For any American who believes the U.S. government needs a rapid infusion of smart business sense (and there are many of us), they should have some peace of mind in knowing that the competitive bidding process is virtually omnipresent wherever government procurement takes place. After all, competitive bidding, by which government agencies and programs seek to obtain goods and services for the lowest price, is an economic no-brainer. It fosters competition while saving taxpayers from having to bear the burden of out-of-control spending. But only if it is designed and implemented correctly.
Unfortunately, in some areas of the federal government, it’s another example of common sense policy gone completely awry. At best, a poorly implemented competitive bidding program means tax dollars are unnecessarily wasted. At worst, it’s a recipe for disastrous health outcomes for millions of Americans with chronic illnesses.
The United States spent $3.2 trillion on healthcare in 2015 — nearly 18 percent of the nation’s Gross Domestic Product. Two percent, or $48.5 billion, went to Durable Medical Equipment (DME), which helps keep patients healthy, active, mobile, and at home. With health care expenditures on the rise — up 5.8 percent from the previous year — this is an area where smart spending is essential. It’s also an area where poor policy impacts more than providers’ bottom lines; patients’ lives depend on the reliability and availability of contracted equipment and services, particularly home respiratory services.
Consider the case of home oxygen therapy, which falls under the Center for Medicare & Medicaid Services’ (CMS) competitive bidding program for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS). On January 1 of this year, CMS began applying competitive rates to all Medicare beneficiaries nationwide, including those in rural markets that had originally been excluded. In using competitive bid rates to develop reimbursement amounts for home respiratory care supplies and services, CMS ended up effectively slashing reimbursement by 30 to 50 percent.
How did that happen? Well, it turns out the whole process was riddled with deficiencies from the get-go, according to a recent Moran Company report.
For example, CMS instituted a system where payment amounts would be calculated based on the median bid — meaning that roughly half of the selected bidders would be paid more than the price they bid, while the other half would be paid less. This differs drastically from most other bidding programs, which factor in a “clearing price,” or the lowest amount at which supply can be met. In this model, no bidder is asked to accept a rate that is lower than what it had originally bid, so no entity is required to provide items or services below their costs.
The result is a competitive bidding program that does not determine true market prices and leads to inaccurate reimbursement rates. For patients, the impact is felt as providers of home oxygen therapy fail to be able to provide services to the level needed.
This is exactly what happened in June, when a large regional supplier left the California, New Mexico, and Oklahoma markets — leaving approximately 30,000 Medicare beneficiaries to find a different supplier. Another supplier reported that it had to reduce services in rural areas across 24 states, closing nearly one-quarter of locations and laying off 3,000 employees since January 2016.
For the patients stuck in the middle — many of whom suffer from multiple disease conditions such as Chronic Obstructive Pulmonary Disease and heart failure — obtaining home oxygen therapy services has become vastly more difficult. Many are unable to receive immediate care, and because suppliers have stopped delivering to some rural areas, patients are left with the responsibility of picking up equipment and supplies at a branch location, many at far distances. Likewise, access to respiratory therapists, off-cycle deliveries of portable oxygen, and care coordination services have become a thing of the past in many areas.
Making competitive bidding work is in the best interests of taxpayers and our federal budget. But the current program for medical supplies simply does not work for providers or patients. It’s time that CMS devise a plan that allows market forces to determine rates — not allow a faulty bidding program to waste money and resources, and negatively impact both patients and jobs.