Brown Sticks by Study: Bidding Kills Jobs, Access in Rural Areas

WATERLOO, Iowa — According to VGM VP John Gallagher, a CMS
official who pooh-poohed economist Ken Brown’s study of the impact of competitive bidding on rural
areas may need to wipe some egg off his face. Only weeks into the
project, Gallagher said, the negative effects are already being
seen.

“People have gone out of business because of credit issues,
we’ve lost probably six members in the competitive bidding areas
and several outside,” said John Gallagher, vice president of
government relations for the Waterloo, Iowa-based member services
group.

“We are already seeing consolidation in the rural areas; the
nationals have already pulled back,” he continued. “We are already
seeing concerns in rural areas where Medicaid has said it is going
to go to those [competitive bidding] rates, and we are hearing that
third-party payers are going to those rates. When that happens, Dr.
Brown’s theories will be played out.”

Brown, a Ph.D. in economics and professor at the University of
Northern Iowa, conducted a study last year on the effects
CMS’ project would have on care in rural areas. He concluded
that as national companies closed branches because of resulting
reimbursement cuts, the number of rural providers could decline by
as much as 40 or even 50 percent in the states he studied.

But in a December meeting with Brown, Gallagher and Tom Powers,
also of VGM, CMS’ Jonathan Blum suggested that the analysis was
“flawed.” Small providers would, Blum said, surface to fill the
void left by the nationals.

That prompted a follow-up from Brown.

“During our meeting, you essentially suggested that the logic of
my analysis was flawed,” he wrote in a Jan. 4 letter to Blum,
deputy administrator and director of CMS’ Center for Medicare
Management. “In particular, you argued that when the large national
firms fail and close their offices across the country, including in
rural areas, that this would, in fact, be a good thing for small
independent suppliers of DMEPOS. You pointed out that when the
national firms fail, the geographic holes left behind by their
closure will be easily, and profitably, filled by small independent
suppliers.

“Your argument rests on the ability of small independent
suppliers to quickly and easily set up shop. Unfortunately, a
number of barriers to entry will likely prevent this from occurring
in a timely fashion.”

Those barriers, Brown pointed out, include accreditation, which
can take nine months; a $50,000 surety bond; the difficulties of
finding financing for equipment acquisition; and the significant
barriers new providers would need to overcome, such as getting a
Medicare number, learning and implementing the Medicare billing
process and being solid enough financially to withstand the lag
time in getting reimbursed.

“Thus, while it is easy to argue that in theory a new firm can
easily enter the market and provide high quality products and
service to Medicare beneficiaries in rural America after the large
firms fail, the reality is that the process of starting up in this
industry is far more difficult than one might initially suspect,”
Brown wrote.

On rural America Main Street, small providers are not waiting to
take over the vacancies left by big nationals, Gallagher said.
“It’s not practical having to take care of patients and not be
paid,” he said, adding that there are a myriad of regulations that
must be met. “The sheer weight of trying to get a provider number
would preclude it, and if there is no margin there ….”

Brown’s findings of significant job losses in rural areas
because of competitive bidding are on target, Gallagher said. “It
really comes back to jobs, jobs, jobs,” he said, noting that in
President Obama’s state-of-the-union address last week, he called
for the creation of jobs and putting Americans back to work.

“Here is one [government project] that is a job-killer, and we
have a bureaucrat who has no concept, no clue how competitive
bidding will affect rural areas,” Gallagher added. “Here is a
classic example of the regulatory process run amok.”

That’s the message the industry needs to hammer home to Congress
and the Obama administration, he added.

“It’s about the jobs — that has got to be the mantra,”
Gallagher said. “We support the president in his desires to create
jobs and to make the country more competitive. At the same time,
CMS and [the Department of Health and Human Services] are trying to
eliminate competition and eliminate jobs. You have an agency of the
government putting people out of work.”

Download a PDF of Brown’s study.

Read Brown’s letter in full.

View more competitive bidding
stories.