bid items. We also note
that, as we stated in the preamble to the
proposed rule (71 FR 25676), the PAOC
indicated that suppliers of products
such as diabetes supplies that require
relatively little labor may be able to
expand capacity even more. We will be
selecting multiple contract suppliers,
and we will be asking suppliers that
plan to increase their capacity to submit
plans on how they will achieve this
increased capacity. However, no
contract supplier will be required to
increase its capacity. In addition, as a
general rule, for a selection tool, we
would not assign more than 20 percent
of the total Medicare demand for a
product category to any one supplier in
estimating how many suppliers we need
in a given CBA. Based on these factors,
we do not believe that contract
suppliers will experience capacity
problems.
Comment: A number of commenters
believed that the regulatory analysis in
the proposed rule minimized the impact
of the proposed rule on small businesses
because CMS estimates that half of the
bidding suppliers will not be selected as
contract suppliers. The commenters
believed that this group would be
disproportionately comprised of small
businesses that are now providing
DMEPOS and that many, faced with the
loss of Medicare business for
competitively bid items, would go out of
business.
Response: Our current estimates
indicate that, of all the DMEPOS
suppliers in a CBA, only 22 percent
would be noncontract suppliers because
they submitted a losing bid. Many
DMEPOS items are not subject to
competitive bidding. Therefore, many
small suppliers such as suppliers of
specialty items, for example, are not
likely to be affected by competitive
bidding. For those suppliers that
currently furnish competitively bid
items, we are taking specific steps to
ensure that they have the opportunity to
participate in the competitive bidding
program. These steps include offering
suppliers the opportunity to form
networks, small supplier targets, and
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not requiring suppliers to submit bids
for all product categories.
a004/a-4.pdf), in the following table
below, we have prepared an accounting
statement showing the classification of
the expenditures associated with the
provisions of this final rule. This table
provides our best estimate of the
decreased expenditures in Medicare
H. Accounting Statement
As required by OMB Circular A–4
(available at https://
www.whitehouse.gov/omb/circulars/
payments under the Medicare DMEPOS
Competitive Bidding Program as a result
of the changes presented in this final
rule. All expenditures are classified as
transfers to the Federal Government
from DMEPOS suppliers.
TABLE 18.—ACCOUNTING STATEMENT—CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM FY 2007 TO FY 2012
Category
Transfers
Annualized Monetized Transfers ..............................................
From Whom To Whom? ...........................................................
Annualized Monetized Transfers ..............................................
From Whom To Whom? ...........................................................
I. Executive Order 12866
In accordance with the provisions of
Executive Order 12866, this final rule
was reviewed by the OMB.
List of Subjects
42 CFR Part 411
Kidney diseases, Medicare, Reporting
and recordkeeping requirements.
42 CFR Part 414
Administrative practice and
procedure, Health facilities, Health
professions, Kidney diseases, Medicare,
Reporting and recordkeeping
requirements.
I For the reasons set forth in the
preamble, the Centers for Medicare &
Medicaid Services is amending 42 CFR
Chapter IV as set forth below:
PART 411—EXCLUSIONS FOR
MEDICARE AND LIMITATIONS ON
MEDICARE PAYMENT
Authority: Secs. 1102 and 1871 of the
Social Security Act (42 U.S.C. 1302 and
1395hh).
Subpart A—General Exclusions and
Exclusions of Particular Services
2. Section 411.15 is amended by
adding a new paragraph (s) to read as
follows.
I
§ 411.15 Particular services excluded from
coverage.
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*
*
*
*
*
(s) Unless § 414.404(d) or
§ 414.408(e)(2) of this subchapter
applies, Medicare does not make
payment if an item or service that is
included in a competitive bidding
program (as described in Part 414,
Subpart F of this subchapter) is
furnished by a supplier other than a
contract supplier (as defined in
§ 414.402 of this subchapter).
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PART 414—PAYMENT FOR PART B
MEDICAL AND OTHER HEALTH
SERVICES
3. The authority citation for part 414
continues to read as follows:
I
Authority: Secs. 1102, 1871, and 1881(b)(1)
of the Social Security Act (42 U.S.C. 1302,
1395hh, and 1395rr(b)(1)).
Subpart F—Competitive Bidding for
Certain Durable Medical Equipment,
Prosthetics, Orthotics, and Supplies
(DMEPOS)
I 4. New §§ 414.400, 414.402, and
414.404 are added to Subpart F to read
as follows:
§ 414.400
Purpose and basis.
This subpart implements competitive
bidding programs for certain DMEPOS
items as required by sections 1847(a)
and (b) of the Act.
§ 414.402
1. The authority for part 411
continues to read as follows:
I
547.9 (in Millions).
To Federal Government from Medicare DMEPOS Suppliers.
137.0.
To Beneficiaries from Medicare DMEPOS Suppliers.
Definitions.
For purposes of this subpart, the
following definitions apply:
Bid means an offer to furnish an item
for a particular price and time period
that includes, where appropriate, any
services that are directly related to the
furnishing of the item.
Competitive bidding area (CBA)
means an area established by the
Secretary under this subpart.
Competitive bidding program means a
program established under this subpart
within a designated CBA.
Composite bid means the sum of a
supplier’s weighted bids for all items
within a product category for purposes
of allowing a comparison across bidding
suppliers.
Contract supplier means an entity that
is awarded a contract by CMS to furnish
items under a competitive bidding
program.
DMEPOS stands for durable medical
equipment, prosthetics, orthotics, and
supplies.
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Grandfathered item means any one of
the following items for which payment
is made on a rental basis prior to the
implementation of a competitive
bidding program and for which payment
is made after implementation of a
competitive bidding program to a
grandfathered supplier that continues to
furnish the items in accordance with
§ 414.408(j):
(1) An inexpensive or routinely
purchased item described in § 414.220.
(2) An item requiring frequent and
substantial servicing, as described in
§ 414.222.
(3) Oxygen and oxygen equipment
described in § 414.226.
(4) Other DME described in § 414.229.
Grandfathered supplier means a
noncontract supplier that chooses to
continue to furnish grandfathered items
to a beneficiary in a CBA.
Item means a product included in a
competitive bidding program that is
identified by a HCPCS code, which may
be specified for competitive bidding (for
example, a product when it is furnished
through mail order), or a combination of
codes and/or modifiers, and includes
the services directly related to the
furnishing of that product to the
beneficiary. Items that may be included
in a competitive bidding program are:
(1) Durable medical equipment (DME)
other than class III devices under the
Federal Food, Drug, and Cosmetic Act,
as defined in § 414.202 of this part and
further classified into the following
categories:
(i) Inexpensive or routinely purchased
items, as specified in § 414.220(a).
(ii) Items requiring frequent and
substantial servicing, as specified in
§ 414.222(a).
(iii) Oxygen and oxygen equipment,
as specified in § 414.226(c)(1).
(iv) Other DME (capped rental items),
as specified in § 414.229.
(2) Supplies necessary for the
effective use of DME other than
inhalation drugs.
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(3) Enteral nutrients, equipment, and
supplies.
(4) Off-the-shelf orthotics, which are
orthotics described in section 1861(s)(9)
of the Act that require minimal selfadjustment for appropriate use and do
not require expertise in trimming,
bending, molding, assembling or
customizing to fit a beneficiary.
Item weight is a number assigned to
an item based on its beneficiary
utilization rate using national data when
compared to other items in the same
product category.
Mail order contract supplier is a
contract supplier that furnishes items
through the mail to beneficiaries who
maintain a permanent residence in a
competitive bidding area.
Metropolitan Statistical Area (MSA)
has the same meaning as that given by
the Office of Management and Budget.
Minimal self-adjustment means an
adjustment that the beneficiary,
caretaker for the beneficiary, or supplier
of the device can perform and does not
require the services of a certified
orthotist (that is, an individual certified
by either the American Board for
Certification in Orthotics and
Prosthetics, Inc., or the Board for
Orthotist/Prosthetist Certification) or an
individual who has specialized training.
Nationwide competitive bidding area
means a CBA that includes the United
States, its Territories, and the District of
Columbia.
Nationwide mail order contract
supplier means a mail order contract
supplier that furnishes items in a
nationwide competitive bidding area.
Network means a group of small
suppliers that form a legal entity to
provide competitively bid items
throughout the entire CBA.
Noncontract supplier means a
supplier that is not awarded a contract
by CMS to furnish items included in a
competitive bidding program.
Physician has the same meaning as in
section 1861(r) of the Act.
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.
Product category means a grouping of
related items that are used to treat a
similar medical condition.
Regional competitive bidding area
means a CBA that consists of a region
of the United States, its Territories, and
the District of Columbia.
Regional mail order contract supplier
means a mail order contract supplier
that furnishes items in a regional
competitive bidding area.
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Single payment amount means the
allowed payment for an item furnished
under a competitive bidding program.
Small supplier means, a supplier that
generates gross revenue of $3.5 million
or less in annual receipts including
Medicare and non-Medicare revenue.
Supplier means an entity with a valid
Medicare supplier number, including an
entity that furnishes an item through the
mail.
Treating practitioner means a
physician assistant, nurse practitioner,
or clinical nurse specialist, as those
terms are defined in section 1861(aa)(5)
of the Act.
Weighted bid means the item weight
multiplied by the bid price submitted
for that item.
§ 414.404
Scope and applicability.
(a) Applicability. Except as specified
in paragraph (b) of this section, this
subpart applies to all suppliers that
furnish the items defined in § 414.402 to
beneficiaries, including providers,
physicians, treating practitioners,
physical therapists, and occupational
therapists that furnish such items under
Medicare Part B.
(b) Exceptions. (1) Physicians and
treating practitioners may furnish
certain types of competitively bid items
without submitting a bid and being
awarded a contract under this subpart,
provided that all of the following
conditions are satisfied:
(i) The items furnished are limited to
crutches, canes, walkers, folding manual
wheelchairs, blood glucose monitors,
and infusion pumps that are DME.
(ii) The items are furnished by the
physician or treating practitioner to his
or her own patients as part of his or her
professional service.
(iii) The items are billed under a
billing number assigned to the
physician, the treating practitioner (if
possible), or a group practice to which
the physician or treating practitioner
has reassigned the right to receive
Medicare payment.
(2) A physical therapist in private
practice (as defined in § 410.60(c) of this
chapter) or an occupational therapist in
private practice (as defined in
§ 410.59(c) of this chapter) may furnish
competitively bid off-the-shelf orthotics
without submitting a bid and being
awarded a contract under this subpart,
provided that the items are furnished
only to the therapist’s own patients as
part of the physical or occupational
therapy service.
(3) Payment for items furnished in
accordance with paragraphs (b)(1) and
(b)(2) of this section will be paid in
accordance with § 414.408(a).
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18085
5. Section 414.406 is amended by
adding paragraphs (b), (c), and (d) to
read as follows:
I
§ 414.406
Implementation of programs.
*
*
*
*
*
(b) Competitive bidding areas. CMS
designates through program instructions
or by other means, such as the request
for bids, each CBA in which a
competitive bidding program may be
implemented under this subpart.
(c) Revisions to competitive bidding
areas. CMS may revise the CBAs
designated under paragraph (b) of this
section.
(d) Competitively bid items. CMS
designates the items that are included in
a competitive bidding program through
program instructions or by other means
*
*
*
*
*
I 6. New §§ 414.408, 414.410, 414.412,
414.414, 414.416, 414.418, 414.420,
414.422, 414.424, and 414.426 are
added to Subpart F to read as follows:
§ 414.408
Payment rules.
(a) Payment basis. (1) The payment
basis for an item furnished under a
competitive bidding program is 80
percent of the single payment amount
calculated for the item under § 414.416
for the CBA in which the beneficiary
maintains a permanent residence.
(2) If an item that is included in a
competitive bidding program is
furnished to a beneficiary who does not
maintain a permanent residence in a
CBA, the payment basis for the item is
80 percent of the lesser of the actual
charge for the item, or the applicable fee
schedule amount for the item, as
determined under Subpart C or Subpart
D.
(b) No changes to the single payment
amount. The single payment amount
calculated for each item under each
competitive bidding program is paid for
the duration of the competitive bidding
program and will not be adjusted by any
update factor.
(c) Payment on an assignment-related
basis. Payment for an item furnished
under this subpart is made on an
assignment-related basis.
(d) Applicability of advanced
beneficiary notice. Implementation of a
program in accordance with this subpart
does not preclude the use of an
advanced beneficiary notice.
(e) Requirement to obtain
competitively bid items from a contract
supplier. (1) General rule. Except as
provided in paragraph (e)(2) of this
section, all items that are included in a
competitive bidding program must be
furnished by a contract supplier for that
program.
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(2) Exceptions. (i) A grandfathered
supplier may furnish a grandfathered
item to a beneficiary in accordance with
paragraph (j) of this section.
(ii) Medicare may make a secondary
payment for an item furnished by a
noncontract supplier that the
beneficiary is required to use under his
or her primary insurance policy. The
provisions of this paragraph do not
supersede Medicare secondary payer
statutory and regulatory provisions,
including the Medicare secondary
payment rules located in §§ 411.32 and
411.33 of this subchapter, and payment
will be calculated in accordance with
those rules.
(iii) If a beneficiary is outside of the
CBA in which he or she maintains a
permanent residence, he or she may
obtain an item from a—
(A) Contract supplier, if the
beneficiary obtains the item in another
CBA and the item is included in the
competitive bidding program for that
CBA; or
(B) Supplier with a valid Medicare
billing number, if the beneficiary
obtains the item in an area that is not
a CBA, or if the beneficiary obtains the
item in another CBA but the item is not
included in the competitive bidding
program for that CBA.
(iv) A physician, treating practitioner,
physical therapist in private practice, or
occupational therapist in private
practice may furnish an item in
accordance with § 414.404(b) of this
subpart.
(3) Unless paragraph (e)(2) of this
section applies:
(i) Medicare will not make payment
for an item furnished in violation of
paragraph (e)(1) of this section, and
(ii) A beneficiary has no financial
liability to a noncontract supplier that
furnishes an item included in the
competitive bidding program for a CBA
in violation of paragraph (e)(1) of this
section, unless the beneficiary has
signed an advanced beneficiary notice.
(4) CMS separately designates the
Medicare billing number of all
noncontract suppliers to monitor
compliance with paragraphs (e)(1) and
(e)(2) of this section.
(f) Purchased equipment. (1) The
single payment amounts for new
purchased durable medical equipment,
including power wheelchairs that are
purchased when the equipment is
initially furnished, and enteral nutrition
equipment are calculated based on the
bids submitted and accepted for these
items.
(2) Payment for used purchased
durable medical equipment and enteral
nutrition equipment is made in an
amount equal to 75 percent of the single
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payment amounts calculated for new
purchased equipment under paragraph
(f)(1) of this section.
(g) Purchased supplies and orthotics.
The single payment amounts for the
following purchased items are
calculated based on the bids submitted
and accepted for the following items:
(1) Supplies used in conjunction with
durable medical equipment.
(2) Enteral nutrients.
(3) Enteral nutrition supplies.
(4) OTS orthotics.
(h) Rented equipment. (1) Capped
rental DME. Subject to the provisions of
paragraph (h)(2) of this section, payment
for capped rental durable medical
equipment is made in an amount equal
to 10 percent of the single payment
amounts calculated for new durable
medical equipment under paragraph
(f)(1) of this section for each of the first
3 months, and 7.5 percent of the single
payment amounts calculated for these
items for each of the remaining months
4 through 13.
(2) Additional payment to certain
contract suppliers for capped rental
DME. (i) Except as specified in
paragraph (h)(2)(ii) of this section,
Medicare makes 13 monthly payments
to a contract supplier that furnishes
capped rental durable medical
equipment to a beneficiary who would
otherwise be entitled to obtain the item
from a grandfathered supplier under
paragraph (j) of this section. Payment is
made using the methodology described
in paragraph (h)(1) of this section. The
contract supplier must transfer title to
the item to the beneficiary on the first
day that begins after the 13th
continuous month in which payments
are made in accordance with this
paragraph.
(ii) Medicare does not make payment
to a contract supplier under paragraph
(h)(2)(i) of this section if the contract
supplier furnishes capped rental
durable medical equipment to a
beneficiary who previously rented the
equipment from another contract
supplier.
(3) Maintenance and servicing of
rented DME. Separate maintenance and
servicing payments are not made for any
rented durable medical equipment.
(4) Payment for rented enteral
nutrition equipment. Payment for rented
enteral nutrition equipment is made in
an amount equal to 10 percent of the
single payment amounts calculated for
new enteral nutrition equipment under
paragraph (f)(1) of this section for each
of the first 3 months, and 7.5 percent of
the single payment amount calculated
for these items under paragraph (f)(1) of
this section for each of the remaining
months 4 through 15. The contract
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supplier to which payment is made in
month 15 for furnishing enteral
nutrition equipment on a rental basis
must continue to furnish, maintain and
service the equipment until a
determination is made by the
beneficiary’s physician or treating
practitioner that the equipment is no
longer medically necessary.
(5) Maintenance and servicing of
rented enteral nutrition equipment.
Payment for the maintenance and
servicing of rented enteral nutrition
equipment beginning 6 months after 15
months of rental payments is made in
an amount equal to 5 percent of the
single payment amounts calculated for
these items under paragraph (f)(1) of
this section.
(6) Payment for inexpensive or
routinely purchased durable medical
equipment. Payment for inexpensive or
routinely purchased durable medical
equipment furnished on a rental basis is
made in an amount equal to 10 percent
of the single payment amount calculated
for new purchased equipment.
(7) Payment amounts for rented DME
requiring frequent and substantial
servicing. (i) General rule. Except as
provided in paragraph (h)(7)(ii) of this
section, the single payment amounts for
rented durable medical equipment
requiring frequent and substantial
servicing are calculated based on the
rental bids submitted and accepted for
the furnishing of these items on a
monthly basis.
(ii) Exception. The single payment
amounts for continuous passive motion
exercise devices are calculated based on
the bids submitted and accepted for the
furnishing of these items on a daily
basis.
(i) Monthly payment amounts for
oxygen and oxygen equipment. (1) Basic
payment amount. Subject to the
provisions of paragraph (i)(2) of this
section, the single payment amounts for
oxygen and oxygen equipment are
calculated based on the bids submitted
and accepted for the furnishing on a
monthly basis of each of the five classes
of oxygen and oxygen equipment
described in § 414.226(c)(1).
(2) Additional payment to certain
contract suppliers. (i) Except as
specified in paragraph (i)(2)(iii) of this
section, Medicare makes monthly
payments to a contract supplier that
furnishes oxygen equipment to a
beneficiary who would otherwise be
entitled to obtain the item from a
grandfathered supplier under paragraph
(j) of this section as follows:
(A) If Medicare made 26 or less
monthly payments to the former
supplier, Medicare makes a monthly
payment to the contract supplier for up
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to the number of months equal to the
difference between 36 and the number
of months for which payment was made
to the former supplier.
(B) If Medicare made 27 or more
monthly payments to the former
supplier, Medicare makes 10 monthly
payments to the contract supplier.
(ii) Payment is made using the
methodology described in paragraph
(i)(1) of this section. On the first day
after the month in which the final rental
payment is made under paragraph
(i)(2)(i) of this section, the contract
supplier must transfer title of the
oxygen equipment to the beneficiary.
(iii) Medicare does not make payment
to a contract supplier under paragraph
(i)(2) of this section if the contract
supplier furnishes oxygen equipment to
a beneficiary who previously rented the
equipment from another contract
supplier.
(j) Special rules for certain rented
durable medical equipment and oxygen
and oxygen equipment. (1) Supplier
election. (i) A supplier that is furnishing
durable medical equipment or is
furnishing oxygen or oxygen equipment
on a rental basis to a beneficiary prior
to the implementation of a competitive
bidding program in the CBA where the
beneficiary maintains a permanent
residence may elect to continue
furnishing the item as a grandfathered
supplier.
(ii) A supplier that elects to be a
grandfathered supplier must continue to
furnish the grandfathered items to all
beneficiaries who elect to continue
receiving the grandfathered items from
that supplier for the remainder of the
rental period for that item.
(2) Payment for grandfathered items
furnished during the first competitive
bidding program implemented in a
CBA. Payment for grandfathered items
furnished during the first competitive
bidding program implemented in a CBA
is made as follows:
(i) For inexpensive and routinely
purchased items described in
§ 414.220(a), payment is made in the
amount determined under § 414.220(b).
(ii) For other durable medical
equipment or capped rental items
described in § 414.229, payment is made
in the amount determined under
§ 414.229(b).
(iii) For items requiring frequent and
substantial servicing described in
§ 414.222, payment is made in
accordance with paragraph (a)(1) of this
section.
(iv) For oxygen and oxygen
equipment described in § 414.226(c)(1),
payment is made in accordance with
paragraph (a)(1) of this section.
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(3) Payment for grandfathered items
furnished during all subsequent
competitive bidding programs in a CBA.
Beginning with the second competitive
bidding program implemented in a
CBA, payment is made for
grandfathered items in accordance with
paragraph (a)(1) of this section.
(4) Choice of suppliers. (i)
Beneficiaries who are renting an item
that meets the definition of a
grandfathered item in § 414.402 of this
subpart may elect to obtain the item
from a grandfathered supplier.
(ii) A beneficiary who is otherwise
entitled to obtain a grandfathered item
from a grandfathered supplier under
paragraph (j) of this section may elect to
obtain the same item from a contract
supplier at any time after a competitive
bidding program is implemented.
(iii) If a beneficiary elects to obtain
the same item from a contract supplier,
payment is made for the item
accordance with paragraph (a)(1) of this
section.
(5) Payment for accessories and
supplies for grandfathered items.
Accessories and supplies that are used
in conjunction with and are necessary
for the effective use of a grandfathered
item may be furnished by the same
grandfathered supplier that furnishes
the grandfathered item. Payment is
made in accordance with paragraph
(a)(1) of this section.
(k) Payment for maintenance,
servicing and replacement of
beneficiary-owned items.
(1) Payment is made for the
maintenance and servicing of
beneficiary-owned items, provided the
maintenance and servicing is performed
by a contract supplier or a noncontract
supplier having a valid Medicare billing
number, as follows:
(i) Payment for labor is made in
accordance with § 414.210(e)(1) of
Subpart D.
(ii) Payment for parts that are not
items (as defined in § 414.402) is made
in accordance with § 414.210(e)(1) of
Subpart D.
(iii) Payment for parts that are items
(as defined in § 414.402) is made in
accordance with paragraph (a)(1) of this
section.
(2) Additional payments are made in
accordance with §§ 414.210(e)(2) and
(e)(3) of subpart D for the maintenance
and servicing of oxygen equipment if
performed by a contract supplier or a
noncontract supplier having a valid
Medicare billing number.
(3) Beneficiaries must obtain a
replacement of a beneficiary-owned
item, other than parts needed for the
repair of beneficiary-owned equipment
from a contract supplier. Payment is
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made for the replacement item in
accordance with paragraph (a)(1) of this
section.
§ 414.410 Phased-in implementation of
competitive bidding programs.
(a) Phase-in of competitive bidding
programs. CMS phases in competitive
bidding programs so that competition
under the programs occurs in—
(1) 10 of the largest MSAs in CY 2007;
(2) 80 of the largest MSAs in CY 2009;
(3) Additional CBAs after CY 2009.
(b) Selection of MSAs for CY 2007 and
CY 2009. CMS selects the MSAs for
purposes of designating CBAs in CY
2007 and CY 2009 by considering the
following variables:
(1) The total population of an MSA.
(2) The Medicare allowed charges for
DMEPOS items per fee-for-service
beneficiary in an MSA.
(3) The total number of DMEPOS
suppliers per fee-for-service beneficiary
who received DMEPOS items in an
MSA.
(4) An MSA’s geographic location.
(c) Exclusions from a CBA. CMS may
exclude from a CBA a rural area (as
defined in § 412.64(b)(1)(ii)(C) of this
subchapter), or an area with low
population density based on one or
more of the following factors—
(1) Low utilization of DMEPOS items
by Medicare beneficiaries receiving feefor-service benefits relative to similar
geographic areas;
(2) Low number of DMEPOS suppliers
relative to similar geographic areas; or
(3) Low number of Medicare fee-forservice beneficiaries relative to similar
geographic areas.
(d) Selection of additional CBAs after
CY 2009. (1) Beginning after CY 2009,
CMS designates through program
instructions or by other means
additional CBAs based on CMS’
determination that the implementation
of a competitive bidding program in a
particular area would be likely to result
in significant savings to the Medicare
program.
(2) Beginning after CY 2009, CMS may
designate through program instructions
or by other means a nationwide CBA or
one or more regional CBAs for purposes
of implementing competitive bidding
programs for items that are furnished
through the mail by nationwide or
regional mail order contract suppliers.
§ 414.412 Submission of bids under a
competitive bidding program.
(a) Requirement to submit a bid.
Except as provided under § 414.404(b),
in order for a supplier to receive
payment for items furnished to
beneficiaries under a competitive
bidding program, the supplier must
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submit a bid to furnish those items and
be awarded a contract under this
subpart.
(b) Grouping of items into product
categories. (1) Bids are submitted for
items grouped into product categories.
(2) The bids submitted for each item
in a product category cannot exceed the
payment amount that would otherwise
apply to the item under Subpart C or
Subpart D of this part.
(c) Furnishing of items. A bid must
include all costs related to furnishing an
item, including all services directly
related to the furnishing of the item.
(d) Separate bids. For each product
category that a supplier is seeking to
furnish under a competitive bidding
program, the supplier must submit a
separate bid for each item in that
product category.
(e) Commonly-owned or controlled
suppliers. (1) For purposes of this
paragraph—
(i) An ownership interest is the
possession of equity in the capital, stock
or profits of another supplier;
(ii) A controlling interest exists if one
or more of owners of a supplier is an
officer, director or partner in another
supplier; and
(iii) Two or more suppliers are
commonly-owned if one or more of
them has an ownership interest totaling
at least 5 percent in the other(s).
(2) A supplier must disclose in its bid
each supplier in which it has an
ownership or controlling interest and
each supplier which has an ownership
or controlling interest in it.
(3) Commonly-owned or controlled
suppliers must submit a single bid to
furnish a product category in a CBA.
Each commonly-owned or controlled
supplier that is located in the CBA for
which the bid is being submitted must
be included in the bid. The bid must
also include any commonly-owned or
controlled supplier that is located
outside of the CBA but would furnish
the product category to the beneficiaries
who maintain a permanent residence in
the CBA.
(f) Mail order suppliers. (1) Suppliers
that furnish items through the mail must
submit a bid to furnish these items in a
CBA in which a mail order competitive
bidding program that includes the items
is implemented.
(2) Suppliers that submit one or more
bids under paragraph (f)(1) of this
section may submit the same bid
amount for each item under each
competitive bidding program for which
it submits a bid.
(g) Applicability of the mail order
competitive bidding program. Suppliers
that do not furnish items through the
mail are not required to participate in a
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nationwide or regional mail order
competitive bidding program that
includes the same items. Suppliers may
continue to furnish these items in—
(1) A CBA, if the supplier is awarded
a contract under this subpart; or
(2) An area not designated as a CBA.
§ 414.414 Conditions for awarding
contracts.
(a) General rule. The rules set forth in
this section govern the evaluation and
selection of suppliers for contract award
purposes under a competitive bidding
program.
(b) Basic supplier eligibility. (1) Each
supplier must meet the enrollment
standards specified in § 424.57(c) of this
chapter.
(2) Each supplier must disclose
information about any prior or current
legal actions, sanctions, revocations
from the Medicare program, programrelated convictions as defined in section
1128(a)(1) through (a)(4) of the Act,
exclusions or debarments imposed
against it, or against any members of the
board of directors, chief corporate
officers, high-level employees, affiliated
companies, or subcontractors, by any
Federal, State, or local agency. The
supplier must certify in its bid that this
information is completed and accurate.
(3) Each supplier must have all State
and local licenses required to perform
the services identified in the request for
bids.
(4) Each supplier must submit a bona
fide bid that complies with all the terms
and conditions contained in the request
for bids.
(5) Each network must meet the
requirements specified in § 414.418.
(c) Quality standards and
accreditation. Each supplier must meet
applicable quality standards developed
by CMS in accordance with section
1834(a)(20) of the Act and be accredited
by a CMS-approved accreditation
organization that meets the
requirements of § 424.58 of this
subchapter, unless a grace period is
specified by CMS.
(d) Financial standards. Each supplier
must submit along with its bid the
applicable financial documentation
specified in the request for bids.
(e) Evaluation of bids. CMS evaluates
bids submitted for items within a
product category by—
(1) Calculating the expected
beneficiary demand in the CBA for the
items in the product category;
(2) 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;
(3) Establishing a composite bid for
each supplier and network that
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submitted a bid for the product
category.
(4) Arraying the composite bids from
the lowest composite bid price to the
highest composite bid price;
(5) Calculating the pivotal bid for the
product category;
(6) Selecting all suppliers and
networks whose composite bids are less
than or equal to the pivotal bid for that
product category, and that meet the
requirements in paragraphs (b) through
(d) of this section.
(f) Expected savings. A contract is not
awarded under this subpart unless CMS
determines that the amounts to be paid
to contract suppliers for an item under
a competitive bidding program are
expected to be less than the amounts
that would otherwise be paid for the
same item under Subpart C or Subpart
D.
(g) Special rules for small suppliers.
(1) Target for small supplier
participation. CMS ensures that small
suppliers have the opportunity to
participate in a competitive bidding
program by taking the following steps:
(i) Setting a target number for small
supplier participation by multiplying 30
percent by the number of suppliers that
meet the requirements in paragraphs (b)
through (d) of this section and whose
composite bids are equal to or lower
than the pivotal bid calculated for the
product category;
(ii) Identifying the number of
qualified small suppliers whose
composite bids are at or below the
pivotal bid for the product category;
(iii) Selecting additional small
suppliers whose composite bids are
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 calculated in paragraph
(g)(1)(i) of this section is reached or
there are no more composite bids
submitted by small suppliers for the
product category.
(2) The bids by small suppliers that
are selected under paragraph (g)(1)(iii)
of this section are not used to calculate
the single payment amounts for any
items under § 414.416 of this subpart.
(h) Sufficient number of suppliers.
(1) Except as provided in paragraph
(h)(3) of this section. CMS will award at
least five contracts, if there are five
suppliers satisfying the requirements in
paragraphs (b) through (f) of this
section; or
(2) CMS will award at least two
contracts, if there are less than five
suppliers meeting these requirements
and the suppliers satisfying these
requirements have sufficient capacity to
satisfy beneficiary demand for the
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product category calculated under
paragraph (e)(1) of this section.
(3) The provisions of paragraph (h)(1)
of this section do not apply to regional
or nationwide mail order CBAs under
§ 414.410(d)(2) of this subpart.
(i) Selection of new suppliers after
bidding. (1) Subsequent to the awarding
of contracts under this subpart, CMS
may award additional contracts if it
determines that additional contract
suppliers are needed to meet beneficiary
demand for items under a competitive
bidding program. CMS selects
additional contract suppliers by—
(i) Referring to the arrayed list of
suppliers that submitted bids for the
product category included in the
competitive bidding program for which
beneficiary demand is not being met;
and
(ii) Beginning with the supplier
whose composite bid is the first
composite bid above the pivotal bid for
that product category, determining if
that supplier is willing to become a
contract supplier under the same terms
and conditions that apply to other
contract suppliers in the CBA.
(2) Before CMS awards additional
contracts under paragraph (i)(1) of this
section, a supplier must submit updated
information demonstrating that the
supplier meets the requirements under
paragraphs (b) through (d) of this
section.
§ 414.416 Determination of competitive
bidding payment amounts.
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(a) General rule. CMS establishes a
single payment amount for each item
furnished under a competitive bidding
program.
(b) Methodology for setting payment
amount. (1) The single payment amount
for an item furnished under a
competitive bidding program is equal to
the median of the bids submitted for
that item by suppliers whose composite
bids for the product category that
includes the item are equal to or below
the pivotal bid for that product category.
If there is an even number of bids, the
single payment amount for the item is
equal to the average of the two middle
bids.
(2) The single payment amount for an
item must be less than or equal to the
amount that would otherwise be paid
for the same item under Subpart C or
Subpart D.
§ 414.418
Opportunity for networks.
(a) A network may be comprised of at
least 2 but not more than 20 small
suppliers.
(b) The following rules apply to
networks that seek contracts under this
subpart:
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(1) Each network must form a single
legal entity that acts as the bidder and
submits the bid. Any agreement entered
into for purposes of forming a network
must be submitted to CMS. The network
must identify itself as a network and
identify all of its members.
(2) Each member of the network must
satisfy the requirements in § 414.414(b)
through (d).
(3) A small supplier may join one or
more networks but cannot submit an
individual bid to furnish the same
product category in the same CBA as
any network in which it is a member.
A small supplier may not be a member
of more than one network if those
networks submit bids to furnish the
same product category in the same CBA.
(4) The network cannot be
anticompetitive, and this section does
not supersede any Federal law or
regulation that regulates anticompetitive
behavior.
(5) A bid submitted by a network
must include a statement from each
network member certifying that the
network member joined the network
because it is unable independently to
furnish all of the items in the product
category for which the network is
submitting a bid to beneficiaries
throughout the entire geographic area of
the CBA.
(6) At the time that a network submits
a bid, the network’s total market share
for each product category that is the
subject of the network’s bid cannot
exceed 20 percent of the Medicare
demand for that product category in the
CBA.
(c) If the network is awarded a
contract, each supplier must submit its
own claims and will receive payment
directly from Medicare for the items that
it furnishes under the competitive
bidding program.
§ 414.420 Physician or treating practitioner
authorization and consideration of clinical
efficiency and value of items.
(a) Prescription for a particular brand
item or mode of delivery. (1) A
physician or treating practitioner may
prescribe, in writing, a particular brand
of an item for which payment is made
under a competitive bidding program, or
a particular mode of delivery for an
item, if he or she determines that the
particular brand or mode of delivery
would avoid an adverse medical
outcome for the beneficiary.
(2) When a physician or treating
practitioner prescribes a particular
brand or mode of delivery of an item
under paragraph (a)(1) of this section,
the physician or treating practitioner
must document the reason in the
beneficiary’s medical record why the
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particular brand or mode of delivery is
medically necessary to avoid an adverse
medical outcome.
(b) Furnishing of a prescribed
particular brand item or mode of
delivery. If a physician or treating
practitioner prescribes a particular
brand of an item or mode of delivery,
the contract supplier must—
(1) Furnish the particular brand or
mode of delivery as prescribed by the
physician or treating practitioner;
(2) Consult with the physician or
treating practitioner to find an
appropriate alternative brand of item or
mode of delivery for the beneficiary and
obtain a revised written prescription
from the physician or treating
practitioner; or
(3) Assist the beneficiary in locating a
contract supplier that can furnish the
particular brand of item or mode of
delivery prescribed by the physician or
treating practitioner.
(c) Payment for a particular brand of
item or mode of delivery. Medicare does
not make an additional payment to a
contract supplier that furnishes a
particular brand or mode of delivery for
an item, as directed by a prescription
written by the beneficiary’s physician or
treating practitioner.
(d) Prohibition on billing for an item
different from the particular brand of
item or mode of delivery prescribed. A
contract supplier is prohibited from
submitting a claim to Medicare if it
furnishes an item different from that
specified in the written prescription
received from the beneficiary’s
physician or treating practitioner.
Payment will not be made to a contract
supplier that submits a claim prohibited
by this paragraph.
§ 414.422
Terms of contracts.
(a) Basic rule. CMS specifies the terms
and conditions of the contracts entered
into with contract suppliers under this
subpart. A contract supplier must
comply with all terms of its contract,
including any option exercised by CMS,
for the full duration of the contract
period.
(b) Recompeting competitive bidding
contracts. CMS recompetes competitive
bidding contracts at least once every 3
years.
(c) Nondiscrimination. The items
furnished by a contract supplier under
this subpart must be the same items that
the contract supplier makes available to
other customers.
(d) Change of ownership. (1) A
contract supplier must notify CMS if it
is negotiating a change in ownership 60
days before the anticipated date of the
change.
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(2) CMS may award a contract to an
entity that merges with, or acquires, a
contract supplier if—
(i) The successor entity meets all
requirements applicable to contract
suppliers for the applicable competitive
bidding program;
(ii) The successor entity submits to
CMS the documentation described
under § 414.414(b) through (d) if that
documentation has not previously been
submitted by the successor entity or the
contract supplier that is being acquired,
or is no longer current. This
documentation must be submitted
within 30 days prior to the anticipated
effective date of the change of
ownership. A successor entity is not
required to duplicate previously
submitted information if the previously
submitted information is still current;
(iii) The successor entity is acquiring
the assets of the existing contract
supplier, it submits to CMS, at least 30
days before the anticipated effective
date of the change of ownership, a
signed novation agreement acceptable to
CMS stating that it will assume all
obligations under the contract; or
(iv) A new entity will be formed as a
result of the merger or acquisition, the
existing contract supplier submits to
CMS, at least 30 days before the
anticipated effective date of the change
of ownership, its final draft of a
novation agreement as described in
paragraph (d)(2)(iii) of this section for
CMS review. The successor entity must
submit to CMS, within 30 days after the
effective date of the change of
ownernship and executed novation
agreement acceptable to CMS.
(e) Furnishing of items. Except as
otherwise prohibited under section 1877
of the Act, or any other applicable law
or regulation:
(1) A contract supplier must agree to
furnish items under its contract to any
beneficiary who maintains a permanent
residence in, or who visits, the CBA and
who requests those items from that
contract supplier.
(2) A skilled nursing facility defined
under section 1819(a) of the Act or a
nursing facility defined under section
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1919(a) of the Act that has elected to
furnish items only to its own residents
and that is also a contract supplier may
furnish items under a competitive
bidding program to its own patients to
whom it would otherwise furnish Part B
services.
(f) Breach of contract. (1) Any
deviation from contract requirements,
including a failure to comply with
governmental agency or licensing
organization requirements, constitutes a
breach of contract.
(2) In the event a contract supplier
breaches its contract, CMS may take one
or more of the following actions:
(i) Require the contract supplier to
submit a corrective action plan;
(ii) Suspend the contract supplier’s
contract;
(iii) Terminate the contract;
(iv) Preclude the contract supplier
from participating in the competitive
bidding program;
(v) Revoke the supplier number of the
contract supplier; or
(vi) Avail itself of other remedies
allowed by law.
§ 414.424
Administrative or judicial review.
(a) There is no administrative or
judicial review under this subpart of the
following:
(1) Establishment of payment
amounts.
(2) Awarding of contracts.
(3) Designation of CBAs.
(4) Phase-in of the competitive
bidding programs.
(5) Selection of items for competitive
bidding.
(6) Bidding structure and number of
contract suppliers selected for a
competitive bidding program.
(b) A denied claim is not appealable
if the denial is based on a determination
by CMS that a competitively bid item
was furnished in a CBA in a manner not
authorized by this subpart.
§ 414.426 Adjustments to competitively
bid payment amounts to reflect changes in
the HCPCS.
If a HCPCS code for a competitively
bid item is revised after the contract
period for a competitive bidding
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program begins, CMS adjusts the single
payment amount for that item as
follows:
(a) If a single HCPCS code for an item
is divided into two or more HCPCS
codes for the components of that item,
the sum of single payment amounts for
the new HCPCS codes equals the single
payment amount for the original item.
Contract suppliers must furnish the
components of the item and submit
claims using the new HCPCS codes.
(b) If a single HCPCS code is divided
into two or more separate HCPCS codes,
the single payment amount for each of
the new separate HCPCS codes is equal
to the single payment amount applied to
the single HCPCS code. Contract
suppliers must furnish the items and
submit claims using the new separate
HCPCS codes.
(c) If the HCPCS codes for
components of an item are merged into
a single HCPCS code for the item, the
single payment amount for the new
HCPCS code is equal to the total of the
separate single payment amounts for the
components. Contract suppliers must
furnish the item and submit claims
using the new HCPCS code.
(d) If multiple HCPCS codes for
similar items are merged into a single
HCPCS code, the items to which the
new HCPCS codes apply may be
furnished by any supplier that has a
valid Medicare billing number. Payment
for these items will be made in
accordance with Subpart C or Subpart
D.
(Catalog of Federal Domestic Assistance
Program No. 93.773, Medicare—Hospital
Insurance; and Program No. 93.774,
Medicare—Supplementary Medical
Insurance Program)
Dated: December 14, 2006.
Leslie Norwalk,
Acting Administrator, Centers for Medicare
& Medicaid Services.
Approved: March 13, 2007.
Michael O. Leavitt,
Secretary.
[FR Doc. 07–1701 Filed 4–2–07; 4:15 pm]
BILLING CODE 4120–01–P
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[Federal Register Volume 72, Number 68 (Tuesday, April 10, 2007)]
[Rules and Regulations]
[Pages 17992-18090]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-1701]
[[Page 17991]]
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Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 411 and 414
Medicare Program; Competitive Acquisition for Certain Durable Medical
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) and Other
Issues; Final Rule
Federal Register / Vol. 72, No. 68 / Tuesday, April 10, 2007 / Rules
and Regulations
[[Page 17992]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 411 and 414
[CMS-1270-F]
RIN 0938-AN14
Medicare Program; Competitive Acquisition for Certain Durable
Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) and
Other Issues
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule establishes competitive bidding programs for
certain Medicare Part B covered items of durable medical equipment,
prosthetics, orthotics, and supplies (DMEPOS) throughout the United
States in accordance with sections 1847(a) and (b) of the Social
Security Act. These competitive bidding programs, which will be phased
in over several years, utilize bids submitted by DMEPOS suppliers to
establish applicable payment amounts under Medicare Part B.
DATES: Effective Date: This final rule is effective on June 11, 2007.
FOR FURTHER INFORMATION, CONTACT: Lorrie Ballantine, (410) 786-7543,
Ralph Goldberg, (410) 786-4870, Karen Jacobs, (410) 786-2173, Michael
Keane, (410) 786-4495, Alexis Meholic, (410) 786-5395, Linda Smith,
(410) 786-5650.
SUPPLEMENTARY INFORMATION:
Electronic Access
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. Free public access is available on a Wide
Area Information Server (WAIS) through the Internet and via
asynchronous dial-in. Internet users can access the database by using
the World Wide Web; the Superintendent of Documents' home page address
is https://www.gpoaccess.gov/, by using local WAIS client
software, or by telnet to swais.access.gpo.gov, then login as guest (no
password required). Dial-in users should use communications software
and modem to call (202) 512-1661; type swais, then login as guest (no
password required).
Alphabetical Listing of Acronyms Appearing in This Final Rule
ABN Advance Beneficiary Notice
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BESS [Medicare] Part B Extract and Summary System
CBA Competitive bidding area
CBIC Competitive bidding implementation contractor
CBSA Core-based statistical area
CMS Centers for Medicare & Medicaid Services
CPI-U Consumer Price Index--All Urban Consumers
CPT [Physician] Current Procedural Terminology, Fourth Edition,
2007, copyrighted by the American Medical Association. CPT[reg] is a
trademark of the American Medical Association
CY Calendar year
DME Durable medical equipment
DME MAC Durable Medical Equipment Medicare Administrative Contractor
DMEPOS Durable medical equipment, prosthetics, orthotics, and
supplies
DMERC Durable medical equipment regional carrier
DRA Deficit Reduction Act of 2005, Pub. L. 109-171
FAR Federal Acquisition Regulation
FEHB Federal Employees Health Benefits Program
FFS Fee-for-service
FTE Full-time equivalent
GAO Government Accountability Office
HCPCS Healthcare Common Procedure Coding System
HHA Home health agency
HHS Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996,
Pub. L. 104-191
IIC Inflation indexed charge
IRF Inpatient rehabilitation facility
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, Pub. L. 108-173
MSA Metropolitan Statistical Area
NAICS North American Industry Classification System
NF Nursing facility
NPWT Negative pressure wound therapy
NSC National Supplier Clearinghouse
OBRA '87 Omnibus Budget Reconciliation Act of 1987, Pub. L. 100-203
OIG Office of the Inspector General, HHS
OTS Off-the-shelf
PAOC Program Advisory and Oversight Committee
PEN Parenteral and enteral nutrition
POV Power-operated vehicle
RFB Request for bids
SADMERC Statistical Analysis Durable Medical Equipment Regional
Carrier
SBA Small Business Administration
SGD Speech generating device
SNF Skilled nursing facility
TENS Transcutaneous electrical nerve stimulator
To assist readers in referencing sections contained in this
document, we are providing the following table of contents:
Table of Contents
I. Provisions of the May 1, 2006 Proposed Rule
A. Summary of the Proposed Rule
B. Public Comments Received
II. Issuance of Final Rules
A. Issuance of the FY 2007 IRF Final Rule Which Finalized
Certain Provisions Relating to Competitive Acquisition for DMEPOS
and the Accreditation of DMEPOS Suppliers
B. Future Issuance of a Final Rule on Certain Other Provisions
Addressed in the May 1, 2006 Proposed Rule
III. Payment for DMEPOS Under Medicare Part B: Background
A. Payment for DMEPOS on the Basis of Reasonable Charges
B. Payment for DMEPOS Under Fee Schedules
C. Use of the Healthcare Common Procedure Coding System (HCPCS)
IV. Medicare Competitive Bidding Demonstrations
V. Discussion of the Provisions of This Final Rule
VI. Medicare DMEPOS Competitive Bidding Program
A. Legislative Authority and Program Advisory and Oversight
Committee
l. Legislative Authority
2. Program Advisory and Oversight Committee
B. Purpose and Definitions (Sec. Sec. 414.400 and 414.402)
C. Competitive Bidding Implementation Contractors (CBICs)
(Sec. Sec. 414.406(a) and (e))
D. Payment Under the Medicare DMEPOS Competitive Bidding Program
1. Payment Basis (Sec. Sec. 414.408(a), (c), and (d))
2. General Payment Rules
3. Special Rules for Certain Rented Items of DME and Oxygen
(Grandfathering of Suppliers) (Sec. 414.408(j))
a. Process for Grandfathering Suppliers
b. Payment Amounts to Grandfathered Suppliers
(1) Grandfathering of Suppliers Furnishing Items Prior to the
First Competitive Bidding Program in a CBA
(2) Suppliers That Lose Their Contract Status in a Subsequent
Competitive Bidding Program
c. Payment for Accessories for Items Subject to Grandfathering
4. Payment Adjustments
a. Adjustment to Account for Inflation (Sec. 414.408(b))
b. Adjustments to Single Payment Amounts to Reflect Changes to
the HCPCS (Sec. 414.426)
5. Authority to Adjust Payments in Other Areas
6. Requirement to Obtain Competitively Bid Items From a Contract
Supplier (Sec. 414.408(e))
7. Limitation on Beneficiary Liability for Items Furnished by
Noncontract Suppliers (Sec. Sec. 414.408(e)(2)(iv) and (e)(3))
8. Payment for Repair and Replacement of Beneficiary-Owned Items
(Sec. 414.408(l))
E. Competitive Bidding Areas (Sec. Sec. 414.406 and 414.410)
1. Background
2. Methodology for MSA Selection for CYs 2007 and 2009
Competitive Bidding Programs (Sec. Sec. 414.410(a) and (b))
[[Page 17993]]
a. MSAs for CY 2007
b. MSAs for CY 2009
3. Establishing Competitive Bidding Areas and Exemption of Rural
Areas and Areas With Low Population Density Within Urban Areas
(Sec. 414.410(c))
4. Establishing Competitive Bidding Areas for CYs 2007 and 2009
(Sec. Sec. 414.406(b) and (c))
5. Nationwide or Regional Mail Order Competitive Bidding Program
(Sec. Sec. 414.410(d)(2) and 414.412(f) and (g))
6. Additional Competitive Bidding Areas After CY 2009 (Sec.
414.410(e))
F. Criteria for Item Selection (Sec. Sec. 414.402 and
414.406(d)(1))
G. Submission of Bids for Competitively Bid DMEPOS (Sec. Sec.
414.404, 414.408, 414.412. and 412.422)
1. Furnishing of Items (Sec. Sec. 414.412(c) and 414.422(e))
a. Furnishing of Items to Medicare Beneficiaries Who Maintain a
Permanent Residence in a CBA
b. Furnishing of Items to Medicare Beneficiaries Whose Permanent
Residence Is Outside a CBA
2. Requirement for Providers to Submit Bids (Sec. Sec.
414.404(a)(2) and 414.422(e)(2))
3. Physicians and Certain Nonphysician Practitioners (Sec. Sec.
414.404(a) and (b))
4. Product Categories for Bidding Purposes (Sec. Sec. 414.402
and 414.412(b) Through (e))
5. Bidding for Specific Types of Items and Associated Payment
Rules (Sec. Sec. 414.408(f) Through (j))
a. Inexpensive or Other Routinely Purchased DME Items
(Sec. Sec. 414.408(f) and (h)(6))
b. DME Items Requiring Frequent and Substantial Servicing (Sec.
414.408(h)(7))
c. Oxygen and Oxygen Equipment (Sec. Sec. 414.408(i) and (j))
d. Capped Rental Items (Sec. 414.408(h))
e. Enteral Nutrients, Equipment, and Supplies (Sec. Sec.
414.408(f), (g)(2), and (h))
f. Maintenance and Servicing of Enteral Nutrition Equipment
(Sec. Sec. 414.408(h)(5) and (i)(5))
g. Supplies Used in Conjunction With DME (Sec. 414.408(g)(1))
h. Off-the-Shelf Orthotics (Sec. 414.408(g)(4))
VII. Conditions for Awarding Contracts for Competitive Bids
A. Quality Standards and Accreditation
B. Eligibility (Sec. 414.414(b))
C. Financial Standards (Sec. 414.414(d))
D. Evaluation of Bids (Sec. 414.414(e))
1. Market Demand and Supplier Capacity (Sec. Sec. 414.414(e)(1)
and (e)(2))
2. Composite Bids (Sec. Sec. 414.414(e)(3) and (e)(4))
3. Determining the Pivotal Bid (Sec. Sec. 414.414(e)(5) and
(e)(6))
4. Assurance of Savings (Sec. 414.414(f))
5. Assurance of Multiple Contractors (Sec. 414.414(h))
6. Selection of New Suppliers After Bidding (Sec. 414.414(i))
VIII. Determining Single Payment Amounts for Individual Items
A. Setting Single Payment Amounts for Individual Items
(Sec. Sec. 414.416(a) and (b))
B. Rebate Program
IX. Terms of Contracts
A. Terms and Conditions of Contracts (Sec. Sec. 414.422(a)
Through (c))
B. Change in Ownership (Sec. 414.422(d))
C. Suspension or Termination of a Contract (Sec. Sec.
414.422(f) and (g))
X. Administrative or Judicial Review of Determinations Made Under
the Medicare DMEPOS Competitive Bidding Program (Sec. 414.424)
XI. Opportunity for Participation by Small Suppliers (Sec.
414.414(g))
XII. Opportunity for Networks (Sec. 414.418)
XIII. Education and Outreach for Suppliers and Beneficiaries
XIV. Monitoring and Complaint Services for the Medicare DMEPOS
Competitive Bidding Program
XV. Physician or Treating Practitioner Authorization and
Consideration of Clinical Efficiency and Value of Items in
Determining Categories for Bids (Sec. 414.420)
XVI. Other Public Comments Received on the May 1, 2006 Proposed Rule
XVII. Collection of Information Requirements
XVIII. Regulatory Impact Analysis
A. Overall Impact
1. Executive Order 12866
2. Regulatory Flexibility Act (RFA)
3. Small Rural Hospitals
4. Unfunded Mandates
5. Federalism
B. Regulatory Flexibility Analysis
1. Summary
2. The Need for and Objective of the Final Rule
3. Comments Regarding Small Suppliers
a. Comments on Small Supplier Focus Groups
b. Comments on the Definition of Small Supplier
c. Comments on the Protections for Small Suppliers
d. Comments on Bidding Requirements for Physician and Other
Providers
e. Comments on Bidding by Product Category
f. Comments on Financial Standards
g. Comments on Supplier Networks
4. Description and Estimate of the Number of Small Entities
5. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
6. Agency Efforts to Minimize the Significant Impact on Small
Entities
C. Anticipated Effects
D. Implementation Costs
E. Program Savings
F. Effect on Beneficiaries
G. Effect on Suppliers
1. Affected Suppliers
2. Small Suppliers
H. Accounting Statement
I. Executive Order 12866
Regulation Text
I. Provisions of the May 1, 2006 Proposed Rule
A. Summary of the Proposed Rule
On May 1, 2006, we published in the Federal Register (71 FR 25654)
a proposed rule to--
Establish and implement competitive bidding programs for
certain covered items of durable medical equipment, prosthetics,
orthotics, and supplies (DMEPOS) under sections 1847(a) and (b) of the
Social Security Act (the Act), as amended by section 302(b)(1) of the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA), Pub. L. 108-173.
Implement requirements for independent accreditation
organizations that will be applying quality standards to all DMEPOS
suppliers as required by section 1834(a)(20) of the Act. (We note that,
as explained later under section VII. of this final rule, we have
finalized certain provisions of the May 1, 2006 proposed rule relating
to accreditation in the DMEPOS provisions of a final rule entitled
``Inpatient Rehabilitation Facility Prospective Payment System for
Federal FY 2007; Provisions Concerning Competitive Acquisition for
Durable Medical Equipment, Prosthetics, Orthotics, and Supplies
(DMEPOS); Accreditation of DMEPOS Suppliers,'' which appeared in the
Federal Register on August 18, 2006 (71 FR 48354) and is referred to
throughout this final rule as the ``FY 2007 IRF final rule.'')
Establish a new fee schedule for home dialysis supplies
and equipment that continue to be paid on a reasonable charge basis.
(We note that we will respond to comments on this proposal in a future
final rule.)
Establish a revised methodology for calculating fee
schedule amounts for new DMEPOS items. (We note that we will respond to
comments on this proposal in a future final rule.)
Codify in our regulations that the statutorily imposed
eyeglass coverage exclusion under Medicare Part B encompasses all
devices that use lenses to aid vision or provide magnification of
images for impaired vision. (We note that we will respond to comments
on this proposal in a future final rule.)
Codify in regulations that the Medicare fee schedule
amount for therapeutic shoes, inserts, and shoe modifications are
established in accordance with the methodology specified in sections
1833(o) and 1834(h) of the Act. (We note that we will respond to
comments on this proposal in a future final rule.)
B. Public Comments Received
We received approximately 2,129 timely pieces of correspondence in
response to the May 1, 2006 proposed rule. Except where indicated in
section II.B. of this final rule, this final rule discusses the
provisions of the May 1, 2006 proposed rule, summarizes the public
comments received on each subject area, sets out our responses to those
comments, and sets forth our final rules.
[[Page 17994]]
II. Issuance of Final Rules
A. Issuance of the FY 2007 IRF Final Rule Which Finalized Certain
Provisions Relating to Competitive Acquisition for DMEPOS and the
Accreditation of DMEPOS Suppliers
To ensure timely implementation of the Medicare DMEPOS Competitive
Bidding Program, we responded to comments submitted on certain
provisions of the May 1, 2006 proposed rule and finalized our proposals
concerning the designation of competitive bidding implementation
contractors (CBICs), competitive bidding education and outreach, and
the accreditation of DMEPOS suppliers in the DMEPOS provisions of the
FY 2007 IRF final rule (71 FR 48354). We also discussed in that final
rule certain issues relating to the establishment of quality standards
for DMEPOS suppliers that will be applied by independent accreditation
organizations.
B. Future Issuance of a Final Rule on Certain Other Provisions
Addressed in the May 1, 2006 Proposed Rule
We will respond to comments submitted on certain provisions of the
May 1, 2006 proposed rule and finalize our proposals concerning the
following provisions in a separate final rule that will be published at
a later date in the Federal Register: (1) Establishment of a new fee
schedule for home dialysis supplies and equipment that continue to be
paid on a reasonable charge basis; (2) establishment of a revised
methodology for calculating fee schedule amounts for new DMEPOS items;
(3) codification in our regulations that the scope of the eyeglass
coverage exclusion under Medicare Part B encompasses all devices that
use lenses to aid vision or provide magnification of images for
impaired vision; and (4) codification in our regulations that the
Medicare fee schedule amounts for therapeutic shoes, inserts, and shoe
modifications are established in accordance with the methodology
specified in sections 1833(o) and 1834(h) of the Act.
III. Payment for DMEPOS Under Medicare Part B: Background
A. Payment for DMEPOS on the Basis of Reasonable Charges
Payment for most DMEPOS items, including supplies and equipment,
furnished under Medicare Part B is made through contractors known as
Durable Medical Equipment Medicare Administrative Contractors (DME
MACs) (previously Durable Medical Equipment Regional Carriers (DMERCs),
also known as Medicare carriers). Before January 1, 1989, payment for
most of these items was made on a reasonable charge basis by Medicare
carriers. Section 1842(b) of the Act sets forth the methodology for
determining reasonable charges. Implementing regulations for section
1842(b) of the Act are located at 42 CFR Part 405, Subpart E.
Reasonable charge determinations are generally based on customary
and prevailing charges derived from historic charge data, with the
``reasonable charge'' for an item being the lowest of the following
factors:
The supplier's actual charge for the item.
The supplier's customary charge for the item.
The prevailing charge in the locality for the item. The
prevailing charge may not exceed the 75th percentile of the customary
charges of suppliers in the locality.
The inflation indexed charge (IIC). The IIC is defined in
Sec. 405.509(a) of the Medicare regulations as the lowest of the fee
screens used to determine reasonable charges for services, including
supplies, and equipment paid on a reasonable charge basis (excluding
physicians' services), that is in effect on December 31 of the previous
fee screen year, updated by the inflation adjustment factor. The
inflation adjustment factor is based on the current change in the
Consumer Price Index for All Urban Consumers (CPI-U), as compiled by
the Bureau of Labor Statistics, for the 12-month period ending June 30
each year.
B. Payment for DMEPOS Under Fee Schedules
Section 1834 of the Act, as added by section 4062 of the Omnibus
Budget Reconciliation Act of 1987 (OBRA `87), Public Law 100-203,
provides for implementation of a fee schedule payment methodology for
most durable medical equipment (DME), prosthetic devices, and orthotic
devices furnished after January 1, 1989. Specifically, sections
1834(a)(1)(A) and (B) and 1834(h)(1)(A) of the Act provide that
Medicare payment for these items is equal to 80 percent of the lesser
of the actual charge for the item or the fee schedule amount for the
item. We implemented this payment methodology at 42 CFR Part 414,
Subpart D of our regulations. Sections 1834(a)(2) through (a)(5) and
section 1834(a)(7) of the Act, and implementing regulations at Sec.
414.200 through Sec. 414.232 (with the exception of Sec. 414.228),
set forth separate payment categories of DME and describe how the fee
schedule for each of the following categories is established:
Inexpensive or other routinely purchased items (section
1834(a)(2) of the Act and Sec. 414.220 of the regulations);
Items requiring frequent and substantial servicing
(section 1834(a)(3) of the Act and Sec. 414.222 of the regulations);
Customized items (section 1834(a)(4) of the Act and Sec.
414.224 of the regulations);
Oxygen and oxygen equipment (section 1834(a)(5) of the Act
and Sec. 414.226 of the regulations);
Other items of DME (section 1834(a)(7) of the Act and
Sec. 414.229 of the regulations).
Each category has its own unique payment rules. With the exception
of customized items, a fee schedule amount is calculated for each item
or category of DME that is identified by a code in the Healthcare
Common Procedure Coding System (HCPCS). The HCPCS is discussed in
section III.C. of this final rule. The Medicare payment amount for a
customized item of DME is based on the Medicare carrier's individual
consideration of that item. The fee schedule amounts for oxygen and
oxygen equipment are monthly payment amounts. Payment under the DME
benefit is made for supplies necessary for the effective use of DME
(for example, lancets used with blood glucose monitors). These supplies
are paid for using the same methodology that we use to pay for the
purchase of inexpensive or routinely purchased items.
The fee schedule amounts for DME are generally adjusted annually by
the change in the CPI-U for the 12-month period ending June 30 of the
preceding year. The fee schedule amounts are also generally limited by
a ceiling (upper limit) and floor (lower limit) equal to 100 percent
and 85 percent, respectively, of the median of the Statewide fee
schedule amounts.
Since 1994, Medicare has paid for most surgical dressings in
accordance with section 1834(i) of the Act and Sec. 414.220(g) of the
regulations, using the same methodology as is used for payment of
purchased inexpensive or routinely purchased DME.
Under section 1834(h) of the Act and Sec. 414.228 of the
regulations, payment for prosthetic and orthotic devices is made on a
lump sum basis and is equal to the lower of the fee schedule amount
calculated for the item or the actual charge for the item, less any
unmet deductible amount. The fee schedule amounts are calculated using
a weighted average of Medicare payments made in the States in each of
10 CMS regions from July 1, 1986, through June 30,
[[Page 17995]]
1987, adjusted annually by the change in the CPI-U for the 12-month
period ending June 30 of the preceding year. The regional fee schedule
amounts are limited by a ceiling (upper limit) and floor (lower limit)
equal to 120 percent and 90 percent, respectively, of the average of
the regional fee schedule amounts for each State.
As authorized under section 1842(s) of the Act and 42 CFR Part 414,
Subpart C of our regulations, Medicare pays for parenteral and enteral
nutrition (PEN) nutrients, equipment, and supplies on the basis of 80
percent of the lesser of the actual charge for the item or the fee
schedule amount for the item (Sec. 414.102(a)). The fee schedule
amounts for PEN items are calculated on a nationwide basis and are the
lesser of the reasonable charges for CY 1995 or the reasonable charges
that would have been used in determining payment for these items in CY
2002 under the former reasonable charge payment methodology (Sec.
414.104(b)). The fee schedule amounts are generally adjusted annually
by the percentage increase in the CPI-U for the 12-month period ending
with June 30 of the preceding year (Sec. 414.102(c)). Under Sec.
414.104(a), payment for PEN nutrients and supplies is made on a
purchase basis, and payment for PEN equipment that is rented is made on
a monthly basis. (We note that we proposed to revise Sec. 414.1 in the
May 1, 2006 proposed rule to specify that fee schedules were
established for PEN items in accordance with our authority under
section 1842(s) of Act. We will address this proposal in a final rule
that will be published later in the Federal Register.)
Section 1833(o)(2) of the Act, as amended by section 627 of the
MMA, requires implementation of fee schedule amounts, effective January
1, 2005, for the purpose of determining payment for custom molded
shoes, extra-depth shoes, and inserts (collectively, ``therapeutic
shoes''). We stated in the May 1, 2006 proposed rule that we believe
this section of the MMA is largely self-implementing because it
mandates use of the methodology set forth in section 1834(h) of the Act
for prosthetic and orthotic devices in determining the fee schedule
amounts for therapeutic shoes. We implemented the methodology for
payment for prosthetic and orthotic devices in regulations at 42 CFR
Part 414, Subpart D, and section 627 of the MMA provides that the same
methodology shall apply to therapeutic shoes. We implemented section
627 of the MMA through program instructions, and on January 1, 2005,
Medicare began paying for therapeutic shoes based on fee schedule
amounts determined in accordance with section 1834(h) of the Act and
Part 414, Subpart D of our regulations.
Section 5101(a) of the Deficit Reduction Act of 2005 (DRA), Public
Law 109-171, amended section 1834(a)(7)(A) of the Act to change the way
Medicare pays for capped rental items. As a result, section
1834(a)(7)(A)(i)(I) of the Act now states that payment for a capped
rental item may not extend over a period of continuous use (as
determined by the Secretary) of longer than 13 months, and section
1834(a)(7)(A)(i)(II) of the Act sets forth how the 13 monthly rental
payment amounts are to be determined. In addition, section
1834(a)(7)(A)(ii) of the Act now provides that on the first day that
begins after the 13th continuous month during which payment is made for
a capped rental item, the supplier of the capped rental item must
transfer title to the item to the Medicare beneficiary. Once the title
has transferred, or once a purchase agreement for a power wheelchair
has been entered into in accordance with section 1834(a)(7)(A)(iii) of
the Act as amended, section 1834(a)(7)(A)(iv) of the Act provides that
reasonable and necessary maintenance and servicing payments (for parts
and labor not covered by the supplier's or the manufacturer's warranty,
as determined by the Secretary to be appropriate for the particular
item) will be made. These statutory changes apply only to capped rental
items whose first rental month occurs on or after January 1, 2006. We
implemented section 5101(a) of the DRA in a final rule, CMS-1304-F:
Home Health Prospective Payment System Rate Update for Calendar Year
2007 and Deficit Reduction Act of 2005; Changes to Medicare Payment for
Oxygen Equipment and Capped Rental Durable Medical Equipment, that was
published in the Federal Register on November 9, 2006 (71 FR 65884).
Section 5101(b) of the DRA amended section 1834(a)(5) of the Act to
limit monthly rental payments for oxygen equipment to a 36-month period
of continuous use (as determined by the Secretary). On the first day
that begins after the 36th continuous month during which payment is
made for the oxygen equipment, new section 1834(a)(5)(F)(ii)(I) of the
Act provides that the supplier must transfer title to the equipment to
the Medicare beneficiary. Section 1834(a)(5)(F)(ii)(II)(aa) of the Act
provides that Medicare will continue to make monthly payments for
oxygen contents for beneficiary-owned oxygen equipment in the amounts
recognized under section 1834(a)(9) of the Act for the period of
medical need. However, under section 1834(a)(5)(F)(ii)(II)(bb) of the
Act, maintenance and servicing payments for beneficiary-owned oxygen
equipment (for parts and labor not covered by the supplier's or
manufacturer's warranty) will be made only if they are reasonable and
necessary. These statutory changes went into effect on January 1, 2006.
For beneficiaries receiving Medicare-covered oxygen equipment as of
December 31, 2005, the 36-month rental period began on January 1, 2006.
We implemented section 5101(b) of the DRA in a final rule, entitled
CMS-1304-F Home Health Prospective Payment System Rate Update for
Calendar Year 2007 and Deficit Reduction Act of 2005; Changes to
Medicare Payment for Oxygen Equipment and Capped Rental Durable Medical
Equipment, that was published in the Federal Register on November 9,
2006 (71 FR 65884).
C. Use of the Healthcare Common Procedure Coding System (HCPCS)
The Healthcare Common Procedure Coding System (HCPCS) is a
standardized coding system used to process claims submitted to
Medicare, Medicaid, and other health insurance programs by providers,
physicians, and other suppliers. The HCPCS code set is divided into the
following two principal subsystems, referred to as Level I and Level II
of the HCPCS:
Level I of the HCPCS codes is comprised of Current
Procedural Terminology (CPT) codes, which are copyrighted by the
American Medical Association. CPT codes are a uniform coding system
consisting of descriptive terms and identifying codes that are used
primarily to identify medical services and procedures furnished by
physicians and other health care professionals which are billed to
public or private health insurance programs. CPT codes are developed,
published, and maintained by the American Medical Association. CPT
codes do not include codes needed to separately report medical items
that are regularly billed by suppliers other than physicians.
Level II of the HCPCS codes is a standardized coding
system used primarily to identify products and supplies that are not
included in the CPT codes, such as DMEPOS when used outside a
physician's office.
HCPCS Level II codes classify like items by category for
the purpose of efficient claims processing. Assignment of a HCPCS code
is not a coverage determination, and does not imply that any payer will
cover the items in the code category. For some DMEPOS items,
[[Page 17996]]
such as wheelchairs and wheelchair cushions, minimum performance
standards must be met before an item can be classified under a HCPCS
code. In October 2003, the Secretary delegated authority under the
Health Insurance Portability and Accountability Act of 1996 (HIPAA) to
CMS to maintain and distribute the HCPCS Level II codes. In the May 1,
2006 proposed rule, we proposed that the HCPCS Level II codes would be
used to describe the DME, orthotic, and enteral nutrients, equipment,
and supplies furnished under the Medicare DMEPOS Competitive Bidding
Program, both for the purpose of requesting bids and for establishing
payment amounts.
IV. Medicare Competitive Bidding Demonstrations
Prior to enactment of the MMA, section 4319 of the Balanced Budget
Act of 1997 (BBA), Pub. L. 105-33, authorized implementation of up to
five demonstration projects of competitive bidding for Medicare Part B
items, except physician services. In accordance with section 4319 of
the BBA, we planned and implemented the DMEPOS Competitive Bidding
Demonstration to test the feasibility and program impacts of using
competitive bidding to set prices for DMEPOS. The demonstration was
implemented at two sites: Polk County, Florida, and in the San Antonio,
Texas, Metropolitan Statistical Area (MSA). The competitive bidding
demonstrations, authorized under the BBA, were implemented successfully
in both demonstration sites from 1999 to 2002, resulted in a
substantial savings to the program, and offered beneficiaries
sufficient access and quality products.
At the first site, Polk County, Florida, we conducted the first of
two rounds of bidding in 1999. Five categories of DMEPOS were put up
for bidding: oxygen equipment and supplies (required by statute);
hospital beds and accessories; enteral nutrition formulas and
equipment; urological supplies; and surgical dressings. A total of 16
contract suppliers began providing demonstration products in Polk
County on October 1, 1999, and continued for 2 years. The second and
final round of bidding in Polk County was conducted in 2001 for the
same product categories minus enteral nutrition. (Enteral nutrition was
dropped to retain only product categories that are overwhelmingly used
in private homes.) The second set of competitively bid payment amounts
took effect in October 2001. As in round one, 16 suppliers were
selected, of whom half had participated as winners previously. The new
fee schedules developed from the bids in each round replaced the
Statewide Medicare DMEPOS fees. The second round of the demonstration
in Polk County ended in September 2002.
Texas was the second site for the demonstration. In Bexar, Comal,
and Guadalupe counties in the San Antonio MSA, we conducted bidding in
2000 for five kinds of DMEPOS: oxygen equipment and supplies; hospital
beds and accessories; wheelchairs and accessories; general orthotics;
and nebulizer drugs. Fifty-one suppliers were selected and began
serving Medicare beneficiaries under the new fees in February 2001. The
San Antonio site ended operations in December 2002, the statutorily
required termination date in the BBA.
In each area of evaluation, the data indicated mostly favorable
results for the Medicare program. The demonstration led to lower
Medicare fees for almost every item in almost every product category in
each round of bidding. Fee reductions varied by product category and
item, resulting in a nearly 20 percent overall savings at each site.
Statistical and qualitative data indicate that beneficiary access and
quality of services were essentially unchanged.
The DMEPOS Competitive Bidding Demonstration offered valuable
information for understanding the impacts of competitive bidding for
Medicare services. This information is especially important now because
section 302(b) of the MMA mandates a larger role for competitive
bidding within the Medicare program by requiring the Secretary to
implement competitive bidding programs for the furnishing of certain
DME and associated supplies, enteral nutrition and associated supplies,
and off-the-shelf (OTS) orthotics. In addition, section 303(d) of the
MMA required the Secretary to implement a competitive bidding program
for certain Medicare Part B drugs not paid on a cost or prospective
payment system basis, and section 302(b) of the MMA requires that
competitive bidding demonstration projects be implemented for clinical
laboratory services and managed care.
V. Discussion of the Provisions of This Final Rule
In this final rule we are adding new sections to 42 CFR Part 414,
Subpart F that implement rules relating to the Medicare DMEPOS
Competitive Bidding Program. A discussion of the specific provisions of
the proposed rule, a summary of the public comments we received and our
responses to those comments are presented in sections VI. through XVII.
of this final rule. We present a regulatory impact analysis of the
provisions of this final rule in section XVIII. of this final rule. The
regulation text appears at the end of this final rule.
VI. Medicare DMEPOS Competitive Bidding Program
A. Legislative Authority and Program Advisory and Oversight Committee
1. Legislative Authority
Section 302(b)(1) of the MMA (Pub. L. 108-173) amended section 1847
of the Act to require the Secretary to establish and implement programs
under which competitive bidding areas (CBAs) are established throughout
the United States for contract award purposes for the furnishing of
certain competitively priced items for which payment is made under
Medicare Part B (the ``Medicare DMEPOS Competitive Bidding Program'').
Section 1847(a)(2) of the Act provides that the items and services to
which competitive bidding applies are certain durable medical equipment
(DME) and medical supplies, which are covered items (as defined in
section 1834(a)(13) of the Act) for which payment would otherwise be
made under section 1834(a) of the Act, including items used in infusion
and drugs, (other than inhalation drugs) and supplies used in
conjunction with DME, but excluding class III devices under the Federal
Food, Drug and Cosmetic Act; enteral nutrients, equipment and supplies
(as described in section 1842(s)(2)(D) of the Act); and OTS orthotics
(as described in section 1861(s)(9) of the Act) for which payment would
otherwise be made under section 1834(h) of the Act and which require
minimal self-adjustment. In addition, sections 1847(a) and (b) of the
Act specify certain requirements and conditions for implementation of
the Medicare DMEPOS Competitive Bidding Program.
Competitive bidding provides a way to harness marketplace dynamics
to create incentives for suppliers to provide quality items in an
efficient manner and at a reasonable cost to the program. In our view,
the Medicare DMEPOS Competitive Bidding Program has five main
objectives:
To implement competitive bidding programs for certain
DMEPOS items.
To assure beneficiary access to quality DMEPOS as a result
of the program.
To reduce the amount Medicare pays for DMEPOS and create a
payment structure under competitive bidding that is more reflective of
a competitive market.
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To limit the financial burden on beneficiaries by reducing
their out-of-pocket expenses for DMEPOS they obtain through the
program.
To contract with suppliers that conduct business in a
manner that is beneficial for the program and for Medicare
beneficiaries.
As discussed in section IV. of this final rule, the Medicare DMEPOS
competitive bidding demonstration projects that were conducted prior to
the enactment of the MMA offered valuable information for understanding
the impacts of competitive bidding for Medicare services. This
information, in part, led to the adoption of section 302(b) of the MMA,
which requires that the Secretary implement competitive bidding
programs for the furnishing of certain DMEPOS under the Medicare
program.
2. Program Advisory and Oversight Committee
Section 1847(c) of the Act, as amended by section 302(b)(1) of the
MMA, required the Secretary to establish a Program Advisory and
Oversight Committee (PAOC) to provide advice to the Secretary with
respect to the following functions:
The implementation of the Medicare DMEPOS Competitive
Bidding Program.
The establishment of financial standards for entities
seeking contracts under the Medicare DMEPOS Competitive Bidding
Program, taking into account the needs of small providers.
The establishment of requirements for collection of data
for the efficient management of the Medicare DMEPOS Competitive Bidding
Program.
The development of proposals for efficient interaction
among manufacturers, providers of services, suppliers (as defined in
section 1861(d) of the Act), and individuals.
The establishment of quality standards for DMEPOS
suppliers under section 1834(a)(20) of the Act.
In addition, section 1847(c)(3)(B) of the Act authorizes the PAOC
to perform such additional functions to assist the Secretary in
carrying out the Medicare DMEPOS Competitive Bidding Program as the
Secretary may specify.
As authorized under section 1847(c)(2) of the Act, the PAOC members
were appointed by the Secretary and represent a broad mix of relevant
industry, consumer, and government parties. Specifically, the
membership roster includes two beneficiary/consumer representatives,
four manufacturer representatives, five supplier representatives, three
certification/standards representatives, six Federal and State program
representatives, one physician, and one pharmacist. The representatives
have expertise in a variety of subject matter areas, including DMEPOS,
competitive bidding methodologies and processes, and rural and urban
marketplace dynamics.
We held the first PAOC meeting, which was announced in a Federal
Register notice (69 FR 31125), at the CMS Headquarters on October 6,
2004. We held the second meeting on December 6 and 7, 2004. We have
held two additional PAOC meetings in 2005 and 2006 during which we,
along with our contractor, RTI International, presented material to
both the PAOC and the public relating to the provisions that are
outlined in the proposed rule and in this final rule. The topics that
we presented included--
Medicare's timeline for implementation of the Medicare
DMEPOS Competitive Bidding Program;
Results of the Medicare competitive bidding demonstration
projects authorized by section 4319 of the BBA;
Structure of the Medicare DMEPOS Competitive Bidding
Program;
Existing non-Medicare competitive bidding programs for
DMEPOS;
Program design options for the Medicare DMEPOS Competitive
Bidding Program;
Criteria for selecting Metropolitan Statistical Areas
(MSAs) in which competition under the Medicare DMEPOS Competitive
Bidding Program will occur in both CYs 2007 and 2009;
Criteria for selecting items for competitive bidding;
Bidding process overview;
Methodology for setting single payment amounts for
competitively bid items;
Capacity of DMEPOS suppliers and beneficiary utilization
of DMEPOS;
Financial capabilities of bidding suppliers;
Exception authority under section 1847(a)(3) of the Act
for rural areas and areas with low population density within urban
areas that are not competitive; and
Quality standards and accreditation procedures applicable
to DMEPOS suppliers.
In addition to the PAOC meetings, we have designed and implemented
a CMS Web site at https://cms.hhs.gov/CompetitiveAcqforDMEPOS/PAOCMI/
list.asp specifically for the public to have access to all PAOC
presentations, minutes, and updates for the Medicare DMEPOS Competitive
Bidding Program. In accordance with section 1847(c)(5) of the Act, the
PAOC will continue to operate until December 31, 2009. Future PAOC
meeting dates, as well as other information pertinent to the Medicare
DMEPOS Competitive Bidding Program, can be found on the CMS Web site.
B. Purpose and Definitions (Sec. Sec. 414.400 and 414.402)
In the May 1, 2006 proposed rule, we proposed in Sec. 414.400 to
state that the purpose of 42 CFR Part 414, Subpart F would be to
implement the Medicare DMEPOS Competitive Bidding Program for certain
DMEPOS items as required by sections 1847(a) and (b) of the Act.
As set forth in proposed Sec. 414.402, we proposed to define
certain frequently occurring terms that would be used in competitive
bidding. Specifically, we proposed to define the following terms:
Bid means an offer to furnish an item for a particular price and
time period that includes, where appropriate, any services that are
directly related to the furnishing of the item.
Competitive bidding area (CBA) means an area established by the
Secretary under this subpart [42 CFR Part 414, Subpart F]. (We note
that the definition language included in the preamble of the proposed
rule was inconsistent with the definition language in the proposed
regulation text, which was correct.)
Composite bid means the sum of a bidding supplier's weighted bids
for all items within a product category for purposes of allowing a
comparison across bidding suppliers.
Competitive bidding program means a program established under this
subpart [42 CFR Part 414, Subpart F]. (We note that the definition
language included in the preamble of the proposed rule was inconsistent
with the definition language in the proposed regulation text, which was
correct.)
Contract supplier means an entity that is awarded a contract by CMS
to furnish items under a competitive bidding program.
DMEPOS stands for durable medical equipment, prosthetics, orthotics
and supplies.
Grandfathered item means any one of the following items for which
payment is made on a rental basis prior to the implementation of a
competitive bidding program under this subpart [42 CFR Part 414,
Subpart F]:
(1) An inexpensive or routinely purchased item described in Sec.
414.220.
(2) An item requiring frequent and substantial servicing as
described in Sec. 414.222.
(3) Oxygen and oxygen equipment described in Sec. 414.226.
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(4) A capped rental item described in Sec. 414.229.
Grandfathered supplier means a noncontract supplier that furnishes
a grandfathered item.
Item means one of the following products identified by a HCPCS
code, other than class III devices under the Federal Food, Drug and
Cosmetic Act and inhalation drugs, and includes the services directly
related to the furnishing of that product to the beneficiary:
(1) Durable medical equipment (DME), as defined in Sec. 414.202
and further classified into the following categories:
(i) Inexpensive or routinely purchased items, as specified in Sec.
414.220(a);
(ii) Items requiring frequent and substantial servicing, as
specified in Sec. 414.222(a);
(iii) Oxygen and oxygen equipment, as specified in Sec.
414.226(b).
(iv) Other DME (capped rental items), as specified in Sec.
414.229.
(2) Supplies necessary for the effective use of DME.
(3) Enteral nutrients, equipment, and supplies.
(4) Off-the-shelf orthotics, which are orthotics described in
section 1861(s)(9) of the Act that require minimal self-adjustment for
appropriate use and do not require expertise in trimming, bending,
molding, assembling, or customizing to fit a beneficiary.
Item weight is a number assigned to an item based on its
beneficiary utilization rate in a competitive bidding area when
compared to other items in the same product category.
Metropolitan Statistical Area (MSA) has the same meaning as that
given by the Office of Management and Budget.
Nationwide competitive bidding area means a competitive bidding
area that includes the United States and its territories.
Noncontract supplier means a supplier that is located in a
competitive bidding area or that furnishes items through the mail to
beneficiaries in a competitive bidding area but that is not awarded a
contract by CMS to furnish items included in a competitive bidding
program for that area.
Physician has the same meaning as in section 1861(r)(1) of the Act.
Pivotal bid means the highest composite bid based on bids submitted
by a suppliers for a product category that will include a sufficient
number of suppliers to meet beneficiary demand for the items in that
product category.
Product category means a grouping of related items that are
included in a competitive bidding program.
Single payment amount means the allowed payment for an item
furnished under a competitive bidding program.
Supplier means an entity with a valid Medicare supplier number,
including an entity that furnishes an item through the mail.
Treating practitioner means a physician assistant, nurse
practitioner, or clinical nurse specialist, as those terms are defined
in section 1861(aa)(5) of the Act.
Weighted bid means the item weight multiplied by the bid price
submitted for that item.
Comment: Several commenters supported the definitions of ``bid''
and ``item'' because these definitions acknowledge that services are
involved in the delivery of products to Medicare beneficiaries. One
commenter suggested that Medicare competitively bid class III devices,
which appear to be excluded under the proposed definition of ``item.''
Response: We appreciate the commenters' support. Section
1847(a)(2)(A) of the Act specifically excludes class III devices under
the Federal Food, Drug, and Cosmetic Act from the Medicare DMEPOS
Competitive Bidding Program. Therefore, we do not have the authority to
conduct competitive bidding for these items. We are clarifying in the
definition of ``item'' that the DME excludes class III devices under
the Federal Food, Drug and Cosmetic Act as defined in Sec. 414.402 and
that inhalation drugs are not included in the term ``supplies necessary
for the effective use of DME.'' We are also revising the regulatory
cross-reference for ``oxygen and oxygen equipment.''
We agree with the commenters that the definition of an item should
acknowledge what is included in an item for which bids are being
submitted. Therefore, in this final rule, we are revising the
definition of ``item'' to indicate that although we will always
identify the product by its HCPCS code, we may combine several codes to
form one competitively bid item or specify a particular method by which
the item is furnished. For example, if we were to include diabetic test
strips in a mail-order competitive bidding program, we would identify
the item by its HCPCS code and indicate that the product is to be
furnished only by mail. We are making this change because we need to be
able to modify HCPCS codes or combine HCPCS codes to identify the items
for which we will be conducting competitive bidding because HCPCS
codes, by themselves, do not always fully define the items for which we
wish to solicit competitive bids. We further discuss this revision in
section VI.B. of this final rule. Therefore, in this final rule, we
have revised the definition of ``item'' to specify that an item for
purposes of competitive bidding may be comprised of two or more
products identified by different HCPCS codes and/or modifiers and that
these codes may be defined based on how a product is furnished (for
example, by mail).
Comment: One commenter stated that the definitions for the
``composite bid'' and the ``single payment amount'' for the individual
items should include all the costs associated with training the
beneficiary and properly putting equipment in place to ensure the safe
administration of a piece of DMEPOS in a beneficiary's home.
Response: We are not changing the definitions of ``composite bid''
and ``single payment amount'' because these definitions are based upon
the bids, which, by definition, include any services that are directly
related to the furnishing of the item to the beneficiary. In addition,
to the extent that the service component is included in the definitions
of ``bid'' and ``item,'' the ``composite bid'' and the ``single payment
amount'' calculated for each item would reflect the costs of services
associated with furnishing that item to a beneficiary.
Comment: Several commenters suggested that the proposed definition
of ``noncontract supplier'' does not address suppliers that are
physically located outside of a CBA, yet provide services to
beneficiaries whose permanent address is inside a CBA. One commenter
suggested that the definition read: ``A supplier that furnishes items
to beneficiaries in a competitive bidding area, but that is not awarded
a contract by Medicare to furnish items included in the competitive
bidding program for that area.''
Response: Our proposed definition of the term ``noncontract
supplier'' only included suppliers located in a CBA or that mailed
items to beneficiaries in a CBA. However, we recognize the commenter's
concerns that this definition would not capture suppliers that are
located outside the CBA but that furnish items to beneficiaries who
maintain a permanent residence in a CBA. Therefore, we are revising the
definition of the term ``noncontract supplier'' in this final rule to
mean: ``a supplier that is not awarded a contract by CMS to furnish
items included in a competitive bidding program.''
Comment: Many commenters suggested that the definition of
``physician'' be expanded to allow podiatrists, optometrists and
dentists to prescribe a particular brand or mode of
[[Page 17999]]
delivery of DMEPOS, along with physician assistants, nurse
practitioners, and clinical nurse specialists. The commenters asserted
that this expansion would allow a variety of qualified practitioners,
in addition to physicians, to prescribe particular brands or modes of
delivery where appropriate. The commenters requested that the
definition of physician be changed from that specified in section
1861(r)(1) of the Act to that specified in section 1861(r) of the Act.
Response: We agree with the commenters and are revising the
definition of ``physician'' applicable in this final rule to have the
same meaning as in section 1861(r) of the Act. We believe that this
revision is consistent with the intent of the 1847(a)(5)(A) as it
reflects which professionals would be ordering Medicare-covered items
under the Medicare DMEPOS Competitive Bidding Program. In addition, we
are finalizing the definition that we had proposed that a treating
practitioner means a physician assistant, nurse practitioner, or
clinical nurse specialist, as defined in section 1861(aa)(5) of the
Act. In ordering DMEPOS under the Medicare program, these treating
practitioners can specify a particular brand or mode of delivery for an
item, which would be paid at the single payment amount.
After consideration of the public comments received, we are
finalizing proposed Sec. 414.400 with only a technical change to the
heading of the section (changing the heading from ``Basis'' to
``Purpose and Basis''). In addition, we are revising the definitions of
``item,'' ``noncontract supplier,'' and ``physician'' in Sec. 414.402
as discussed above. We are also revising the definitions of several
other terms in Sec. 414.402, as well as adding new definitions. Below
we state the revised and new definitions and indicate where a full
discussion of each change can be found in this final rule:
Revising the regulatory reference to the oxygen payment
classes in the definition of ``item'' so that the definition now
references Sec. 414.226(c)(1) instead of Sec. 414.225(b). We discuss
this revision in section VI.G.6 of this final rule.
Revising the definition of ``item weight'' by removing the
phrase ``in a competitive bidding area'' and adding the phrase ``using
national data'' in referencing the beneficiary utilization rate. We
discuss this revision in section VI.D.2. (Evaluation of Bids) of this
final rule.
Adding a definition of ``mail order contract supplier'' to
mean a contract supplier that furnishes items through the mail to
beneficiaries who maintain a permanent residence in a competitive
bidding area.'' This new definition is discussed in section V.I.E.5. of
this final rule.
Adding a definition of ``minimal self-adjustment'' to mean
``an adjustment that the beneficiary, caretaker for the beneficiary, or
supplier of the device can perform and does not require the services of
a certified orthotist (that is, an individual certified by either the
American Board for Certification in Orthotics and Prosthetics, Inc., or
the Board for Orthotist/Prosthetist Certification) or an individual who
has specialized training. This new definition is discussed in section
VI.F. of this final rule.
Adding a definition of ``nationwide mail order contract
supplier'' to mean a mail order contract supplier that furnishes items
in a nationwide competitive bidding area, and a definition of
``regional mail order contract supplier'' to mean a mail order contract
supplier that furnishes items to any Medicare beneficiary residing
within a certain region(s) that are designated as CBAs and are located
within the United States, its Territories, or the District of Columbia,
as discussed in section VI.E.5. of this final rule.
Adding a definition of ``network'' to mean a group of
small suppliers that form a legal entity that submits a bid to furnish
competitively bid items in a CBA, and that meets additional
requirements. This change is discussed in section XII. of this final
rule.
Revising the definition of ``pivotal bid'' to mean 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.'' We
consider this revision to be a clarification that the pivotal bid is
the lowest composite bid in terms of the bid amounts submitted by the
suppliers rather than the highest composite bid that includes
sufficient number of suppliers to meet demand, as discussed in section
VII.D.3. of this final rule.
Revising the definition of ``product category'' to mean
``a grouping of related items that are used to treat a similar medical
condition'', as discussed in section VI.G.5. of this final rule.
Adding a definition of ``regional competitive bidding area
``to mean'' a CBA that consists of a region of the United States, its
Territories, and/or the District of Columbia''as discussed in section
VI.E.5. of this final rule.
Adding a definition of ``small supplier'' to mean the ``a
supplier that generates gross revenue of $3.5 million or less in annual
receipts including Medicare and non-Medicare revenue,'' as discussed in
section XII. of this final rule.
We are also making the following technical changes to proposed
Sec. 414.402:
Revising the definition of ``competitive bidding program''
to clarify that such a program established under 42 CFR Part 414,
Subpart F occurs ``within a designated CBA.''
Clarifying the introductory language of the definition of
``grandfathered item'' to read: ``any one of the following items for
which payment is made on a rental basis prior to the implementation of
a competitive bidding program and for which payment is made after
implementation of a competitive bidding program to a grandfathered
supplier that continues to furnish items in accordance with Sec.
414.408(j).''
Revising the definition of ``grandfathered supplier'' to
mean a noncontract supplier ``that chooses to continue to furnish
grandfathered items to a beneficiary in a CBA.''
Revising the definition of a ``nationwide competitive
bidding area'' to mean a CBA that includes the United States, its
Territories, and the District of Columbia.''
We are finalizing all of the other definitions in proposed Sec.
414.402 without modification.
C. Competitive Bidding Implementation Contractors (CBICs) (Sec. Sec.
414.406(a) and (e))
Section 1847(b)(9) of the Act provides that the Secretary may
contract with appropriate entities to implement the Medicare DMEPOS
Competitive Bidding Program. Section 1847(a)(1)(C) of the Act also
authorizes the Secretary to waive such provisions of the Federal
Acquisition Regulation (FAR) as are necessary for the efficient
implementation of this section, other than provisions relating to
confidentiality of information and such other provisions as the
Secretary determines appropriate.
In the May 1, 2006 proposed rule (71 FR 25661), we proposed to
designate one or more competitive bidding implementation contractors
(CBICs) for the purpose of implementing the Medicare DMEPOS Competitive
Bidding Program (proposed Sec. 414.406(a)). We also stated that we
envisioned the program would have six primary functions, including
overall oversight and decision making, operation design functions
(including the design of both bidding and outreach material templates,
as well as program processes), bidding and evaluation,
[[Page 18000]]
access and quality monitoring, outreach and education, and claims
processing.
As we stated earlier, under the DMEPOS provisions of the FY 2007
IRF final rule (71 FR 48354), we addressed the public comments we
received on the proposed provisions relating to implementation
contractors under the Medicare DMEPOS Competitive Bidding Program and
finalized regulations at Sec. 414.406(a), which allows us to designate
one or more CBICs for the purpose of implementing the program, and at
Sec. 414.406(e), which codifies our proposal to have the regional
carrier (now referred to as a Durable Medical Equipment Medicare
Administrative Contractor, or DME MAC) that would otherwise be
processing claims for a particular geographic region also process
claims for items furnished under a competitive bidding program in the
same geographic region. In the same final rule, we also finalized our
policy regarding the elements of performance that will be included in a
contract we enter into with a CBIC.
D. Payment under the Medicare DMEPOS Competitive Bidding Program
1. Payment Basis (Sec. Sec. 414.408(a), (c), and (d))
Section 1847(b)(5) of the Act mandates that a single payment amount
be established for each item in each CBA based on the bids submitted
and accepted for that item. Medicare payment for the item is then made
on an assignment-related basis equal to 80 percent of the applicable
single payment amount, less any unmet Part B deductible described in
section 1833(b) of the Act. Section 1847(a)(6) of the Act requires that
this payment basis be substituted for the payment basis otherwise
applied under section 1834(a) of the Act for DME, section 1834(h) of
the Act for OTS orthotics, or section 1842(s) of the Act for enteral
nutrients, equipment, and supplies, as appropriate.
As discussed in detail in section II.C. of the May 1, 2006 proposed
rule (71 FR 25662), we proposed that payment to the contract supplier
would be based on the single payment amount for the item in the CBA
where the beneficiary maintains a permanent residence (proposed Sec.
414.408(a)(1)). If an item that is included in a competitive bidding
program is furnished to a beneficiary who does not maintain a permanent
residence in a CBA, the payment basis for the item would be 80 percent
of the lesser of the actual charge for the item, or the applicable fee
schedule amount for the item (proposed Sec. 414.408(a)(2)). We also
proposed that implementation of a competitive bidding program would not
preclude the use of an advanced beneficiary notice (ABN) to allow
beneficiaries to make informed consumer choices regarding whether to
obtain items for which Medicare might not make payment (proposed Sec.
414.408(d)). Finally, as required under section 1847(b)(5)(C) of the
Act, we proposed in Sec. 414.408(c) that payment for an item furnished
under a competitive bidding program would be made on an assignment-
related basis.
Comment: Several commenters stated that basing payment amounts on
the CBA where the beneficiary maintains a permanent residence, and not
on the location where the item is furnished, may cause suppliers to be
paid less than the single payment amount in their area. They
recommended that CMS allow payment to be made at the payment amount for
the area where the item is furnished. The commenters pointed out that
it will also be difficult for contract suppliers to determine what the
single payment amount is for beneficiaries who reside outside their
CBA.
Response: Medicare currently pays for all DMEPOS items based on the
payment amount applicable for the primary residence of the beneficiary,
regardless of where the item is furnished. The Medicare payment system
is set up to base payment amounts on the beneficiary's primary
residence. We proposed to adopt this longstanding rule for the Medicare
DMEPOS Competitive Bidding Program because it is an effective way to
ensure that suppliers do not organize their businesses to obtain higher
payment amounts that apply to certain geographic areas of the country.
We do not believe it will be difficult for contract suppliers to
determine how much they will be paid for an item furnished to a
beneficiary who does not reside in the contract supplier's CBA because
we will make the single payment amounts for each item in each CBA,
along with the fee schedule amounts that will continue to be paid in
areas that are not CBAs, publicly available to all suppliers.
Comment: Several commenters suggested that CMS not conduct
competitive bidding, but simply lower the payment amounts for DMEPOS
until the only suppliers left to provide these items are the minimum
number necessary to furnish items needed by Medicare beneficiaries.
Response: Section 302(b) of the MMA mandated that the Secretary
establish and implement competitive bidding programs for certain items
of DMEPOS, and we have a legal obligation to comply with this
legislative mandate.
After consideration of the public comments we received, we are
finalizing, without substantive revisions, proposed Sec. 414.408(a)
that governs the payment basis under the Medicare DMEPOS Competitive
Bidding Program. We did not receive comments on proposed Sec. Sec.
414.408(c) and
