Stark Asks CMS, Will You Fix Competitive Bidding?

WASHINGTON — In what one industry advocate is calling a
“game changer,” the chair of a key congressional subcommittee is
asking CMS about a letter signed by more than 160 renowned
economists who believe Medicare’s
competitive bidding program will fail.

Rep. Pete Stark, D-Calif., chair of the House Ways and Means
Committee Subcommittee on Health, sent his Sept. 28 request to CMS
Administrator Donald Berwick after receiving the letter from the
economists, a stellar list including many from the nation’s top
universities.

The group sent their letter to Stark in anticipation of the
subcommittee’s hearing on the DMEPOS bid program, now expected
to be held after the November elections.

Stark’s letter to CMS follows in full:

Dear Administrator Berwick,

I am writing to share a letter that was recently sent to me
regarding Medicare’s competitive bidding program for durable
medical equipment. The letter, which is signed by 166 experts in
auctions and competitive bidding (including several Nobel Prize
winners), contends there are serious flaws with the current design
and implementation of Medicare’s competitive bidding program.
According to these experts, if not addressed these flaws will
ultimately reduce beneficiary access to necessary equipment, lead
to lower quality items and services, and could increase fraud and
abuse.

I urge you to give these comments and recommendations
serious consideration. I would also request that you inform me in a
timely way as to whether CMS plans to incorporate any of the
recommended changes and if not, why not.

Sincerely,
Pete Stark
Chairman

As of Wednesday, H.R. 3790, the industry-backed bill that would
repeal competitive bidding, had 257 cosponsors in the House but no
companion bill in the Senate.

“But I think this is a game changer,” said Alan Morris,
regulatory analyst for Waterloo, Iowa-based VGM Group. “I think we
can get our legislators to move quickly based on the contents of
this letter. This is the boost we needed.”

A CMS spokesperson said Wednesday afternoon it was too early for
the agency to comment on Stark’s request. “We will not have a
response at this time,” the spokesperson said. “We would need to
review the letter.”

According to Morris, “to have such bright minds come forward and
say this is not going to work — they are really backing what
we have been saying all along.” He added that the experts’ opinions
carry much more authority since they come from those with no stake
in the HME sector.

The economists cited four significant flaws with the CMS
program:

• Bids are not binding — that is, anyone
  submitting a bid can refuse a contract.
• The pricing rule is flawed. Based on an
  unweighted median bid, the design invites low-ball bids and means
  50 percent of the winning bidders are offered a contract price
  lower than they bid.
• Use of composite bids encourages bid skewing,
  that is, submitting bids that are not based on costs.
• Lack of transparency in how product quantities
  are determined and also in both quality standards and performance
  obligations.

Peter Cramton, professor of economics at the University of
Maryland and an expert on market design who spearheaded the
economists’ letter, told HomeCare it could take a
significant amount of time just for CMS to redesign the program and
address all the flaws.

“There is a lot of work to do in developing quality standards
and performance obligations so that they make sense,” Cramton said.
“Historically, it has not been the case to just airdrop [equipment]
to consumers. There is training that is involved, fitting, all of
those things that make up a service component that make it
different from buying from Amazon.

“So CMS has to decide what services are to be included on a
mandatory basis, and that is really what I mean by lack of
transparency in quality standards and performance obligations,”
Cramton explained. “Medicare has to decide what the product is and
deliver that product at the least cost through a competitive market
process.”

Cramton emphasized that he is not against a Medicare competitive
bidding project. “I am fully supportive of an auction approach,” he
said. “Competitive bidding can result in large reductions in cost
without sacrificing quality, but it has to be done right.”

Other economists signing the letter had their own comments on
the bid program’s design. “It is pretty shocking — this will
just lead to massive fraud and corruption,” said one. And another,
“The proposed auction has so many obvious flaws that it is
difficult to conceive that CMS is pushing ahead with it.” (See

additional comments from the letter’s signatories.)

In a working paper developed by Cramton and Brett Katzman of
Atlanta’s Kennesaw State University titled “Reducing
Healthcare Costs Requires Good Market Design,” the two
economists described the components of a good competitive bidding
design and noted CMS’ program does not fill the bill.

“The CMS auction creates the wrong incentives for bidders,”
Cramton and Katzman conclude. “The end result is unsustainable
price reductions, which will lead to loss of quality and selective
provision to Medicare beneficiaries.”

With implementation of Round 1 coming Jan. 1, VGM, the American
Association for Homecare, the National Association of Independent
Medical Equipment Suppliers and state associations are asking
members to share the economists’ letter with their senators.

“The Senate is the key right now,” VGM’s Morris said. “We are
short on time. Everyone should be passing this information along to
their senators.

“The hope is that our legislators respond and put a permanent
end to this program,” he said. “If our legislators step in and send
CMS back to the drawing board on it, we’re probably looking at
three years at least before implementation because they would have
to redesign it, issue the final rule and then implement it.

“I don’t see us starting over. It’s all or nothing at this
point.”

Read the
economists’ letter to Stark.

View more competitive bidding
stories.