Medicare's DME Bidding Program Criticized
Depending on who you ask, you receive dramatically different opinions about a recently expanded Medicare bidding program for durable medical equipment (DME).
Medical device companies and certain providers call it a mishandled program that cuts reimbursements, lacks transparency, and hurts patient access and quality of care.
The Centers for Medicare and Medicaid Services (CMS) says the competitive bidding program is running smoothly and saving money.
Under the Competitive Bidding Program for certain DME, Prosthetics, Orthotics, and Supplies, CMS awards contracts to enough suppliers to meet demand for items put out for bid. The new price from the bidding process replaces the traditional fee schedule.
Products include oxygen equipment, diabetes supplies, wheelchairs, scooters, hospital beds, walkers, and many others.
The program -- created by the same law that created the program's Part D prescription drug program -- came in response to several government watchdog reports finding Medicare's fee schedule for medical equipment at times too high.
Round one bidding started on products in nine markets in 2009, but on July 1, CMS expanded the program to 91 additional markets, which, combined, contain roughly half of all Medicare beneficiaries. Current law directs CMS to expand the program nationwide by 2016.
CMS' actuary estimated the program will save the Medicare Part B Trust Fund $25.7 billion by 2022.
Round one of competitive bidding saved Medicare more than $200 million in its first year -- a 42% drop in expenditures in the nine participating markets, the agency said.
"CMS real-time claims monitoring has found no disruption in access to needed supplies for Medicare beneficiaries," the agency said in 2012. "Moreover, there have been no negative healthcare consequences to beneficiaries as a result of competitive bidding."
Patient advocates disagree. The anti-competitive bidding group People for Quality Care has collected hundreds of complaints from consumers about their new supplier, available choices, and difficultly receiving supplies because of the bidding program.
The problems, opponents charge, come from the CMS bidding process, which they call highly flawed.
CMS will pay the median amount of selected bids, and the agency may have to select multiple bids to have enough suppliers to meet demand. If five bids were selected, then Medicare may pay some suppliers more and some less than the prices they submitted as bids, depending on prices.
"The CMS procedure gives a strong incentive for firms to low-ball bid in an attempt to game the system," Brett Katzman, PhD, economics department chair at Kennesaw State University in Georgia, told MedPage Today in an email. "This is usually a dangerous strategy because when everyone tries it, prices plummet and firms are stuck with losses."
Katzman noted the bids aren't binding, and some suppliers have walked away from contracts without penalty if the prices are too low. CMS has said 9% of winning bidders have declined service contracts.
"This is unheard of in auctions," he said.
Nearly 250 economists have written to President Obama, expressing their concerns with the bidding process.
"The use of nonbinding bids together with setting the price equal to the median of the winning bids provides a strong incentive for low-ball bids -- submitting bids dramatically below actual cost," the letter written in 2011 stated. "This leads to complete market failure in theory and partial market failure in the lab."
Reimbursement for various home medical equipment fell by 45% on average after Round two started in July and diabetic test strip prices dropped an average of 72%.
Joel Marx, chairman of the board at the DME representative American Association for Homecare, said businesses have already been eliminated from the market and DME use is down, causing many patient advocates to worry that seniors are living in graver danger.
"By limiting which companies can provide the products and services, CMS can arbitrarily select prices as low as it wants and call it savings," Marx said. "This is not competitive bidding and there is no guarantee that the winning bidders can actually supply the products and services at the prices selected by CMS."
AdvaMed, the trade group of medical device companies, has called for the Health and Human Services (HHS) Inspector General to investigate the patient access issue.
Opponents have also pointed to a lack of transparency as another problem.
"For example, bidder quantities are chosen arbitrarily by CMS, enabling a wide range of prices to emerge that have no relation to competitive market prices," the 2011 letter from the economists stated.
Furthermore, a durable medical equipment company and a trade group have filed suit against HHS in federal court claiming the agency awarded contracts to unlicensed suppliers.
Previous lobbying efforts by the device industry stalled the program. Round one was to start in 2008, but Congress halted it after only 2 weeks.
Rep. Tom Price, MD, (R-Ga.) has sponsored a bipartisan bill (H.R. 1717) with 150 co-signers that would halt Round two.
Despite those efforts, the program rolls on.
As then-Acting CMS Administrator Marilyn Tavenner said in January after bids were announced, "We look forward to building on this success by serving more beneficiaries, increasing savings, and helping to ensure the long-term sustainability of Medicare."