Competitive Bidding for Manufacturers on Radar Screen Again

WASHINGTON — Is a competitive bidding program for
manufacturers on the HME horizon? According to a new report from
the General Accountability Office, that would take a lot of
doing.

The GAO has been exploring
the possibility since 2009 at the request of Rep. Pete Stark,
D-Calif. But its June 29 report — “Medicare: Issues for
Manufacturer-Level Competitive Bidding for Durable Medical
Equipment” — stopped short of making a recommendation for
such a program, saying there were numerous issues that would need
to be addressed before it became a reality.  

“CMS could face issues both similar to those that it addressed
in implementing [the DMEPOS
competitive bidding program] at the supplier level and specific
to competitive bidding involving manufacturers if it were required
to implement a Medicare DME manufacturer-level approach and were
given broad authority to do so,” the GAO said.

Those issues, according to the report, could include choosing
which items to 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 beneficiary choices for
DME items. While limiting the number of manufacturers could save
costs for Medicare, that would also limit beneficiaries’ choices
among DME items, the report pointed out.

“CMS could also consider key issues specific to competitive
bidding at the manufacturer level. For example, CMS currently has a
minimal relationship with DME manufacturers unless they are also
Medicare suppliers, and it might need to strengthen its regulatory
relationship with DME manufacturers for competitive bidding,” the
report stated. “CMS could also consider whether a new Medicare
payment system would need to be created that could separate
payments for the cost of a manufacturer’s item from the cost for an
item’s services provided by suppliers.”

Nevertheless, Stark sent a letter to CMS asking the agency to
review the idea.

“This report deserves review by the [Medicare and Medicaid]
Innovation Center as it presents evidence that manufacturer-level
competitive bidding for certain durable medical equipment items may
be a cost-saving alternative for Medicare,” wrote Stark, ranking
member of the House Ways and Means Subcommittee on Health.

The suggestion of a bidding program for DME manufacturers sent
ripples of anxiety through an already-beleaguered industry.

“We are very concerned about this concept because it would be a
miserable failure if Medicare were to attempt to do this,” said
Cara Bachenheimer, senior vice president, government relations, for
Elyria, Ohio-based Invacare, the country’s largest manufacturer of
DME products.

She pointed out that the report is unlike the majority of GAO
reports in that it does not include a recommendation.

“Instead, GAO raised a laundry list of issues that would have to
be addressed,” she said. “Most importantly, the government would
have to construct a whole new payment system that segregated
providers’ costs from equipment acquisition costs. And GAO notes
how CMS’ prior attempts at this have failed.”

In its report, the GAO explored how government and private
health care organizations contract with DME manufacturers or use
group purchasing organizations to slice their equipment costs.
Prominent in the report is the Veterans Administration, which has
often been touted as the model for low DME pricing.

“The VA has been able to negotiate for lower prices than
Medicare for certain DME items,” according to the GAO. “For
example, in 2002, the HHS OIG reported that, compared to Medicare,
VA’s median prices for 15 selected DME items were 31 to 88 percent
less than Medicare’s fee schedule prices.”

The report also said the agency “recently reported that, had
Medicare applied average VA payment rates for home oxygen equipment
to estimated Medicare utilization, Medicare spending for this
category could have been 38 percent lower in
2009.

“We also found some examples where VA has been able to obtain
lower prices than Medicare,” the report noted. “We found that VA’s
national contract price in 2010 for a fully electric hospital bed
was $396.85, while Medicare’s payment for the same bed was
$1,638.38.”

The GAO did acknowledge that according to VA officials, “VA’s
contract price does not include service components that are
included in the Medicare payment, such as delivery and set up of
these hospital beds, which could reduce the difference between VA
and Medicare.”

Bachenheimer pointed out other differences between the HME
industry and the VA. “While the Veterans Administration has done
this, there are significant differences in the relative
infrastructures, populations served and ways the agencies manage
their programs,” she said.

That might not be enough to dissuade the Department of Health
and Human Services from considering such a program for DME,
however.

“The possibility of bidding at the manufacturer level for other
items [beyond commodity products such as diabetic test strips]
should not be dismissed and could have merit,” wrote Jim R. Esquea,
HHS assistant secretary for legislation, in comments included in
the report.

That interest could backfire, however.

“While Rep. Stark asked CMS’ Innovation Center to review the
report, if they do, it essentially sends the message that CMS
believes the current bid program is problematic, which CMS
continues to steadfastly deny,” Bachenheimer said.

Read Stark’s letter.

Read the GAO report.