Patients Worse Off under NCB, Economist Says

WATERLOO, Iowa — Economist Brian O’Roark believes DMEPOS competitive bidding will
result in decreased competition and lead to a concentrated industry
with higher prices and reduced services, leaving patients worse off
than before the government’s market intervention.

In a new study titled “The Impact of Competitive Bidding on the
Market for DME — An Update,” O’Roark, an economics professor
at Robert Morris University in Pittsburgh, notes that CMS might see
some short-term benefits from the Medicare bidding program, such as
initial price cuts and the ease of regulating fewer firms, but in
the long run the HME market will be severely compromised —
and so will patients.

“A natural consequence is that bidding on price necessarily
leads to a diminution of quality,” O’Roark writes in the study,
funded by the VGM Group. “A cheaper is better attitude must be paid
for somehow. It is assumed that a lower price will lead to an
increase in the value of the program. This may be true for the
bureaucrat, but it most assuredly is not for the consumer.”

In a nutshell, according to the report, results of the bidding
process “may be worse than the initial state of the world as the
only options for consumers are low price, low quality.”

The report is a follow-up to a 2008 study
co-authored by O’Roark that labeled the bidding program “poor
public policy,” concluding “limits on competition like those
proposed by CMS rarely, if ever, make consumers better off.”

The new study likens the practice to “franchise bidding,” in
which “firms are acting in a competitive fashion to acquire the
governmentally protected right to provide medical equipment to a
given geographical area. Thus firms are competing for a
franchise.”

That might work in some industries with true economies of scale,
but not for DME, which has a complex service component, O’Roark
says. He points to problems with “adventurous,” or low, bids
resulting in contract winners who cannot maintain service;
long-term contracts that drive bid losers out of the market
permanently; and a system that tends to entrench and
“institutionalize” bid winners.

“The concept of competitive bidding sounds great on its surface,
but as with so much in the policy arena, taking an idea from theory
to application changes things,” O’Roark pens, adding: “If the
regulators do not understand the market, a bidding plan will not
provide the proper incentives. More problematic is when a
competitive bid plan is put in place for an industry that is
already competitive. This would, it seems, defeat the purpose of
the bidding.”

Continues O’Roark, “When the product being provided is coupled
with a significant service component we should take pause. The
outcome of this bidding plan will be to reduce price for a time,
but also to reduce the quality of service provided to patients to
whom service matters a great deal. In some cases, the service
itself becomes a life or death issue.

“DME … is not like cable television,” he emphasizes. “If
your cable service goes out in the middle of the night you have
alternatives. If your oxygen supply does the same, service is of
paramount importance.”

According to VGM CFO/CIO Mike Mallaro, “Now is not the time for
our government to destroy the infrastructure that is needed to
serve millions of frail elderly, people with disabilities and the
wave of aging Baby Boomers that will need more, not less, medical
equipment, home care services and assistive technology during the
next three decades.

“I urge all HME providers to get this study into the hands of
their congressional representatives immediately.”

Read all of O’Roark’s conclusions about competitive bidding in
the full study.

View more competitive bidding
stories.