Congress Votes to Protect Medicare Price Controls on Medical Supplies

Published September 1, 2008

By overriding President George W. Bush’s veto of the Medicare “sustainable growth rate” (SGR) fix, the U.S. House and Senate delayed for 18 months a planned 10.6 percent cut in physician reimbursements for Medicare cases.

But Congress also killed a new approach to the way Medicare pays for medical equipment that would have saved billions of dollars at no loss to beneficiaries.

Writing in The Wall Street Journal, U.S. Health and Human Services Secretary Michael Leavitt noted Medicare traditionally has paid to “rent” medical equipment based on a fixed fee schedule.

“An oxygen concentrator,” Leavitt noted, “costs about $600 (to buy) on the open market.” But Medicare pays $198.40 per month to rent the same machine. Renting it for 36 months costs $7,142, of which beneficiaries pay 20 percent or $1,428–more than double the cost of buying it.

Lobbyists Won

The Centers for Medicare & Medicaid Services (CMS) instituted a competitive bidding process in 10 locations around the country, Leavitt writes. “Unsurprisingly,” he noted, “the bids came in substantially below what Medicare pays, on average 26 percent below. These new prices took effect on July 1, benefiting taxpayers and patients.”

The suppliers who lost out on the bids engaged in a ferocious lobbying campaign and succeeded in getting the program killed in the new legislation.

An example of the arguments the losing suppliers used appeared in a press release issued by the American Association for Homecare, an industry trade group, on July 8, exactly one week after the new system went into effect.

The release said, “The new Medicare competitive bidding program for durable medical equipment has created concern and chaos for beneficiaries, physicians, hospital discharge officials, and home medical equipment providers across the country since it was implemented in 10 metropolitan areas on July 1.” All of that in just one week?

The Chicago Tribune weighed in with an editorial response, noting, “the Medicare trust fund will become insolvent by 2019 [and] the most promising way to fix Medicare is with the same engine that drives the U.S. economy: competition.”

Consumers Lost

The Tribune editorial goes on to say, “But the trade association for medical equipment suppliers and other lobbyists has worked hard to derail this bidding program. The lobbyists argue that the bidding process was flawed and competition will create some job dislocations. Some companies won’t survive. That’s probably true: Competition creates winners and losers. But Medicare is not going to get a handle on its rising costs by re-jiggering its government-controlled pricing. As long as the anti-competitive provisions are in the bill, it will be bad for patients and taxpayers.”

An Associated Press story on the issue pointed out the reform would have immediately reduced co-pays for Medicare beneficiaries: “In the Miami area, for example, a standard power wheelchair that cost Medicare $4,024 last week will cost an estimated $2,817 under the new system. The cost for someone paying the 20 percent co-pay would drop from $805 to $563.”

The AP story added, “The bid process has severely curtailed the number of approved businesses. The number of approved firms for oxygen in Greater Miami, for example, fell from more than 400 to 46. Medicare insists there are enough businesses to meet demand but says it can add more if needed.”

Cheaters Prosper

Officials say reducing the number of firms will cut the potential for fraud. On July 16, the U.S. attorney in Miami, R. Alexander Acosta, announced the guilty pleas of three people involved in a $148.5 million fraud scheme with the type of medical equipment covered by the new system.

The AP article notes, “The American Association for Homecare, which represents the businesses that sell the type of equipment the government is slashing prices on, calls the changes ‘a train wreck.'”

Why? The article provides an answer: “Rob Brant, owner of City Medical Services in North Miami Beach, Fla., was one of the losers. His seven-person company gets about 80 percent of its business from Medicare patients and didn’t make the cut in the new bidding process. ‘I’m in very big trouble,’ he said.”

And so it goes in Washington these days. If your firm is overpriced and inefficient, hire a lobbyist to keep you in business anyway. In fact, that is far more important than delivering value to your customers.

Greg Scandlen ([email protected]) is director of Consumers for Health Care Choices at The Heartland Institute.

For more information …

“Will Congress Continue a Medicare Scam?” The Wall Street Journal, July 9, 2008:

“Medicare Bidding Program Creates Major Problems for Physicians, Hospitals, and Beneficiaries Seeking Home Medical Equipment,” News Blaze, July 9, 2008:

“Medi-scared of competition,” Chicago Tribune, July 5, 2008:,0,4830329,print.story

“Medicare rolls out bid system to save on equipment,” Associated Press, July 3, 2008: