A controversial Medicare competitive bidding program is boiling to froth just as it approaches national expansion from a limited-market demonstration project.

The bidding program is causing conniptions in the $60 billion durable medical equipment prosthetics, orthotics and supplies (DMEPOS) industry, which predicts dire consequences if the program expands.

Congress mandated the competitive bidding program (CBP) in the 2003 Medical Modernization and Prescription Drug Act. It is the first large-scale bidding program launched by the Centers for Medicare & Medicaid Services (CMS). In April, the CMS announced first-year results in nine U.S. markets of the CBP’s Round 1 and said it would expand the project to 91 markets for Round 2 before a full national expansion by 2016.

The CMS tested the CBP project in Charlotte, Cincinnati, Cleveland, Dallas, Kansas City, Miami, Orlando, Pittsburgh and Riverside, Calif., which together serve 2.3 million DMEPOS Medicare beneficiaries.

The agency said the CBP achieved $202 million in savings in its limited Round 1 and projects 10-year savings of $25.7 billion for the Medicare Trust Fund and $17.1 billion in reduced Medicare co-payments and premiums for Medicare beneficiaries. The CMS analysis revealed the program did not adversely impact beneficiaries, quality or access to care and services.

Under the CMS’ competitive bidding program, Medicare no longer pays DMEPOS suppliers through a specified fee schedule, but awards contracts to suppliers submitting the lowest bids, which then gives them the right to supply particular geographic regions with specified home medical products.

But the DMEPOS industry claims the program will permanently cripple providers and eventually harm beneficiaries. It predicts that the competitive bidding program will create monopolies and a race-to-the-bottom pricing scenario where price, not service, standards or education, will win out. Industry leaders said eventually beneficiaries will lose out in poorer service, products and outcomes just as the Baby Boomers are joining Medicare.

The CMS denies those claims.

The industry has backed a bipartisan House bill seeking to repeal the competitive bidding program, H.R. 1041, which has attracted 171 members but has not yet achieved a full committee hearing or gained Senate sponsorship. Pennsylvania Congressmen Glenn Thompson, a Republican, and Democrat Jason Altmire, are co-sponsoring the bill as the durable medical equipment industry floats an alternative it says will achieve the same results.

“Seniors will experience diminished access to the quality care they deserve and have come to expect and small businesses will suffer,” Altmire said. “CMS’ competitive bidding program limits seniors’ ability to buy highly specialized medical equipment from the local suppliers they know and trust.”

Thompson said Medicare beneficiaries are entitled to high-quality, low-cost medical equipment.

“And we intend to deliver on this promise by reforming the current bidding program,” he said. “We must allow for a marketplace where seniors have quality and choice, and smaller providers are competing to deliver these supplies.”

Thompson said the CBP’s failures have been reaffirmed by 244 auction experts and economists who wrote President Obama in opposition, along with more than 30 consumer advocacy groups and 171 bipartisan members of Congress, “all looking for CMS to pump the breaks and reevaluate the current bidding system.”

Patrick Wildman, director of public policy for the Washington-based ALS Association, said his organization believes changes like the DMEPOS competitive bidding program may inappropriately restrict patient access to quality health care. 

“We are particularly concerned with how this program may impact the availability of customized, complex rehab equipment, such as power wheelchairs on which people with ALS depend to complete the daily activities that most of us take for granted,” said Wildman. “Unfortunately, the competitive bidding program may not recognize the complexities of ALS, the difficulties imposed by the disease, or the sophisticated equipment and services that are required to improve the lives of people with ALS and their families.” 

Wildman said while the ALS Association applauds the CMS initiatives to cut costs and fight fraud and abuse, “these efforts must not be accomplished in a manner that is detrimental to beneficiaries, like people with ALS, who are among the most vulnerable Medicare patients.” 

The National Association for Home and Hospice Care (NAHC) said competitive bidding raises significant concerns, including loss of quality and service and the potential negative impact on beneficiary access and choice.

“Specifically, competitive bidding for home medical equipment supplies fosters monopolistic markets that could reduce beneficiary choice by allowing only those suppliers with winning bids to serve beneficiaries; reduce quality since, under competitive bidding, price becomes the main buying criteria; and raise costs by promoting supplier monopolies that reduce competition,” NAHC said.

Tyler Wilson, president and CEO of the Arlington, Va.-based American Association for Homecare, said the bill is still gathering supporters. Wilson said the association, which represents 350 DME suppliers with 3,000 U.S. locations, is focused on a market pricing program.

“We’re not just calling for repeal (which is what H.R. 1041 does), but we have something to replace it that would achieve better results.”

Wilson said the market pricing program would force the CMS to return to its rulemaking process and replace CBP with an auction-style program. He said the “failed CBP” may take a while to implode, but in the meantime the current DME industry would be dismantled just as our population is aging and millions of new Medicare recipients with diabetes and obesity problems are demanding services. Under the current program, as demand increases, we will lose the infrastructure to serve these new beneficiaries.”

He said Medicare provides 50 to 60 percent of the typical DMEPOS provider’s revenues. Medicare spends about $8 billion annually on DMEPOS, which accounts for less than 2 percent of total Medicare payments.

“Medicare is the lifeblood of our industry and what it does has a tremendous impact on the industry,” Wilson said. “The reality is that without Medicare, they can’t survive. So because providers need to participate, some will be willing to bid at almost any price, even if it doesn’t reflect their costs. And as providers reduce costs to stay within the reimbursement prices, it will lead to a severe diminution of the service Medicare beneficiaries are receiving.”

He said the industry’s market pricing program expands coverage in rural areas, some of which are currently excluded from the CBP.

“Medicare will save money there,” Wilson said. “We are projecting our program to be budget neutral, meaning it can’t cost more or result in fewer savings than the current program projects. We expect the Congressional Budget Office to reach a similar conclusion.”

He said homecare providers do compete on the services they provide to beneficiaries. “Nobody is running away from the concept of competition if we can establish the right pricing levels.” Wilson explained. “Nobody is talking about a return to the good old days. We all realize that Medicare has to find a way to get to market-based prices and our proposal would provide that.”

Wilson said the CMS has improved little in its bidding program since Congress halted it and ordered a retooling four years ago.

“The CMS took a minimalist approach to address structural problems. All of the outside experts give the program a thumbs down. We argue that this program will fail, but not overnight,” Wilson said. “It will suffer a slow breakdown and cause the dismantling of home care infrastructure leading to real beneficiary dissatisfaction and ultimately poor health outcomes.”

He said since January 2011, more than 600 patients, clinicians and homecare providers have complained about the program, reporting difficulty in finding local equipment and providers and experiencing delays, as well as longer hospital stays and confusing or incorrect CMS information.

Laurence Wilson (no relation), director of the CMS’ chronic care policy group,

said the industry’s claims are not supported by evidence. He said if the association has logged 600 complaints, it should have reported them to the CMS and its toll-free hotline operators.

“We have a comprehensive network established around this program that includes local and national ombudsmen, local caseworkers and specially trained operators. And we’re just not seeing those complaints. If they have 600 complaints and didn’t report them to us, shame on them.”

He said the CMS listened to provider concerns and addressed them in recent years by adding:

• A new, simpler bidding system.
• More targeted Medicare beneficiary and provider education earlier in the process.
• An active monitoring system so the CMS can quickly see what’s going on in the field, including changes that do not cause disruptions in access to suppliers or resulted in poorer health outcomes for beneficiaries.
• Further streamlining, including tightening financial requirements, stronger scrutiny of bids and screening out unsupportable bids.

He said that Medicare needs to pay a fair price for DMEPOS products and services.

“We shouldn’t have to pay three to four times the market price to get a good product,” he said. “In Round 1 we began paying more accurate prices and we’re still getting the quality we need with no deleterious effects on patients.”

CMS’ Wilson said providers were concerned that low bids would scare out other bidders, but pointed out that 92 percent of suppliers who submitted a bid and were offered a contract accepted it. Over half of the winning suppliers were small businesses, exceeding the CMS’ goal of 30 percent.

Under the program, the average Medicare-allowed monthly payment for stationary oxygen equipment was cut by 33 percent, from $173.31 to $116.16, and beneficiaries’ annual cost for stationary oxygen equipment rentals dropped by $137.

He said the agency anticipated that the CBP could reduce fraud. “At least in the first round, we picked certain high fraud areas, such as Miami,” he explained. “And we saw utilization go way, way down. When you establish more market-driven payment rates, it makes areas less attractive for bad actors.”

The industry’s Wilson said his association has led initiatives to weed out fraudulent providers. He said the reason fraud was so high is that the barriers to market entry were too low and that the CMS lacked proper controls. 

“Outright criminals got involved,” he said, while pointing out those were not his association’s members.

In a May report, the Government Accountability Office (GAO) concluded it’s too soon to determine the CBP’s success. While it found the CMS’ Round 1 was successfully implemented, it also saw utilization declines in certain areas. 

“More experience with DME competitive bidding is needed, particularly to see if evidence of beneficiary access problems emerges,” the report said. 

In 2010, the American Association of Retired Persons (AARP) weighed in to support the competitive bidding program, noting that the GAO has reported for more than a decade that overpayments, fraud and abuse have plagued the Medicare (DMEPOS) sector.

 “AARP believes that competitive bidding should be used for pricing durable medical equipment, prosthetics, orthotics and supplies, as long as quality and access are not compromised by the competitive bidding process,” a position AARP still endorses, a spokesman said.

CMS’ Wilson said if Congress passes H.R. 1041 and enacts the industry’s preferred market pricing program, the agency would implement the new law. But he conceded: “We have some concerns with that language and the models. We will be following this closely.”