From: Inside CMS

On the eve of a House hearing on the Medicare competitive bidding program for durable medical equipment, the Center for Regulatory Effectiveness last Tuesday (May 8th) sent John Holdren, assistant to the president for science and technology, a paper that recommended CMS pay for a laboratory simulation of the DME bidding rules to assess their efficiency and determine how they should be changed. The paper, which is critical of the bidding effort, analyzes the program and compares CMS’ design to that of auctions developed by the Federal Communications Commission (FCC). The purpose of such a trial, which is the process FCC has used to design auctions, would be to fairly compare how the CMS bidding rules affect the price of durable medical equipment and services, CRE says. The clinical test could also compare the difference in the quality of the services received by beneficiaries through the CMS bidding program and the quality of services beneficiaries receive paid for under a price schedule. CRE recommended the clinical test also evaluate the sustainability of the auction process compared to other sets of rules.

“On this point, I reiterate the Congressional Budget Office’s warning that CMS’s current bidding system has a ‘near certainty of failure.'” the CRE paper states, referring to a statement by Tom Bradley, Congressional Budget Office Chief of Medicare Cost Estimates.

CRE also contends that the DME bid program violates the President’s Scientific Integrity Memorandum. That directive assigns the director of the Office of Science and Technology Policy to ensure integrity in the executive’s involvement with science, and CRE is requesting a meeting with Holdren’s office.

One of CRE’s main complaints is that the DME bid program does not require bidders to honor their bids. The law gives CMS a lot of discretion to implement the bidding program. It directs CMS to set quality and financial standards for bidders to ensure that beneficiaries retain access to multiple providers.

“The statutes do not, however, constrain CMS’ discretion in setting the bidding rules,” the analysis states. “Instead, the MMA simply directs the Secretary of HHS to ‘conduct a competition among entities supplying items and services described in subsection (a)(2) for each competitive acquisition area in which the program is implemented…'”

Another key complaint is that CMS does not use the “market clearing price,” which is the highest price among the winning bids. Instead, the agency prices suppliers at the median of the accepted bids. That’s an aspect of the bidding program’s design that Bradley also disparaged, and the CRE quotes Bradley at length. Bradley said he thinks CMS chose median prices because they had “all these crazy low bids,” and they needed to get them out of the calculation so the agency selected more bidders than it needed, then from that vastly expanded pool, it selected median prices.

At the House Ways and Means health subcommittee hearing last week on the DME program, CMS Chronic Care Policy Group Director Laurence Wilson repeated CMS’ position that it cannot make bids binding. He added that, legal authority aside, CMS does not want to force unwilling suppliers to participate in the program because Medicare services differ from services for which the FCC holds auctions. Suppliers are providing products and services that are critical to people’s health and that are offered in the home and CMS would not want suppliers in such a position to be disgruntled, he said. Wilson also said the main complaint from industry about the using median bid prices was that many winning bidders would drop out if they were required to provide products and services for less than they bid. But only 8 percent of winning bidders chose not to participate in the program, he said, and that’s a low figure.

The CRE report says the problem is that the remaining few suppliers will face less competition and they know how to game the system so prices will increase and suppliers, mostly small businesses, will be forced out of the market for no good reason. — John Wilkerson