Centers for Medicare and Medicaid Services
Section 302 of the Medicare Modernization Act of 2003 (MMA) established requirements for a new Competitive Bidding Program for certain Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS). The MMA requires that competitive bid payment amounts be used to replace the current Medicare DMEPOS fee schedule payment amounts for selected items in selected areas. The competitive bid payment amounts are determined by using bids submitted by DMEPOS suppliers. The intent of the Competitive Bidding Program is to set more appropriate payment amounts for DMEPOS items, which will result in reduced beneficiary out-of-pocket expenses and savings to taxpayers and the Medicare program.
Despite Objections, Medicare Competitive Bidding Set to Begin
By Miriam Davidson
Muscular Dystrophy Association
December 3, 2010
Competitive bidding among Medicare providers of durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) is set to begin January 1 in nine regions of the country, despite sharp criticism of the plan by lawmakers, economists, patient advocates and others.
Under the new procedures, DMEPOS providers must go through a competitive bidding process to win the right to serve Medicare recipients. Medicare pays these providers to serve the medical needs of millions of Americans who use medical supplies at home, including oxygen equipment and power wheelchairs.
Medicare officials argue that competitive bidding is necessary to save money and streamline services. Opponents say that, while saving money and streamlining services are laudable goals, this plan could ultimately backfire. They say a lack of proper services and supports may force many people who are now living comfortably on their own into far more expensive institutional care.
A flawed process
Problems that came to light during the testing phase included Medicare beneficiaries being forced to go to multiple, unfamiliar providers for different items and services; nonlocal providers; inexperienced or unlicensed providers; and greater costs to Medicare from more emergency room visits and/or longer hospital stays as beneficiaries lost access to critical services and equipment.
Moreover, dozens of academics and members of Congress have pointed out two major flaws in the way the competitive bidding auction is being conducted. The first flaw is that bidders are not required to sign contracts that reflect their bid, thus encouraging DMEPOS suppliers to submit unrealistic, “low-ball” bids that competitors — and even they themselves — can’t match. Opponents contend that large companies will submit extremely low bids in order to drive smaller competitors out of business, knowing that ultimately, they won’t be forced to provide equipment and services at such low prices.
The second major flaw in the process, critics say, is that Medicare arrives at the price it will pay for a product or service by averaging all the bids it receives, winners and losers alike. Due to the presence of many unrealistically low bids, the final contract price is often lower than the bid submitted by the winning provider. In fact, during tests of the process, half of the bidders who won contracts were offered lower prices than their winning bids.
Critics say these flaws will result in a skewed system that rewards unscrupulous DMEPOS providers, as well as those who skimp on service and quality.
Invacare Analysis Raises New Doubts about Bid Winners
December 6, 2010
Even as CMS moves resolutely toward the Jan. 1 implementation of DMEPOS competitive bidding, industry stakeholders are uncovering increasingly troubling hard data about some of the project’s contract holders.
Nearly 21 percent — or 73 of the 356 bid winners — have limited ability to purchase products from Invacare Corp., the nation’s largest home medical equipment manufacturer, the company said last week in its final report on the credit-worthiness of suppliers awarded Round 1 contracts.
According to the manufacturer’s analysis:
* 8.5 percent of the contract holders have credit limits with Invacare of less than $10,000 (meaning they can buy very little product from the company);
* 5.4 percent are on credit hold (meaning they cannot purchase any product from the company); and
* 6.7 percent are so far behind on their payments with Invacare that their accounts have been turned over for collection or legal process (meaning they cannot purchase any product from the company).
Analysis of the Economic Impact of Competitive Bidding on the DME Market: A One Year Update
By Brian O’Roark, PhD, Associate Professor of Economics, Robert Morris University
* Competitive bidding reduces the number of sellers and thereby reduces competition.
* Competitive bidding concentrates market power, which creates regional oligopolies and reduces quality of patient care. Primary among economic concerns: by eliminating nine out of ten suppliers in the market for durable medical equipment (DME), the industry would become more concentrated.
* The Centers for Medicare and Medicaid Services (CMS), the federal agency that oversees Medicare, misunderstands the structure of the market.
* The competitive bidding program forces an unsustainable business model on the DME industry. Ninety percent of providers were excluded from participating because they could not meet the bid. Those who qualify are forced to sustain prices for three years — an untenable position for any business.
By Don McCanne, MD
The concept that competition will always bring the lowest prices for comparable value is so thoroughly ingrained in capitalistic societies such as ours that sometimes even the government will abandon administered pricing in favor of market competition. In this instance, the Centers for Medicare and Medicaid Services (CMS) has begun to use competitive bidding to price medical equipment and supplies. Initially, prices will likely be lower, but for how long and at what cost?
To begin with, for three years the CMS business is going to ten percent of the bidders. What does that do to the other 90 percent of suppliers who are excluded? Many of them will exit the market, concentrating the successful bidders into oligopolies or even monopolies.
What will happen to the manufacturers whose products are not distributed by the successful bidders? If the non-government market is not large enough to sustain them, some also will go under.
What will happen to patients’ access to these essential medical products? Inevitably, successful bidders will not be inclined to cover rural and poverty-ridden urban areas. Also, since each category of equipment and supplies
is bid separately, services for patients may end up being highly fragmented.
After three years of market concentration, who will be bidding for the new contracts? Certainly not those entities that have already folded. Those suppliers that low-balled the bids the first time around did so to eliminate the competition. Those remaining will certainly jack up their bids. In an oligopoly, collusion is not essential to get higher prices, though some in this industry are certainly not above colluding if it increases profits.
Public stewards who do their homework can obtain optimal value through negotiated administered pricing – paying legitimate costs plus fair profits. All manufacturers and suppliers should be allowed to compete based on the quality and accessibility of their products and services, but always at a fair, predetermined price.
We should replace our public stewards who are foolish enough to dash our health care system onto the rocks, lured by Lorelei’s song of market competition. Let’s start singing the song of social solidarity – a song that won’t lure anyone onto the shoals – and then maybe we’ll attract public stewards who actually care about the patient.