Critical Flaws in Competitive Bidding Round 1.2

John Reed, EVP and COO, PRO2 Respiratory Services

The mandate to create the Competitive Bidding Program for DMEPOS was based on a false premise.

That premise is that Medicare overpays for durable medical equipment, and there are a number of public records that show CMS officials, White House staffers and others with access to factual information, grossly overstated the real Medicare expenditures for durable medical equipment.


From data from the CMS Office of the Actuary for the top 20 providers providing certain types of medical equipment to Medicare beneficiaries, the following facts contradict (gently speaking) those statements:
– E0260 Hospital Bed. The average paid dollars per beneficiary per year was $357.69, not $1825, as quoted by CMS officials.
– E1390 Oxygen Concentrator. Average paid amounts per beneficiary was $1254.86, not $2380 per year or the more than $7000 over three years as quoted by CMS officials.
– E0601 CPAP. Average paid per beneficiary was $305.53, not $1452.

It should be noted that providers have NEVER set fee schedule prices, and I cannot recall the last time our industry received a CPI fee schedule increase to offset the inflationary rise in operating costs.

THis “FALSE PREMISE” of overbilling, is contradictory to the fact that the durable medical equipment industry has been the least costly, slowest growing segment of Medicare spending than any other area.


CMS did not meet Congress’s intent to insure Beneficiary Access and Provider capacity to serve patients. In addition to the more than 3000 Medicare suppliers excluded from Round 1, a consistent pattern of awarding bids to unlicensed, inexperienced, untrained and out of area providers existed.

CMS also did not consider the financial strength of any winning bidder to be able to adjust to the significant reduction in fees.

A simple review of 3 years of financial statements and tax returns would demonstrate that no company had the ability to absorb a 30% reduction in revenue.

No business planning was required from winning providers to describe what methods would be used to offset the fee reductions.

What methods of assessing financial quality measures were used in awarding bids to companies who consistently lost millions of dollars per year?

Oddly, CMS in the Interim Final Rule released in January, 2009, reduced the number of years of financial reports from 3 to 1? Why?

CMS does not consider the total cost of providing care under Medicare rules and regulations, nor do they recognize that less than 30% of the total cost of providing care and equipment is in “product costs”.

The Medicare Quality Standards that were finalized more than a year after the initial bid deadline was established, defines 19 pages of distinct supplier standards that add real expense to the provider.

Labor and benefit costs continue to rise year after year.

Taxes on small business under this Administrations plans will rise.

Cost of credit continues to increase as available capital financing options diminish.

Medicare mandated surety bonds add cost to the provider

The fundamental truth is that the majority of expense related to mandated service and supply standards account for the majority of a provider’s costs and that almost every line item expense increases over time.


CMS officials consistently link the home medical equipment industry with rampant fraud, when in fact that’s not true.

It should be noted that CMS has always had the ability to mandate accreditation (which the DMEPOS industry supports) as a pre-requisite for obtaining a provider number, and in fact delayed mandatory accreditation when the Round 1 bid was delayed.

The DME industry has proposed a comprehensive 13 point plan to curb fraud

CMS is accountable for doing a competent job of monitoring patterns of fraudulent claims, performing site visits, screening provider applications and performing background checks for new provider applications.

As an example, the HHS and DOJ 2005 Annual Report shows a much different picture of DME’s role in fraud.
-$1.0 billion of the total $1.47 billion identified was grouped between a pharmaceutical firm, three hospitals and a dialysis company.
– Additional sources of fraud recoveries included:
1. A cardiac stent manufacturer
2. Pharmaceutical mail order firms
3. Community health centers
4. Medicaid dental, outpatient clinic and pharmacy services
5. Chiropractic services
6. Podiatry
7. Ambulance services
8. A Research University
9. Health Insurance providers
10. Nutrition service providers
11. Physicians
13. A teaching hospital/physician settlement.

In closing, the level of reimbursement cuts will destroy this important, useful and efficient component of the healthcare system. The competitive bid program was poorly designed. The process was critically flawed. The math doesn’t work. And all of these will collectively harm Medicare beneficiaries.

One Response to “Critical Flaws in Competitive Bidding Round 1.2”

  1. Rick said:

    Jul 09, 09 at 7:37 pm

    Great page. For some reason DC is not doing the math. It still feels like Rep.Bill Thomas who was head of Ways and Means is still pulling the strings. I think it is easy to pick on the smallest section of healthcare because we cant line their pockets with campaign cash so we cant hurt them.