On July 1, 2010, the Centers for Medicare & Medicaid Services (CMS) announced the single payment amounts for the Round One Rebid of the Medicare durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) competitive bidding program. The single payment amounts average a 32 percent reduction in payment across nine product categories compared to current Medicare fee schedule amounts.1 In addition, CMS proposed several changes to the DMEPOS competitive bidding program and to payment policies for oxygen, oxygen equipment and standard power wheelchairs in the 2011 Physician Fee Schedule proposed rule, placed on public display at the Office of the Federal Register on June 25, 2010.2 Comments to these proposed changes are due on August 24, 2010.

This Client Alert provides an overview of recent developments in the Round One Rebid of the DMEPOS competitive bidding program. It also describes the proposed regulatory changes to the DMEPOS competitive bidding program and reimbursement for certain DMEPOS items and services, which, if finalized, could have significant effects on the business of DMEPOS suppliers, and in particular, suppliers of oxygen equipment, power wheelchairs and diabetic testing supplies.

The DMEPOS Competitive Bidding Program — Round One Rebid


The DMEPOS competitive bidding program was established by section 302 of the Medicare Modernization Act of 2003 (MMA), which required that competitively-bid payment amounts replace the DMEPOS fee schedule payment amounts for selected items in designated competitive bidding areas (CBAs). Under the program, CMS sets "single payment amounts" for selected DMEPOS items and services furnished to beneficiaries in CBAs based on bids submitted by qualified suppliers and accepted by CMS. Medicare will pay suppliers 80 percent of the single payment amount for each competitively bid item, and beneficiaries will be responsible for the remaining 20 percent. The current DMEPOS fee schedule payment amounts will continue to apply to beneficiaries who do not reside in the CBAs and to items that are not subject to the DMEPOS competitive bidding program.

Pursuant to the MMA, CMS conducted the Round One competition in 10 CBAs for 10 DMEPOS product categories and awarded over 329 contracts to qualified suppliers beginning on July 1, 2008. On July 15, 2008, the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) terminated the Round One supplier contracts and temporarily delayed the program.3 MIPPA required CMS to conduct a competition for the "Round One Rebid" in 2009, and delayed competition for Round Two in 70 additional metropolitan statistical areas (MSAs) until 2011 and in additional areas of the country until after 2011. MIPPA also mandated other changes to the program, such as exclusion of certain DMEPOS items and areas from competitive bidding. In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, PPACA), expanded the number of Round Two MSAs from 70 to 91 and mandated that all areas of the country are subject to either DMEPOS competitive bidding or payment rate adjustments using competitively-bid rates by 2016.4


Suppliers that wanted to participate in the DMEPOS competitive bidding program submitted their bids in the Round One Rebid last year. Now that CMS has evaluated the bid submissions and announced the single payment amounts, it has begun sending contract offers to winning bidders. CMS indicated that it intends to make 1,287 contract offers to 364 suppliers in 622 locations.5 If any contract offers are not accepted, CMS will offer contracts to other bidders as needed to meet beneficiary demand. CMS plans to announce the contract suppliers in September once all contracts have been finalized. Bidders that are not offered contracts will be notified of the reasons why they did not qualify for the program when the contracting process is complete. Suppliers that are not contract suppliers for this round of the DMEPOS competitive bidding program may bid in Round Two in 2011 and in future rounds.


The program for the Round One Rebid winning bidders is scheduled to begin on January 1, 2011 for beneficiaries in the following areas:

  • Charlotte – Gastonia – Concord (North Carolina and South Carolina)
  • Cincinnati – Middletown (Ohio, Kentucky and Indiana)
  • Cleveland – Elyria – Mentor (Ohio)
  • Dallas – Fort Worth – Arlington (Texas)
  • Kansas City (Missouri and Kansas)
  • Miami – Fort Lauderdale – Pompano Beach (Florida)
  • Orlando – Kissimmee (Florida)
  • Pittsburgh (Pennsylvania)
  • Riverside – San Bernardino – Ontario (California).6

The Round One Rebid program includes the same items as the Round One program except for negative pressure wound therapy items and Group 3 complex rehabilitative power wheelchairs. The items included in the Round One Rebid are:

  • Oxygen, oxygen equipment and supplies
  • Standard power wheelchairs, scooters and related accessories
  • Complex rehabilitative power wheelchairs and related accessories (Group 2 only)
  • Mail-order diabetic supplies
  • Enteral nutrients, equipment and supplies
  • Continuous positive airway pressure (CPAP) devices, respiratory assist devices (RADs) and related supplies and accessories
  • Hospital beds and related accessories
  • Walkers and related accessories
  • Support surfaces (Group 2 mattresses and overlays in Miami-Fort Lauderdale-Pompano Beach, FL only)7


Once the program begins, bidders that did not become contract suppliers generally cannot receive Medicare payment for competitively-bid items in the CBAs. Thus, beneficiaries located in the CBAs may have to choose a new Medicare contract supplier for these items. Suppliers that are not contract suppliers may continue to provide certain rented medical equipment, inexpensive or routinely purchased (IRP) items, and oxygen and oxygen equipment to those beneficiaries who are clients at the time the program begins if they elect to continue furnishing the items as "grandfathered" suppliers. Once a non-contract supplier elects to become a grandfathered supplier, the supplier cannot turn a beneficiary away if he or she elects to continue receiving the item from the grandfathered supplier.

Grandfathered suppliers that furnish capped rental or IRP items will continue to be paid the applicable rental fee schedule amounts, and the rental payments will continue until either: (1) the item is no longer medically necessary or there is a break in need of greater than 60 days plus the days remaining in the last paid rental month; (2) in the case of a capped rental item, 13 months of continuous rental payments have been made and title to the equipment is transferred to the beneficiary; or (3) in the case of an IRP item, total payments equal the fee schedule amount for purchase of the item. Grandfathered suppliers that furnish oxygen and oxygen equipment will be paid the single payment amount. If the grandfathered supplier furnishes the oxygen and oxygen equipment during the last month of the 36-month continuous rental period, that supplier must continue to furnish the oxygen and oxygen equipment after the cap for any period of medical need for the remainder of the reasonable useful life of the equipment, and cannot transfer this obligation to a contract supplier, even if the beneficiary relocates to another service area.

A beneficiary who would otherwise be entitled to receive these items from a grandfathered supplier may elect to transition to a contract supplier at any time during the rental period, and the contract supplier would be required to accept the beneficiary as a customer. For capped rental items, a new 13-month rental period would begin, regardless of how many months the previous supplier was paid, and payment would be based on the single payment amount for the rental of the item. For IRP items, a new rental period would not begin, but rental payments would continue until the point at which total payments for the item equal 100 percent of the single payment amount for the purchase of the item. For oxygen and oxygen equipment, the contract supplier would be paid for the duration of the rental period, not to exceed 36 monthly payments or at least 10 monthly rental payment amounts, whichever is greater. In all cases, payments are made only if the items continue to be medically necessary.

If a beneficiary transitions from a grandfathered supplier to a contract supplier, the items must be returned to the grandfathered supplier, and the contract supplier must provide replacement equipment to the beneficiary. The grandfathered supplier and the contract supplier should coordinate the pickup of the old equipment and delivery of the new equipment so that there is no break in service for the beneficiary.

In addition, physicians, treating practitioners and hospitals may furnish certain competitively-bid DMEPOS items (i.e., crutches, canes, walkers, folding manual wheelchairs, blood glucose monitors and infusion pumps) to their own patients as part of a professional service (for hospitals, during an admission or on the date of discharge).


Usually with competitive bidding the idea is that suppliers are able to accept lower payment rates in anticipation that their market share could increase. However, suppliers who are unable to sustain their businesses at the payment rates awarded may be forced to divest their business lines or seek assistance from subcontractors. Although the sale or transfer of competitive bidding contracts is prohibited, contract suppliers may enter into change of ownership (CHOW) transactions in the event of an acquisition or merger. The contract supplier must notify CMS if it is negotiating a CHOW at least 60 calendar days before the anticipated date of the transaction. At least 30 calendar days before the transaction, the new owner must submit documentation required by CMS for submission of bids in order to substantiate compliance with basic eligibility requirements, quality standards, accreditation requirements and financial standards. A successor entity that is acquiring the assets of an existing contract supplier must submit to CMS, at least 30 calendar days before the effective date of the CHOW, an executed novation agreement for the competitive bidding supplier contract that is acceptable to CMS. The novation agreement must state that the successor entity will assume all obligations under the competitive bidding supplier contract. If a new entity will be formed as a result of the acquisition or merger, the existing contract supplier must submit to CMS for review, at least 30 calendar days before the anticipated effective date of the CHOW, a final draft of a novation agreement stating that the new entity will assume all obligations under the contract. The new entity must submit the executed novation agreement to CMS within 30 days after the effective date of the CHOW. Depending on how these arrangements develop will determine whether changes will be needed over time.


Although the Round One Rebid program is scheduled to begin on January 1, 2011, followed by competition for the Round Two program during 2011, challenges to the DMEPOS competitive bidding program, if successful, could derail the program once again. For example, on October 13, 2009, Rep. Kendrick Meek (D-Fla.) introduced a bill to repeal the DMEPOS competitive bidding program.8 Supported by the DMEPOS supplier industry, the bill currently has over 250 co-sponsors and was referred to both the House Energy and Commerce Committee and the House Ways and Means Committee. The bill would terminate the DMEPOS competitive bidding program and instead reduce fee schedule payments to suppliers over the next few years as an alternative way to achieve savings for taxpayers and beneficiaries. To date, a companion bill has not been introduced in the US Senate. Also, on May 10, 2010, the Texas Alliance for Home Care Services and Dallas Oxygen Corporation filed a lawsuit against the US Department of Health and Human Services (HHS) and CMS, alleging that the financial standards that suppliers must meet to participate in the DMEPOS competitive bidding program have not been adequately specified and were not established through notice and comment rulemaking.9 There will no doubt be a variety of efforts in the fall to derail the January 1, 2011 implementation date of the Round One Rebid.

DMEPOS Provisions in the 2011 Physician Fee Schedule Proposed Rule

CMS proposed several changes to the DMEPOS competitive bidding program, as well as to payment for diabetic testing supplies, oxygen equipment and standard power wheelchairs in the 2011 Physician Fee Schedule proposed rule. Some of these changes are mandated by statute, whereas others are proposed at the discretion of CMS. The following is a summary of the proposed changes.


CMS proposes the establishment of an appeals process for suppliers in the DMEPOS competitive bidding program that are notified that they are in breach of contract. A "breach of contract" would include any deviation from the terms of a supplier’s contract with CMS, e.g., submission of false or fraudulent data or claims, inability to effectively provide services to beneficiaries because of financial difficulties or failure to meet non-discrimination requirements by providing different items to Medicare beneficiaries and to other customers.

The proposed appeals process would be in addition to, and would not replace, existing CMS regulations regarding other appeals mechanisms. The process would include a procedure for review and reconsideration by the Competitive Bidding Implementation Contractor (CBIC) in an effort to informally resolve performance deficiencies. If informal resolution is unsuccessful, the CBIC will send a recommendation to CMS that the supplier’s contract be terminated. CMS would then issue a notice of termination to the supplier that advises the supplier of the termination of its contract in 45 days, unless, within 30 days, the supplier either requests a hearing or submits a corrective action plan (CAP), if CMS determines a CAP is appropriate. Other than cases in which a supplier has been excluded, debarred or convicted of a health-care related crime, suppliers who submit a CAP or request a hearing would have the termination date identified on the notice delayed, and perhaps ultimately rescinded if the CAP is satisfied or if CMS concludes that termination is not warranted after a hearing.

Hearings would be held before a CBIC hearing officer, either in person or by telephone, at the supplier’s request. The burden of proof is on the contract supplier to demonstrate to the hearing officer with convincing evidence that it has not breached its contract or that termination is not appropriate. All evidence by the supplier must be submitted with the supplier’s request for hearing, and the supplier may not introduce new evidence during the hearing unless permitted by the hearing officer. CBIC and CMS may also submit evidence within 10 days of receiving a notice of the hearing, and the hearing officer must share all evidence submitted with all of the parties 15 days prior to the hearing. The hearing officer determines the conduct of the hearing, including the order in which the evidence is presented and the rules on admissibility of evidence. Within 30 days of the close of the hearing (or as soon as practicable), the hearing officer will issue a written recommendation to CMS accompanied by the record of the hearing. CMS will issue a decision regarding termination within 30 days of receipt of the hearing officer’s recommendation.

CMS has indicated that this proposed process would protect suppliers from termination until after a full review has occurred, and thereby avoid CMS having to reinstate suppliers retroactively if termination is found to be unwarranted. Suppliers may wish to submit comments regarding various aspects of the proposed appeals process, including the deadline for responding to a notice of termination and other time limits, the burden of proof standard, rules regarding the submission of evidence and whether the conduct of the hearing should be more clearly specified rather than left to the discretion of the hearing officer.


MIPPA permits CMS to subdivide MSAs with populations over 8,000,000 into smaller CBAs in Round Two in order to create more manageable CBAs for contract suppliers and allow more small suppliers to be considered for participation in the program. As a result, CMS proposes three MSAs for subdivision: (1) Chicago-Naperville-Joliet (Illinois, Indiana, Wisconsin); (2) Los Angeles-Long Beach-Santa Ana (California); and (3) New York-Northern New Jersey-Long Island (New York, New Jersey, Pennsylvania). Suppliers that service beneficiaries in these areas and intend to submit bids in Round Two of the program will have a particular interest in how these MSAs are subdivided into smaller CBAs, and may wish to submit comments to CMS on this proposal.

Also, pursuant to PPACA, CMS proposes the addition of 21 MSAs to the 70 MSAs already designated as included in Round Two, for a total of 91 MSAs. Consistent with MIPPA, CMS proposes that, for competitions (other than national mail order) occurring before 2015 and subsequent to Round Two, the following areas are excluded: (1) rural areas; (2) MSAs not selected under Round One or Two with a population of less than 250,000; and (3) certain areas with low population density within a selected MSA.


To implement a requirement imposed by MIPPA, CMS is proposing the exemption of off-the-shelf orthotics from competitive bidding when provided by a physician or treating practitioner to his or her own patients as part of professional service or by a hospital to its own patients during an admission or on the date of discharge. A "treating practitioner" includes a physician assistant, nurse practitioner or clinical nurse specialist. CMS regulations already exempt off-the shelf orthotics from competitive bidding when provided by physical therapists and occupational therapists in private practice to their own patients as part of the physical or occupational therapy service.


In the proposed rule, CMS is soliciting comments on whether to maintain the additional rental payments made to contract suppliers when a beneficiary does not continue to receive capped rental or oxygen equipment from his or her current non-contract supplier.

Currently, beneficiaries who are renting DMEPOS items or receiving oxygen and oxygen equipment from a supplier who did not win a competitive bidding contract may continue to receive these items from that supplier after the DMEPOS competitive bidding program begins if that supplier chooses to become a grandfathered supplier. However, if the beneficiary decides to use a contract supplier instead of a grandfathered supplier, or if the beneficiary’s non-contract supplier elects not to become a grandfathered supplier, the beneficiary’s new contract supplier receives a minimum of 10 monthly payments for taking over the furnishing of oxygen and oxygen equipment, and in the case of capped rental DMEPOS, the 13-month capped rental period is restarted. This results in beneficiaries being responsible for additional co-insurance amounts. Given that MIPPA permits suppliers of oxygen equipment to now retain title to the equipment after receiving the 36th monthly payment, thereby lessening the financial burden on suppliers to take over furnishing these items, CMS is seeking public comment on whether the current rules should be changed to reduce the number of monthly payments the new contract supplier should receive for oxygen equipment. CMS is also seeking comment on whether to retain the additional payments for capped rental items.


CMS is proposing the establishment of a national mail order competitive bidding program with competitions taking place after 2010 for the purpose of awarding contracts to suppliers to furnish replacement diabetic testing supplies nationwide. To clarify which items will be subject to this program, CMS is proposing a new definition for a "mail order item," which would include any item shipped or delivered to the beneficiary’s home, regardless of the method of delivery. "Non-mail order items" would be defined as items that a beneficiary or caregiver picks up in person at a local pharmacy or supplier storefront. CMS is also proposing to require contract suppliers to provide, at a minimum, 50 percent of all of the different types of diabetic testing strip products on the market by brand and model name, pursuant to a MIPPA requirement. To enforce this requirement, CMS is proposing to prohibit suppliers awarded contracts for diabetic testing supplies from influencing or incentivizing beneficiaries to switch the brand of diabetic testing products that they are currently using. CMS is also soliciting comment on whether the program should be conducted through competition among all suppliers on a national basis, or through competition among suppliers in regional or local CBAs.


To implement changes mandated by PPACA, CMS proposes elimination of the lump sum purchase option for all power wheelchairs other than complex rehabilitative power wheelchairs furnished on or after January 1, 2011. In addition, monthly payments for all power wheelchairs furnished on or after January 1, 2011 will be adjusted to 15 percent of the purchase price (or, if a competitively-bid item, the single payment amount), during each of the first three months, and 6 percent of the purchase price or single payment amount in each of the remaining months.


CMS is proposing the establishment of additional rules to safeguard beneficiary access to oxygen and oxygen equipment in situations where a beneficiary relocates after the 18-month rental payment and before the 36-month rental payment. Currently, the rules require that a supplier that furnishes oxygen equipment for the first month of the 36-month rental period must continue to furnish the equipment for the entire rental period, unless an exception applies. One of the exceptions is when a beneficiary relocates to an area that is outside the service area of the supplier that initially furnished the equipment. Since beneficiaries who relocate when only a few months are left in the rental period are having difficulty finding suppliers willing to furnish oxygen equipment, CMS proposes to revise this exception to apply only where a beneficiary relocates before the 18th month of the rental period. Thus, if the beneficiary relocates during or after the 18th month, the supplier who has been furnishing the oxygen equipment to the beneficiary is responsible for furnishing it for the rest of the rental period, as well as any period of medical need after the 36-month rental period for the remainder of the reasonable useful life of the equipment.