Medicare Bidding System for Medical Equipment Plagued by Flaws, Delays, Lack of Transparency

New Study by California Institute of Technology Economists Concludes that there Is "No Quick Fix"

WASHINGTON, Nov. 3, 2010 /PRNewswire-USNewswire/ -- The inherent design flaws, long overdue announcement of winners, and lack of transparency in Medicare's controversial "competitive" bidding program for home medical equipment have made it difficult for homecare patients and providers to prepare for steep reductions in the number of providers that will be allowed to serve Medicare patients.

With less than 60 days remaining before the implementation of the program, the Centers for Medicare and Medicaid Services (CMS) has not completed the contracting process. CMS is now five weeks past its September 2010 deadline for completing contracting and announcing the bid winners.

New, unsustainable Medicare reimbursement rates and a sharp reduction in providers will occur on January 1, 2011 in nine of the largest metropolitan areas in the U.S., including Charlotte, Cincinnati, Cleveland, Dallas-Fort Worth, Kansas City, Miami, Orlando, Pittsburgh, and Riverside, California. 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 or durable 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.

Home medical equipment providers in the affected regions will need to make numerous administrative and operational changes well before January 1, 2011. Those changes relate to regulations affecting "grandfathering" notifications to patients, subcontracting arrangements, and changes in company ownership. Medicare beneficiaries have received little information to date about the coming changes.

Another Study Describes the Deep Flaws in the CMS Bid System

A recent study conducted by economists including Charles R. Plott, professor of economics at the California Institute of Technology, concludes that the fundamental flaws in the Medicare bidding system will prevent any "quick fix." A draft report of the study dated October 2010 concludes that:

• Good auction architectures for procurement applications do exist.
• The proposed Medicare supplies auction is not a good procurement auction. It is based on an inappropriate architecture that cannot deliver services at competitive rates and qualities.
• The Medicare supplies auction architecture cannot be adjusted in some simple way. There is no "quick fix". The two central pillars of the auction are flawed. First, the price determination by the median accepted bid is not an appropriate method for determining price. Second, the ability of bidders to cancel bids is an inappropriate guide for competitive bidding strategies.

See the full study at http://www.cramton.umd.edu/papers2010-2014/caltech-experiments-on-medicare-auction.pdf.

In fact, the design of this bidding system is so badly flawed that 166 economists and auction experts, including two Nobel laureates, have urged key congressional leaders and committees in Congress to scrap the system and start over.  See letters at: http://www.cramton.umd.edu/auction-papers.htm#Medicare.  

"Given the critical findings of the new study, along with concerns expressed by the 166 economists and by disability groups such as the ALS Association and the American Association for People with Disabilities, we're not surprised that CMS has been unable to get the program off the ground," said Tyler J. Wilson, president of the American Association for Homecare. "Moreover, reimbursements and copayments have already been cut by about 50 percent over the past 10 years and significant anti-fraud measures are already in place. So, this bidding system is really nothing more than a badly designed solution in search of a problem. Medicare patients and providers will pay a steep price if this system goes forward."

Consumer, patient, and homecare 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.

CONTACTS: Michael Reinemer, 703-535-1881, [email protected];  Tilly Gambill, 703-535-1896, [email protected]

The American Association for Homecare represents durable medical equipment providers, manufacturers, and others  in the homecare community that serve the medical needs of millions of Americans who require oxygen equipment and therapy, mobility assistive technologies, medical supplies, inhalation drug therapy, and other medical equipment and services in their homes. Members operate more than 3,000 homecare locations in all 50 states.  Please visit www.aahomecare.org/athome.

SOURCE American Association for Homecare