The Centers for Medicare and Medicaid Services (CMS) late Monday issued a final rule for competitive bidding in Medicare for certain durable medical equipment, prosthetics, orthotics and supplies.

In a news release, CMS noted that in 2008 the competitive bidding program will operate in competitive bidding areas within 10 of the largest Metropolitan Statistical Areas (MSAs), excluding the New York, Los Angeles and Chicago MSAs for logistical reasons. The program will apply to 10 of the top durable medical equipment, prosthetics, orthotics and supplies, or DMEPOS, product categories outlined in the final rule.

The program will be expanded into 70 additional MSAs in 2009 and after 2009 CMS will expand the program to additional areas and items, agency officials said.

“The final rule we are announcing today is focused on improving both service delivery and the quality of care, while getting savings for beneficiaries and taxpayers,” CMS Acting Administrator Leslie V. Norwalk said in a statement.

But some analysts said the new rule would force suppliers to close and hurt Medicare beneficiaries’ access to services.

“There will be hundreds of small businesses in these 10 cities put of business next year — an election year — with two cities located in each of the key states of Ohio and Florida. Moreover, an untold number of Medicare beneficiaries who are on oxygen now may lose their access to home oxygen,” said Fred Graefe, a health care lobbyist whose clients include home medical equipment manufacturers and hospitals.

The competitive bidding program was mandated by the Medicare prescription drug law (PL 108-173) and will replace current payment amounts for items being bid under Medicare’s DMEPOS fee schedule with payment rates derived from the bidding process. CMS said contracts would be awarded to enough bidders in each competitive bidding area to ensure access and service to high quality items.

When fully implemented by 2010, the competitive bidding program will save Medicare $1 billion annually, CMS said.

Durable medical equipment (DME) was picked first for competitive bidding because of the relatively small number of claims involved — 68 million in fiscal 2004. After gaining experience with DME claims bidding, the agency plans to extend it to hospital and doctor claims. (See related story, CQ HealthBeat, April 24, 2006).

CMS is creating a limited exception to the competitive bidding requirement that will allow certain treating professionals — including physicians, physician assistants and occupational and physical therapists —to furnish items on the competitive bidding list to their own patients without having to participate in bidding and without becoming a contract supplier.

CMS also said it has included several provisions to modify the rule’s impact on small suppliers, defined as those having gross revenue of $3.5 million or less annually. Those include a 30 percent target number for small supplier participation and allowing small suppliers to form networks to participate in the bidding process.

• CQ Top Docs: CMS Competitive Bidding Final Rule

• CQ Top Docs: CMS Fact Sheet (pdf)