From: Crain’s Cleveland Business

Even winning bidders wounded by new program, which feds say saves millions

The Obama administration is celebrating its use of competitive bidding to buy medical equipment for Medicare beneficiaries as a big cost saver in 2011, but the Northeast Ohio companies that sell the equipment haven’t been so quick to sing the program’s praises.

Rather, they contend the competitive bidding program, which rolled out in Cleveland and eight other metropolitan areas last year, has taken a bite out of their revenue while forcing them to trim staff and diversify their lines of business.

The federal government in the coming year plans to roll out the program to another 91 markets, including Akron, Youngstown, Columbus and Toledo. As such, local suppliers expect an even more challenging environment, which is especially the case for companies that sought refuge in markets that now will be subject to the bidding program.

Integrated Medical Inc. in Cleveland was one of those companies. After losing bids in several device categories in Cleveland, the company shifted some of its sales force to the Akron area — a region, at least for the rest of the year, that still is covered under Medicare’s traditional fee-for-service model.

However, if Integrated Medical loses bids for the Akron area, “that’s just putting the handcuffs on and putting us in a body bag,” company president Gary Bajusz said.

“If you don’t win, you might as well just shut your doors,” Mr. Bajusz said. “It’s a very onerous program that they put out. We’re feeling the wrath of it.”

Anton Yeranossian’s small, 13-person company, A&A Medical Supply in Chagrin Falls, was able to maintain its staffing levels by securing new business in Akron and areas near Ashland and Columbus when the bidding program reared its head in the Cleveland area.

But, like Integrated Medical, if A&A Medical comes up short in bidding for business in those additional regions, Mr. Yeranossian said the company’s future could be in dire straits.

“If we don’t win any bids — God forbid — that’s going to put us in a really hard situation,” said Mr. Yeranossian, the company’s CEO.

A loss for the winners

The Centers for Medicare & Medicaid Services said the competitive bidding program reduced Medicare costs in 2011 by $202 million, or about 42%, over 2010 medical equipment expenditures in the nine markets covered by the program. Acting Medicare administrator Marilyn Tavenner said in a news release the program is expected to “save tens of billions of dollars for beneficiaries and taxpayers over the next 10 years.”

Still, the Cleveland-area companies that won bids say the program has been detrimental to their bottom lines. Because they were forced to bid so low, any uptick they saw in new business was offset by lower reimbursements from the feds.

Seeley Medical Inc. of Andover, in Ashtabula County, won most of the categories up for bid in the Cleveland region, but the company still cut a quarter of its staff through attrition and layoffs in preparation for the program’s start in January 2011.

While the company saw a slight increase in new business, the drop in Medicare reimbursements — which on average was about 32% — forced Seeley Medical to evaluate whether to take on new patients or invest in the latest home care equipment, according to company president Joe Petrolla.

“If you look at simple math, we’re cutting off limbs now,” Mr. Petrolla said. “We’re not cutting off fat.”

Any adjustments companies have made to weather the storm are just quick fixes to a problem that’s only going to get worse as the bidding program takes root across the country, according to Joel Marx, CEO of the Medical Service Co. in Cleveland and chairman of the Ohio Association of Medical Equipment Services, an advocacy group.

In March 2011, Mr. Marx’s company acquired a respiratory equipment company in upstate New York, a region not yet affected by the competitive bidding program. Revenue from that acquisition has been used to support Medical Service’s business in Cleveland and Cincinnati, another area included in the initial roll-out of the bidding program.“It isn’t the answer, but it delays the impact another couple of years,” Mr. Marx said.

Patient problems

Aside from whittling away their business, one of the hallmark complaints of the home care equipment sector is that the program will reduce competition and cause patients to suffer.

“It’s very hard to provide service at the levels patients should get with the way the program is run and the way pricing ended up,” Mr. Marx said. “There is cost-shifting right now, and ultimately the beneficiary is going to be hurt.”

For instance, Mr. Marx said equipment suppliers would be forced to scale back services or staff because of reduced reimbursements, which could cause delays in the delivery of equipment such as portable oxygen tanks and hospital beds.

Also, Mr. Marx said the program causes confusion among Medicare beneficiaries who require several pieces of equipment and now aren’t able to one-stop shop with suppliers that didn’t win bids in each equipment category.

However, the Centers for Medicare & Medicaid Services contend in a recent report that its regional offices received a mere 151 complaints about the program in 2011 — a small fraction of the 2.3 million beneficiaries in the nine regions involved in the initial roll-out of the program.

Invacare enters the fray

While the government shows no signs of slowing in its quest to expand the bidding program nationwide, the medical equipment industry is pushing legislation to replace the process.

Invacare Corp. in Elyria, which makes wheelchairs, portable oxygen and other health care equipment, is one of the companies leading the charge to scrap the bidding program. The company has a big stake in the fight: Its customers are the equipment suppliers struggling to stay afloat.

“We’re hand in hand with the industry. We need our customers to be strong, vibrant companies across the country,” said Cara Bachenheimer, Invacare’s senior vice president of government relations. “Their interest is our interest.”

Ms. Bachenheimer said Invacare supports a “market pricing program” over the competitive bidding program. Under the current system, the government pays the winners the median price of the winning bids. Under the industry’s proposal, the final price of a piece of medical equipment would be based on the market clearing price — the price at which supply equals demand to pay all suppliers.

Also, under the current system, suppliers’ bids are non-binding. Industry advocates, however, would like to see companies with the winning bids be forced to accept a contract or forfeit a cash deposit made to enter the bidding. Such a move, they contend, would eliminate low-ball bids.

Ms. Bachenheimer admitted that getting the bill through Congress, especially in an election year, is “not an easy lift,” though she expects hearings on the matter in the House of Representatives in June or July.

“We’re trying to line up our ducks and garner enough support. … We’re early in the process, but it’s going to be a long year. This is certainly not a slam dunk, but it would be a markedly better system than we have now,” she said.