PAMS Study Fires Up Fight Against Competitive Bidding; AAHomecare Calls for Suspension of Round One

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: