Manufacturer Bidding?

The General Accountability Office recently issued a report called “Medicare: Issues for Manufacturer-Level Competitive Bidding for Durable Medical Equipment” requested in 2009 by Rep. Pete Stark, D-Calif., ranking member of the House Ways and Means Committee, Subcommittee on Health. On the same day the report was released, Rep. Stark sent a letter to CMS’ Center for Medicare and Medicaid Innovation stating that it “deserves review” as a “cost savings alternative” to how Medicare currently pays for durable medical equipment.

In his original request, Rep. Stark asked the GAO to provide recommendations regarding how to structure such a program. However, unlike in most of its reports, the GAO did not provide any specific recommendations.

Notably, the GAO identifies a series of significant issues that would need to be addressed before any manufacturer bidding program could occur. Given the significant serious hurdles that would be required — particularly the need for Congress to pass a new law giving the Medicare program this new authority, and that such a program would conflict with the current DME bidding program underway — I believe there is little likelihood that the federal government will pursue such a large policy change in the near future.

In its report, the GAO explains how some government and private health care purchasers leverage their buying power to reduce spending on DME by contracting with DME manufacturers or using purchasing intermediaries. The Veterans Administration, for example, requires its medical centers to purchase certain DME items directly from manufacturers through one of three mechanisms.

The GAO also describes how some Medicaid programs contract with manufacturers for DME items. These programs select either a single or limited number of manufacturers to provide a particular DME item, enabling them to leverage their buying power in exchange for price discounts on items the states say require little or no servicing. The report also describes how some group purchasing organizations or third-party administrators negotiate manufacturer pricing.

The GAO describes the current competitive bidding program that Medicare has underway in nine metropolitan areas and compares some of the details of that program to a manufacturer bidding program. The report states that CMS could face issues both similar to those that it addressed in implementing a bid program at the supplier level and specific to competitive bidding involving manufacturers if it were required to implement a manufacturer-level approach, including: choosing which DME items to competitively bid that would result in the most Medicare savings, determining whether to operate the program for some items at a national level and considering the range of Medicare beneficiary choices for DME items.

In addition, the GAO identifies new key issues specific to competitive bidding at the manufacturer level that CMS would have to address. For example, CMS currently has a minimal relationship with DME manufacturers unless they are also Medicare suppliers, so the agency might need to strengthen its regulatory relationship with DME manufacturers for competitive bidding.

Most important, the GAO notes that CMS “could” also consider whether a new Medicare payment system would need to be created to separate payments for the cost of a manufacturer’s item from the cost for an item’s services provided by DME suppliers. The report explains that CMS’ efforts in the past to separate payment for the equipment and services have not been fruitful.

If Medicare were to attempt to conduct a manufacturer bidding program, it would fail for a series of reasons. The government would have to construct a whole new payment system that segregates providers’ cost of delivery, set up, education, etc., from equipment acquisition costs (and GAO notes how CMS’ prior attempts at this have failed). In addition, while the VA has done manufacturer bidding, there are substantial differences in the agencies’ relative infrastructures and service delivery, populations served and the ways the agencies manage their programs.

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A specialist in health care legislation, regulations and government relations, Cara C. Bachenheimer is vice president, government relations, for Invacare Corp., Elyria, Ohio. Bachenheimer previously worked at the law firm of Epstein, Becker & Green in Washington, D.C., and at the American Association for Homecare and the Health Industry Distributors Association. You can reach her at 440/329-6226 or [email protected].