Financial Scoring Methodology Fact Sheet

The Centers for Medicare & Medicaid Services (CMS) uses the required financial documents to calculate standard accounting ratios for each bidder¹. These ratios, along with the credit report and numerical credit score or rating, are used to evaluate a bidder’s financial health². CMS uses the methodology below to compute a financial score for each bidder, with a maximum score of 100 points: 80 points from the ratios and 20 points from the numerical credit score or rating. The financial standards that CMS uses to evaluate bidders were determined based on feedback from members of the Program Advisory and Oversight Committee prior to going through notice and comment rulemaking in 2006³. CMS’ methodology for evaluating bidders’ financial health has remained consistent throughout all rounds of the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program.

Scoring for Ratios

• For each standard accounting ratio, all bidders with a computable ratio⁴ will be arrayed in order from best to worst ratio.
• Bidders in the bottom 10 percent of the array for a specific ratio will receive a score of 1.
• Bidders in the top 10 percent of the array for a specific ratio will receive the maximum score (7.6 or 9.6).
• The remaining bidders’ (i.e., those falling in-between the top and bottom 10 percent) scores will be prorated between 1 and 7.6/9.6.
• Eight ratios have a maximum score of 7.6, while the quality of earnings and operating cash flow to sales ratios both have a maximum score of 9.6. These two ratios are valued higher due to their emphasis on cash flow. (Cash flow is an indication of how money moves into and out of the company and how the company pays its bills; thus, making it a reliable measure of financial stability.) See Table 1 below for more information.
• Bidders will have their scores for each individual ratio totaled for a maximum score of 80 points.

Table 1

Scoring for Credit Report and Numerical Credit Score

• CMS uses a five tier scoring system for the bidder’s credit report and numerical credit score or rating, which aligns with the various approved credit reporting agencies’ evaluation criteria. See Table 2 below for more information on the scoring system. See Table 3 below for a description of each business credit report.
• Bidders can receive a maximum of 20 points for their credit report and numerical credit score or rating, which will be added to their cumulative financial score.

Table 2

Table 3

Financial Score Thresholds

• The minimum financial score to be eligible for further evaluation is 39.5.
• Bidders with a financial score below 39.5 will be disqualified from the program, thereby eliminating those bidders with the highest financial risk.
  • Historically, 94 percent of bidders submitting a complete bid (i.e., Form A was approved, Form B was certified, and all required documents were received) have surpassed the minimum financial score of 39.5 throughout each round of the DMEPOS Competitive Bidding Program⁶.
• The minimum financial score for a bidder to receive additional capacity beyond its historical amount is 49.5. Please see the Review of Bidder Capacity to Meet Projected Beneficiary Demand fact sheet for more information on how CMS determines bidders’ capacity.
  • Historically, 60 percent of bidders submitting a complete bid have surpassed the minimum financial score of 49.5 throughout each round of the DMEPOS Competitive Bidding Program. 
• Both the 39.5 and 49.5 minimum financial score thresholds have remained consistent throughout all rounds of the DMEPOS Competitive Bidding Program.
   

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¹ 72 Fed. Reg. 18037 - 18038 (Apr. 10, 2007)
² 72 Fed. Reg. 18037 (Apr. 10, 2007)
³ 72 Fed. Reg. 18039, 18040, 18057, 18070, 18083 (Apr. 10, 2007)
⁴ If a bidder’s financial document(s) is deemed unacceptable (e.g., ending cash on the statement of cash flows does not equal the cash reported on the balance sheet), CMS will be unable to compute the applicable ratio(s). Rather than automatically disqualifying the bidder, the bidder will receive a zero score for all financial ratios associated with the unacceptable document(s). In these situations, a bidder may still be able to receive a financial score that meets the financial requirements and be eligible for further evaluation.
⁵ The information contained in this table is current as of July 15, 2019, and will be used for the Round 2021 bid evaluation.
⁶ The percentage of bidders who exceed the minimum financial score of 39.5 is likely to decrease in Round 2021 as a result of the process improvement described in endnote 4. In Round 2021, less bidders will be automatically disqualified for having an unacceptable document(s) and instead will receive a zero score for all financial ratios associated with the unacceptable document(s). In these situations, a bidder may still be able to receive a financial score that meets the minimum threshold of 39.5, but many will not.  As a result, the percentage of bidders who have a score above 39.5 will likely decrease in Round 2021, but the overall percentage of bidders who pass the financial review and are eligible for further evaluation will increase.