WASHINGTON, D.C., Feb. 27, 2013—The Medicare bidding program for Durable Medical Equipment (DME) is devastating small and large businesses in communities across the country. And Medicare beneficiaries—senior citizens and people living with disabilities—are being endangered because of delays in obtaining critical homecare equipment, such as oxygen therapy, power wheelchairs, and diabetic testing supplies.
Last month, the Centers for Medicare & Medicaid Services (CMS) announced an average cut of 45 percent in reimbursement rates for DME items when the dangerous and defective bidding program expands this summer to an additional 91 locations. Already, repercussions are being felt by the businesses that will be slammed by the capricious price cuts, which economists insist are more the result of government price-fixing than actual competitive bidding.
How bad is it? Tom Fitzsimmons, owner of Fitzsimmons Home Medical Equipment in Chicago, is basically giving up. His grandfather started the business in the 1930s, but Fitzsimmons says he will close seven of his eight locations, laying off 70 full-time workers because he will lose 80 percent of his business when the CMS bidding program expands on July 1.
Thus far, 244 economists, more than two dozen consumer and disability groups, 186 members of Congress, and the National Federation of Independent Business have denounced the bidding program. “There are winners and losers, but winners are chosen based on their willingness to game the system rather than their cost competitiveness,” says Dr. Brett Katzman, interim chair of the Department of Economics, Finance & Quantitative Analysis at Kennesaw State University.
Moreover, this failed public policy is unfairly dismantling a network of providers dedicated to serving the most vulnerable people in our society. These homecare providers are being forced to lay off workers, close their businesses, or no longer service Medicare patients. In many cases, Medicare beneficiaries are baffled by a process that is replacing DME providers who have delivered outstanding service and products for decades with new suppliers who—because of the drastic cut in prices—can’t provide the same level of service. What’s clear is that government bureaucrats did not comprehend the impact of their arbitrary price cuts. For instance, a serious health risk is developing in California.
Mark Hawkins owns Western Rehab, a provider of mobility equipment to clients in 15 counties in northern California. Due to the price cuts, he will no longer offer services and products to Medicare beneficiaries. He says many of his clientele are funded by both Medicare and Medi-Cal (Medicaid), but DME providers are not allowed to accept private funds for clients that are enrolled in the Medi-Cal program. “Because we are now not accepting Medicare reimbursement, the beneficiaries are unable to legally purchase the prescribed DME privately due to their enrollment in the Medi-Cal program,” Hawkins says. “As there is no other source of funding, these beneficiaries will have no resource for the prescribed equipment that is needed.”
Hawkins laments the decision to stop serving Medicare patients, but says he has no choice. “The reduced rates do not allow for delivery time and expense to our rural customers,” he says. “It will have an extremely detrimental effect on beneficiary access to homecare products, as there are limited/no companies that service these rural counties. Our employees are aware of probable employment termination as our workload shifts away from Medicare funded services.”
In Birmingham, Ala., Mike Cobb, owner of Crest Medical for more than 30 years, says the price cuts will also force him to lay off workers, a move that will impact their service to customers. “My wife and I own a small, independent DME company in the Birmingham-Hoover competitive bidding area,” Cobb says. “For fiscal year 2012, and for years back beyond that, we felt fortunate if our profit margins for the year were at 5 percent or better, and we run a very cost efficient business model, with my wife and I on the very front lines of customer service and patient care because we can’t afford to add staff. Including the two of us, we have a total staff of 11, with seven being full-time and four part-time.”
He says the 45 percent cut in Medicare, Medicare Advantage, and other insurance payors that use the Medicare allowable basis for reimbursement will reduce his annual receivables by about 30 percent whether they accept bidding contracts or not. “In order for us have a chance at remaining viable, we will be forced to lay off all part-time and at least two full-time employees,” Cobb says. “The good service reputation that we now pride ourselves on will be gone.”
It should be a clear sign to Congress and CMS when companies that “win” bidding opportunities actually turn down the contracts because the reimbursement prices are so ridiculously low. That is happening across the country.
“I am a director of three DME operations, two within Round 2 (competitive bidding areas). We were awarded bid opportunities in Jackson, Miss., and Birmingham, Ala. The single payment amounts for oxygen and CPAP are not sustainable and we declined. As a result, we have laid off three employees,” says Rodney Meadows, director of East Alabama Home Medical Center, LLC in Opelika, Ala., Bessemer Home Medical Center, LLC in Bessemer, Ala., and CPAP Solutions, LLC in Jackson, Miss.
Most DME providers are confronting the challenges presented by the bidding program, but none may be more daunting than those faced by providers of diabetic testing supplies. The industry was stunned when CMS announced it was moving diabetic testing supplies to mail order, resulting in a reimbursement drop of 72 percent for suppliers.
“Contract bid amounts are far below what we can purchase products for in many cases,” says Mary Caldwell, vice president and general manager of City Pharmacy of Elkton, Inc. in Elkton, Md. “I currently employ 45 people and stand to lose 50 percent of my DME business. CMS proposes to pay $10.77/50 test strips. Our cost for the cheapest generic brand is $12.13, and brand strips cost us between $25 and $50 dollars a box. Where did this bid come from, China? Are our seniors going to receive inferior biologics?”
Caldwell says it is “a devastating” blow that will force her to lay off at least half of her 13- person DME staff and several pharmacy workers. “In an area already rocked by terrible economic woes, we are not sure if we can weather this storm,” Caldwell says.
Mark Gielniak, president of Diabetes Plus, Inc., a family-owned business for over 32 years, faces a similar dilemma in Warren, Mich., where he will have to lay off half his staff. “Because of the ridiculously low bid rates for diabetes supplies we will lose approximately 1,200 customers, which is 45-50 percent of our business,” he says. “Most of our Medicare customers pick up their name brand supplies at our store.
But, when July 1, 2013 rolls around they will have to deal with a mail order company and they mostly certainly will not be receiving name brand products. This will be confusing to them as well as forcing them to use inferior products. This will probably lead to poor diabetes control and more complications, which will lead to more doctor and hospital visits.”
Tyler Wilson, president of the American Association for Homecare, called on Congress to implement a market pricing system that would set fair prices for DME, while preventing widespread hardship among providers and beneficiaries. “The evidence clearly shows that the CMS bidding program is nothing short of a disaster for beneficiaries and providers,” Wilson says. “This is bad public policy, and it’s time for Congress to step in and establish a procurement process that can provide Medicare beneficiaries with the quality services and products that they deserve.” Learn more at www.aahomecare.org.