Business, Consumer Groups Demand Reforms to Medicare Competitive Bidding

Published August 1, 2011


Medical device makers and consumer groups are demanding reform of Medicare’s new competitive bidding program, as patients are already reporting problems receiving home medical equipment and services prescribed by their physicians. A particular concern is the ability of firms to “lowball” bids and gain excessive market share, thereby driving out their competition.

The Centers for Medicare and Medicaid Services (CMS) began implementing their controversial “competitive” bidding program on January 1 in nine regions across the United States: Charlotte, Cincinnati, Cleveland, Dallas-Fort Worth, Kansas City, Miami, Orlando, Pittsburgh, and Riverside, California. Later this year the program starts up in another 91 regions.

The bidding program affects millions of Medicare beneficiaries who require oxygen therapy, enteral nutrients (tube feeding), continuous positive air pressure (CPAP) and respiratory assistive devices, power wheelchairs, walkers, hospital beds and support surfaces, and mail-order diabetic supplies.

By design, this new Medicare program severely restricts the number of companies allowed to provide the equipment and services subject to bidding, according to the American Association for Homecare, which represents durable medical equipment providers, manufacturers, and other organizations in the homecare community.


Difficulty Obtaining Equipment

Since the bidding program began on January 1, patients, clinicians, and home care providers have reported difficulty finding local equipment or service providers, delays in obtaining medically required equipment and services, and longer than necessary hospital stays due to trouble discharging patients to home-based care.

Delays in finding the right equipment or a provider prevent the patient from being discharged in a timely manner, which only adds to costs, says Tyler J. Wilson, president and CEO of the American Association for Homecare.

“By design, [Medicare’s] competitive bidding is a flawed system. It will result in a culling of vendors and winnowing of providers and ultimately result in shortages. And when the attrition process ends, the remaining few vendors will raise their prices,” says Wilson. “Hospitals are cutting smaller companies out of the system. Beneficiaries are confused. There are plenty of examples where the patient is unable to get the product they want from the provider they want.”


Pushback from Auction Experts

More than 160 economists and auction experts sent several letters to Congress last November warning the current design of the bidding system will fail to result in quality products. Noting no auction experts were consulted in creating the system, their letter pointed out the CMS-designed system does not bind bidding companies to honor their bids.

This undermines the credibility of the process and encourages “low-ball” bids that, according to the auction experts, are unsustainable. In their letter, the experts say the bid design provides “strong incentives to distort bids away from [actual] costs,” and lacks transparency, which is “unacceptable in a government auction and is in sharp contrast to well-run government auctions.”

“This collection of problems suggests that the program over time may degenerate into a ‘race to the bottom’ in which suppliers become increasingly unreliable, product and service quality deteriorates, and supply shortages become common. Contract enforcement would become increasingly difficult and fraud and abuse would grow.… Implementation of the current design will result in a failed government program,” the experts wrote.


Power Shifting to Providers

Wilson says the poorly designed process makes for far fewer choices for patients when selecting equipment or providers, reduced quality, and failure to meet the demands of a shifting marketplace.

“At the business level, small providers that have won only one contract to supply a hospital are being overlooked in favor of national providers. The list of approved providers isn’t updated fast enough, and they just get overlooked by the hospital staff,” Wilson said. “This is one of the unintended consequences of the new competitive bidding process because the dynamics and demographics of the market have shifted.”

Wilson says as the nation’s population ages, more people will have a greater need for home health care services.

“The official view from the government is that in the short term this is advantageous because it introduces competition. In the long term, however, the impact of competitive bidding on the home health care market is that it will shift power back to the providers,” says Wilson.


Negative Impact on Providers

Sean Schwinghammer, executive director of Florida Alliance of Home Care Service, says the new bidding process is presenting major problems for providers, leading to consolidation in the marketplace.

“This is a huge problem for our providers. The locals are getting jammed because the ones that only win one or two bids are being overlooked in favor of the national providers,” Schwinghammer said. “Hospitals view the nationals as more of a one-stop shop, so they are contracting with them to provide everything. Also, it’s too much work to get everyone serviced by different providers. All the hospitals are doing is calling one supplier for nearly everything.”

According to a survey by Schwinghammer’s organization of providers in greater Miami, 15 percent have already closed their doors, and another 80 percent have laid off employees.

“It’s as if CMS said: Let’s give them an impossible price and see who meets it,” Schwinghammer said.

“The process is flawed, and we’re trying to get reasonable minds to eliminate competitive bidding. However, if that fails and we’re left with this bad system in place and it just limps along, prices will stop moving downward and you will see fewer providers, which means that beneficiaries are going to have fewer choices,” said Wilson.


Kenneth Artz ([email protected]) writes from Dallas, Texas.