Financial Measures
for the Medicare DMEPOS
(Durable Medical Equipment, Prosthetics, Orthotics, and Supplies)
Competitive Bidding Program
The Competitive Bidding law and regulations specify that the Centers for Medicare & Medicaid Services (CMS) may not award a Competitive Bidding Program contract to a supplier unless that supplier meets applicable financial standards. Applying financial standards to suppliers is needed to assess the expected quality of suppliers, estimate the total potential capacity of selected suppliers, and ensure that selected suppliers are able to continue to serve market demand for the duration of their contracts. The request for bids (RFB) specifies the financial information needed to evaluate suppliers’ financial health. We use the required tax and financial documents to calculate standard accounting ratios for each bidder.
The following financial ratios will be used for the Round 1 Rebid:
- Current ratio = current assets/current liabilities
- Collection period = (accounts receivable/sales) x 360
- Accounts payable to sales = accounts payable/net sales
- Quick ratio = (cash + accounts receivable)/current liabilities
- Current liabilities to net worth = current liabilities/net worth
- Return on sales = net income/annual net sales
- Sales to inventory = annual net sales/inventory
- Working capital = current assets – current liabilities
- Quality of earnings = cash flow from operations/(net income + depreciation)
- Operating cash flow to sales = cash flow from operations/(revenue – adjustment to revenue)
These ratios and the credit report and score are used to determine bidder compliance with financial standards.