MECHANICSBURG, Pa. — A new study by two economics professors at Robert Morris University in Moon Township, Pa., blasts the underpinnings of Medicare's 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 explosive study, released last week, spurred the American Association for Homecare on Friday to send a letter to Department of Health and Human Services Secretary Michael Leavitt urging him to suspend the implementation of round one of bidding.
The study also encouraged discouraged providers.
"We feel it is the first glimmer of hope we have in this effort to stall round one of competitive bidding," said Chuck Blackburn, chairman of the board of directors and past president of Blackburn's Pharmacy in Tarentum, Pa. "We hope it is being sent to every member of Congress, and we hope it falls into the hands of people who will read it seriously."
In their study, "The Impact of Competitive Bidding on the Market for DME," Brian O'Roark, PhD, and Stephen Foreman, PhD, JD, MPA, say CMS might see some short-term benefits from competitive bidding, such as initial price cuts and the ease of regulating fewer firms.
However, they conclude, "In the long run, the bidding scheme will have traded a competitive market for a government-mandated concentrated market. As a result, we will have traded small, short-run benefits for major, long-run problems--poor public policy indeed."
Commissioned by the Pennsylvania Association of Medical Suppliers, the study was two months in the making, said John Shirvinsky, executive director of PAMS.
"This wasn't a study where we directed them in what to do and what to say," he said. "We just threw it out there and said, 'Tell us what you think.' They came up with ... a compelling document [that says] CMS' competitive bidding program is an anti-competitive scheme.
"The competition that exists is not pricing," Shirvinsky added. "It's quality of service, proximity to the people we serve ... the elderly, people who have a difficult time getting around, people who need us for mobility purposes, people who, in some cases, need these services for life itself."
But competitive bidding will not allow the quality of those services to continue, Foreman said upon the release of the study.
"The limits on competition that CMS is proposing to implement will have great potential to produce higher prices and lower service quality," the study co-author said. "The franchise bidding process that CMS is implementing is at odds with everything that we know about markets, efficiency and incentives. We should be encouraging added competition in the market, not limiting it. Limits on competition like those proposed by CMS rarely, if ever, make consumers better off."
Study Refutes CMS Claims
Its supporters said the study blows CMS' main contentions about
competitive bidding out of the water. CMS has presented the
program, the first round of which is set to be implemented in July,
as one that will cut rising Medicare costs for durable medical
equipment, rein in fraud and abuse and result in a more efficient
market.
The study, however, refutes those claims, arguing that:
--Basic economic theory and experience hold that when competition in the market is reduced, prices ultimately escalate. "CMS claims that increased market intervention in DME will produce 'savings.' This contention flies in the face of decades of study, empirical observation and economic theory. Market deregulation--not increased regulation--is more likely to create cost savings, which will lower prices," the study says.
--There is no evidence that competitive bidding will eliminate fraud "or, for that matter, that the level of any existing fraud justifies the increased costs and inefficiency that will occur when the remaining DME suppliers are given market power."
--The market will be severely compromised. "Artificial limits on supply will produce artificial shortages and access problems in the intermediate run (five to 20 years)," according to the study.
Authors O'Roark and Foreman also predict that a minimum of 21,000 jobs would be lost because of competitive bidding. "The disruption will be significant, inefficient and unnecessary," they say.
In addition, the study questions why CMS believes the Medicare rates for DME are too high. "It is strange why CMS has determined that there is a problem with DME spending when CMS fixes DME price[s]," O'Roark and Foreman say in a footnote.
As well, the pair question why CMS is targeting home medical equipment at all. DME comprises only 1.3 percent, or $24 billion, of CMS' nearly $2 trillion Medicare budget, they note. DME spending increases averaged 4.4 percent during the past five years, while hospital and physician care grew by 8 percent and prescription drugs by 11 percent.
"Based on these figures, a case could be made that spending for medical equipment and supplies in the U.S. is not a problem at all," Foreman and O'Roark say, adding: "CMS would be better advised to concentrate on rapidly escalating costs for administration of health insurance, for hospital care, for physician care and for prescription drugs rather than exerting resources and political capital on such a small part of the health care cost equation."
Tanner-Hobson Bill Goes Down
The study's conclusions have given the beleaguered HME industry
some solid ammunition with which to fight competitive bidding, and
not a moment too soon.
CMS is expected to announce winning bidders for round one shortly, and word on Capitol Hill is that chances for the industry-backed Tanner-Hobson bill (H.R. 1845) have evaporated. The bill sought, among other things, to allow "any will provider"--or all qualified providers who submitted a bid--to continue doing Medicare business at the bid rate.
Therein lies the problem, said Michael Reinemer, AAHomecare's vice president, communications and policy, because the provision resulted in "a very high score," or estimated cost, for the bill from the Congressional Budget Office. With no wiggle room for Congress, which is squirming under a "pay-as-you-go" mandate, any additional costs to Medicare would have to be funded--and funding is already in short supply.
"The reality is that people on the Hill say it is not likely the bill will go anywhere in this budget environment," Reinemer said Friday.
"We are trying to see what we can take from the Tanner-Hobson bill and will ask Secretary Leavitt to suspend round one until many of these issues can be resolved," he added, noting the association is working with industry supporters in Congress to salvage what it can from the proposed legislation.
Meantime, advocates hope the new study will give attendees at AAHomecare's Legislative Conference, scheduled March 4-6 in Washington, a boost in talking with legislators about the situation when they visit congressional offices.
"This study provides the support needed to help members of Congress see the potential harm competitive bidding will cause," said Wayne Stanfield, president and CEO of the National Association of Independent Medical Equipment Suppliers, which, in tandem with AAHomecare, The MED Group and VGM Group, is spearheading a grassroots effort against competitive bidding set to culminate at the conference.
Shirvinsky is hoping every industry stakeholder attending the annual lobbying event will be armed with copies of the study to hand out to lawmakers. "We think it is critically important for Congress to take a look at this study, because the rosy projections of savings unending in the future are wrong," he said.
"We have to really get people thinking about the long-term effects of competitive bidding," added Blackburn. "It will backfire on the whole health care delivery system."
Just a Bad Deal
Already, at least one congressman has weighed in. Rep. Jason
Altmire, D-Pa., chairman of the House Small Business Subcommittee
on Investigations and Oversight, said he is opposed to any Medicare
reform that threatens small business.
"The report released by Robert Morris University today adds a mounting body of evidence that indicates CMS' competitive bidding program is a bad idea for small medical equipment suppliers and the patients they serve," Altmire said in a statement.
Altmire, who convened a congressional hearing on the competitive bidding program and its effects on small business in October, said he was very concerned that small providers would be forced to close, throwing thousands of people out of work, "and countless patients will no longer be able to receive quality, personalized service close to home."
In short, stakeholders said, the study lays out competitive bidding for what it is: a bad deal.
"We think this thing needs to be repealed," Shirvinsky said bluntly. "It bodes ill for the Medicare program, it bodes ill for the Medicare beneficiaries who need the products and services we provide."
For a copy of the study, visit the PAMS Web site at www.pamsonline.org.
AAHomecare's letter requesting suspension of the bidding program, addressed to HHS Secretary Leavitt and copied to CMS Acting Administrator Kerry Weems, follows in its entirety:
Dear Secretary Leavitt:
On behalf of the American Association for Homecare, I would like to share with you a recently released study (attached) on the Medicare Durable Medical Equipment Prosthetics, Orthotics and Supplies (DMEPOS) competitive bidding program. This study calls into question the fundamental underpinnings of this program. On the basis of this study and for the same reasons that we have questioned since its roll-out (impact on quality of care and access to care), the Association urges the Centers for Medicare and Medicaid Services (CMS) to suspend the implementation of round one of the Medicare competitive bidding program. We think the Agency should be required to evaluate the principles and conclusions of this report and again consider whether competitive bidding is in the long-term interests of Medicare, its beneficiaries and taxpayers.
The study, conducted by respected economists at Robert Morris University, identifies numerous flaws with the competitive bidding program that are likely to lead to serious long-term and unintended consequences. While the Medicare DMEPOS competitive bidding program attempts to inject free-market efficiency and competitive principles into the Medicare durable medical equipment benefit, the report finds that the program will have exactly the opposite effect. Rather than encourage competition and improve quality of care over the longer term, the study finds that the program will lead to market concentration, less competition as well as significant job loss--each threatening the quality of care provided to Medicare beneficiaries.
While we recognize that the competitive bidding program is likely to result in short-term cost savings to the Medicare program, the report indicates that these short-term savings will be more than offset by long-term cost increases as the marketplace is concentrated in the hands of a few. Remaining suppliers will produce reduced market efficiencies, insurmountable artificial barriers to entry will be created, and the incentive for durable medical equipment manufacturers to seek innovations that reduce costs and improve quality of life will be tremendously dampened.
As our economy teeters on the brink of a recession and the federal government looks for long-term solutions to rapidly increasing health care costs, we believe that this program will only exacerbate these problems and harm Medicare beneficiaries who are prescribed home medical equipment. Therefore, we call on CMS to suspend the implementation of round one. These issues raised in the report need to be examined and analyzed by health care experts and industry experts on the Medicare Program Advisory and Oversight Committee.
Sincerely,
Tyler J. Wilson
President