ARLINGTON, Va. — Last week, economist Peter Cramton presented his plan for a new design of competitive bidding and said Round 1 of the program should be stopped to "come up with an approach that works and works well."
During a Dec. 15 teleconference hosted by the American Association for Homecare, Cramton reiterated his criticisms of the program that CMS will implement on Jan. 1. The University of Maryland professor maintains the current program was designed with a number of fatal flaws — among them non-binding bids — that will cause it to fail.
But since spearheading a September letter to Congress from 167 top economists about the program's shortcomings, Cramton has also emphasized that he believes competitive bidding for DMEPOS could work well if properly designed. In fact, the economists' letter stated, "We believe that competitive bidding can be an effective method of controlling Medicare costs without sacrificing quality. However, the current auction program has flaws that need to be fixed before it can achieve the objectives of low costs and high quality."
Under Cramton's competitive bidding design:
- Bids are binding commitments.
- Each bidder provides a financial guarantee in the form of a bid bond or a deposit in proportion to the bidder's capacity.
- Capacity is objectively estimated based on the bidder's supply in recent years, with the most recent year given the most weight.
- Each winner provides a performance guarantee in proportion to the winner's estimated volume won.
- The auction establishes a market clearing price for each product in each service area. The price paid to all suppliers is the clearing price that balances supply and demand.
After the auction, Cramton's plan notes, "The winners compete for Medicare beneficiaries by offering quality products and services. Thus, beneficiary choice is used to further strengthen incentives to provide high quality products and services."
After analyzing winners in the Round 1 rebid, Cramton told HomeCare in an interview last month he was alarmed to find that in all nine product categories across the competitive bidding areas, at least half or more of the existing providers will be replaced in many instances by unknown entities. In mail order diabetic supplies, for example, Cramton's analysis showed that 87 percent of existing providers lost contracts (100 percent in five CBAs), while 84 percent lost in complex rehab and 83 percent in standard power wheelchairs and scooters.
Cramton has met with CMS officials to express his concerns about the bidding program and has had discussions with others at HHS to present his ideas about its redesign.
According to a report from AAHomecare, Cramton doesn't think CMS' current program can be "tweaked" into a viable design, and he called for a 12-month "time-out" of Round 1 via an administrative delay to allow an overhaul of the program.
AAHomecare held the teleconference, which had more than 150 participants, "because the economists' concerns about the bid program have had a significant impact in policy debate," said Michael Reinemer, vice president, communications and policy. "It was important to give AAHomecare leadership, council members and state leaders an opportunity to hear directly from Cramton and ask questions and make comments." Reinemer added that the association doesn't have a position on the Cramton proposal.
"In drawing attention to flaws in the CMS system, Dr. Cramton's ideas and auction proposal have effectively been thrust into the public policy arena on Capitol Hill, at CMS, and within the HME community," Tyler Wilson, AAHomecare president, said after the call. "Whether you like the proposal or not, the reality is that because of Cramton's authority as an expert, his views have credibility.
"It's important that the HME community be knowledgeable and well-versed in what Dr. Cramton is proposing," Wilson continued. "If the consensus within the HME community is that his proposal is the wrong approach for the industry and bad for beneficiaries, it becomes all the more incumbent upon HME companies and AAHomecare to develop an alternative pricing mechanism that does not involve auctions and bidding.
"If the current bidding system fails," Wilson said, "Congress is going to be seeking alternative approaches. The HME sector needs to have that alternative ready to offer up when and if disruption ensues."
For a working paper on Cramton's competitive bidding plan, see www.cramton.umd.edu/auction-papers-with-abstracts.htm#Medicare.
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