WASHINGTON — At two Capitol Hill briefings yesterday,
economist Peter Cramton once again warned Congress that Medicare's
DMEPOS competitive bidding
will fail.

Cramton, a professor at the University of Maryland, has
continued as an outspoken critic of the program since his first
warning in a letter to Congress
last September. Signed by 166
other economists, the letter dissed the program's design and set
out what Cramton has described as its "fatal flaws," among them
non-binding bids and a system that encourages lowball bids not
based on costs.

The sum of the problems, the economists said, "suggests that the
program over time may degenerate into a 'race to the bottom' in
which suppliers become increasingly unreliable, product and service
quality deteriorates, and supply shortages become common."

In a presentation to about 60 House staffers yesterday morning
and another to 45 Senate aides in the afternoon, Cramton laid it
all out again, this time armed with a PowerPoint to explain the
bidding program's poor design.

His first slide read, "Bad news: CMS is doing an atrocious job
with the DME auction program."

Cramton said that with the lack of transparency in quantities
associated with bids, CMS can essentially manipulate prices to
arrive at reimbursement rates it thinks are reasonable. "They have
total flexibility to set almost any price they want," he said.

"The current CMS auction approach is a scandal now and
ultimately will be a train wreck," Cramton told HomeCare
before the briefings. "The only reason we have not seen the train
wreck yet is that CMS has almost complete flexibility to set prices
in the current system. But make no mistake: These prices are
arbitrary and unrelated to providers' costs.

"It is absurd for CMS to claim that 'all is well' given such a
process," he continued. "Yet that is what they have done in the
nine months since I first looked at the Medicare competitive
bidding program."

Cramton was backed at the House briefing by additional speakers,
including Barbara Rogers, president and CEO of the National
Emphysema/COPD Association and a member of the Program Advisory and
Oversight Committee. Rogers, who uses oxygen, a scooter and other
DME, told staffers the bidding program has put HME companies out of
business, which eliminates choices for Medicare patients.

As for her term on the PAOC, which is supposed to advise CMS on
competitive bidding, Rogers said it had been an "exercise of
frustration." Both she and speaker Tom Milam, former CEO of
mail-order diabetes supply firm AmMed Direct and a PAOC member,
said CMS needs to give up more information on the

Milam said although the PAOC is charged with advising CMS on the
financial standards to which it holds bidders, it has not shared
those standards.

Earlier this month, 12
of the 17 PAOC members wrote a letter
to CMS' Deputy
Administrator Jonathan Blum asking for more information on Round 1.
Among other things, the May 6 letter requested the number of
contract suppliers that have gone out of business in the nine
competitive bidding areas since implementation Jan. 1, information
on the mail-order diabetic supplies category and quarterly updates
on the percentage of beneficiaries using DME.

Without such data, the PAOC members said, they can't give
appropriate advice about the program.

In remarks introducing the House briefing, Rep. Sue Myrick,
R-N.C., whose district includes Charlotte, one of the Round 1 CBAs,
told the congressional aides that the impact of the program should
be examined before it moves to another 91 areas in Round 2.

Cramton told the staffers he continues to work on the issue pro
bono because he feels so strongly about the competitive bidding
program and its problems, although he does believe that a bidding
program could work. In April, he held
a mock auction
to prove, he said, how a well-designed system
could be run.

"I have learned that CMS requires more direction from Congress
on the DME program," Cramton told HomeCare. "Congress must
insist, through legislation, that CMS conduct efficient auctions
consistent with best practice and science. The auctions must be
transparent, and an independent market monitor must observe all
aspects of the market and report directly to the Secretary of
Health and Human Services about potential problems and

Said Cramton, "The stakes are enormously high. Congress must
insist on fundamental reform."

We'll Take the Help, Industry Says

"While Professor Cramton believes a bidding program could be
redesigned in a way that would work, his stinging criticism of the
CMS implementation of Round 1 provides ample arguments to repeal
the program," said Tyler Wilson, president of the American
Association for Homecare, who attended the briefing.

, the industry-backed competitive bidding repeal bill,
continues to gather bipartisan support and has picked up 103
cosponsors, but has no companion in the Senate.

Invacare's Cara Bachenheimer, senior vice president of
government relations, hopes yesterday's briefing will elevate the
issue's profile in that chamber.

With 45 offices represented — almost half of the Senate
— she pointed out, "The briefing was very effective.

"Part of our issue in the Senate is that for whatever reason,
the level of education about competitive bidding is just not the
same as it is for some of the members in the House. If you look at
a more global picture of what's going on, we're competing against
some pretty big issues like the budget and the debt ceiling, and
it's tough to get a word in."

But "with that many people showing up and having someone like
Dr. Cramton explain how the bidding structure resulted in a fatally
flawed program," Bachenheimer said, "I think that's going to do a
lot to move us along in the Senate. With the lack of transparency,
he essentially is saying that what CMS has done is constructed
another government-administered price program where the bid prices
have no relationship to a supplier's costs, and therefore you have
a program that has no relationship to market pricing."

While "it's going to be very, very difficult to repeal this
program and not replace it with something else," Bachenheimer said,
Cramton is a forceful ally in "distilling the details of the
program's flaws.

"That doesn't mean we agree on what the next step is," she said.
That's something the industry "will have to figure that out sooner
rather than later, whether it's the Cramton plan or whether it's
something else."

Still, getting to that next step is topmost on the agenda, and
the clock is ticking. CMS has said it would announce the products
to be included in Round 2 sometime this summer.

"We don't have any new information since the PAOC meeting April
5," Bachenheimer said. "They said it would be this summer, but who
knows whether that means June 20 or September 1? We just don't know

"If they don't see a problem with products that are in Round 1,
they are just going to add to the list and not subtract from that
list," Bachenheimer said. "The only reason they would subtract is
if there is an access problem from CMS' perspective," and so far
agency officials are not saying anything of the sort.

"At the PAOC meeting, CMS said
everything is wonderful
, everything is hunky dory with the
program, and they gave no indication that they would be changing
anything," Bachenheimer said.

For Cramton's PowerPoint presentation, see his website at

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