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Medicare 'Competitive' Bidding Program for Home Medical Equipment Is Plagued by Myths; Economists Warn that the Bid System Will

Posted Oct 22 2010 12:00am

/PRNewswire/ -- While Medicare paints a glowing picture of the controversial "competitive" bidding program for home medical equipment and services (HME), economists and consumer groups have lined up to oppose the flawed system.

New restrictions and unsustainable prices based on this controversial bidding system are scheduled to take effect on January 1, 2011 in nine of the largest metropolitan areas including Charlotte, Cincinnati, Cleveland, Dallas-Ft. Worth, Kansas City, Miami, Orlando, Pittsburgh, and Riverside, Calif. Another 91 areas throughout the U.S. will be subjected to the bidding program starting later in 2011. The bidding system affects providers and users of home medical equipment and services such as oxygen therapy, respiratory devices, hospital beds, wheelchairs, and other medically required equipment and supplies needed by seniors and people with disabilities in Medicare.

Proponents of the bidding system have conveyed misleading information that exaggerate the benefits and ignore the severe shortcomings of the program.

MYTH #1: The bidding system improves the method setting reimbursement rates for providers of home medical equipment and services.

REALITY: 166 experts, including two Nobel laureates and numerous economics professors from leading universities, recently warned Congress and regulators that this bidding system will fail. The experts, who do not otherwise oppose competitive bidding to set Medicare prices, point out that the system has four fatal flaws
* The bidders are not bound by their bids, which undermines the credibility of the process.
* Pricing rules encourage "low-ball bids" that will not allow for a sustainable process or a healthy pool of equipment suppliers.
* The bid design provides "strong incentives to distort bids away from costs."
* There is a lack of transparency in the bid program that is "unacceptable in a government auction and is in sharp contrast to well-run government auctions."


These concerns are not new. They have been shared with the federal Centers for Medicare and Medicaid Services (CMS), which designed the bidding system. But the agency has dismissed those concerns.

The 166 economists sent letters outlining the flaws in the bidding system to Senators Max Baucus (D-Mont.) and Charles Grassley (R-Iowa) and to Representatives Jason Altmire (D-Pa.) and Ralph Hall (R-Tex.) on October 15, 2010, and sent a letter to Rep. Pete Stark (D-Calif.) on September 26. See http://www.cramton.umd.edu/auction-papers.htm.

A September 30, 2010 New York Times' "Freakonomics" article by two of the 166 economists addresses the bidding issue. Yale University economist Ian Ayres and University of Maryland economist Peter Cramton, conclude: "The mystery is why the government has failed over a period of more than ten years to engage auction experts in the design and testing of the Medicare auctions…. We suspect the problem is that CMS initially did not realize that auction expertise was required, and once they spent millions of dollars developing the failed approach, they stuck with it rather than admit that mistakes were made." See: http://freakonomics.blogs.nytimes.com/2010/09/30/fix-medicares-bizarre-auction-program/

MYTH #2: Medicare overpays for home medical equipment, and the bidding system applies market forces to correct that.

REALITY: Proponents of the bidding system have used out-of-date reimbursement rates and false comparisons of retail costs versus Medicare costs to argue their case. For many years, CMS has set reimbursement rates for home medical equipment through a fee schedule. Over the past decade, those reimbursement rates have dropped nearly 50 percent because of cuts mandated by Congress or imposed by CMS.

The costs of delivering, setting up, maintaining, and servicing medically required equipment in the home are obviously greater than the cost of merely acquiring the equipment. But Medicare does not recognize the costs of these services. So comparing the cost of the equipment to the larger cost of furnishing the full array of required equipment, supplies, and services is false and misleading.

MYTH #3: The bidding program will make healthcare more cost-effective.

REALITY: The home is already the most cost-effective setting for post-acute care. For many years, home medical equipment providers have competed in Medicare on the basis of quality and service to facilitate in the hospital discharge process and enable patients to receive cost-effective, high-quality post-acute care at home. As more people receive quality equipment and services at home, patients and taxpayers will spend less on hospital stays, emergency room visits, and nursing home admissions. Home medical equipment is an important part of the solution to the nation's healthcare funding crisis. Home medical equipment represents less than two percent of total Medicare spending. So while this bidding program would make even more severe cuts to reimbursement rates for home medical equipment, that will ultimately result in much higher spending in Medicare and Medicaid for hospital and nursing home stays and for physician and emergency treatments.

MYTH #4: The bidding program will eliminate fraud in the home medical equipment sector.

REALITY: CMS continues to describe the bidding program as an anti-fraud tool. In reality, it is a price-setting mechanism that has nothing to do with fraud prevention. In fact, the exact opposite is true, according to the 166 market experts who warned Congress in their October 15 letters that the CMS bidding program "will lead to a 'race to the bottom' fostering fraud and corruption."

When explaining on October 14, 2010 why it has missed the deadline for announcing the bid winners, CMS raised concerns about fraud associated with the bidding program. Yet the agency said it will implement the new system on January 1, 2011. The economists' October 15 letter states, "This haste to implement results that raised many red flags with respect to program integrity seems contrary to the public interest and common sense."

The real solution to keeping criminals out of Medicare is better screening, real-time claims audits, and better enforcement mechanisms for Medicare. Two years ago, the American Association for Homecare proposed to Congress an aggressive, 13-point legislative action plan to combat fraud, and many of those provisions have been included in legislation passed in Congress. Moreover, two important anti-fraud requirements – accreditation and surety bonds – took effect more than one year ago, in October 2009.

MYTH #5: Only the home medical equipment sector opposes the bidding system.

REALITY: In addition to the 166 economists and bidding experts who have expressed grave concerns about the bidding program, many consumer and disability organizations have called for a halt to the bidding system. Those groups include the ALS Association, the American Association for Respiratory Care, the American Association of People with Disabilities, COPD/ALERT, the International Ventilator Users Network, the Muscular Dystrophy Association, the National Emphysema/COPD Association, the National Spinal Cord Injury Association, and Post-Polio Health International, among others.

These consumer groups support H.R. 3790, a bill in the U.S. House of Representatives that would eliminate the bidding program in a fiscally responsible manner. That legislation would lower reimbursement rates for durable medical equipment but would allow providers to continue competing to serve Medicare beneficiaries on the basis of service and quality. The bipartisan bill has 257 cosponsors, including more than half of the Democrats and more than half of the Republicans in the House.

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