JACKSON,NJ, July 18, 2012 ---Bloomberg Government, the division of Bloomberg dedicated to analysis of government issues, released a report concluding that Medicare may be overstating the projected savings from its competitive bidding program for durable medical equipment and care.    The second round of the competitive bidding program is slated to begin in 17 of 21 New Jersey counties in July of 2013.

With competitive bidding activities such as bid preparation and submission already completed by New Jersey home medical equipment providers, the program is beginning to have an impact on local businesses. "We are already hearing reports of business closure within the state. Home medical equipment providers have kept a close watch on the outcomes in the Round 1 competitive bid areas, and business owners are now making decisions to no longer service the Medicare population, or simply to shut down their companies. As we move through the Round 2 competitive bidding timeline, New Jersey Medicare beneficiaries may find it more difficult to obtain the home medical equipment and services they depend on," said Wendy Russalesi, JAMES executive director.

The Bloomberg study also highlights the criticisms of auction experts about the design of Medicare's bidding system and describes the 85 percent reduction in home medical equipment providers allowed to bill Medicare in the initial nine metropolitan areas where the program was introduced. 

The 26-page study by Brian Rye begins with a summary of findings:

• "CMS's assertions that the program saved $202 million in its first year may be overstated for a number of reasons, including a spike in claims seen in late 2010 and CMS's intentional selection of areas with higher-than-normal usage levels for Round 1 of the program.

• The bidding process employed by CMS will likely reduce the number of market participants and spur a wave of consolidation within the highly fragmented home medical equipment industry. In the nine metropolitan areas covered under Round 1, more than 2,300 entities had submitted Medicare claims immediately before the program's implementation. As a result of the new program, the government awarded Medicare contracts to just 356 providers for 2011 in those same nine markets, an 85 percent reduction.

• Rather than setting the price for a product based on the amount of the market-clearing bid (the bid at which the aggregate supply meets the government's estimated demand), CMS stipulates that the price is equal to the amount of the median of all the winning bids. Because of this rule, about half of the 'winners' in each bidding process are offered a contract for a value that's less than they bid. Academic auction experts contend that this policy, along with the non-binding nature of supplier bids, encourages unrealistic, low-ball bids that threaten the long-term integrity of the bidding process."

The study also repeats the questions raised by the Government Accountability Office (GAO) in May about the method CMS used to measure complaints about the bidding program. GAO said the CMS definition of "complaint may be an optimistic characterization of beneficiary calls." See the GAO report, " Review of the First Year of CMS's Durable Medical Equipment Competitive Bidding Program's Round 1 Rebid." 

Finally, the study called for further examination of the cost-savings picture painted by CMS. "To fully assess whether the program is resulting in any kind of 'cost-shifting' activity that generates other types of Medicare expenditures, it would be helpful if CMS would provide an analysis of Part A and other Part B claims from the nine areas affected by the competitive bidding program."

View the  video of Bloomberg analyst Brian Rye summarizing his study.  

Patient Groups, Auction Experts Oppose Current Bidding System

Consumer advocates, auction experts, home medical equipment providers, and economists are concerned that seniors and people living with disabilities are not receiving critical medical equipment and services under the competitive bidding program. Since the program was implemented in 2011, the American Association for Homecare, the industry's national association, has received reports from hundreds of Medicare patients about difficulty finding local equipment and service providers, delays in obtaining medically required equipment and fewer choices when selecting equipment and providers.

Lined up in opposition to the current Medicare bidding program are 244 economists,  30 consumer and disability groups such as United Spinal and the ALS Association, and at least 171 members of Congress, including 5 New Jersey representatives.  

Experts Support an Alternative System for Achieving Market Pricing

The American Association for Homecare, along with the Jersey Association of Medical Equipment Services, is urging Congress to adopt the Market Pricing Program (MPP) to replace the controversial bidding program.  This program is based on recommendations by economists and auction experts who have studied the current Medicare bidding program. MPP features an auction system to establish market-based prices around the country and would require Medicare to make fundamental changes to ensure the long-term viability of the pricing program. Key components include:

• The Market Pricing Program is designed to achieve an accurate market price.
• Bids are binding for the bidders and cash deposits are required to ensure that only serious home medical equipment providers participate.
• The bid price is based on the clearing price, not the median price of winners.
• The program includes the same equipment and services as the current bidding system and would be implemented across the country during the same timeframe. 
• Two product categories per market area would be bid. Eight additional product categories in that same area would have prices reduced based on auctions conducted simultaneously in comparable geographic areas. 

 Medical oxygen, walkers, respiratory devices, hospital beds, wheelchairs, and other medical equipment and supplies prescribed for Medicare beneficiaries reduce spending by preventing treatment in higher-cost settings. Spending on this type of equipment and care represents just 1.4 percent of Medicare spending.

CMS is now expanding the bidding program to 91 additional metropolitan areas throughout the U.S. 

The Jersey Association of Medical Equipment Services (JAMES), established in 1978, disseminates information related to the delivery of Home Medical Equipment to providers of these services. It is the goal of the organization to keep its members informed of industry changes and related information necessary to maintain quality of care in providing home medical equipment, supplies and services to the patients who rely on us. Our membership is comprised of more than 75 providers and manufacturers doing business in the state of New Jersey. For more information, please visit  www.jamesofnj.org or contact us by phone at 732-503-5665.

###