Suppliers, experts dispute savings claims from Medicare competitive bid program
Editor’s Note: The Congressional Budget Office’s Chief of Medicare Cost Estimates informed a conference sponsored by the National Science Foundation and the University of Maryland that the CMS bidding system would fail unless unless reformed. CMS has refused to fix a broken system leaving diabetes patients to face the consequences.
By Alex Nixon
A controversial Medicare bidding program tested in Pittsburgh and eight other cities will be expanded across the country this year.
The government hails the program as a major money-saver because it requires medical-equipment suppliers to bid for contracts. But some economists, industry groups and suppliers say the program is flawed and is pushing companies out of business.
“The bottom line is, it’s a nightmare, it’s hard to imagine a worse program and it needs to be fixed,” said Peter Cramton, a University of Maryland economics professor and expert on auction theory.
“Every auction expert in the world that I’m aware of agrees with me,” he said.
Cramton and more than 240 economists, computer scientists and engineers with expertise in auctions sent a letter to President Obama in June 2011 pointing out problems in the Medicare program, including the use of nonbinding bids, a lack of transparency in bid selection, and arbitrary price setting by Medicare administrators.
“For example, bidder quantities are chosen arbitrarily by (the Centers for Medicare and Medicaid), enabling a wide range of prices to emerge that have no relation to competitive market prices,” the experts said in the letter.
Despite these concerns and calls from medical suppliers to change the program, the Medicare program last week announced that it would expand to 100 metropolitan areas starting July 1.
Medicare, which provides health coverage to seniors, said the government will incur savings of 45 percent on average for a range of products, including walkers, wheelchairs, oxygen tanks, hospital beds and prosthetics. Diabetic testing supplies will be available at savings of 72 percent through a separate national mail-order program.
“The objective of this initiative is to improve the quality of health care delivery for Medicare beneficiaries, while reducing program expenditures, by aligning the financial incentives of all providers,” Medicare Acting Administrator Marilyn Tavenner said in a Jan. 31 statement.
When the bidding program was tested in Pittsburgh and eight other cities, starting in 2011, Medicare said it saw savings of $202 million.
But others contend the program reduces competition because it cuts the number of suppliers and the savings have come because the program makes it more difficult for seniors to get the supplies they need.
“It’s the exact opposite of competition,” said John Shirvinsky, executive director of the Pennsylvania Association of Medical Suppliers. “This whole program is completely upside down.”
The association fought the pilot program in Pittsburgh, which Shirvinsky said caused 20 private suppliers to close up shop or sell themselves to larger competitors. The state and national associations continue to oppose the expansion, he said.
Shirvinsky and Cramton dispute the savings touted by Medicare, saying that lower costs have come from reductions in use of medical equipment by seniors who can no longer buy medical equipment from their neighborhood supplier. That could lead to higher hospitalizations from seniors who are not using walkers or wheelchairs and end up in the emergency room after a fall.
Blackburn’s, a Tarentum medical-equipment supplier, watched its business slip during the pilot program covering the seven-county Pittsburgh region, said Georgie Blackburn, vice president of government relations and legislative affairs.
“Out of all the products that we always supplied, we were only allowed to supply two products,” she said.
And so far in the bidding for contracts for a new round starting in July, Blackburn’s has not won any contracts, she said.
Even more troubling for Blackburn’s and other suppliers is the tendency for private insurers to follow Medicare’s lead in setting payments.
“We are a service-intensive industry,” she said. “We can’t just do things a cheap way.”
Until now, Medicare prices for durable equipment and related supplies have been set according to a fee schedule that was established in the 1980s and has been updated for inflation. But officials at the Department of Health and Human Services say the older system has proved vulnerable to fraud and price inflation.
About 20 million people who receive Medicare fee-for-service benefits live in the 100 metropolitan areas where the program is scheduled to operate, according to officials with the Department of Health and Human Services. Only a fraction of those beneficiaries need durable equipment supplies.
But the initiative is expected to save $27 billion for Medicare Part B, which covers physician and out-patient services, and $17 billion for beneficiaries, between 2013 and 2022.
“The program for far too long has been overpaying for these supplies and has led to numerous fraud concerns, overutilization concerns,” said Jonathan Blum, director of HHS’s Center for Medicare.
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