CMS’s Competitive Bidding Program –More Screwed Up than Healthcare.gov
Tags: CMS and competitive bidding, DMEPOS, durable medical product auctions, L2, medicare bidding, the cost of durable medical products is too high
Late last week, the Senate Finance Committee marked up a sustainable growth rate (SGR) reform bill that included an amendment designed to fix significant problems with Medicare’s bidding procurement program for home medical equipment (HME), says the American Association for Homecare –an organization that has been lobbying against the competitive bidding program instituted by CMS. ¬†The amendment to the bill, also known as the “doc fix,” was offered and supported by a bi-partisan group of four Senators including¬†Ben Cardin¬†(D-Md.),¬†Bob Casey¬†(D-Pa.),¬†Rob Portman¬†(R-Ohio), and¬†Debbie Stabenow¬†(D-Mich.).
“I was able to work with several of my colleagues on both sides of the aisle today on a crucial change that ensures that seniors continue to have access to quality durable medical equipment,” said Sen.¬†Rob Portman¬†(R-Ohio) in his opening statement. “This proposal contains language that would require companies to prove that they have appropriate state licensure before they’re able to become durable medical equipment suppliers in that state. This is a critical protection that was lacking in the current bidding system.”¬†This is the first time in since 2008’s¬†Medicare Improvements for Patients and Providers Act¬†that the Senate has taken action to fix the controversial bidding program. The move is clear acknowledgment of the deep flaws that continue to plague the program.
Support to replace the program, which is essentially a government price-setting scheme, with one based on fair and open competition, has grown steadily. There are now 164 cosponsors on H.R. 1717, the¬†Medicare DMEPOS Market Pricing Program Act of 2013.¬†Representatives from both parties recognize that the CMS has placed an unacceptable burden on the elderly and disabled by effectively limiting their access to doctor-prescribed medical equipment.¬†“The best chance we have of relieving the tremendous burden the badly mismanaged Medicare bidding program has put on patients is to develop fixes based on a real marketplace solution,” said AAHomecare President¬†Tom Ryan. “We’ll continue to work closely with the House and Senate to make sure that happens.”
As currently designed, the troubled bidding program has been dismissed by¬†auction experts¬†for choosing suppliers “based on their willingness to game the system rather than their cost competitiveness.” Non-binding bids, median bids rather than clearing bids used to set prices, supplier capacity randomly assigned by the Department of Health & Human Services, and lack of transparency at every stage of the process contribute to the consensus that Medicare’s program is “built to fail.”
Suffice it to say that the auction award process developed by CMS looks like it was designed by the same people charged with building and testing Healthcare.gov. What they put together is so bad that it begs a reasonable person to consider if it was intentional. And naturally, as this latest action by congress doesn’t even address the underlying problem, such suspicions loom larger.
What has already been “proven” is that low cost bidders corrupt the system with pricing that the established players claim is unsustainable and that these bidders are doing it knowing the awarded price will actually be higher anyway. That’s right, the CMS invokes an award model that allows it to re-set pricing based on a formula that is tied to the standard deviations observed across the most competitive bids. In other words, the bidders are not bound by their own bids.¬†Folks familiar with simple game theory understand that a buyer’s commitment to the rules of the auction is where ultimate leverage exists. But CMS has developed an award algorithm that is based on a “musical chairs” philosophy. Low bidders don’t win based on price or by providing evidence that supports their price, they win based on where their price happens to fall –relative to peers– when the auction ends.¬† A supplier could bid $30 for a product or service and “win” at a price set by the CMS at $42.
As said, this latest “amendment” is designed to keep suppliers who aren’t licensed and/or aren’t even in the durable medical products business from participating. It does nothing to address the underlying problems of the “auction’s” basic design, but it’s a step in the right direction as far as the largest players in the durable medical products space are concerned because it effectively reduces competition. I’m just pointing out that no one on either side of the debate seems anxious to adopt a tried and true basic auction process. That would be far too easy. For example, it might actually expose the true cost of an aluminum set of “adjustable” crutches and wheelchairs would no longer be sold at price points resembling certified used cars.
There is no point in trying to explain it. Spend analysis and sourcing optimization vendors ought to be stampeding the CMS begging for a shared-savings contract.
SOURCE American Association for Homecare Press Release