DME Competitive Bidding: Prices, Supplier Exits and the Evidence Behind Fraud Claims

Competitive bidding cut durable medical equipment prices, suppliers left, and researchers reached different conclusions about patient access. Those changes reshaped the healthcare business behind the claims.

Why Medicare Turned to Competitive Bidding

Competitive bidding replaced historical fee-schedule amounts with prices drawn from supplier bids for selected equipment and supplies. The program serves Original Medicare. Its price rules do not set Medicare Advantage plans’ supplier payments.

The old payment system carried forward supplier charges from the 1980s, with inflation adjustments, instead of routinely measuring current market prices. In its April 2013 explanation of the program, the Centers for Medicare & Medicaid Services said some fee-schedule prices were three or four times retail prices and commercial insurers’ payments. Taxpayers and beneficiaries paid for that gap.

Suppliers bid to furnish product categories in defined areas. The agency considered price and the suppliers’ capacity to meet demand, alongside financial, licensing, accreditation and quality requirements. The commercial bargain included supplying and servicing the equipment at the resulting payment amount. The bid was a promise about what the business could deliver.

Round 1, Round 2 and the Contract Gaps: Prices Outlasted Contracts

Medicare’s bidding prices continued after its contracts expired. The program developed through cancellations, expansions and long interruptions.

Round 1 began on July 1, 2008. Congress terminated its contracts two weeks later. The Round 1 Rebid began in January 2011, followed by Round 2 and national mail-order diabetes-supply bidding in July 2013.

The prices then traveled beyond the contract areas. Beginning in January 2016, the Centers for Medicare & Medicaid Services used bidding information to adjust payments in non-bid areas nationwide. A supplier could feel the auction’s effect without competing for one of its contracts. Rural and non-contiguous areas later regained a blend of adjusted and older rates as the agency provided payment relief.

The broad contracts expired at the end of 2018. Round 2021 returned with awards only for off-the-shelf back and knee braces. The agency declined to award thirteen other categories because their bids would have increased spending. The braces’ contracts expired at the end of 2023.

The contract gap began January 1, 2024. Former bidding areas continued using the last single payment amounts, updated for inflation. The contracts ended. Their prices kept working.

The Price Formula Changed Too

Earlier rounds used the median winning bid to set payment, even though a winning supplier could decline the contract. A supplier could help determine the price and then choose against supplying at that price. Bid surety bonds later made certain winning offers binding.

For Round 2021, Medicare moved to the maximum winning bid. The next design uses a different point among the winning bids and changes the number of contracts. These choices determine both the payment and how many businesses share the market.

Arriva’s Sales and Billing Practices

Arriva Medical and its parent Alere agreed to a $160 million civil settlement in August 2021 to resolve government allegations that Arriva used free meters and routine copayment waivers as kickbacks, billed for ineligible meters and submitted claims for deceased beneficiaries.

What Happened to Prices and Suppliers?

Prices fell sharply, while supplier counts contracted.

The agency’s April 2013 briefing reported average price savings of 35% for the first rebid and projected 45% for Round 2 and 72% for national mail-order diabetes supplies, compared with the applicable fee-schedule prices.

National claims data show a 38.9% decline in Medicare-billing medical supply companies from 2009 to 2023.

The Government Accountability Office found a more concentrated change inside the early bidding markets. Suppliers with at least $2,500 in Medicare allowed charges declined an average of 27% in Round 1 Rebid areas, compared with 5% in comparison areas. In Round 2 areas, beneficiaries receiving covered items fell 17% between 2012 and 2014, compared with 6% outside the program.

The Government Accountability Office found that suppliers furnishing rate-adjusted items in non-bid areas declined 8% in 2016, a change generally consistent with preceding years. Medicare Advantage enrollment, consolidation and product changes also reshaped the business during the broader contraction.

Did Competitive Bidding Reduce Access?

The findings differ by product and by the outcome measured. The Centers for Medicare & Medicaid Services reported no negative effect on the health measures it tracked, while diabetes-supply researchers reported disruption associated with worse outcomes.

The agency monitored deaths, hospitalizations, emergency visits and other measures in bidding and comparison areas.

Medicare Durable Medical Equipment Competitive Bidding Program: An Evaluation, published in Medical Care in 2022, examined CPAP machines, oxygen supplies and walkers. It found lower Medicare spending without reduced access or increased adverse outcomes. Most of the study’s authors worked at the Department of Health and Human Services.

Supplemental Oxygen Use, Outcomes, and Spending in Patients With COPD in the Medicare Competitive Bidding Program, published in JAMA Internal Medicine in 2024, found lower spending while changes in oxygen use and clinical outcomes were similar between the groups studied.

The National Minority Quality Forum’s 2016 Diabetes Care study reported disrupted acquisition of diabetes-testing supplies associated with increased mortality, hospital admissions and costs. The research group had manufacturer ties: one co-author worked for Medtronic, and the corresponding author disclosed consulting for diabetes-product manufacturers.

Its 2018 Diabetes Care follow-up complicates the earlier-market explanation. Partial or no acquisition of testing supplies increased in both the test group and the comparison group after national rollout, with the comparison group’s increase larger. That pattern points toward a broader change rather than an effect confined to the original test markets.

The Government Accountability Office recorded Medicare’s view that some reduced use reflected removal of inappropriate utilization. It also reported that stakeholders raising access concerns could not substantiate widespread problems. The American Association for Homecare, speaking for suppliers, argued that further cuts would constrict the supplier base and its ability to provide home care.

What a Supplier Must Cover at the Bid Price

Fixed costs weigh differently on a small biller and a business spreading them across a large customer base.

Medicare anticipated substantial supplier exits when accreditation and surety-bond costs became binding. But the Government Accountability Office’s review of Round 2021 found that the bond requirement had not reduced small-supplier participation. Industry representatives told GAO that the bonds were accessible and reasonably priced, while some worried about competing with larger suppliers at low payment rates.

The pressure also reaches product selection. Medicare’s contract requirements address delivery, instructions for safe use and prescribed brands or modes of delivery. Those are service obligations a purchasing discount has to support.

What Round 2028 Changes

Round 2028 moves selected categories into a nationwide Remote Item Delivery market. The Centers for Medicare & Medicaid Services’ published timetable targets January 1, 2028.

The seven categories cover continuous glucose monitors and insulin pumps, urological supplies, ostomy supplies, hydrophilic urinary catheters, and off-the-shelf back, knee and upper-extremity braces. Each category has a national contract pool. Contract suppliers must serve beneficiaries throughout the area, including through shipping, delivery or pickup at their own or subcontracted storefronts.

The agency’s August 2026 contract plan calls for ten contracts for glucose monitors and insulin pumps and three for back braces. It can add contracts to meet its small-supplier target or beneficiary demand.

The new single payment amount uses the 75th percentile of winning bids for the lead item. The selected pool’s bids set the price that pool will receive. Oxygen, CPAP, hospital beds and standard wheelchairs are outside the announced categories.

What the Order and Claim Can Show

The fraud inquiry follows the customer from solicitation through the order, clinical support, delivery, refill request and claim. A supplier’s enrollment and contract records show its authority to participate. Its operating records show what it asked Medicare to pay for.

Call records and shipment logs can expose refills shipped without anyone asking for them, or contact documented after the event. For a classification allegation, the equipment supplied and the code billed carry the comparison. For a kickback allegation, the sales offer and the payments show how the supplier obtained the business. We connect those records with the people who know how the operation actually worked.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

When You Know How the Supplier Won the Business

If you work in sales, billing or supplier operations and know how a patient became a recurring Medicare claim, speak to one of our Whistleblower Experts about the supplier’s practices. We build your strongest case with you around the offers, orders and claims, and bring in durable medical equipment fraud whistleblower lawyers who understand supplier operations. We stay beside you from that first conversation through the case.