A Tale of Two Studies

ATLANTA

Just as stakeholders prepared to set off for the American Association for Homecare’s Washington Legislative Conference March 4-6, they acquired new ammunition when an economic study on competitive bidding — titled “Will Competitive Bidding Decrease Medicare Prices?” — came to light.

Authored by Brett Katzman, PhD, associate professor of economics at Kennesaw State University near Atlanta, and Kerry Anne McGeary, PhD, associate professor of economics at Drexel University in Philadelphia, the peer-reviewed study takes an in-depth look at the 1999 competitive bidding demonstration projects in Polk County, Fla., and San Antonio.

It concludes that CMS’ format for competitive bidding is fatally flawed and, in many instances, results in higher prices and poorer quality of service.

“The problem with the CMS process is that the bid scoring and price formulation procedures are inconsistent with the bidding behavior CMS wishes to induce,” the authors conclude. “That is, overly complex rules for choosing winners and setting prices distort the incentives that bidders face and may actually result in increased prices for some consumers.”

Published in the Southern Economic Journal, the study notes that, while no data on service quality was available, “there is anecdotal evidence of diminished quality that comes from CMS itself.” CMS felt compelled to initiate quality check site visits for all winners and hired an independent contractor to conduct quality assurance surveys, according to the study.

The new study “dovetails exactly” with a Robert Morris University study commissioned by the Pennsylvania Association of Medical Suppliers, said John Shirvinsky, executive director of the state association.

Released in February, the Robert Morris study blasts the underpinnings of the current competitive bidding program, saying its implementation will result in “substantial market failure,” at least 21,000 lost jobs and prices that spiral up instead of down.

The Robert Morris study, said Shirvinsky, “did a great job on what problems are going to result from competitive bidding. And lo and behold, here comes this [other] study that no one knows about, and it substantiates virtually every point that the Robert Morris study made.

“Obviously, there is no relation between the two [studies],” Shirvinsky said, pointing out that the Katzman-McGeary study “was four years in the making, and it is in a peer-reviewed journal. It took a year to get published. But it unveils some serious flaws in the Medicare HME competitive bidding program that have been pretty much glossed over by CMS.

“This new study is earth-shattering for our industry,” he continued. “It lends credence to every gut-checking reaction we have had on what this program will do and what it won’t do. [Competitive bidding] is a sham. And it is a disgrace that [CMS is] trying to force this on the Medicare beneficiaries.”

Stakeholders said the studies provide significant data supporting the delay of DMEPOS bidding pending an analysis of both the process and its results.

“This certainly helps the cause,” said Don Clayback, vice president, government relations for Lubbock, Texas-based The MED Group, adding it is particularly notable that the two studies are by “outside sources that have looked at this from a business-economic standpoint. At a minimum, you would hope that it would create some doubt in Congress’ mind so that some … will take a look.”