Medicare Fee-For-Service: Information on the First Year of Nationwide Reduced Payment Rates for Durable Medical Equipment

To achieve Medicare DME savings, Congress required CMS to implement a CBP in certain geographic areas for certain DME items. Beginning in 2011, CMS began implementing the CBP in several phases. The agency estimates that the CBP will save the Medicare program $19.7 billion between 2013 and 2022.The Patient Protection and Affordable Care Act required CMS to use CBP information to adjust fee-for-service payment rates for certain DME items in non-bid areas. On January 1, 2016, adjusted rates for 393 items went into effect in non-bid areas. CMS estimated these adjustments will save the Medicare program about $3.6 billion between fiscal years 2016 and 2020.

GAO was asked to review the potential effects of reduced payment rates for DME in non-bid areas. In this report, GAO examines (1) payment rate reductions and any changes in the number of suppliers; (2) any changes in the utilization of rate-adjusted items; and (3) available evidence related to potential changes in beneficiaries' access to rate-adjusted items.

GAO compared non-adjusted 2015 fee-for-service payment rates to adjusted 2016 and 2017 rates and reviewed Medicare claims data from 2010 through 2016. GAO also reviewed CMS's monitoring activities and interviewed CMS officials. In addition, GAO interviewed select beneficiary advocacy groups and DME industry trade organizations.

The Centers for Medicare & Medicaid Services (CMS) implemented a competitive bidding program (CBP) for certain durable medical equipment (DME), such as wheelchairs and oxygen, in 2011 that is currently operating in 130 designated U.S. areas. On January 1, 2016, CMS used information from the CBP to start adjusting Medicare fee-for-service payment rates for certain DME throughout the country in areas that had previously not been subject to the CBP (known as non-bid areas). For the first year adjusted rates were in effect in non-bid areas, GAO found:

Reductions in payment rates were generally significant but varied by category of DME item. The unweighted average reduction in payment rates for the five rate-adjusted DME items with the highest expenditures in 2016 within each DME category was 46 percent.

Changes in the number of suppliers furnishing rate-adjusted items were generally consistent with the years before adjusted rates went into effect. GAO found that the number of suppliers furnishing rate-adjusted items in non-bid areas in 2016 decreased 8 percent compared to 2015.

GAO's review of Medicare claims data found that beneficiary utilization of rate-adjusted items in non-bid areas in 2016 showed little change compared to 2015. GAO also found that CMS's activities to monitor beneficiary access, including changes in health outcomes, showed little change between 2015 and 2016.

GAO interviewed several stakeholder groups that reported anecdotal examples of specific beneficiary access concerns they attributed to the rate adjustments, but stakeholders could not provide evidence to substantiate that the access issues were widespread. GAO's findings are consistent with CMS's monitoring results, which indicate that there were no widespread effects on beneficiary access in the year after the adjusted rates went into effect. However, some effects may take longer to appear, underscoring the importance of CMS's continued monitoring activities.

The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.

Medicare, a federal health insurance program administered by the  Centers for Medicare & Medicaid Services (CMS), within the Department  of Health and Human Services (HHS), spent about $6.4 billion in 2016 on  fee-for-service (FFS) payments for durable medical equipment (DME).  According to the 2018 Medicare Trustees Report, in 2017, 33.6 million, or  about 63 percent of the total 53.4 million Medicare enrollees, were  enrolled in the Medicare FFS Part B program that helps pay for DME  items, such as oxygen, wheelchairs, hospital beds, and walkers, if they  are medically necessary and prescribed by a physician. Medicare  beneficiaries typically obtain DME items from suppliers, who then submit  claims for payment to Medicare on behalf of beneficiaries.

Historically, Medicare paid for DME items by using a fee schedule  generally based on what suppliers charged for the items and services  during the 1980s, and these amounts were updated annually. However,  both we and the HHS Office of Inspector General have reported that  Medicare and its beneficiaries sometimes paid higher than market rates  for various DME items, and there were long-standing concerns about the  high rates of improper payments related to DME. To achieve savings  and address improper payment concerns, Congress—through the  Medicare Prescription Drug, Improvement, and Modernization Act of  2003— directed that CMS change the way it pays for DME and other  items in certain areas of the country by implementing a competitive  bidding program (CBP).

The CBP has been implemented through several rounds, each operating  in specific CBP areas and for specific time frames. The first round began  in 2011 in nine of the largest metropolitan statistical areas, and the CBP  currently includes 130 areas. The CBP payment for a CBP-covered DME  item is based on winning bids submitted by competing suppliers within  each designated CBP area. As such, the same item can have a different  payment rate in different areas. We have previously found that CMS’s  implementation of the CBP decreased expenditures for both Medicare  and beneficiaries residing in designated CBP areas as a result of lower  payment rates and decreased utilization. We also reported that CMS’s  monitoring activities indicated that beneficiary access and satisfaction had  not been affected by the CBP.

Beginning January 1, 2016, the Patient Protection and Affordable Care  Act required CMS to use payment information from the CBP to adjust  FFS payment rates (hereafter referred to as adjusted rates) in all non- rural and rural areas of the United States that are not included in the CBP  (hereafter referred to as non-bid areas). These adjustments reduced  payment rates for almost all affected DME items in non-bid areas. CMS  estimates that about half of DME items furnished to Medicare FFS Part B  program beneficiaries are furnished to beneficiaries residing in non-bid  areas, and the reduced rates after adjustment in non-bid areas will save  the Medicare program about $3.6 billion between fiscal years 2016  through 2020. CMS officials told us adjusted rates in non-bid areas have  also helped limit fraud by making DME a less lucrative target for fraud  and abuse, and may also have curbed unnecessary utilization of certain  DME. However, some stakeholder groups have raised concerns that  reduced payment rates in non-bid areas have disrupted beneficiary  access to needed DME items and such issues may be exacerbated in  rural areas because some suppliers have limited their service areas.

You asked us to examine the potential effects of reduced payment rates  for DME in non-bid areas. In this report, for non-bid areas, we examine:  1.  DME payment rate reductions and any changes in the number of  suppliers after the rate adjustments went into effect;  2.  any changes in the utilization of rate-adjusted DME items after the  rate adjustments went into effect; and  3.  available evidence related to potential changes in Medicare  beneficiaries’ access to rate-adjusted items after the rate adjustments  went into effect.

To examine the extent to which FFS payment rates changed after  adjusted rates went into effect, we used FFS payment rate information on  CMS’s website to compare 2015 non-adjusted payment rates with 2016  and 2017 adjusted rates. Specifically, we analyzed payment rates for  the five items with the largest percentage of 2016 total expenditures for all  rate-adjusted items furnished to beneficiaries in non-bid areas within each  of the 11 general DME product categories established by CMS. Based  on Medicare claims data, the resulting top 53 of the 393 rate-adjusted  items accounted for 80 percent of 2016 total expenditures for all rate- adjusted items. We analyzed payment rates by product category and by  individual item.

To examine any changes in the number of suppliers in non-bid areas, we  used Medicare claims data and other CMS data to calculate percentage  changes in the number of suppliers furnishing any of the 393 rate- adjusted DME items to Medicare beneficiaries from 2010 through 2016.  We also reviewed changes in the number of suppliers furnishing items not  included in the CBP (non-adjusted items). We did this to evaluate the  effect reduced payment rates may have had on the number of suppliers in  the context of broader health industry developments and CMS antifraud  efforts that were not limited to rate-adjusted items, such as the  implementation of new safeguards to better screen Medicare suppliers.  (See Appendix I for information about CMS’s CBP and antifraud initiatives.) In addition, we compared changes in the number of suppliers  in both non-rural and rural areas and by product category. We also spoke  with several DME suppliers as part of our outreach to four large DME  industry trade organizations whose members may provide rate-adjusted  items, CMS officials, and officials from the Small Business  Administration’s National Ombudsman’s Office for Regulatory  Enforcement Fairness to discuss their views on how the implementation  of adjusted rates may have affected the number of DME suppliers in non- bid areas.

To examine the extent to which adjusted rates for items included in the  CBP may have affected utilization of those items, we used Medicare  claims data and other CMS data to report percentage changes in the  number of beneficiaries utilizing any of the 393 rate-adjusted items in  non-bid areas. Specifically, we examined changes in beneficiary  utilization of the 393 rate-adjusted items from 2010 through 2016 and  compared changes in utilization in non-rural versus rural areas and by  product category. We also examined changes in CBP areas and in  beneficiary utilization of non-adjusted items to determine how these  compared to non-bid areas and rate-adjusted items.

To examine available evidence regarding the extent to which adjusted  rates for DME items potentially affected Medicare beneficiaries’ access to  those items in non-bid areas, we reviewed: (1) data from CMS’s 1-800- MEDICARE beneficiary help line; (2) CMS data on DME suppliers’ rates  of assignment for rate-adjusted items—i.e., whether suppliers accepted  the Medicare-approved amount in full or charged beneficiaries an  additional amount—because CMS reported that a high rate of assignment  indicates that adjusted rates are sufficient; and (3) results from CMS’s  health status monitoring tool that tracks real-time health outcomes for  beneficiaries residing in both CBP areas and non-bid areas. We also  conducted our own analysis for a particular set of beneficiaries using rate- adjusted oxygen items in both non-bid and CBP areas to determine if  certain health outcomes for that set of beneficiaries changed pre-and  post-implementation of adjusted rates. We selected rate-adjusted oxygen  items because most of these items are billed on a monthly basis, which  allowed us to more easily associate utilization with changes in health  outcomes. In addition, according to CMS officials, oxygen items are  generally used for the entirety of a beneficiary’s life once prescribed.  Specifically, we reviewed trends for two health outcomes—death and  hospital admissions—by identifying a cohort of beneficiaries who began  using oxygen items in the first half of 2014 and tracking their utilization of  those items through the end of 2016.

In addition, we interviewed CMS officials, CMS’s competitive acquisition  ombudsman, and representatives from the State Health Insurance  Assistance Program. We also interviewed representatives from the  California Hospital Association, who monitor the effects of CBP and  payment changes on beneficiary access, and three beneficiary advocacy  groups representing Medicare beneficiaries who may have specific  conditions requiring DME items. We asked about their members’  experiences in obtaining rate-adjusted items in non-bid areas and the  extent to which they reported widespread issues related to access and  choice of DME items. When we interviewed the four large DME industry  trade organizations, we asked them if they were aware of any effects on  beneficiaries such as access issues and whether such effects were  widespread.

We assessed the reliability of the Medicare claims data we used for this  report by reviewing existing information about the data and the systems  that produced them, performing electronic data checks, and interviewing  CMS officials. To assess the reliability of the data we received from CMS  and its contractor, we reviewed relevant documentation, performed  electronic data checks, and interviewed CMS officials. On the basis of  these steps, we determined that these data were sufficiently reliable for  the purposes of our reporting objectives.

We conducted this performance audit from April 2017 to July 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings based on our audit  objectives.

DME Items Subject to Adjusted FFS Payment Rates

CMS used payment information from the CBP to adjust payment rates for  393 Healthcare Common Procedure Coding System (HCPCS) codes  (generally referred to as “items” in this report) in non-bid areas. Most of  these items were included in at least one CBP round; however, some are  no longer included in current CBP rounds. For example, 81 items with  adjusted rates were not included in the CBP rounds that were in effect at  the end of calendar year 2016.

CMS grouped the 393 items with adjusted rates into 11 general product  categories. See table 1 for these categories and the number of items in  each category.

CMS’s Methodologies for Adjusting FFS Payment Rates in Non-Bid Areas Using CBP Information

CMS uses different methodologies to adjust FFS payment rates in non- bid areas. These adjustments are based on CBP payment information  depending on the number of CBP areas in which a particular item has  been competitively bid and the geographic area in which the adjusted rate  is applied. For example, for an item that is competitively bid in more than  10 CBP areas and is furnished to beneficiaries residing in non-rural areas  of the contiguous United States, CMS calculates a separate adjusted rate  for each of eight geographic regions. In each region, the item’s average  regional adjusted rate reflects the unweighted average competitively bid  rate for all CBP areas located fully or partially within the region. To  address concerns regarding the possible effect of adjusted rates on  beneficiaries residing in rural areas, CMS may apply an additional  premium to the adjusted rates for items furnished to beneficiaries residing  in rural areas of the contiguous United States. Similarly, CMS may also  apply a premium in non-contiguous areas of the United States—Alaska,  Hawaii, and the U.S. territories—that applies to non-rural and rural areas  alike. See figure 1 for a map of CBP and non-bid areas as of 2016.

According to CMS, it initially used a phased-in approach to adjust FFS  payment rates beginning in 2016; this allowed for a transition period in  which the agency could closely monitor health outcomes and access to  affected DME items prior to implementing fully adjusted rates. From  January 1 through June 30 of 2016, FFS payment rates were based on a  50/50 blend of non-adjusted and adjusted rates, and from July 1 through  December 31 of the same year, FFS payment rates were 100 percent  adjusted based on CBP information. However, the 21st Century Cures  Act required CMS to retroactively apply the 50/50 blended payment rates  to claims in the second half of 2016, delaying the fully adjusted payment  rates to January 1, 2017. Because the retroactively applied 50/50  blended rates were based on newly available information from the CBP  round 2 recompete that went into effect on July 1, 2016, the adjusted  rates for the second half of 2016 may have differed from the adjusted  rates for the first half of 2016. CMS contractors retroactively adjusted  claims for this period, which were processed during the second half of  calendar year 2017. Because this rate change became effective mid- December 2016, most decisions by suppliers and beneficiaries during the  second half of 2016 were made based on the 100 percent adjusted rates,  and the retroactive adjustments affected the total allowed charges, or  expenditures, that suppliers were reimbursed. The implementation of  adjusted rates may also affect other populations in addition to Medicare  suppliers and Medicare beneficiaries in non-bid areas, because some  private and other government insurers base their payment rates on  Medicare’s fee schedule. For example, the federal government’s  TRICARE military health program uses Medicare’s fee schedule to help  determine how much it pays for DME items.

CMS has established certain requirements that all DME suppliers must  meet in order to enroll in Medicare and maintain Medicare billing  privileges, which include accreditation and appropriate licensure.  Specifically, DME suppliers must meet Medicare enrollment and quality  standards. CMS also requires all DME suppliers and each of their  locations to be accredited by a CMS-approved accrediting organization.  In addition, DME suppliers must meet state licensure requirements in  order to furnish certain items or services. Finally, certain DME suppliers  are required to post a surety bond of at least $50,000 for each business  location.

There are two key differences between supplier requirements in non-bid  areas versus CBP areas. First, only suppliers who are awarded a  contract—referred to as contract suppliers—can furnish certain DME  items at competitively determined prices to Medicare beneficiaries  residing in CBP areas, and they are contractually obligated to furnish  items in their contract upon request. According to CMS’s competitive  acquisition ombudsman, contract suppliers in CBP areas may receive  more scrutiny than DME suppliers in non-bid areas because CMS can  take action to ensure the suppliers are meeting their contract  obligations.

However, in non-bid areas, any Medicare-enrolled DME supplier can  furnish DME items. DME suppliers do not sign contracts in non-bid areas  and are not contractually obligated to furnish items upon request. Second,  contract suppliers in CBP areas must accept Medicare assignment,  meaning that they must accept the competitively determined Medicare  payment rate in full (and may not charge beneficiaries more than any  unmet deductible and 20 percent coinsurance), whereas suppliers in non- bid areas may choose not to accept assignment and there is no limit on  the amount they may charge a beneficiary.

CMS has implemented several activities to monitor whether beneficiary  access has been affected by the implementation of adjusted rates in non- bid areas, as summarized below.

Inquiries to 1-800-MEDICARE. Beneficiaries with DME questions— referred to by CMS as inquiries—are directed to call CMS’s 1-800- MEDICARE call line. Callers are assisted by customer service  representatives trained to answer questions and assist beneficiaries in  finding DME suppliers. One CMS official told us the agency tracks  DME-related inquiries to 1-800-MEDICARE but does not track  whether inquiries are received from beneficiaries in CBP areas versus  non-bid areas.

Health Status Monitoring Tool. CMS analyzes Medicare claims data  to monitor real-time health outcomes, such as death, hospitalizations,  emergency room visits, and physician visits for beneficiaries in both  CBP and non-bid areas. CMS posts information on its website to  show historical and regional trends in health outcomes for specific  groups of beneficiaries.

Monitoring Changes in the Number of Suppliers and Beneficiary  Utilization Rates. CMS officials told us they closely monitor changes  in the number of suppliers furnishing items subject to adjusted rates in  non-bid areas as well as changes in beneficiary utilization of rate- adjusted items.

Monitoring Assignment Rates. CMS monitors the percentage of  claims suppliers have submitted as “assigned” in non-bid areas.  According to CMS, assignment rates are a good indicator of whether  FFS payment amounts are sufficient.

While CMS conducted beneficiary satisfaction surveys before and after  the implementation of previous CBP rounds in order to measure changes  in beneficiary satisfaction in CBP areas, CMS officials reported they have  not conducted similar surveys of beneficiaries residing in non-bid areas.

Payment Rate Reductions Were Generally Significant but Varied, and Number of Suppliers Continued a Trend of Annual Decreases

FFS Payment Rate Reductions Were Generally Significant but Varied By Product Category and DME Item

The payment rate reductions for DME items in non-bid areas were  generally significant. The average unweighted percentage reduction  across the top product category items combined—measured by  calculating the percentage change between the 2015 non-adjusted and  the 2017 fully adjusted rates—was 46 percent. However, payment rate  reductions varied by DME product category and by individual item within  product categories. This is not unexpected given that the adjusted rates  for each item were based on competitively determined payment rates  from prior or current CBP rounds, and rate reductions for those payment  rates also varied widely by product category and item. Specifically,  average payment rate reductions by DME product category ranged from  18 percent to 74 percent with a midpoint of 47 percent. For example, the  average payment rate reduction for the top items in the oxygen product  category—the category that accounted for the highest percentage of total  expenditures in 2016—was 39 percent. The range of reductions among  individual items within product categories also varied. For example,  payment rate reductions for the top items in the enteral nutrients product  category ranged from 46 percent to 56 percent. In contrast, payment rate  reductions for the three items in the negative pressure wound therapy  (NPWT) product category ranged from 6 percent to 61 percent. (See table  2.)

Table 3 shows 2015 non-adjusted and 2017 fully adjusted rates and the  percentage reduction in these rates for the rate-adjusted item in each  product category with the largest share of 2016 total expenditures. (See  Appendix II for detailed information on the 2015 non-adjusted payment  rates, 2016 transitional 50/50 blended adjusted rates, and 2017 fully  adjusted rates for items with the highest 2016 expenditures in each  product category.)

In 2016, Number of Suppliers Furnishing Rate- Adjusted Items in Non-Bid Areas Continued a Trend of Annual Decreases

The number of suppliers furnishing any of the 393 rate-adjusted items to  beneficiaries in non-bid areas in 2016—the first year that CMS adjusted  payment rates in non-bid areas—decreased 8 percent compared to 2015.  This continued a trend of annual decreases in non-bid areas going back  to at least 2011—the first year CMS began implementing the CBP in nine  areas. The largest percentage decrease in suppliers, 13 percent,  occurred in 2014 (the year after the CBP was expanded to an additional  100 areas), followed by 9 and 8 percent decreases in 2015 and 2016,  respectively. This information is based on our review of the number of  suppliers billing Medicare, so it is unclear as to how much the decreases  were attributable to suppliers closing their businesses, conducting  mergers or acquisitions, no longer accepting Medicare beneficiaries, or  other factors.

Also, the number of suppliers furnishing non-adjusted items to  beneficiaries residing in non-bid areas decreased 4 percent in 2016  compared to 2015. Similar to trends found for rate-adjusted items, this continued a trend of annual decreases since at least 2011, although  these decreases were smaller. As was the case with rate-adjusted items,  the largest percentage decrease in the number of suppliers occurred in  2014 and then slowed in subsequent years. (See fig. 2.) Because 2016  was the most recent year of complete Medicare claims data available at  the time of our study, we could only review data for the first year that  adjusted rates were in effect in non-bid areas and could not determine if  these trends continued in 2017.

Some DME industry trade organization representatives we interviewed  reported that suppliers face an additional challenge of having to travel  long distances when furnishing items to beneficiaries in rural areas, which  may result in suppliers limiting their service areas. However, there was  little difference between non-rural and rural non-bid areas in terms of  changes in the number of suppliers between 2015 and 2016. For  example, the number of suppliers furnishing rate-adjusted items to  beneficiaries residing in non-rural non-bid areas decreased 7 percent  between 2015 and 2016 compared with a decrease of 8 percent in rural  non-bid areas. (See fig. 3.)

There was also little difference between non-rural and rural areas in terms  of changes in the number of suppliers who furnished non-adjusted items  to beneficiaries residing in non-bid areas. For example, between 2015  and 2016 the number of suppliers furnishing non-adjusted items to  beneficiaries in non-bid areas decreased 3 percent in non-rural areas and  4 percent in rural areas.

We found that the number of suppliers furnishing rate-adjusted items in  non-bid areas decreased between 2015 and 2016 in all product  categories, though the extent of these decreases varied. For example, we  found that the number of suppliers furnishing items in the infusion pumps  product category decreased by 1 percent between 2015 and in 2016  while the number of suppliers furnishing general home equipment  decreased by 10 percent. Trends for 2010 through 2016 were generally  similar. The number of suppliers decreased in all product categories, and  the extent of decreases varied. Individual suppliers may furnish items  across multiple product categories. (See fig. 4.)

Beneficiary Utilization of Rate-Adjusted Items Held Steady in 2016 Following Three Years of Decreases

The number of beneficiaries in non-bid areas receiving at least one rate- adjusted item in 2016—the first year that CMS implemented adjusted  rates in non-bid areas—showed little change compared to 2015,  decreasing by less than one-half of a percentage point. This stabilization  in beneficiary utilization occurred following three years of decreases in  non-bid areas with the largest decrease (4 percent) in 2014—the year  following the CBP’s expansion to an additional 100 areas. In comparison,  the number of beneficiaries in non-bid areas who received at least one  non-adjusted item increased 3 percent in 2016. (See fig. 5.) In general,  the annual trends in CBP areas paralleled those in non-bid areas.  Between 2015 and 2016, there was little change in the number of  beneficiaries in CBP areas who received at least one rate-adjusted item,  with a decrease of less than one-half a percentage point.

In non-bid areas, there was little difference between non-rural and rural  areas in terms of changes in 2016 in the number of beneficiaries who  received rate-adjusted items, with decreases in both of less than one-half  a percentage point. There was also little difference in terms of the  changes in the number of beneficiaries in non-bid areas who received  non-adjusted items. The total decrease for the 2010 to 2016 period was  smaller in non-rural areas than rural areas. (See fig. 6.)

We found that the number of beneficiaries in non-bid areas receiving at  least one rate-adjusted item decreased in 2016 for 9 of the 11 product  categories. Changes ranged from a 45 percent decrease for the TENS  product category to a 9 percent increase for the CPAP/RAD product  category. For the 2010 through 2016 period, most product categories  also had total net percentage decreases, and percentage changes varied  across product categories. (See fig. 7.) Individual product category  decreases were generally larger in CBP areas than in non-bid areas. For  example, between 2010 and 2016, the percentage change in the number  of beneficiaries who received oxygen product category items was -29  percent in CBP areas as compared to -19 percent in non-bid areas.  CPAP/RAD was the one product category for which the number of  beneficiaries receiving at least one item increased rather than decreased  in 2016 and between 2010 and 2016 in both non-bid and CBP areas. This  is consistent with what we have previously reported.

We could only report on utilization for one year following adjustment of  rates because 2016 was the most recent year with complete data  available; as such utilization trends may differ in 2017 and subsequent  years.

Available Evidence Indicates No Widespread Access Issues in the First Year of Reduced Durable Medical Equipment Payment Rates in Non-Bid Areas CMS’s Health Status Monitoring Tool Indicates that Beneficiaries in Non- Bid Areas Have Not Experienced Changes in Health Outcomes

CMS has reported that data from its health status monitoring tool indicate  the reduced payment rates have not resulted in changes in access to  DME items or health outcomes in non-bid areas in 2016 as compared to  2015. CMS uses the health status monitoring tool to analyze Medicare  claims data and track seven health outcomes—deaths, hospitalizations,  emergency room visits, physician visits, admissions to skilled nursing  facilities, average number of days spent hospitalized in a month, and  average number of days in a skilled nursing facility in a month—for  beneficiaries in both CBP and non-bid areas. The data for non-bid areas  are broken out by rural and non-rural areas across eight different regions  of the country and non-contiguous U.S. areas. CMS monitors these  health outcomes for three Medicare FFS beneficiary groups: 1) all  beneficiaries enrolled in FFS, 2) beneficiaries who are likely to use one of  the rate-adjusted items on the basis of related health conditions, and 3)  beneficiaries who have a claim for one of the rate-adjusted items. CMS’s  tool considers historical and regional trends in health status to monitor  health outcomes in all CBP and non-bid areas. CMS officials told us that  staff meet bi-weekly to review monitoring tool trends as well as external  complaints or stakeholder feedback to identify and investigate potential  DME access issues. The officials told us these investigations have not  identified any adverse health outcomes as a result of the implementation  of adjusted rates.

We previously conducted an analysis of CMS’s methodologies and  scoring algorithm that focused on evaluating health outcome trends in  CBP areas and found them to be generally sound. CMS officials told us  they have not made significant revisions to the tool’s underlying  methodologies but did create a separate workbook specially tailored to  the implementation of the adjusted rates in non-bid areas that includes  additional capabilities, such as review of assignment rates. In addition,  because CMS uses a 4-month window to evaluate health outcomes of all  beneficiaries that meet the criteria, for this report we also conducted our  own analysis of health outcomes over a longer period of time to  determine if our results for a particular set of beneficiaries were consistent  with CMS’s shorter-term results. Specifically, we tracked a cohort of about  256,000 beneficiaries in both non-bid and CBP areas who began using  oxygen items in the first half of 2014 and followed their utilization through  the end of 2016 to determine if mortality and hospital admissions rates  remained consistent before and after the implementation of adjusted  rates. We found that the trends in mortality and hospital admissions rates  for this cohort were generally consistent with the cumulative trends  displayed in CMS’s monitoring tool. We did not find a change in health  status between 2015 and 2016 related to the reduced payment rates.

The Percentage of Medicare Enrolled Participating Suppliers and Rates of Assignment for Rate-Adjusted Items Did Not Change Following the Implementation of Adjusted Rates

One way that CMS verifies that beneficiaries have access to needed  items and services is by reviewing the percentage of suppliers who enroll  as Medicare “participating” suppliers and the percentage of claims that  suppliers have submitted as assigned. Participating suppliers must accept  the FFS payment rate in full for all claims and cannot charge beneficiaries  an additional amount above the 20 percent copayment. DME suppliers  can also elect to be “non-participating” suppliers meaning they can  choose to accept assignment on a claim-by-claim basis and there is no  limit on the amount that they can charge for a DME item. Non- participating suppliers in non-bid areas are not required to accept  assignment of Medicare claims. This means a non-participating supplier  can decide not to accept assignment for an item and can charge  beneficiaries an amount above the Medicare payment rate. CMS told us  the rate of participating suppliers in 2016 was unchanged from 2015 and  decreased by one percent in 2017, and the rates of assignment for rate- adjusted items remained very high (over 99 percent of all claims for rate- adjusted items in non-bid areas) in 2016 and 2017.

Number of Inquiries to CMS and the State Health Insurance Assistance Program Did Not Increase Following the Implementation of Adjusted Rates

CMS told us the nationwide number of inquiries to 1-800-MEDICARE  associated with access issues did not increase after the implementation  of adjusted rates. According to a CMS official, CMS uses the same  process for all DME calls received, regardless of whether the caller lives  in a CBP or non-bid area, so there is no way to distinguish DME-related  calls in CBP areas from non-bid areas. However, the CMS official said  there has been no evidence of systemic access issues in non-bid areas,  such as beneficiaries reporting they were not able to find suppliers to  furnish DME items with adjusted rates.

We spoke with officials from three of CMS’s regional offices, who also  reported there has not been an increase in the number of DME-related  inquiries since adjusted rates in non-bid areas went into effect. One of the  officials told us that her regional office is forwarded information about all  inquiries related to Medicare Parts A and B from the other CMS regional  offices. She also said the regional offices generally receive direct inquiries  from a variety of sources including beneficiaries, beneficiary advocates,  local partners, congressional district offices, and providers, and some are  also escalated by 1-800-MEDICARE customer service representatives.  According to that official, each year regional offices receive close to  40,000 inquiries nationwide regarding a wide range of DME issues, and  most are related to questions about coverage and documentation  requirements (such as what types of DME may require additional  documentation or face-to-face visits with physicians). In addition, the  official told us that regional offices capture detailed information about  each inquiry. This includes contact information for the individual  submitting the inquiry, the type of DME involved and whether it is included  in the CBP, and the regional office’s response. Officials said they review  this information to specifically look for access issues or trends by product  category but have not identified any issues. One official said she had  heard anecdotal reports of beneficiaries contacting regional offices  claiming they had experienced access issues, but such reports did not  indicate these issues were widespread or sustained.

We also interviewed representatives from the State Health Insurance  Assistance Program who reported there has not been an increase in  requests for assistance with DME-related issues since the adjusted rates  went into effect. The representatives told us State Health Insurance  Assistance Program counselors log all contacts, but the data do not  distinguish between non-bid and CBP areas. However, they said  counselors have received about 300 to 500 DME-related contacts each  quarter since 2015, and the number of requests for assistance with DME- related issues remained consistent before and after adjusted rates went  into effect. State Health Insurance Assistance Program representatives  said counselors attempt to resolve issues on their own, but can also  contact CMS’s regional offices for assistance.

Several Stakeholder Groups Reported Anecdotal Examples of Specific Beneficiary Access Concerns, But Did Not Have Evidence That Issues Were Widespread

We interviewed representatives from one state hospital association, three  beneficiary advocacy groups, and four DME industry trade organizations  who provided anecdotal examples of varying degrees of beneficiary  access issues in non-bid areas. For example, representatives from the  state hospital association told us some hospital case managers in non-bid  areas have reported difficulty in locating suppliers to provide DME items  such as wheelchairs or walkers, but these issues are not widespread. A  representative from one beneficiary advocacy group told us her  organization does not receive many direct inquiries from Medicare  beneficiaries in regard to access issues to DME, but it has been  contacted by entities such as hospital discharge planners and pharmacies  regarding issues with delivery of DME items. For example, the  representative said some hospital discharge planners have reported that  DME suppliers are more resistant to delivering DME items, such as  wheelchairs and walkers, to the hospital when the beneficiary resides in a  non-bid area as opposed to a CBP area. However, the representative  said such reports are anecdotal and she does not think that issues  reported are widespread or have created significant hardship. She added  that her organization makes webinars available on a fairly regular basis,  and very few people signed up for the DME webinar, which was not the  case for webinars held for other topics.

In contrast, a representative of another beneficiary advocacy group that  focuses on a condition in which beneficiaries would typically use oxygen  items with adjusted rates told us that without a real research instrument, it  is difficult to determine if the increase in complaints that her group began  receiving in 2016 from beneficiaries in non-bid areas is directly related to  the adjusted rates, but she said she believes they are because she had  not heard certain types of complaints before the adjusted rates went into  effect. For example, she said the beneficiary advocacy group has received complaints about reduced delivery services and reductions in  the number of portable oxygen tanks that DME suppliers are willing to  furnish in a single delivery and these complaints are more frequent from  beneficiaries who live in rural areas. The representative said given that  rural areas may have higher delivery costs, it is not surprising that some  suppliers may have decreased the number of deliveries, but she was  surprised to hear they have decreased the number of portable oxygen  tanks they are willing to provide. According to CMS, the agency  encourages individuals to report any supplier that delivers fewer tanks of  oxygen than a beneficiary needs to CMS, so this violation can be  immediately addressed.

Representatives from four DME industry trade organizations that we  spoke with told us the implementation of adjusted rates has caused some  suppliers to change their business models and practices. Specifically,  individuals from all four DME industry trade organizations told us DME  companies have lowered costs by reducing their number of employees,  decreasing their service areas, or consolidating deliveries in specific  areas to only certain days. For example, several DME suppliers told us  that since the implementation of adjusted rates, they will only service  beneficiaries who reside within the city limits or within a certain number of  miles from their locations. Several DME suppliers told us the quality and  range of items provided by DME suppliers in non-bid areas has changed  since the adjusted rates went into effect. For example, several suppliers  reported they provide cheaper, lower quality items and that some  suppliers will no longer provide liquid oxygen to Medicare beneficiaries. In  addition, individuals from all four DME industry trade organizations also  told us there have been delays in hospital discharges as a result of not  being able to find a DME supplier to provide needed DME. In contrast,  CMS officials told us they investigated reported concerns about delayed  patient discharges because of difficulties in acquiring rate-adjusted items  and found there has not been a noticeable change in the average length  of hospital stay before and after the implementation of adjusted rates.  Specifically, CMS officials told us they measured: 1) average length of  hospital stay for beneficiaries who received new rate-adjusted items  shortly after their discharge, 2) whether beneficiaries were being  discharged prior to receiving new rate-adjusted items, and 3) average  length of stay for beneficiaries in individual access groups whether or not  they received rate-adjusted items after being discharged. According to  CMS, results of this analysis indicated no apparent changes in the  average length of hospital stay after adjusted rates were implemented.

In addition to speaking with these representatives, we also reviewed  several publicly released studies that assessed the effect of the  implementation of adjusted rates on beneficiaries, DME suppliers, and  others. We found these studies did not provide persuasive evidence of  substantial effects, primarily because of methodological issues with how  the participants in the studies were recruited. Specifically, respondents  were recruited on social media platforms or through targeted email  notifications, raising concerns about selection bias.

Although the number of DME suppliers and beneficiary utilization of DME  items have decreased throughout the past several years, available  evidence indicates there were not widespread beneficiary access issues  in 2016. According to CMS officials, the long-term decreases in utilization  do not necessarily indicate that beneficiaries did not receive needed  DME, and suggested instead that these decreases are the result of a  decline in unnecessary utilization. However, some stakeholders we  interviewed continued to express concerns that lower FFS payment rates  may have made it more difficult for some beneficiaries to receive needed  DME, and one DME trade organization told us some decreases in  utilization could be attributed to beneficiaries opting to pay for items  outright rather than going through Medicare. Because there is only limited  experience on changes in the number of DME suppliers and utilization of  DME based on the first year that adjusted rates have been in effect, some  effects may take longer to appear, and it is possible that trends could  differ in 2017 or subsequent years. This underscores the importance of  CMS’s continued monitoring activities.

We provided a draft of this report to HHS for comment. HHS provided  technical comments, which were incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the  Secretary of Health and Human Services and appropriate congressional  committees. The report will also be available at no charge on our website  at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or clowers@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made major contributions to this report  are listed in appendix III.

Appendix I: The Centers for Medicare & Medicaid Services’ Phase-In of the Competitive Bidding Program and Other Antifraud Initiatives, 2008 through 2019

The Centers for Medicare & Medicaid Services (CMS) has implemented  several antifraud efforts that affect durable medical equipment (DME)  suppliers. Specifically, CMS began phasing in DME competitive bidding  program (CBP) rounds in 2008. (See fig. 8.) In addition to the CBP, CMS  has also implemented several other broader initiatives. (See fig. 9.)

Appendix II: Medicare Fee-for-Service (FFS) Payment Rates for Top Expenditure Items in Each Durable Medical Equipment (DME) Product Category, 2015 to 2017

Table 4 includes the top five Healthcare Common Procedure Coding  System (HCPCS) codes for each product category based on the  percentage of 2016 total expenditures for items included in the  competitive bidding program (CBP) and subject to adjusted rates in non- bid areas. Combined, these items account for 80 percent of 2016 total  expenditures across all 393 rate-adjusted items.

Appendix III: GAO Contact and Staff Acknowledgments

A. Nicole Clowers, (202) 512-7114 or clowersa@gao.gov.

In addition to the contact named above, Kathleen M. King, Director;  Martin T. Gahart, Assistant Director; Michelle Paluga, Analyst-in-Charge;  Sam Amrhein; Todd Anderson; Barbara Hansen; and Emily Wilson made  key contributions to this report.

Medicare: CMS’s Round 2 Durable Medical Equipment and National Mail- order Diabetes Testing Supplies Competitive Bidding Programs.  GAO-16-570. Washington, D.C.: September 15, 2016.

Medicare: Utilization and Expenditures for Complex Wheelchair  Accessories. GAO-16-640R. Washington, D.C.: June 1, 2016.

Medicare: Bidding Results from CMS’s Durable Medical Equipment  Competitive Bidding Program. GAO-15-63. Washington, D.C.: November  7, 2014.

Medicare: Second Year Update for CMS’s Durable Medical Equipment  Competitive Bidding Program Round 1 Rebid. GAO-14-156. Washington,  D.C.: March 7, 2014  Medicare: Review of the First Year of CMS’s Durable Medical Equipment  Competitive Bidding Program’s Round 1 Rebid. GAO-12-693.  Washington, D.C.: May 9, 2012.

Medicare: The First Year of the Durable Medical Equipment Competitive  Bidding Program Round 1 Rebid. GAO-12-733T. Washington, D.C.: May  9, 2012.

Medicare: Issues for Manufacturer-level Competitive Bidding for Durable  Medical Equipment. GAO-11-337R. Washington, D.C.: May 31, 2011.

Medicare: CMS Has Addressed Some Implementation Problems from  Round 1 of the Durable Medical Equipment Competitive Bidding Program  for the Round 1 Rebid, GAO-10-1057T. Washington, D.C.: September 15,  2010.

Medicare: CMS Working to Address Problems from Round 1 of the  Durable Medical Equipment Competitive Bidding Program. GAO-10-27.  Washington, D.C.: November 6, 2009.

Medicare: Covert Testing Exposes Weaknesses in the Durable Medical  Equipment Supplier Screening Process. GAO-08-955. Washington, D.C.:  July 3, 2008.

Medicare: Competitive Bidding for Medical Equipment and Supplies  Could Reduce Program Payments, but Adequate Oversight Is Critical.  GAO-08-767T. Washington, D.C.: May 6, 2008.

Medicare: Improvements Needed to Address Improper Payments for  Medical Equipment and Supplies. GAO-07-59. Washington, D.C.:  January 31, 2007.

Medicare Durable Medical Equipment: Class III Devices Do Not Warrant  a Distinct Annual Payment Update. GAO-06-62. Washington, D.C.: March  1, 2006.

Medicare: More Effective Screening and Stronger Enrollment Standards  Needed for Medical Equipment Suppliers. GAO-05-656. Washington,  D.C.: September 22, 2005.

Medicare: CMS’s Program Safeguards Did Not Deter Growth in Spending  for Power Wheelchairs. GAO-05-43. Washington, D.C.: November 17,  2004.

Medicare: Past Experience Can Guide Future Competitive Bidding for  Medical Equipment and Supplies. GAO-04-765. Washington, D.C.:  September 7, 2004.

Historically, Medicare used a standard set of rates to pay for certain durable medical equipment (i.e., walkers and oxygen) for its beneficiaries. Due to concerns that it was paying higher than market rates, Medicare began a competitive bidding program for some of these items in designated areas in 2011. In 2016, information from this program was used to reduce rates in the rest of the country.

We found that the number of suppliers who sold these items decreased—continuing a long-term trend—but that available information indicates that beneficiaries were able to get needed items.