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Licensure Data in Round 2 of the Durable Medical Equipment Competitive Bidding Program

May 26, 2016

Tim Heslop, an auditor for the Office of Audit Services, is interviewed by Randall Martz, an auditor for the Office of Audit Services in Columbus.

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[Randall Martz] I'm Randall Martz, auditor, speaking with Tim Heslop, also an auditor in our Columbus field office. Tim, your team recently completed a review of supplier licensing requirements in Round 2 of the Centers for Medicare & Medicaid Services, or CMS's Competitive Bidding Program. Actually, Congress asked the OIG to look into this matter. Can you tell us a little about the Competitive Bidding Program?

[Tim Heslop] Sure. The Competitive Bidding Program should replace the outdated fee schedule with competitively determined single payment amounts for durable medical equipment and supplies. Under the program, suppliers submit bids to provide medical equipment and supplies that usually cost less than what Medicare has historically paid. Medicare uses these bids to set the amount it pays for these items. Qualified suppliers with winning bids are chosen as contract suppliers. CMS requires contract suppliers to meet all State licensing requirements for the competitive bidding areas that they serve.

[Randall Martz] So your team looked into whether suppliers received contracts without the proper licensing?

[Tim Heslop] That's correct. CMS was trying to fix problems as they came up, so we focused on validating CMS's assessments of these potential problems, and how those problems happened.

[Randall Martz] So you reviewed information on suppliers where CMS found issues?

[Tim Heslop] Exactly. We are reviewing supplier licensure and other compliance issues more broadly in our current mandated audit of Round 2.

[Randall Martz] So what did you find?

[Tim Heslop] We found that 63 of the 146 suppliers, in 5 States, did not have the proper licenses in at least one of the competitive bidding areas where they received a contract.

[Randall Martz] That many contract suppliers without proper licenses seem pretty significant.

[Tim Heslop] It is, especially for suppliers that were not awarded contracts even though they may have met all of the licensing requirements. Medicare paid just over $1 million, to these 63 suppliers for the product categories they weren't licensed to provide. But that's actually a relatively small number, or less than one percent, compared to the $184 million paid to all suppliers in those 5 states, for the same product categories.

[Randall Martz] How is it that 40 percent of suppliers were only paid less than one percent? This doesn't seem to add up. Can you explain how this happens?

[Tim Heslop] I can. A competitive bidding area may cover more than one State and licensing requirements often vary from State to State. So a supplier may be properly licensed in one State but not in another. Also, a supplier may lack the proper licenses on only one product category in a provider's product portfolio. So it's possible that the licensing issue affects only a small part of a supplier's portfolio. When contract suppliers didn't comply with all licensing requirements, there was not a major effect in terms of dollars.

[Randall Martz] So why did CMS award contracts to so many suppliers that didn't meet all of the licensing requirements?

[Tim Heslop] Great question. CMS and its contractors work hard to maintain a complete and accurate database, but that's very challenging. First, each State establishes its own licensing requirements, and they can change at any time. Second, each state can have multiple boards overseeing licensing of medical equipment and supplies, and sometimes requirements vary depending on whether the supplier is in-state or out-of-state. Finally, States have no legal requirement to cooperate with CMS requests for licensing requirement updates.

[Randall Martz] Wow. I can see how ensuring that suppliers have all the required licenses can be challenging.

[Tim Heslop] Exactly. All Medicare suppliers of durable medical equipment and supplies are subject to these licensing requirements – regardless of whether they participate in the Competitive Bidding Program.

[Randall Martz] So what did you recommend to prevent suppliers that do not meet these requirements from receiving contracts in future rounds of the Competitive Bidding Program?

[Tim Heslop] Well, we recommended that CMS and its contractors work more closely with State licensing boards. This should help to better coordinate, identify, and maintain a complete and accurate database of State supplier requirements.

[Randall Martz] So what did CMS think of this recommendation?

[Tim Heslop] CMS stated that it will continue to take steps to maintain a complete database of State licensure requirements and will consider ways to improve the accuracy of the licensure database, encourage States to provide timely and accurate information, and enforce their licensing requirements.

[Randall Martz] Thank you Tim.

[Tim Heslop] Thank you.