• Competitive Bidding for Manufacturers on Radar Screen Again

    Editor’s Note:  The GAO study discussed in the following article from Home Care Magazine, and the letter from Rep. Stark transmitting the document to CMS’ Center for Medicare and Medicaid Innovation, is attached at the end of the post.

    WASHINGTON — Is a competitive bidding program for manufacturers on the HME horizon? According to a new report from the General Accountability Office, that would take a lot of doing.
    The GAO has been exploring the possibility since 2009 at the request of Rep. Pete Stark, D-Calif. But its June 29 report — “Medicare: Issues for Manufacturer-Level Competitive Bidding for Durable Medical Equipment” — stopped short of making a recommendation for such a program, saying there were numerous issues that would need to be addressed before it became a reality.  
    “CMS could face issues both similar to those that it addressed in implementing [the DMEPOS competitive bidding program] at the supplier level and specific to competitive bidding involving manufacturers if it were required to implement a Medicare DME manufacturer-level approach and were given broad authority to do so,” the GAO said.
    Those issues, according to the report, could include choosing which items to bid that would result in the most Medicare savings, determining whether to operate the program for some items at a national level and considering the range of beneficiary choices for DME items. While limiting the number of manufacturers could save costs for Medicare, that would also limit beneficiaries’ choices among DME items, the report pointed out.
    “CMS could also consider key issues specific to competitive bidding at the manufacturer level. For example, CMS currently has a minimal relationship with DME manufacturers unless they are also Medicare suppliers, and it might need to strengthen its regulatory relationship with DME manufacturers for competitive bidding,” the report stated. “CMS could also consider whether a new Medicare payment system would need to be created that could separate payments for the cost of a manufacturer’s item from the cost for an item’s services provided by suppliers.”
    Nevertheless, Stark sent a letter to CMS asking the agency to review the idea.
    “This report deserves review by the [Medicare and Medicaid] Innovation Center as it presents evidence that manufacturer-level competitive bidding for certain durable medical equipment items may be a cost-saving alternative for Medicare,” wrote Stark, ranking member of the House Ways and Means Subcommittee on Health.
    The suggestion of a bidding program for DME manufacturers sent ripples of anxiety through an already-beleaguered industry.
    “We are very concerned about this concept because it would be a miserable failure if Medicare were to attempt to do this,” said Cara Bachenheimer, senior vice president, government relations, for Elyria, Ohio-based Invacare, the country’s largest manufacturer of DME products.
    She pointed out that the report is unlike the majority of GAO reports in that it does not include a recommendation.
    “Instead, GAO raised a laundry list of issues that would have to be addressed,” she said. “Most importantly, the government would have to construct a whole new payment system that segregated providers’ costs from equipment acquisition costs. And GAO notes how CMS’ prior attempts at this have failed.”
    In its report, the GAO explored how government and private health care organizations contract with DME manufacturers or use group purchasing organizations to slice their equipment costs. Prominent in the report is the Veterans Administration, which has often been touted as the model for low DME pricing.
    “The VA has been able to negotiate for lower prices than Medicare for certain DME items,” according to the GAO. “For example, in 2002, the HHS OIG reported that, compared to Medicare, VA’s median prices for 15 selected DME items were 31 to 88 percent less than Medicare’s fee schedule prices.”
    The report also said the agency “recently reported that, had Medicare applied average VA payment rates for home oxygen equipment to estimated Medicare utilization, Medicare spending for this category could have been 38 percent lower in 2009.
    “We also found some examples where VA has been able to obtain lower prices than Medicare,” the report noted. “We found that VA’s national contract price in 2010 for a fully electric hospital bed was $396.85, while Medicare’s payment for the same bed was $1,638.38.”
    The GAO did acknowledge that according to VA officials, “VA’s contract price does not include service components that are included in the Medicare payment, such as delivery and set up of these hospital beds, which could reduce the difference between VA and Medicare.”
    Bachenheimer pointed out other differences between the HME industry and the VA. “While the Veterans Administration has done this, there are significant differences in the relative infrastructures, populations served and ways the agencies manage their programs,” she said.
    That might not be enough to dissuade the Department of Health and Human Services from considering such a program for DME, however.
    “The possibility of bidding at the manufacturer level for other items [beyond commodity products such as diabetic test strips] should not be dismissed and could have merit,” wrote Jim R. Esquea, HHS assistant secretary for legislation, in comments included in the report.
    That interest could backfire, however.
    “While Rep. Stark asked CMS’ Innovation Center to review the report, if they do, it essentially sends the message that CMS believes the current bid program is problematic, which CMS continues to steadfastly deny,” Bachenheimer said.

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