Thursday, September 30, 2010

NY Times Freakonomics: Fix Medicare's Bizarre Auction Program

The New York Times Freakonomics blog post today titled, “Fix Medicare’s Bizarre Auction Program,” explains that “for the last ten years, the Centers for Medicare and Medicaid Services has been testing an auction approach that is incredible in the inefficiency of its flawed design.”

The article explains that “Medicare should junk the flawed procurement auction rules and take advantage of the enormous advances that have been made in auctions and market design to fix the auction rules.”

In conclusion, “The mystery is why the government has failed over a period of more than ten years to engage auction experts in the design and testing of the Medicare auctions. The letter confirms that any expert would be able to quickly identify fatal flaws in the Medicare competitive bidding program. We suspect the problem is that CMS initially did not realize that auction expertise was required, and once they spent millions of dollars developing the failed approach, they stuck with it rather than admit that mistakes were made. This bureaucratic inertia is seen not just in government but in all organizational decision making.”

To read the full post, click here.

San Bernardino Sun Prints Rebuttal to Medicare Bidding Story

Esta Willman, owner of Medi-Source Equipment and Supply, Yucca Valley responded to a Medicare “competitive” bidding story which was published in the San Bernardino Sun. Willman states, “As someone who works with Medicare beneficiaries every day, it was disappointing to read the Sun’s recent editorial “Saving Money on Equipment,” which discusses Medicare’s “competitive” bidding program for home medical equipment. In addition to the factual errors, the editorial fails to examine the consequences that the program will have on patients and the Inland Empire.”

In her response, Willman points out that, “Furthermore, Medicare’s “competitive” bidding program for home medical equipment is a misnomer. This program is actually designed to eliminate about 90 percent of the equipment providers in a given market area, which reduces competition based on quality and service. As a result, it will be harder to ensure access to homecare – which is the most cost-effective setting for post acute care. Good home-based care for seniors and people with disabilities is not only cost-effective, but it also prevents much higher spending in more expensive settings – reducing the number of emergency room and hospital visits, speeding the hospital discharge process, and helping keep seniors safe and independent at home, rather than in far more expensive nursing facilities.”

To read the full article, visit

Experts on Bidding Say CMS System Will Fail

One hundred and sixty-six of the world’s authorities on auctions and competitive bidding systems sent a letter to Congress earlier this week outlining severe problems with the Medicare bidding program for durable medical equipment.

The experts don’t oppose the idea of using a bidding system to set prices but they point out that the CMS bidding program has four severe flaws:
• The bids are not binding.
• Median-bid pricing encourages low-ball bids.
• The use of composite bids distorts prices.
• Lack of transparency undermines the system.

The experts conclude, “This collection of problems suggests that the program over time may degenerate into a ‘race to the bottom’ in which suppliers become increasingly unreliable, product and service quality deteriorates, and supply shortages become common. Contract enforcement would become increasingly difficult and fraud and abuse would grow… We recommend that the government fix the flaws in the current auction program and develop a new design that emphasizes the key features of successful designs. Implementation of the current design will result in a failed government program.”

Please share the letter with your Representative and Senators and with your local and state chapters of AARP and other organizations that advocate for seniors or patient groups.

Tyler Wilson, AAHomecare president, said, “It’s one thing for us to predict that the bidding program will not fly. But when 166 respected experts – who can envision a well-designed competitive bidding program – independently warn the program will go down in flames, that should send up real warning signals there’s trouble ahead.”

Most of the experts who signed the letter are professors or staff at leading universities throughout the world including Yale, Harvard, Stanford, MIT, London School of Economics, University of Chicago, University of Pennsylvania, Duke, Columbia, California Institute of Technology, and Cornell, among others. (The letter states the signatories’ views are their own and do not represent the views of any organization.)

The economists’ letter was addressed to Rep. Pete Stark who chairs the House Ways and Means Subcommittee on Health. The subcommittee appears to be skeptical of CMS claims about the virtues of the bidding program. Stark forwarded the letter to CMS Administrator Donald Berwick yesterday with a cover letter that reiterates the experts’ concerns: “[I]f not addressed these flaws will ultimately reduce beneficiary access to necessary equipment, lead to lower quality items and services, and could increase fraud and abuse.”

Economists Peter Cramton of the University of Maryland and Brett E. Katzman of
Kennesaw State University led the effort to gather the signatures and draft the letter.

An excerpt follows:
Four main problems
The first problem is that the auction rules violate a basic principle of auction design: bids must be binding commitments. In the Medicare auction, bidders are not bound by their bids. Any auction winner can decline to sign a supply contract following the auction. This undermines the credibility of bids, and encourages low-ball bids in which the supplier acquires at no cost the option to sign a supply contract.

The second problem is a flawed pricing rule. As is standard in multi-unit procurement auctions, bids are sorted from lowest to highest, and winners are selected, lowest bid first, until the cumulative supply quantity equals the estimated demand. What is odd is that rather than paying winners the clearing price (the last-accepted bid), the auction pays winners the unweighted median among the winning bids. This is unique in our collective experience. The result is that fifty percent of the winning bidders are offered a contract price less than their bids. This median pricing rule further encourages low-ball bids, since a low bid guarantees winning, does not impact the price, and gives the supplier a free option to sign a supply contract. Even if suppliers bid their true costs, up to one-half of the winning suppliers would reject the supply contract and the government would be left with insufficient supply. Others may accept the contract and cross-subsidize public patients with the revenue from private patients, or just take a loss. This pricing rule does not develop a sustainable competitive bidding process or healthy supplier pool.

The third problem arises from the use of composite bids, an average of a bidder’s bids across many products weighted by government estimated demand. This provides strong incentives to distort bids away from costs—the problem of bid skewing. Bidders bid low on products where the government overestimated demand and high on products where the government underestimated demand. As a result, prices for individual products are not closely related to costs. Bid skewing is especially problematic in this setting, since the divergence between costs and prices likely will result in selective fulfillment of customer orders. Orders for low-priced products are apt to go unfilled.

The fourth problem is a lack of transparency. It is unclear how quantities associated with each bidder are determined. These quantities are set in a non-transparent way in advance of the auction. Bids from the last auction event were taken in November 2009, and now more than ten months later, we still do not know who won contracts. Both quality standards and performance obligations are unclear. This lack of transparency is unacceptable in a government auction and is in sharp contrast to well-run government auctions such as the Federal Communications Commission spectrum auctions.

Click here to view the full letter.

Monday, September 20, 2010

USA Today Cites AAHomecare Dedication to Stopping Fraud

A front-page story in the September 20 USA Today reports on proposed regulations to crack down on Medicare and Medicaid fraud. The paper quotes Michael Reinemer of the American Association for Homecare saying, “Nobody is more anxious to stop fraud than we are because the legitimate providers are the ones that suffer.”

The proposed rule is open for comments, and final regulations will be published at the end of the year. To review the proposed rule, visit Click here to read the full USA Today article.


Members of the American Association for Homecare have zero tolerance for fraud. The Association has been frustrated that it has taken so many years for Medicare to deal effectively with the fraud problem at the front-end rather than relying on the pay-and-chase system of catching criminals after theft has occurred.

AAHomecare introduced an aggressive 13-point anti-fraud legislative action plan in 2009, parts of which were adopted in legislation proposed by Congress and enacted into law. See The 13-point plan includes proposals such as real-time claim audits, higher penalties for fraud, more federal funding for anti-fraud programs, and a dedicated anti-fraud office at the federal Centers for Medicare and Medicaid Services (CMS), part of HHS.

Two important anti-fraud measures in federal law took effect a year ago. One is an accreditation requirement: all providers of home medical equipment in Medicare must be accredited by an agency approved by CMS. This is a lengthy, expensive process that should have had a significant impact on fraudulent activity related to home medical equipment, or durable medical equipment. Second, home medical equipment providers are required to post a surety bond.

So a critical question is: What effect have those measures had on criminal activity? Have those measures had an impact on fraud numbers? Often, federal officials recite old numbers related to activity long before those two measures took effect. Now it’s important to review more current data, rather than out-of-date figures from 2007 or 2008. Also, discussions about fraud often conflate or blur separate issues such the “competitive” bidding program (a price-setting mechanism) or improper payments, which is not the same as fraud. Those distinctions need to be understood better by policymakers and the public.

Whitfield Shines Light on Flawed Medicare Bidding Program

The Journal Enterprise, in Kentucky, reports that U.S. Representative Ed Whitfield (KY-01) stood up for Kentucky seniors and taxpayers today, raising questions over the effectiveness of a Medicare competitive bidding program.

The article quotes Whitfield as saying, “"While I agree that we need to find ways to reduce Medicare costs, I have concerns that the current competitive bidding pilot program is poorly designed and there is real concern that the entire program could collapse under its own weight, reducing the number of home care providers in rural areas, as well as increasing costs."

Whitfield is a senior member of the House Energy and Commerce Subcommittee on Health, which held a hearing on September 15 on competitive bidding. As The Journal reports, Whitfield has been an opponent of the program, citing concerns over the impact it has on local suppliers as well as beneficiaries.

Click here to read the full Journal article. To view video of Whitfield speaking at the hearing, visit the Congressman's YouTube page at

Friday, September 17, 2010

New Senate Letter for First Month Purchase Option; Extension for House Signatures

Today, Senator Arlen Specter (D-Pa.) distributed a Dear Colleague letter asking for signatures in support of a delay in the elimination of the first-month purchase option. A similar House letter is circulating, authored by Representatives Jim Langevin (D-R.I.), co-chair of the Bipartisan Disabilities Caucus, and Glenn Thompson (R-Pa.).

Urge Senators and Representative to join these Dear Colleague letters by adding their signatures. You can reach your Representative by calling the Capitol Hill switchboard at 202-224-3121. You can also follow-up with an e-mail.

In the case of both the House and Senate letters, the chief authors are seeking bipartisan support as they gather new signatures.

ACTION ON SENATE LETTER: Urge your Senator to contact Senator Specter’s office to sign on to the Senate letter. The deadline for the Senate letter is Thursday, September 23.

ACTION ON HOUSE LETTER: Urge your member of Congress to Rep. James Langevin’s office or Rep. Glenn Thompson’s office. The deadline for the House letter is Wednesday, September 22.

The reason for the delay, which is the most realistic legislative option for a remedy now, is to allow providers to better prepare for the change and implement the change when the credit markets improve so that power wheelchair providers are better able to secure necessary financing. According to AAHomecare’s analysis, the elimination of the purchase option will reduce provider cash flow by 40 percent in the first year the policy change is implemented.

The elimination of the purchase option will create access problems to power wheelchairs, leading to beneficiaries facing increased hospitalizations, home health visits, and other clinical services for falls or other injuries suffered by those with compromised mobility.

Bipartisan support for this effort is critical. Currently, the following Representatives have signed on to the House letter:

Rep. Gabrielle Giffords (D)

Rep. Betsy Markey (D)

Rep. Mark Kirk (R)
Rep. Aaron Schock (R)

Rep. Dan Burton (R)


Rep. James Oberstar (D)

New Hampshire
Rep. Paul Hodes (D)

New York
Rep. Carolyn McCarthy (D)

North Carolina
Rep. Howard Coble (R)

Rep. Paul Kanjorski (D)
Rep. Mark Critz (D)
Rep. Kathy Dahlkemper (D)
Rep. Mike Doyle (D)
Rep. Glenn Thompson (R)
Rep. Jason Altmire (D)
Rep. Christopher Carney (D)
Rep. Tim Holden (D)

Rhode Island
Rep. James Langevin (D)

Rep. Marsha Blackburn (R)

West Virginia

Rep. Alan Mollohan (D)

Rep. Steve Kagen (D)

Northern Mariana Islands
Del. Gregorio Sablan (D)

Supporting organizations listed at the bottom of the sign-on letter include:
• American Association for Homecare
• American Association of People with Disabilities (AAPD)
• Association of Programs for Rural Independent Living (APRIL)
• National Council on Independent Living (NCIL)
• National Spinal Cord Injury Association (NSCIA)
• Paralyzed Veterans of America
• Post-Polio Health International
• United Spinal Association

To view a video about this provision, visit

Thursday, September 16, 2010

Competitive Bidding Experts Describe Flaws in Medicare Bid Program and CBO Savings Number

Inside Health Policy, a Washington newsletter, reported on September 14 that, “Independent experts on competitive bidding say CMS’ durable medical equipment bidding program is uniquely designed to set prices below a level at which many winning bidders can afford to participate, which likely will lead to product shortages.”

The article describes three “fatal” flaws with CMS’ program outlined Peter Crampton, a professor of economics at the University of Maryland: “bids are not binding, CMS sets reimbursement at the median price among winning bidders and only CMS knows how the winners were chosen…. CMS will not disclose how it determines the amount of product that each bidder is expected to supply. It’s unclear who the winning bidders are, even though bidding took place more than 10 months ago.”

Crampton along with Brett Katzman, an economics professor at Kennesaw State University in Georgia, plan to meet with the Congressional Budget Office to urge the CBO to re-estimate the potential savings from the bidding program, which Katzman describes as “drastically overstated.”

The article notes, “Apart from being professors, [Crampton and Katzman] are paid to set up competitive bidding programs. No other competitive bidding program, for any product in either the private or public sector, uses the design that CMS came up with, they said.”

New Jersey’s Allcare Medical Delivers Homecare Message at House Hearing

At a packed Energy and Commerce Committee hearing room on Capitol Hill on September 15, Karen A. Lerner, a registered nurse and wound care specialist at Allcare Medical, in Sayreville, NJ, was the lone voice opposing the “competitive” bidding program at the health subcommittee’s hearing on the program. She told the committee members the bidding program “will not achieve its desired outcomes and will in fact reduce access to care for Medicare beneficiaries, lower the quality of that care, increase costs and kill jobs.”

Lerner is a member of the American Association for Homecare and the Jersey Association of Medical Equipment Services. See her statement in the Newsroom and full testimony under What’s New at

Pictured left to right, Wendy Russalesi (JAMES executive director), Richard Lerner (Allcare), Rep. Frank Pallone, Karen Lerner (Allcare), Dr. Kevin Saluck (Allcare) at the Energy and Commerce subcommittee hearing on September 15, 2010.

Drawing on Allcare’s experience serving users of wheelchairs and respiratory services in New Jersey and Pennsylvania, Lerner provided several compelling examples about the likely negative impact on patients that would result from the bidding program.

The other witnesses who testified this morning were either in favor of the bidding program or neutral. While some of the dozen-plus members of Congress at the hearing favored the bidding program, many were highly skeptical.

HME advocates who packed the hearing room burst into applause after Texas Congressman Ralph Hall (R-Texas) delivered a scathing review of all the shortcomings of the CMS bidding program during the initial Round One and the re-bid. He noted that CMS used “abandoned rates to set the fee schedule” in the re-bidding of Round One and that in its refusal to release data about Round One bidding, “CMS seems to be hiding many flaws.”

Congressman Bruce Braley (D-Iowa) described the recent University of Northern Iowa study that predicts a steep decline in HME providers in rural states due to Round One bidding. Several others, including Betty Sutton (D-Ohio), Michael Burgess (R-Texas), and Diana DeGette (D-Colo.) raised serious concerns about the bidding program.

Henry Waxman (D-Calif.), who chairs the full Energy and Commerce Committee, defended the bidding program and brushed off concerns about access to care as “speculative threats.”

In his testimony before the subcommittee, Laurence Wilson, CMS director of the chronic care policy group, opened his remarks by repeating two extensively discredited arguments: that the bidding program will reduce Medicare beneficiaries’ out of pocket costs and that the program will reduce fraud. The first statement is only true for a small number of beneficiaries (who will suffer from the decimation of the HME sector), and the second statement is simply a red herring designed to draw attention away from CMS’ embarrassing record for fraud prevention.

Dan Levinson, of the Office of the Inspector General, Department of Health and Human Services, made the eyebrow-raising claim that HME reimbursement rates encourage fraud. By that logic, fraud would have declined dramatically over the past 10 years, mirroring the sharp reductions in HME reimbursement rates. At least one member of Congress questioned the link between reimbursement rates and fraud.

A third government witness was Kathleen King, director, health care, Government Accountability Office. In the second panel, witnesses included Alfred Chiplin, managing attorney, Center for Medicare Advocacy, Nancy Schlichting, president and CEO, Henry Ford Health System, and William Scanlon, a policy consultant, in addition to Karen Lerner of Allcare.

AAHomecare encourages HME stakeholders to continue to enlist support for the elimination program and share with your members of Congress the Dobson | DaVanzo & Associates study.

Friday, September 10, 2010

House Energy and Commerce Committee Plans September 15 Hearing on Bidding Program

The health subcommittee of the House Energy and Commerce Committee has issued a formal notice that it will hold a hearing on the Medicare “competitive” bidding program for HME on Wednesday, September 15, 2010. The hearing is titled, “Medicare’s Competitive Bidding Program for Durable Medical Equipment: Implications for Quality, Cost and Access.” The subcommittee notice stated, “This hearing will examine the conception and implementation of the competitive bidding program, the implementation of the Round One Re-Bid, and its potential effects on patients, providers, and physicians.”

A representative from Allcare Medical, in Old Bridge, New Jersey, has been asked by Subcommittee Chairman Frank Pallone (D-NJ) to testify on behalf of The American Association for Homecare and the Jersey Association of Medical Equipment Services.

The American Association for Homecare encourages HME providers and patients to attend the hearing in person to demonstrate concern about the bidding program.

The Association especially encourages HME stakeholders who are constituents of members of the health subcommittee (list below) to let committee members know about the effects competitive bidding will have on your patients and your business. Advocates can use the AAHomecare Take Action Center to find contact information, or call the Capitol switchboard at 202-224-3121 to be connected to the appropriate congressional office.

Current co-sponsors of H.R. 3970, the bill to replace the competitive program, have an * next to their name – be sure to thank those offices for their support! Members are listed by party, and in order of committee seniority.

Democratic members of the health subcommittee:

Frank Pallone, NJ - Chairman
John Dingell, MI
Bart Gordon, TN*
Anna Eshoo, CA
Eliot Engel, NY
Gene Green, TX
Diana DeGette, CO*
Lois Capps, CA - vice chair
Jan Schakowsky, IL
Tammy Baldwin, WI*
Mike Ross, AR*
Anthony Weiner, NY*
Jim Matheson, UT*
Jane Harman, CA
Charles Gonzalez, TX*
John Barrow, GA*
Kathy Castor, FL*
John Sarbanes, MD
Christopher Murphy, CT
Zachary Space, OH*
Betty Sutton, OH*
Bruce Braley, IA*

Republican members of the health subcommittee

John Shimkus, IL – Ranking Republican member
Ralph Hall, TX*
Ed Whitfield, KY*
John Shadegg, AZ
Roy Blunt, MO*
Steve Buyer, IN
Joseph Pitts, PA
Sue Wilkins Myrick, NC*
John Sullivan, OK
Tim Murphy, PA*
Michael Burgess, TX
Marsha Blackburn, TN*
Phil Gingrey, GA*

The hearing is slated to begin at 10:00 a.m. in Room 2123 of the Rayburn House Office Building. AAHomecare will provide online and/or C-SPAN viewing information when/if it becomes available.

Thursday, September 2, 2010

Mobility Matters: End of First-Month Option Threatens Access to Power Mobility

The American Association for Homecare released the eighth in a series of “Mobility Matters” bulletins focused on the threats to power mobility. The article states:

“Clearly Congress did not consider the economic consequences of putting additional financial stress on these homecare businesses at a time when banks and other lenders have a tight rein on credit. The problem for these businesses is that many providers cannot secure the capital or credit necessary to cover the overhead and upfront costs of acquiring power wheelchairs while waiting 13 months for full payment. In fact, most banks cite the unpredictability of the Medicare program and the risk associated with the 13-month billing period as reasons for not backing the providers. In addition, Medicare receivables cannot be assigned to securitize lines of credit.

So in short, the government is telling providers to find upfront cash to pay for power wheelchairs, deliver those chairs to Medicare patients, and then wait to be reimbursed over a 13-month rental period. This would force the homecare providers to do what the nation’s banks are refusing to do – provide the credit for Medicare patients to receive power mobility. This scenario is totally unreasonable in the current economic climate.”

Tyler Wilson, president of AAHomecare, commented, “Congress and CMS should heed these warnings from the homecare community and advocates for people living with disabilities. Medicare beneficiaries are about to become victims of very bad public policy. Lawmakers should not be adding to the burdens of some of the most vulnerable people in our society. Taking away access to mobility is wrong. And this can be averted by Congress acting to delay implementation of this policy.”

Click here to read the full Mobility Matters article.

Urge Congress to Sign Letter to Delay End to the First-month Purchase Option

ACTION: Please ask your member of Congress to sign an important letter that requests a one-year delay of the elimination of the option to purchase a standard power wheelchair during the first month of use. Representatives Jim Langevin (D-R.I.), co-chair of the Bipartisan Disabilities Caucus, and Glenn Thompson (R-Pa.) are co-leads of a “dear colleague” letter requesting a one-year delay to eliminate the option. The dear colleague and sign-on letter were circulated to all House offices yesterday afternoon.

It is vital that you contact your member of the House of Representatives and urge him or her to contact Representatives Langevin or Thompson’s office and agree to sign this important letter. You can reach your Representative by calling the Capitol Hill switchboard at 202-224-3121.

Section 3136 of the Affordable Care Act (ACA), a provision in the health care reform law, will eliminate the first-month purchase option for standard power wheelchairs beginning January 1, 2011.

Many providers are unable to secure the capital and credit necessary to cover the up-front cost of acquiring the power wheelchair and then wait 13 months to receive full payment. Additional guidance and implementation time is needed to transition to this significant change in a manner that will not jeopardize access to care. Without access to power wheelchairs, beneficiaries will face increased hospitalizations, home health visits, and other clinical services for falls or other injuries suffered by those with compromised mobility.

The Association, along with consumer advocacy groups, is strongly urging Congress to delay implementation of the mandatory standard power wheelchair rental provision for one year. This will provide time for the homecare sector to secure financing and make the necessary business and system changes in a manner that will limit the negative impact on their businesses and Medicare beneficiaries with a medical need for a power wheelchair.

It is critical to have bipartisan support on delaying the elimination of the first-month option provision to enable power wheelchair providers’ much-needed time to secure additional financing and adjust their business models so that consumers will not see interruptions or reductions in access to equipment and services.

Supportive organizations listed at the bottom of the sign-on letter include:
• American Association for Homecare
• American Association of People with Disabilities (AAPD)
• Association of Programs for Rural Independent Living (APRIL)
• National Council on Independent Living (NCIL)
• National Spinal Cord Injury Association (NSCIA)
• United Spinal Association

In addition, Paralyzed Veterans of America added their support of this delay today. The deadline to sign on to this letter is Friday, September 17, 2010.

To view the full letter, click here.