Coming Medicare Bidding Changes Could Harm Patients

Published April 6, 2011

A well-intentioned but poorly designed set of changes to Medicare could have serious negative consequences when it hits home in many major areas of Ohio just a few months from now. The program is known by the only-a-bureaucrat-could-love-it name of “Competitive Bidding Program for Certain Durable Medical Equipment, Prosthetics, Orthotics, and Supplies.” It has decent ideas at its core but includes very wasteful elements.

Since 2003, Medicare, the major federal health program for the elderly and disabled, has run experiments asking vendors to place competitive bids for a variety of “durable medical equipment”—everything from hip replacements to walkers. Early results show the government pays almost one-third less for things on which it takes bids.

Despite the savings, the process has problems. The Centers for Medicare & Medicaid Services (CMS), which oversees it, has transformed a straightforward bidding process into a system that distorts all the incentives for buyer and seller. For reasons that confound academic experts on bidding (more than 150 signed a letter suggesting problems with the process), CMS selects a “median” price, not the lowest price. This means some providers get to sell a product for more than they bid.

Since sellers don’t have to honor their bid price, get-rich-quick opportunists can submit unrealistically low bids knowing they will get to sell at the “median” price. Even worse, CMS’s process has cut down on competition in the market by eliminating most suppliers from the approved list. Many Ohio companies could suffer. For example, the Cleveland Clinic, the largest Ohio-based provider of jobs in the state, could be placed at a disadvantage.

Most of the products bid on to date haven’t resulted in awful consequences, because the process thus far has focused mostly on “simple functional” equipment such as walkers and wheelchairs. These products generally don’t cure or truly treat any underlying condition and are reasonably easy to fix. If a walker doesn’t work properly, just about anybody can recognize the problem, and it can usually be fixed easily or replaced.

Now, however, the process will be expanded to focus on “complex therapeutic” products such as pacemakers. These products require complicated medical intervention, are almost impossible for anyone to fix themselves, and can have very serious consequences—including death—if they fail.

Moreover, any front-end savings the process produces may disappear if the products selected are even a little worse than those currently used. One category of products soon to be up for bids—pumps that promote the healing of serious wounds—can save thousands of dollars in costs for additional surgery, amputations, and rehabilitation. Because of their complexity, however, even small differences in the pumps can have major consequences for patients and the speed of healing.

If the current haphazard bidding process produces the “wrong” winner, the savings could disappear and otherwise curable patients might have to have limbs amputated.

In addition, the heavy use of bidding may override doctors’ decisions. Although few physicians have strong preferences for one brand of wheelchair over another, nearly all have preferences regarding the more complex tools they use. The bidding process, by limiting them to only one or two brands, threatens to take away physicians’ choice and reduce competition among manufacturers and suppliers.

In the end, patients will probably end up getting the worst deal from the proposed changes. They’ll get worse care and see their doctors’ decisions overridden by bureaucratic dictates.

Having Medicare take bids is a reasonable idea. But the process needs to change. If it goes ahead as planned, Medicare beneficiaries everywhere in Ohio could pay a very steep price. Congress needs to act and fix the process.

Eli Lehrer ([email protected]) is vice president of Washington, DC operations for The Heartland Institute and director of its Center on Finance, Insurance, and Real Estate.