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.
|Accounts Payable to Sales||Accounts Payable/Annual Net Sales||7.6|
|Collection Period||(Accounts Receivable/Annual Net Sales) x 360||7.6|
|Current Liabilities to Net Worth||Current Liabilities/Net Worth||7.6|
|Current Ratio||Current Assets/Current Liabilities||7.6|
|Debt to Equity||Total Liabilities/Net Worth||7.6|
|Operating Cash Flow to Sales||Cash Flow from Operations/(Revenue – Adjustment to Revenue)||9.6|
|Quality of Earnings||Cash Flow from Operations/(Net Income + Depreciation + Amortization)||9.6|
|Return on Sales||Net Income (Loss)/Annual Net Sales||7.6|
|Sales to Inventory||Annual Net Sales/Inventory||7.6|
|Working Capital||Current Assets – Current Liabilities||7.6|
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.
|Credit Report Scoring5|
|Credit Report Name||Tiers and Scoring|
|Business Credit Reports|
|Equifax - Business Payment Index||100-90||89-80||79-60||59-40||39-1|
|Equifax - Business Credit Risk Score||992-697||696-649||648-575||574-492||491-101|
|Equifax - Business Delinquency Score||662-477||476-446||445-400||399-347||346-101|
|Equifax - Business Failure Risk Score||1610-1488||1487-1366||1365-1244||1243-1122||1121-1000|
|Experian - Intelliscore Credit Ranking Score/Business Credit Score||100-76||75-51||50-26||25-11||10-1|
|Experian - Financial Stability Risk Class||1||2||3||4||5|
|Dun & Bradstreet - Delinquency Predictor Risk Class||1||2||3||4||5|
|Dun & Bradstreet - Commercial Credit Score||670-580||579-530||529-481||480-453||452-101|
|Dun & Bradstreet - Supplier Evaluation Risk Rating||1-2||3-4||5-6||7-8||9|
|Dun & Bradstreet - Paydex||100-80||79-62||61-46||45-32||31-1|
|Dun & Bradstreet - Financial Stress Class||1||2||3||4||5|
|Standard & Poor's||AAA |
|Personal Credit Reports|
|Experian - Plus Score||830-721||720-681||680-630||629-480||479-330|
|Equifax - Score||850-760||759-725||724-660||659-560||559-280|
|Transunion - Score||850-781||780-661||660-601||600-501||500-300|
|FICO SCORE - Experian, Equifax, TransUnion||850-781||780-661||660-601||600-501||500-300|
|Business Credit Reports with Detailed Information on Scoring or Rating|
|Approved Credit Reporting Agency||Acceptable Credit Score or Rating||Detailed Description of the Credit Score or Rating|
|Equifax||Business Payment Index||The Payment Index is a dollar-weighted indicator of a business's payment performance based on the most recently reported financial and non-financial payment experiences.|
|Equifax||Business Credit Risk Score||The Business Credit Risk Score predicts the likelihood of a business incurring greater than 90 days severe delinquency or charge-off within a 12-month period.|
|Equifax||Business Delinquency Score||The Business Delinquency Score predicts the likelihood of severe delinquency (91 days or greater), charge-off or bankruptcy within the next 12 months.|
|Equifax||Business Failure Risk Score||The Business Failure Score predicts the likelihood of business failure through either formal or informal bankruptcy within the next 12 months.|
|Experian||Intelliscore Credit Ranking Score/Business Credit Score||The Intelliscore Credit Ranking Score predicts the likelihood of delinquency within the next 12 months. Predicts seriously derogatory payment behavior.|
|Experian||Financial Stability Risk Class||The Financial Stability Risk Class quickly identifies the highest risk businesses and avoid bankruptcy risk and accounts likely to default.|
|Dun & Bradstreet||Delinquency Predicator Risk Class||The Delinquency Predictor Risk Class predicts the likelihood that a company will pay its bills late or on time over the next 12 months.|
|Dun & Bradstreet||Commercial Credit Score||The Commercial Credit Score predicts the likelihood of an account becoming severely delinquent within the next 12 months.|
|Dun & Bradstreet||Supplier Evaluation Risk Rating||The Supplier Evaluation Risk Rating predicts the likelihood that a supplier will cease business operations or become inactive over the next 12 months-predicts whether the business will deliver goods and services as promised.|
|Dun & Bradstreet||Paydex||The Paydex score indicates how quickly a company pays its bills based on the payment experiences in the D&B credit file.|
|Dun & Bradstreet||Financial Stress Class||The Financial Stress Class predicts the likelihood that a business will experience financial distress or failure over the next 12 months.|
|Standard & Poor's||S&P Ratings||An S&P credit rating is a forward looking opinion on the creditworthiness of an obligor to meet its overall financial commitments, or financial commitments with respect to specific issues/programs.|
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.
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.