Final Rule Summary

Centers for Medicare & Medicaid Services (CMS)

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FINAL RULE RELEASED - On April 2, 2007, the Centers for Medicare and Medicaid Services ("CMS") issued a final rule for the Competitive Acquisition for Certain Durable Medical Equipment, Prosthetics, Orthotics, and Supplies ("DMEPOS") and Other Issues. The final rule will become effective June 10, 2007 (sixty days after it was published in the Federal Register).

COMPETITIVE BIDDING IN 10 MSAS - In 2008, the competitive bid program will operate in competitive bidding areas ("CBAs") within 10 of the largest metropolitan statistical areas ("MSAs"), excluding New York, Los Angeles, and Chicago. Areas that may be exempt "include rural areas and areas with low population density within urban areas that are not competitive, unless there is a significant national market through mail order for a particular item or service." Chosen by their rank in terms of amount of DME billing and numbers of suppliers, the first areas will be: Charlotte-Gastonia-Concord, NC-SC; Cincinnati-Middletown, OH-KY-IN; Cleveland-Elyria-Mentor, OH; Dallas-Fort Worth-Arlington, TX; Kansas City, MO-KS; Miami-Fort Lauderdale-Miami Beach, FL; Orlando-Kissimmee, FL; Pittsburgh, PA; Riverside-San Bernardino-Ontario, CA; and, San Juan-Caguas-Guaynabo, PR.

DMEPOS PRODUCTS TO BE BID - The products that will be the first group subject to bid are: oxygen supplies and equipment; power wheelchairs, scooters, and related accessories; complex rehabilitative power wheelchairs and related accessories; enteral nutrients, equipment, and supplies; continuous positive airway pressure devices, respiratory assist devices, related supplies and accessories; hospital beds and related accessories; negative pressure wound therapy pumps and related supplies and accessories; and walkers and related accessories. Finally, only mail order diabetic suppliers, such as test strips, are subject to bidding at this time. Blood glucose monitors are currently not included in the bidding process.

BID PROCESS IN GENERAL - Scheduled for May 2007, the bid window for competitive bidding of listed products in the 10 CBAs will open. Bids will be submitted for items grouped into product categories defined by CMS. A bid must include all costs related to furnishing an item, including all services directly related to the furnishing of the item. For each product category that a supplier is seeking to furnish under a competitive bidding program, the supplier must submit a separate bid for each item in that product category. Suppliers must have a DME supplier number, be accredited by an approved accreditation organization, follow final quality standard requirements and meet financial standards. In order for a supplier to receive payment for items furnished to beneficiaries under a competitive bidding program, the supplier must submit a bid to furnish those items and be awarded a contract.

BID PROCESS FOR MAIL ORDER DIABETIC SUPPLIES - Suppliers that furnish diabetic items through the mail must submit a bid to furnish these items in a CBA. During the initial phase of competitive bidding for 10 MSAs, retail suppliers may not bid for mail order contracts. Suppliers must have a DME supplier number, be accredited, follow final quality standard requirements and meet financial standards. Mail order suppliers may continue to furnish these items in a CBA if the supplier is awarded a contract. All mail order suppliers will be able to continue to furnish supplies in areas not designated as a CBA. Beginning after CY 2009, CMS may designate through program instructions or by other means a nationwide CBA or one or more regional CBAs for purposes of implementing competitive bidding programs for other items that are furnished through the mail by nationwide or regional mail order contract suppliers.

NONDISCRIMINATION CLAUSE - The Final Rule will require suppliers to adhere to a nondiscrimination clause in the contracts. Under that provision, contract suppliers will be obligated to make the same items available to beneficiaries under the Medicare DMEPOS Competitive Bidding Program that they make available to other customers. CMS included this provision to "protect beneficiaries from receiving sub-standard or inferior items in terms of quality."

CONDITIONS FOR AWARDING COMPETITIVE BIDDING CONTRACTS - CMS will evaluate bids submitted for items within a product category by--(1) Calculating the expected beneficiary demand in the CBA for the items in the product category; (2) Calculating the total supplier capacity that would be sufficient to meet the expected beneficiary demand in the CBA for the items in the product category; (3) Establishing a composite bid for each supplier and network that submitted a bid for the product category; (4) Arraying the composite bids from the lowest composite bid price to the highest composite bid price; (5) Calculating the pivotal bid for the product category; and, (6) Selecting all suppliers and networks whose composite bids are less than or equal to the pivotal bid for that product category.

CAPACITY LIMIT NOT APPLICABLE TO MAIL ORDER SUPPLIES - The final rule establishes a capacity limit for each bidder of no more than 20% to ensure that there is the potential for at least 5 suppliers. This provision is waived for mail order suppliers.

CONTRACT TERMS - A contract supplier must comply with all terms of its contract, including any option exercised by CMS, for the full duration of the contract period. CMS recompetes competitive bidding contracts at least once every 3 years. A contract supplier must agree to furnish items under its contract to any beneficiary who maintains a permanent residence in, or who visits, the CBA and who requests those items from that contract supplier.

PAYMENT AMOUNT - The payment amount must not be higher than the payment that otherwise would apply to the items. Subject to this limitation, the amount will be the median of the accepted bids for the item that are at or below the pivotal bid for the product category that includes the item.

SMALL SUPPLIERS TARGET - To address the statutory obligation for there to be some opportunities for small suppliers (defined as gross revenues less than $3.5 million dollars), CMS established a target number of small suppliers equal to 30 percent of the number of winning suppliers will be required in each product category. If the target of 30 percent is not reached initially, contracts will be offered to small suppliers that submitted bids higher but close to winning bids. In addition, small suppliers will be allowed to form networks to participate in bidding.

SMALL SUPPLIER NETWORK LIMIT - Smaller suppliers may create networks for the purposes of pooling their purchasing power. However, the small supplier network's total market share for each product category cannot exceed 20 percent of the Medicare demand for that product category in that CBA. This would protect against excessively large, anti-competitive networks while allowing small suppliers to have an opportunity to be considered for participation under the Medicare DMEPOS Competitive Bidding Program.

NO ADMINISTRATIVE OR JUDICIAL REVIEW - There is no administrative or judicial review for the following: (1) Establishment of payment amounts; (2) Awarding of contracts; (3) Designation of CBAs; (4) Phase-in of the competitive bidding programs; (5) Selection of items for competitive bidding; (6) Bidding structure and number of contract suppliers selected for a competitive bidding program. A denied claim is not subject to appeal if the denial is based on a determination by CMS that a competitively bid item was furnished in a CBA in a manner not authorized by the rule.

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