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Improving Value

Competitive Bidding

Competitive bidding is a way of setting government payments for a service or product, in this case healthcare. What the government will pay is based on the bids submitted by vendors within a market area  Researchers suggest that well-defined products, such as durable medical equipment, are the best candidates for competitive bidding.

Medicare historically paid for durable equipment and related supplies according to a fee schedule that was established in the 1980s and was updated for inflation. But this payment method has led to high levels of spending for durable medical equipment (DME). The Office of the Inspector General and the GAO looked at DME prices and concluded that Medicare often pays three or four times more for services than the retail price for the same device.1

In response to this, Medicare instituted a competitive bidding program, for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS)  which has achieved significant savings to Medicare.  CMS monitored access to DME in competitive bidding areas to other areas found it was not compromised.2

In its first year of operation, DMEPOS, which began operating in January of 2011, saved the Medicare fee-for-service program approximately $202.1 million. CMS’s Office of the Actuary, projects the program to save the Medicare Part B Trust Fund $25.7 billion between 2013 and 2022, with an additional $17.1 billion in savings for beneficiaries during that period. The program initially applied to only a limited services and  only a limited number of devices in 9 metropolitan statistical areas.3 For the limited devices covered by DMEPOS, competitive bidding was expanded to include 100 metropolitan statistical areas beginning July 1, 2013. GAO has found that the initial bidding process has been mostly implemented successfully and that CMS has processes in place to ensure beneficiary access to DME products. For example, CMS has processes to make sure small suppliers get contracts to avoid driving out smaller competitors from the market.4

 

Notes

1. See, for example, Comparison of Prices for Negative Pressure Wound Therapy Pumps, OEI-02-07-00660, March 2009;Power Wheelchairs in the Medicare Program: Supplier Acquisition Costs and Services, OEI-04-07-00400, August 2009; Medicare Home Oxygen Equipment: Cost and Servicing, OEI-09-04-00420, September 2006.

2. Testimony, “Medicare’s Durable Medical Equipment Competative Bidding Process,” Laurence Wilson, Centers for Medicare and Medicaid Services, Sept. 11, 2012, available at http://www.hhs.gov/asl/testify/2012/09/t20120911a.html.

3. Ibid.

4. GAO-15-63 Results of Competitive Bidding Program, November, 2014 p. 7