Competitive flaws

Although the CMS estimates that expanding the competitive bidding program for durable medical equipment will save $28 billion over the next decade, industry groups and economists say the program is deeply flawed.

The American Association for Homecare said the Medicare Durable Medical Equipment, Prosthetics, Orthotics and Supplies Competitive Bidding Program “undermines quality of care and it increases costs” in a statement following the CMS announcement that the program would move into a second phase that adds several product categories, as well as a national mail-order competition for diabetic testing supplies.

“Despite the name, we don't find the program competitive,” Tyler Wilson, the trade group's president, said in an interview. He added that the program will reduce the number of providers in the home-medical equipment industry, a sector that the association says represents about 1.5% of total Medicare spending, and that it will make it harder for Medicare beneficiaries to get equipment they need.

In spite of persistent complaints from industry groups and vendors, the agency launched the first round of the competitive-bidding program in January after issuing a final rule in 2007 to move away from the fee schedule to a competitive bidding process. The program is required by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

According to the CMS, competitive bidding for products in nine product areas in nine markets produced 35% in savings as of Aug. 19.

Medical equipment in the expanded competitive-bidding program includes wheelchairs, hospital beds, and oxygen equipment and supplies. Bidding in the expanded program is scheduled to begin in early 2012 with new prices expected to go into effect in July 2013, affecting an additional 91 markets in the U.S.

In June, 244 economists, computer scientists, and engineers sent a letter to the White House expressing concern about the program. They wrote that the CMS' use of nonbinding bids and the practice of setting the price equal to the median of the winning bids have led to bids that are submitted well below the actual cost.

“This leads to complete market failure in theory and partial market failure in the lab,” they wrote.

In addition, the economists' letter and the American Association for Homecare have questioned the CMS' perceived lack of transparency around the program.

“The CMS competitive bidding program violates all of the principles, especially the principles of transparency and of basing regulations on the best available science,” the economists wrote in the June letter. “Indeed, the current program is the antithesis of science and contradicts all that is known about proper market design.”

The Advanced Medical Technology Association also said it “continues to be concerned by the competitive bidding program,” noting that the bidding process should be “fair and consistent with methodologies accepted by leading economists and auction experts.”

Wilson said that the CMS has “not tapped into the expertise” of the industry executives who serve on the Program Advisory and Oversight Committee.

A CMS spokeswoman said in an e-mailed statement, however, that the agency “worked closely” with the advisory committee in public meetings, phone calls and site visits, and worked with individual members on specific issues. “Key aspects of the program reflect the recommendations and input” of advisory committee members.