Bloomberg Study Questions Medicare’s Savings Estimate for its Competitive Bidding Program for Home Medical Equipment and Care

Thu, July 12, 2012
Washington, D.C.

Bloomberg Government, the division of Bloomberg dedicated to analysis of government issues, released a report concluding that Medicare may be overstating the projected savings from its competitive bidding program for durable medical equipment and care.

The Bloomberg study also highlights the criticisms of auction experts about the design of Medicare’s bidding system and describes the 85 percent reduction in home medical equipment providers allowed to bill Medicare in the initial nine metropolitan areas where the program was introduced.

The 26-page study by Brian Rye begins with a summary of findings:

  • "CMS’s assertions that the program saved $202 million in its first year may be overstated for a number of reasons, including a spike in claims seen in late 2010 and CMS's intentional selection of areas with higher-than-normal usage levels for Round 1 of the program.

  • The bidding process employed by CMS will likely reduce the number of market participants and spur a wave of consolidation within the highly fragmented home medical equipment industry. In the nine metropolitan areas covered under Round 1, more than 2,300 entities had submitted Medicare claims immediately before the program's implementation. As a result of the new program, the government awarded Medicare contracts to just 356 providers for 2011 in those same nine markets, an 85 percent reduction.

  • Rather than setting the price for a product based on the amount of the market-clearing bid (the bid at which the aggregate supply meets the government's estimated demand), CMS stipulates that the price is equal to the amount of the median of all the winning bids. Because of this rule, about half of the ‘winners’ in each bidding process are offered a contract for a value that’s less than they bid. Academic auction experts contend that this policy, along with the non-binding nature of supplier bids, encourages unrealistic, low-ball bids that threaten the long-term integrity of the bidding process."

The study also repeats the questions raised by the Government Accountability Office (GAO) in May about the method CMS used to measure complaints about the bidding program. GAO said the CMS definition of "complaint may be an optimistic characterization of beneficiary calls." See the GAO report Review of the First Year of CMS’s Durable Medical Equipment Competitive Bidding Program’s Round 1 Rebid

Finally, the study called for further examination of the cost-savings picture painted by CMS. "To fully assess whether the program is resulting in any kind of ‘cost-shifting’ activity that generates other types of Medicare expenditures, it would be helpful if CMS would provide an analysis of Part A and other Part B claims from the nine areas affected by the competitive bidding program."

View the video of Bloomberg analyst Brian Rye summarizing his study.

Patient Groups, Auction Experts Oppose Current Bidding System

Consumer advocates, auction experts, home medical equipment providers, and economists are concerned that seniors and people living with disabilities are not receiving critical medical equipment and services under the competitive bidding program. Since the program was implemented in 2011, the American Association for Homecare has received reports from hundreds of Medicare patients about difficulty finding local equipment and service providers, delays in obtaining medically required equipment and fewer choices when selecting equipment and providers.

Lined up in opposition to the current Medicare bidding program are 244 economists, 30 consumer and disability groups such as United Spinal and the ALS Association, and at least 171 members of Congress.

Experts Support an Alternative System for Achieving Market Pricing

The American Association for Homecare is urging Congress to adopt the Market Pricing Program (MPP) to replace the controversial bidding program. This program is based on recommendations by economists and auction experts who have studied the current Medicare bidding program. MPP features an auction system to establish market-based prices around the country and would require Medicare to make fundamental changes to ensure the long-term viability of the pricing program. Key components include:

  • The Market Pricing Program is designed to achieve an accurate market price.

  • The bid price is based on the clearing price, not the median price of winners.

  • The program includes the same equipment and services as the current bidding system and would be implemented across the country during the same timeframe.

Two product categories per market area would be bid. Eight additional product categories in that same area would have prices reduced based on auctions conducted simultaneously in comparable geographic areas. Medical oxygen, walkers, respiratory devices, hospital beds, wheelchairs, and other medical equipment and supplies prescribed for Medicare beneficiaries reduce spending by preventing treatment in higher-cost settings. Spending on this type of equipment and care represents just 1.4 percent of Medicare spending.

CMS is now expanding the bidding program to 91 additional metropolitan areas throughout the U.S.

The American Association for Homecare represents durable medical equipment providers, manufacturers, and others in the homecare community that serve the medical needs of millions of Americans who require oxygen systems, wheelchairs, medical supplies, inhalation drug therapy, and other medical equipment and services in their homes. Members operate more than 3,000 homecare locations in all 50 states. Visit www.aahomecare.org.

Contacts

Michael Reinemer, 703-535-1881, michaelr@aahomecare.org
Julie Driver, 703-535-1887, julied@aahomecare.org