By Terry Baynes

(Reuters) – A federal judge in Minnesota delivered a sharp rebuke to the government’s new competitive bidding program that affects who can supply certain medical equipment and how much they can be paid by Medicare.

U.S. District Judge Donovan Frank said in an order on Tuesday that while he lacked the authority to rule on the legality of the program, the government was ignoring the harm inflicted on people with disabilities.

“This is a sad day for those who believe that when a judge adheres, even-handedly, to his or her oath of office, justice will prevail and the public interest will be served,” Frank wrote.

In the order, Frank granted the government’s request to dismiss the lawsuit filed last March by Key Medical Supply Inc, a family-owned Minnesota company that supplies specialty medical equipment to the developmentally disabled, including customized feeding tubes that enter through a patient’s stomach.

Key Medical Supply argued that the new competitive bidding program, scheduled to take effect in Minneapolis and St. Paul in July, would destroy much of the company’s business and prevent people with developmental disabilities from having continued access to crucial equipment and supplies.

The bidding program implemented by the Centers for Medicare and Medicaid Services aims to slash the prices Medicare has to pay for certain medical equipment and supplies. The program is being phased in gradually across the country and is already in effect in nine states, including Florida, Pennsylvania and California. By July 1 it will go into effect in 91 new metropolitan areas, which include 21 that were added by the Affordable Care Act.

The new program caps what Key Medical Supply would be reimbursed for a specialty tube at less than $40, considerably less than what one costs to acquire, the suit said. The custom-fit tubes have advantages over conventional tubes, which are long and protruding and carry a risk of being accidentally pulled out.

‘DELAYS IN ACCESS’

In his order, Frank said the government appeared to be indifferent to the fact that people with disabilities have a clear need for the custom-fit tube, given that people with mobility or coordination difficulties may be more prone to accidental removal.

Nevertheless, he found that Congress had intentionally prevented courts from reviewing the program.

“Half of Key Medical Supply’s supply revenue is at risk,” said the company’s lawyer, Samuel Orbovich of Fredrikson & Byron. He said the company may have to refocus its business as a result of the new program, but that it is not considering bankruptcy protection. Filing an appeal with the 8th U.S. Circuit Court of Appeals is also an option, he said.

The Department of Health and Human Services did not immediately respond to a request for comment.

The Centers for Medicare and Medicaid Services has estimated that the program will save Medicare $25.7 billion and patients $17.1 billion between 2013 and 2022.

Alexandra Bennewith, a vice president for the United Spinal Association, which represents people with spinal cord injuries and disease, welcomed the judge’s strong response, even though he rejected the challenge.

The competitive bidding program, in places where it has gone into effect, has already impaired patients’ access to wheelchairs, oxygen equipment and other supplies, Bennewith said.

“It all comes down to delays in service and delays in access. We really want to see this fixed,” she said. The home care community has been lobbying for legislation to improve the program, which is expected to be introduced in 2013, she said.

The case is Key Medical Supply Inc v. Sebelius, U.S. District Court for the District of Minnesota, No. 12-752.

For Key Medical Supply: Samuel Orbovich of Fredrikson & Byron.

For Sebelius: Clifford Reeves, Friedrich Siekert and Gregory Dworkowitz of the Justice Department.

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