WASHINGTON — More than a year after Congress delayed Round 1 of competitive bidding in July 2008, the Government Accountability Office has officially confirmed what industry stakeholders have been saying all along: The first round of DMEPOS bidding had major problems.
In a report released Dec. 7, the GAO found Round 1 suffered from poor communication by the Medicare program and an "inadequate" bid submission system, among other things.
According to the 65-page report, the bidding program "has the potential to produce considerable benefits including reducing overall Medicare spending for DME and limiting potential fraud through increased scrutiny of suppliers." But the report found the first-round bid "presented several challenges to suppliers, including poor timing and lack of clarity in bid submission information, a failure to inform all suppliers that losing bids could be reviewed and an inadequate electronic bid submission system."
It also noted the bid "represents a change from Medicare's long-standing policy that any qualified provider can participate in Medicare because it authorizes CMS to select suppliers to participate in Medicare." Of the 6,374 Round 1 bids submitted by 1,010 providers, the report said, half were disqualified before competing on price, mostly due to missing financial documentation or noncompliance with accreditation requirements.
In addition, the GAO said, nearly two-thirds of the 85 auctions — across 10 product categories in 10 cities — saw the number of HME providers decrease by 50 percent or more compared to the number billing Medicare for the product category in 2006.
Some highlights from the report's findings:
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The information CMS provided to suppliers about bidding requirements was sometimes unclear and inconsistent, particularly regarding financial documentation, the report said. "Some bid submission information was poorly timed and unclear, confusing suppliers about bidding requirements and compelling some to revise and resubmit their bids."
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"Several problems with the electronic bid submission system, including data losses from automated logouts and unscheduled downtimes, made it difficult for some providers to submit bids."
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"While the [competitive bidding program] request-for-bid instructions, posted the day that the bid window opened, were only revised once, CMS and Palmetto GBA provided additional information explaining the instructions throughout the bid window. Although suppliers could revise their submissions throughout the bid window, when additional information was provided those that believed they had submitted completed bids had to review them to ensure they were still correct. For example, if a supplier revised any of its financial documentation, it had to resubmit the entire financial documentation package and certification statement in hard copy."
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"CMS did not effectively notify suppliers of its postbidding review process. Because some suppliers were not aware of the review process, they missed the opportunity to have their disqualified bids reviewed. CMS found that some bids had been incorrectly disqualified."
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Some DME suppliers and trade associations questioned several aspects of CMS' bid submission and contract award processes, the report said. "They also questioned whether some winning suppliers could provide the volume of items and services their contracts required and whether contracts should have been awarded to suppliers that had no prior business presence in a CBA."
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"While the [Program Advisory and Oversight Committee] alerted CMS to potential challenges for Round 1, some were not resolved before the bid window opened."
The GAO said CMS has taken several steps to improve the bidding process for the Round 1 rebid, which began Oct. 21, including reducing financial documentation requirements and revising bid instructions. The agency put in place provisions to notify bidders of missing financial documentation; those in the rebid who got their paperwork in by Nov. 21 were offered notification of any missing documents. It developed a new online bidding system (DBidS), "which the agency claims will address the deficiencies of the system used for Round 1," the report said.
The report also noted that to address concerns that "providers have the experience to provide the DME items they win contracts for, before they can submit bids, suppliers will also have to be accredited and licensed for each DME product category and CBA in which they bid."
Industry Asks, What About the Real Problems?
The GAO recommended that if CMS decides to conduct reviews of disqualified bids, the agency "should notify all suppliers of any such process, give suppliers equal opportunity for such reviews, and clearly indicate how they can request a review." HHS agreed with that recommendation, but it had "a different perspective" on some aspects of the report, the GAO said.
According to the GAO, CMS argued that it "relied heavily on the PAOC for the design and implementation" of the bidding program. But when the GAO was putting its report together, "two original PAOC members and three trade association representatives told us that CMS did not always use the PAOC effectively," the report said. "Our review of PAOC meeting transcripts also found members who were dissatisfied with how the PAOC was used."
As for the overall structure and design of the bidding program, the GAO said, "such an analysis was beyond the scope of this report."
And that's the rub, HME advocates said: While the report results back up the complaints of many providers who bid in Round 1, they don't go far enough.
"They only looked at some of the implementation issues; the structural design problems remain," said Michael Reinemer, vice president, communications and policy, of the American Association for Homecare. "It's important for policymakers to understand that just because the GAO put out this study saying CMS is working to address the problems, it doesn't mean by any stretch that the real problems have been fixed."
Added John Shirvinsky, executive director of the Pennsylvania Association of Medical Suppliers, "The GAO report largely validates the complaints of the HME industry throughout the original bidding process. The Medicare bidding program was an unfair, unworkable and anti-competitive program when first attempted, and it remains so today. CMS was unwilling to share meaningful data to fully assess the likely impact of the program on suppliers and beneficiaries.
"The entire bid review phase of the program has been shrouded in secrecy and in all aspects failed to meet customary standards of government transparency," he continued. "They won't even release a list of qualified bidders until after the process is completed in the fall of 2010," he said of the Round 1 rebid.
Provider Rob Brant of City Medical Services, Miami, and president of the Accredited Medical Equipment Providers of America, agreed.
"The bottom line is they still have never looked inside to see if a company can survive with the low bids they put in," he said, citing large nationals that have reported millions in business losses yet won Round 1 bids in multiple bidding areas and categories. Brant said he's worried that won't change in the rebid.
"I believe they are just going to look at the low number and not a company's ability to stay in business and provide products and services to patients," he said. "That's not addressed in the report."
The issue of unlicensed and out-of-area bid winners also didn't get much attention, said Brant. Neither did the role of the PAOC, which "almost unanimously agreed that out-of-area and inexperienced companies should not be allowed to let their bids taint the pool of qualified offers in each area," he said. "The report also fails to mention that the majority of the PAOC also wanted to stop bid winners from selling their business and transferring bid contracts, because it essentially turned the program into a commodity."
The GAO did repeat CMS' estimate that the Round 1 program would have averaged a 26 percent savings when compared to payments under the Medicare fee schedule.
However, Shirvinsky said, "We contend that the 'savings' that are touted by both CMS and the GAO report are the product of desperation bidding and are unsustainable. Someone in authority should be asking the simple question, 'Are these savings too good to be true?' We believe that they clearly are. In the end, it is elderly and disabled and infirm Medicare beneficiaries that will face disruptions in service and reduced quality."
In a Tuesday afternoon press release, AAHomecare listed a number of holdover concerns about the bidding program, among them:
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Reduced access to quality home medical equipment and services since the bid program would vastly reduce the number of home care providers allowed to participate in Medicare;
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Widespread business failures and loss of jobs for home medical equipment providers who will be forced out of Medicare — even if they were willing to provide items and services for the lower prices set by the Medicare bid process;
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More difficulty getting basic services and equipment since many Medicare beneficiaries would be forced to use multiple, unfamiliar providers for different items and services, instead of continuing to use a single, familiar provider;
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Lack of transparency within the entire bidding program and a lack of willingness to heed the advice of the Medicare advisory PAOC; and
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Reductions in service and quality of items and services based on artificially low winning bid amounts. There is no requirement that providers accept a bid if they are awarded one, which leads to providers submitting artificially low bids.
The report was addressed to Senate Finance Committee Chairman Max Baucus, D-Mont.; House Energy and Commerce Committee Chairman Henry Waxman, D-Calif.; and House Ways and Means Committee Chairman Charles Rangel, D-N.Y. But will it help the industry's push on H.R. 3790 to repeal the bidding program?
"Inasmuch as the report is directed to the House Ways and Means Committee, it should raise some red flags about the program's lack of fairness, lack of transparency and inability to deliver vital and necessary equipment and services to Medicare beneficiaries with specific medical needs," said Shirvinsky, pointing out that committee member Rep. Fortney "Pete" Stark, D-Calif., "is well aware of the risks posed by competitive bidding, and hopefully this serves as a reminder."
Stark was the legislator who originally introduced a bill to delay the bidding program last year.
Read the complete GAO report, titled Medicare: CMS Working to Address Problems from Round 1 of the Durable Medical Equipment competitive Bidding Program.
View more competitive bidding stories.
