WASHINGTON--The rebate program proposed under CMS' draft
competitive bidding rule for Medicare DME has the potential to
induce fraud and should be eliminated, the Medicare Payment
Advisory Commission told CMS.

"Although the goal of sharing potential provider profit with the
beneficiaries is laudable, it is preferable to obtain the best
price through competition, not through a rebate," MedPAC wrote in a
June 28 letter commenting on the rule.

Under the proposed competitive bidding rule (see HomeCare Monday, May 1), winning suppliers
that bid below the payment amount set by CMS have the option of
offering beneficiaries a rebate, representing the difference
between their bid amount and the Medicare payment. If a provider
decides to offer a rebate for any item, it must be given to all
beneficiaries--but a provider cannot advertise that it is offering
a rebate.

"A rebate program will complicate the design and administration
of the program and possibly induce additional demand for DME, as
well as raise the risk of fraud and abuse as noted in the proposed
rule," wrote MedPAC, which advises Congress on Medicare policy.

"If beneficiaries' cost-sharing were reduced or eliminated,
demand for DME may be induced (allowing a beneficiary to be paid to
purchase DME if the rebate exceeded cost sharing would be even
worse)," the commission continued. "Demand could be channeled to
more expensive substitute items if rebates made those items less
expensive for the beneficiary. Induced demand and item substitution
could increase rather than decrease Medicare spending."

Also in the letter to CMS, MedPAC recommended:

  • eliminating an automatic payment update. In the draft rule, CMS
    proposes that item prices be increased annually over the three-year
    life of the contract using the Consumer Price Index for Urban
    Consumers. If the annual inflation update is frozen, it is possible
    for prices to rise faster within the competitive bidding areas than
    in other areas using the fee schedule.
  • expanding criteria for the ranking of metropolitan statistical
    areas. In addition to ranking MSAs on the total number of DMEPOS
    suppliers, CMS also should consider the number of suppliers of
    constituent categories of DMEPOS, for example, oxygen supplies or
    hospital beds. If there are enough suppliers to support competition
    in each of the constituent markets within an MSA, it should be
    included in the competitive bidding process.
  • defining competitive bidding areas to be equal to MSA
    boundaries for the first round of MSA selection. The draft rule
    proposes that competitive bidding areas could be equal to MSAs,
    larger than MSAs or smaller than MSAs.
  • clarifying how physicians will provide DME in competitive
    bidding areas. The self-referral law that prohibits physicians from
    supplying most DME items seems to conflict with the rule's
    requirement that all bidders must bid on all items within a
    category of DME. MedPAC suggests that CMS allow physicians to
    continue to supply a limited range of items and not require them to
  • accepting bids that include some items with prices above the
    current fee schedule as long as the total bid would result in lower
    spending. "Allowing this variation is likely to give CMS the most
    accurate price signals for both over- and under-priced items,"
    MedPAC said. Also, "if the bidders are not permitted to bid a
    higher price for items that cost them more to supply than the
    current fee schedule allows, then they will not offer the program
    substantial discounts on the items that are currently priced too

In the letter, MedPAC also stated its support for DME
competitive bidding. "By giving suppliers an incentive to offer
prices close to their costs, competitive bidding has the potential
to give CMS better price signals for rate setting and to improve
the value of beneficiary and program spending," the commission