Medicare: Competitive Bidding for Medical Equipment and Supplies Could Reduce Program Payments, but Adequate Oversight Is Critical Page: 3 of 16

                                
Mr. Chairman and Members of the Subcommittee:

I am pleased to be here as you discuss the Medicare competitive bidding
program for durable medical equipment (DME), prosthetics, orthotics, and
supplies-products referred to in this statement as medical equipment and
supplies.' For more than a decade, we and the Department of Health and
Human Services (HHS) Office of Inspector General (OIG) have
periodically reported that Medicare, administered by the Centers for
Medicare & Medicaid Services (CMS), has paid higher than market rates
for various medical equipment and supply items.2 These overpayments
increase costs to the program and to Medicare's 44 million elderly and
disabled beneficiaries. CMS reported in 2007 that total Medicare
expenditures for medical equipment and supplies were about $10 billion.3
Since 1989, Medicare has paid for medical equipment and supplies through
fee schedules that list a maximum and minimum payment amount. The
schedules are based on average supplier charges on Medicare claims in
1986 and 1987 and have been updated in some years to reflect inflation.4
However, this payment approach lacks flexibility to keep pace with
market changes, and as a result, Medicare often pays higher prices than
other public payers for medical equipment and supplies. The Balanced
Budget Act of 1997 (BBA)5 required CMS to test competitive bidding as a
new way for Medicare to set fees for Part B items and services specified by
CMS, which the agency did through a demonstration focused on medical
1Medicare guidance defines DME as equipment that serves a medical purpose, can
withstand repeated use, is generally not useful in the absence of an illness or injury, and is
appropriate for use in the home. DME includes items such as wheelchairs, hospital beds,
and walkers. Medicare defines prosthetic devices (other than dental) as devices that are
needed to replace body parts or functions. Prosthetic devices include artificial limbs and
eyes, enteral nutrients, ostomy bags, and cardiac pacemakers. Medicare defines orthotic
devices to include leg, arm, back, and neck braces that provide rigid or semirigid support to
weak or deformed body parts or restrict or eliminate motion in a diseased or injured part of
the body. Medicare-reimbursed supplies are items that are used in conjunction with DME
and are consumed during the use of the equipment, such as drugs used for inhalation
therapy, or need to be replaced frequently (usually daily), such as surgical dressings.
2A list of related GAO products is included at the end of this statement.
3These expenditures reflect claims submitted April 1, 2006, through March 31, 2007.
4CMS has established a process to price new items that are added to the fee schedule.
5Pub. L. No. 105-33,  4319(a), 111 Stat. 251, 392 (1997).

GAO-08-767T

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