Medicare bidding process slams HME providers

WASHINGTON, DC, February 5, 2013—The plummeting reimbursement rates set by Medicare for Durable Medical Equipment (DME) demonstrate why its procurement system for home medical equipment is a defective process likely to produce troubling results. The bid program allows the Centers for Medicare & Medicaid Services (CMS) to impose arbitrary pricing on oxygen therapy, power wheelchairs, and other critical equipment and services for beneficiaries.

“If this kind of manipulated procurement process were utilized by an industry in the private sector, it would be panned as price fixing and the Justice Department would be investigating,” said Tyler Wilson, president of the American Association for Homecare. His members, the providers and manufacturers of home medical equipment, are outraged over the devastating reimbursement rates released this week.

CMS announced that in Round 2 of its bidding process, which takes effect on July 1, reimbursements for a wide range of home medical equipment will drop on average by 45 percent, with diabetic test strip prices plunging an average of 72 percent. These prices will be deployed as the poorly designed program expands to include more metropolitan areas in California, Colorado, Florida, Illinois, Maryland, Massachusetts, Ohio and other states.

The current procurement system has been harshly criticized by prominent economists and auction experts such as Dr. Brett Katzman, Interim Chair of the Department of Economics, Finance & Quantitative Analysis at Kennesaw State University.

“While the CMS system does involve bidding, it is far from competitive,” Katzman said. “Yes, there are winners and losers, but winners are chosen based on their willingness to game the system rather than their cost competitiveness. The problem is that the CMS system entices providers to ‘lowball’ bid whereas a true competitive bidding system would reward providers for being cost efficient.”

A major failing, Wilson asserted, is that the prices are not being set by the bidders in this ill-advised process, which CMS falsely touts as “competitive bidding.” Wilson explained that CMS has deviously created a process where it can arbitrarily select any price between the lowest and highest bids.

Moreover, Wilson said the process has “no transparency whatsoever” because the factors that the agency uses to determine the pricing levels are secretly set by CMS and not released to bidders or the public, and their only purpose is allowing CMS to fix the reimbursement prices.

“This is not a competition or an auction, this is arbitrary price setting that bears no relation to providers’ costs for doing business,” said Wilson, noting that the process is made even worse because rather than allowing all qualified providers to supply items at the set price, CMS limits critical Medicare participation to a handful of businesses that submitted bids often at rates higher than the price that the agency selected. Because Medicare business is a vital stream of revenue for home care providers, companies may find it necessary to accept the CMS prices despite knowing the reimbursement rates could be detrimental to the operation of their businesses.

“This is a sham,” said Joel Marx, chairman of the board at AAHomecare and chairman of Medical Service Company in Cleveland. He said the malfunctioning system also encourages “suicide low bids” by companies desperate to win contracts.  In fact, 244 economists, more than two dozen consumer and disability groups, 186 members of Congress and the National Federation of Independent Business have opposed the current bidding system.

“By limiting which companies can provide the products and services, CMS can arbitrarily select prices as low as it wants and call it savings,” said Marx. “This is not competitive bidding and there is no guarantee that the winning bidders can actually supply the products and services at the prices selected by CMS.”

Marx said that Round 1 of the process has already eliminated thousands of businesses from providing equipment and services to Medicare beneficiaries. In turn, with fewer businesses providing products and services, there was a significant drop in utilization of DME equipment by Medicare beneficiaries, a situation that is alarming consumer advocates who fear that senior citizens and people living with disabilities are being endangered.

In fact, CMS has never explained the decrease in utilization for items such as home oxygen therapy or tube feeding that would seem to have inelastic demand by those beneficiaries who require the care.

CMS insists that they have received few complaints from Medicare beneficiaries. However, third party groups are hearing from senior citizens and people living with disabilities who are worried about the substandard care they are now receiving. People for Quality Care, which is gathering stories from seniors and people living with disabilities who are adversely impacted by government health care policies, has heard from many Medicare recipients concerned about the limited access to much-needed home care.

In a video interview with Trisha, a senior citizen from northern Kentucky, the Medicare patient describes how she was forced to file an official complaint because of the poor service from the Medicare-selected oxygen provider sent to her after Round 1 of competitive bidding. She related how important oxygen therapy is to her. “When I can’t breathe it is like someone has their hands around my throat and they are cutting off my airwaves,” Trisha said. “I can’t tell you how scary it is to sit on the side of the bed wondering if you will be able to draw your next breath.”

Her original oxygen provider, she said, checked on her every month, even sending a nurse out to monitor the equipment, take her blood pressure, and check whether she needed new supplies. Everything changed for the worse, Trisha said, when, after the bidding process, CMS sent out a new provider.

“When the change came about, it was with someone I didn’t know,” Trisha said. “I didn’t have a choice. There was no choice given to me. They just appeared one day, put their equipment in here. I didn’t see them. I didn’t hear from them. I had equipment in here that I called about because I had a couple of concerns and they never called back. It was like two years they had their equipment in here and no one had ever come to check on the equipment or anything, where the original people I had came on a monthly basis.”

Trisha filed an official complaint with Medicare, informing CMS that they were paying the new providers for services that were not taking place. She never got a reply, but recently on her own she changed to another provider who she hopes will be better. She said that she wasn’t allowed to go back to the original provider.

Stakeholders, such as providers and consumer advocates, are urging Congress to pass legislation establishing a Market Pricing Program (MPP) for Medicare DME that would replace the current system and return quality service to beneficiaries.

The alternative process, which was shaped by economists and the nation’s leading auction experts, features a legitimate auction system that would establish market-based prices and require fundamental changes in the current system. The legislation collected over 90 co-sponsors last year and will soon be re-introduced in the new Congress.  

“These new reimbursement rates have to be the last straw,” said Wilson. “The current procurement system is destroying the Medicare program and its network of providers who have always focused on delivering quality care, which will ultimately endanger patients. It no longer will be the health safety net for our seniors and people living with disabilities.  Congress has to take action.”

The American Association for Homecare represents providers of home medical or durable medical equipment and services who serve the needs of millions of Americans who require prescribed oxygen therapy, wheelchairs, enteral feeding and other medical equipment, services and supplies at home. Visit www.aahomecare.org.