Policy Documents

Medicare Durable Medical Equipment: The Competitive Bidding Program

Paulette C. Morgan –
August 6, 2010

The Medicare Supplementary Medical Insurance Program (Part B) currently covers a wide variety of durable medical equipment, prosthetics, orthotics, and other medical supplies (DMEPOS) if they are medically necessary and are prescribed by a physician.

Durable medical equipment (DME) is equipment that (1) can withstand repeated use, (2) is used to serve a medical purpose, (3) generally is not useful in the absence of an illness or injury, and (4) is appropriate for use in the home. Examples include hospital beds, blood glucose monitors, and wheelchairs. Prosthetic and orthotic devices (PO) are items that replace all or part of an internal body organ, such as colostomy bags, as well as such items as leg braces and artificial legs, arms, and eyes. Medicare also covers some items or supplies (S), such as disposable surgical dressings that do not meet the definition of DME or PO.

Medicare generally pays for most DMEPOS on the basis of fee schedules. Unless otherwise specified by Congress, fee schedule amounts are updated each year by a measure of price inflation. However, investigations have shown that Medicare pays above-market prices for certain items of DME. Such overpayments may be due partly to the fee schedule mechanism of payment, which does not reflect market changes, such as new and less-expensive technologies, changes in production or supplier costs, or variations in prices in comparable locations.

Congress has enacted legislation to establish a Medicare competitive acquisition program (competitive bidding) under which prices for selected DMEPOS sold in specified areas would be determined not by a fee schedule, but by suppliers’ bids. The first round of the competitive bidding program began on July 1, 2008, but was halted, due to implementation concerns. DMEPOS suppliers submitted new bids for the first round “rebid” in late October of 2009. The bidding window closed in December of that same year. Under current estimations by the Centers for Medicare and Medicaid Services (CMS), the program will start in January of 2011 in nine metropolitan areas.

Competitive bidding has been shown to decrease prices for DMEPOS, which could lead to savings for the Medicare program and lower cost sharing for the beneficiaries who use the items and services. Evidence from the competitive bidding demonstration also suggests that competition did not deteriorate beneficiary access to DMEPOS, or the quality and product selection available to them.

However, opponents may note that the implementation has been problematic, with poor communication and an inadequate bid submission system. It remains to be seen whether new legislative requirements (MIPPA, P.L. 110-275) and administration efforts will result in the effective implementation of the program. Finally, the competitive bidding program will result in fewer suppliers participating with Medicare. In general, Members of Congress often closely scrutinize or fail to support programs that have the potential to adversely affect companies or beneficiaries in their districts.