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Cautious Optimism Surrounds Initial Rollout of Medicare Durable Medical Equipment Bidding

By Jane Norman, CQ HealthBeat Associate Editor

May 9, 2012 -- Everyone is still cautious, but officials from the Centers for Medicare and Medicaid Services and the Government Accountability Office said at a congressional hearing last week that implementation of the first phase of a controversial competitive bidding program for durable medical equipment in Medicare has been fairly smooth.

There are still some very unhappy medical equipment suppliers. Some are pushing Congress to change the way bidding is conducted. However Rep. Wally Herger, chairman of the health subcommittee of Ways and Means, said at the conclusion of the hearing that he would want to see Congressional Budget Office (CBO) projections before proceeding any further with an alternative. A major hurdle for opponents of the bidding program is that it saves money; it is tough to kill a cost-saver at a time of deficit reduction.

Herger, of California, also pointed out that lower prices from competitive bidding are benefiting taxpayers and Medicare enrollees. In the first round that began on Jan. 1, 2011 in nine major metropolitan areas, Medicare paid $1,395 for an oxygen concentrator and the beneficiary paid $279 on average in co-insurance, Herger said. Under the old fee schedule, the concentrator would have cost $2,080 and the beneficiary would have paid $416 on average, he said.

Rep. Mike Thompson, D-Calif., said that he has been "pleasantly surprised" by the results of the first round of bidding and "unlike the first try, we haven't heard an outcry from suppliers around the country facing difficulties in filing applications." Nevertheless both he and Herger said they're keeping a cautious eye on the program.

Herger said that while he strongly believes in competition in the private market, "the process by which the competition is conducted must be fair."

GOP aides said no specific legislation is being contemplated right now.

Bidding for durable medical equipment is, historically, a contentious subject in Medicare. Spending for items such as power wheelchairs, walkers, hospital beds and other equipment are significant—$14.3 billion in 2010, including beneficiary cost-sharing. Except for the nine metro areas that have competitive bidding, Medicare pays for equipment under a fee schedule for covered items. The agency regards this as inadequate, outdated and vulnerable to abuse.

So Congress set up a competitive bidding program in 2003 (PL 108-173) modeled after demonstration projects. But outrage among suppliers drove lawmakers to halt it in 2008. The program was revamped and then delayed until 2011. In the first round of the new bidding program, CMS awarded 1,217 contracts to 356 suppliers, director of the chronic care policy group for Medicare, Laurence D. Wilson said.

Wilson said that the program in just nine markets came up with $202 million in savings in its first year, a figure that also has been touted by other CMS officials and one that makes it tough for lawmakers to try for repeal or change. Competitive bidding is now in place in Riverside, San Bernardino, and Ontario in California; Miami, Fort Lauderdale, Pompano Beach, Orlando and Kissimmee in Florida; Kansas City in Missouri and Kansas; Charlotte, Gastonia, and Concord in North and South Carolina; Cleveland, Elyria, Mentor in Ohio, Cincinnati and Middletown in Ohio; Kentucky, and Indiana; Pittsburgh; and Dallas-Fort Worth and Arlington in Texas.

Next year bidding will be expanded to 91 metro areas, and will include more than half of all Medicare beneficiaries.

Kathleen M. King, director of health care for the GAO, told the subcommittee that the investigating agency looked at claims data for the first six months of 2011 because it was the most complete. GAO found that CMS had terminated few supplier contracts and that not many contractors had voluntarily canceled them. In addition, the number of calls about supplies from beneficiaries to a Medicare hotline declined. A CMS survey of beneficiaries found that 90 percent reported their equipment service as being "good" or "very good."

Nonetheless, with just one year of experience it is too soon to determine the full effect of the competitive bidding program, King said. Although in general, the first round was "successfully implemented," that was based on limited data, she said. In addition, the number of non-contract suppliers who were grandfathered in to the bidding program will continue to decrease over time as their rental contracts run out. It is not clear if they will try the bidding process. Therefore, "more experience is needed" before drawing any definite conclusions, King said.

Some suppliers want it gone. H. Wayne Sale, chairman of the National Association of Independent Medical Equipment Suppliers, said the current bidding program should be repealed and replaced with a "market pricing program" created by auction experts. He predicted that in the second round of bidding, equipment suppliers who either lose out on bids or cannot get business despite winning bids will be shut out of the program, their businesses will fail and jobs will be lost. Joel Marx, chairman of the American Association for Homecare, said the industry does not oppose competitive bidding; it just wants a different system used.

Alfred Chiplin, a senior policy lawyer for the Center for Medicare Advocacy, a non-profit, said that the center was pleased to hear about the savings projected by Medicare. However he was still cautious about whether beneficiaries will have the access they need to supplies under the new competitive bidding program. Chiplin said the center believes the program should move forward to the additional markets but much more education is needed for beneficiaries about what the program entails and where, geographically, it is being put in place.

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