CMS Sued For Not Specifying Financial Standards In DME Competitive Bid Program

[From Inside Washington Publishing]

Posted: May 10, 2010

A Texas trade association and a Dallas oxygen company have taken CMS to court over its durable medical equipment competitive bidding program, alleging the agency violated Medicare law by neither specifying nor allowing public comment on the financial standards companies must meet to participate.

The lawsuit complains that bidders for the program, including plaintiff Dallas Oxygen Corp., “had to formulate their bids while being in the dark about the financial standards that would be applied to their businesses and that would affect what bids they would be willing to submit.” HHS has been too broad in its description of what companies need to provide in order to be considered for the competitive bidding program, the plaintiffs say.

TheTexas Alliance for Home Care Services, a trade group for suppliers, joined Dallas Oxygen Corp. in filing the suit in federal district court.

“They didn’t tell the two key things: what pass or fail is for the financial standards; what’s the cutoff? And the algorithms; how they are going to put it together,” said Jim Tozzi, who is on the board of the Center for Regulatory Effectiveness (a think tank with links to industry) and served as deputy administrator for the White House Office of Information and Regulatory Affairs under President Ronald Reagan. CRE, while not a party to the lawsuit, has provided a venue to highlight industry gripes with CMS on the controversial program (see Inside CMS, April 9).

“This is certainly counter to everything they’ve said about their open government initiative,” Tozzi said. “Why would you have to go to court to implement an open government directive? This hardly seems the way to run a transparent government.”

A CMS spokesman said in an e-mail that, although the agency can’t comment on the lawsuit, “we are looking forward to bringing savings to beneficiaries and the Medicare program when the competitive bidding program begins next year.”

The lawsuit complains that the preamble of an April 10, 2007 final rule on the program doesn’t spell out the “appropriate financial ratios” the agency is considering and also doesn’t specify the financial standards CMS would use to determine “overall financial soundness.” The rule included responses from stakeholders, the lawsuit emphasizes, that urged CMS to define the financial standards the agency would apply to all suppliers, including small suppliers.

The final rule states that CMS was “clarifying” that requests for bids will “specify what financial documents will be required … 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.”

The lawsuit hinges on language from the Medicare Modernization Act that says the HHS secretary must “specify” which financial standards are to be considered for the competitive bidding program. CMS has said in the prior rulemaking that this information will be contained in the “request for bid” application. However, that would mean the standards would not be subject to public comment and rulemaking.

After MIPPA delayed the competitive bidding program in mid 2008, CMS issued an interim final rule on Jan. 16, 2009. That rule states that suppliers wishing to be considered for the competitive bidding program must submit “applicable covered documents (as defined in Sec. 414.402) specified in the request for bids.” The lawsuit claims the interim final rule “did not specify the financial standards that would be used to evaluate the ‘covered documents.’” — Brett Coughlin (

Click here to read complaint

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