New Study Shows Home Medical Equipment Bidding Program Unsustainable

WASHINGTON, D.C (October 19, 2016)—A study released today by the American Association for Homecare (AAHomecare) shows that Medicare reimbursement rates for home medical equipment cover just 88 percent of overall costs for companies providing this service. The study, “Analysis of the Cost of Providing Durable Medical Equipment to the Medicare Population: Measuring the Impact of Competitive Bidding,” raises serious concerns about the future viability of the HME industry under the current Medicare model.

The report finds that the current Medicare competitive bidding program for home medical equipment is producing financially unsustainable rates, and faults the bidding program for its lack of transparency. It also makes clear that CMS does not take into account all of the other costs that go into supplying home medical equipment to Medicare beneficiaries when assessing the viability of bids.

“The data are remarkably consistent in showing that the reimbursement-to-cost ratio is significantly less than 100 percent,” noted Allen Dobson, Ph.D, one of the study’s authors. “No matter how the data is sliced, by organization size and/or product category, the current reimbursement model does not cover provider costs. That is likely unsustainable over the long term.”

The study finds that, on average, the products surveyed were reimbursed at 88 percent of the overall cost of providing the products, when all operational costs and the cost of goods are considered, as noted below:



A September 2016 Government Accountability Office (GAO) report that was just released to the public finds that the number of beneficiaries using home medical equipment services, and supplies fell nearly three times as fast in competitive bidding areas (–17 percent) as in non-competitive bidding areas (–6 percent). The GAO also notes instances of access problems and delivery delays, which may be increasing beneficiary hospital use.

“The new GAO findings are consistent with these study results,” added Dobson. “Taking both of these studies together, it’s evident that the competitive bidding process should be carefully examined and monitored to determine if problems encountered warrant fundamental changes to the program in order to avoid the possibility of severe dislocation to the home medical equipment industry and the patients it serves.”

“The bidding program for home medical equipment has been a disaster for providers and their patients around the country since it first took effect in 2011,” added Tom Ryan, president and CEO of the American Association for Homecare, who commissioned the study. “Companies have responded by attempting to shift costs to other payers, cutting staff and reducing service, or limiting their product offerings to patients, but there is only so much you can do when you’re providing equipment and services that simply don’t cover your costs.”

“It’s no surprise that many companies are responding to competitive bidding by not accepting new Medicare patients or closing their doors for good,” added Ryan. “As this trend continues, seniors, people with disabilities and individuals with chronic conditions who depend on home medical equipment are going to have a much more difficult time finding a provider to serve them.”

The Medicare competitive bidding program for home medical equipment sets rates and provides exclusive contracts for winning bidders in 110 metropolitan areas in the United States. In the beginning of 2016, the Centers for Medicare and Medicaid Services began applying these rates to the remainder of the country, resulting in reimbursement cuts of 50 percent or more on many products for providers in rural communities and other areas outside of the original bidding program. These new lower rates are also being adopted by TRICARE military health care administrators and other payers nationwide, severely impacting providers and their patients.

AAHomecare, patient disability groups and other stakeholders in the home medical equipment continuum are currently supporting legislation under consideration in Congress that would roll back part of the reimbursement reductions for rural HME providers to give policymakers a better chance to study the potential effects of these deep cuts on Medicare beneficiaries.

“This study clearly shows that the entire bidding program for home medical equipment is in need of a serious overhaul,” concluded Ryan. “We are nearing a point where this industry will not be able to meet the needs of a growing population of seniors and other individuals with health care challenges who want to remain in their homes. Patients and their caregivers need to be aware of the challenges that lie ahead for them if home medical equipment providers don’t get a sustainable pricing model.”

You can access the complete HME cost study and executive summary here. The Government Accountability Office report referenced in this release can be found here.

Visit aahomecare.org for more information.