American Association for Homecare Calls for Market-Based Alternative to Medicare’s Flawed Competitive Bidding Program

While myths about Medicare’s deeply flawed bidding program for durable medical equipment (DME) persist, the American Association for Homecare is urging Congress to adopt the alternative Market Pricing Program (MPP) to replace the controversial bidding program. The current, badly designed bid program is opposed by hundreds of economists and dozens of consumer groups.

The Centers for Medicare and Medicaid Services (CMS) implemented the bidding program in nine test areas a year ago – Charlotte, Cincinnati, Cleveland, Dallas, Kansas City, Miami, Orlando, Pittsburgh and Riverside, California.

CURRENT SYSTEM IS DANGEROUSLY FLAWED

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

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. Data from CMS shows that when Medicare patients don’t use prescribed home medical equipment and services, their use of emergency room and hospital services increases. So while the current bidding program may further reduce spending on DME (which represents 1.4 percent of Medicare spending and is falling), taxpayers will see spending increase dramatically in hospitals and ERs as patients’ options for home-based care continue to shut down.

ECONOMISTS, CONSUMERS, CONGRESS OPPOSE FLAWED BID SYSTEM

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 171 members of Congress.

CMS is now expanding the bidding program to 91 additional metropolitan areas throughout the U.S. However, economists have warned that expanding the deeply flawed program is a mistake. University of Maryland economist Peter Cramton, Ph.D. stated, “Now is not the time to scale up a program that everyone agrees is fatally flawed. The Market Pricing Program steps in and fixes each of the flaws with direct and understandable solutions.”

Kennesaw State economics professor Brett Katzman, Ph.D. said, “I am a proponent of competitive bidding. What you have now is not competitive bidding.”

The current bidding program prevents several thousand qualified DME providers from serving Medicare beneficiaries. “The existing system reduces choice, access, and quality of care for seniors and people with disabilities who require home medical equipment and services,” said Tyler J. Wilson, president of the American Association for Homecare.

MARKET PRICING CAN BE ACHIEVED THROUGH BETTER DESIGN

In calling on Congress to enact the Market Pricing Program, Wilson explained that the current system, which allows non-binding bids, encourages irresponsible bids and creates unsustainable prices while doing nothing to ensure that winning bidders are qualified to provide the products and services to Medicare beneficiaries.

The Market Pricing Program is based on recommendations by economists and auction experts who have studied the current 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 homecare 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.

“The market-based system would ensure that Medicare beneficiaries receive the services and equipment that they need and ensure that the government pays fair, competitive prices for the equipment and services provided,” Wilson said. “That makes it a win-win for taxpayers and beneficiaries.”

MYTHS AND REALITIES ABOUT BIDDING PROGRAM

Proponents of the bidding system have conveyed misleading information that exaggerates the benefits and ignores the severe shortcomings of the program.

MYTH #1: Medicare overpays for home medical equipment and services, and the bidding system improves the method for setting reimbursement rates for that equipment and service.

REALITY: Proponents of the bidding system use out-of-date reimbursement rates and false comparisons of retail costs versus Medicare costs to argue their case. For many years, CMS has set reimbursement rates for home medical equipment through a fee schedule. Over the past decade, those reimbursement rates have dropped nearly 50 percent because of cuts mandated by Congress or imposed by CMS.

The costs of delivering, setting up, maintaining, and servicing medically required equipment in the home are obviously greater than the cost of merely acquiring the equipment. But Medicare does not recognize the costs of these services. So comparing the cost of the equipment to the larger cost of furnishing the full array of required equipment, supplies, and services is misleading.

Moreover, experts, including two Nobel laureates and numerous economics professors from leading universities, have warned Congress that this bidding system will fail. The experts, who do not otherwise oppose competitive bidding to set Medicare prices, point out that the system has four fatal flaws:

• The bidders are not bound by their bids, which undermines the credibility of the process.
• Pricing rules encourage “low-ball bids” that will not allow for a sustainable process or a healthy pool of equipment suppliers.
• The bid design provides “strong incentives to distort bids away from costs.”
• There is a lack of transparency in the bid program that is “unacceptable in a government auction and is in sharp contrast to well-run government auctions.”

These concerns have been shared with CMS, which designed the bidding system. But the agency has dismissed the concerns.

A New York Times’ “Freakonomics” article addresses the bidding issue. Yale University economist Ian Ayres and University of Maryland economist Peter Cramton, conclude: “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…. 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.”

MYTH #2: The bidding program will make healthcare more cost-effective.

REALITY: The home is already a highly cost-effective setting for post-acute and long-term care. For many years, home medical equipment providers competed in Medicare on the basis of quality and service to facilitate the hospital discharge process and enable patients to receive cost-effective, high-quality care at home. As more people receive quality equipment and services at home, patients and taxpayers will spend less for hospital stays, emergency room visits, and nursing homes. Home medical equipment is an important part of the solution to the nation’s healthcare funding crisis. Home medical equipment represents 1.4 percent of total Medicare spending. So while this bidding program would make even more severe cuts to reimbursement rates for home medical equipment, that will ultimately result in much higher spending in Medicare and Medicaid for hospital and nursing home stays and for physician and emergency treatments.

MYTH #3: The bidding program will eliminate fraud.

REALITY: CMS continues to describe the bidding program as an anti-fraud tool. In reality, it is a price-setting mechanism that has nothing to do with fraud prevention. In fact, the exact opposite is true, according to the market experts who warned Congress that the CMS bidding program “will lead to a ‘race to the bottom’ fostering fraud and corruption.”

The real solution to keeping criminals out of Medicare is better screening, real-time claims audits, and better enforcement mechanisms for Medicare. Two years ago, the American Association for Homecare proposed to Congress an aggressive, 13-point legislative action plan to combat fraud, and most of those provisions have been included in regulations or congressional legislation. Moreover, two important anti-fraud requirements for home medical equipment providers – accreditation and surety bonds – took effect more than two years ago, in September 2009.

MYTH #4: Only the home medical equipment sector opposes the bidding system.

REALITY: In addition to the economists and bidding experts who have expressed grave concerns about the bidding program, 30 consumer and patient advocacy organizations have called for a halt to the bidding system. Those groups include the ALS Association, the Brain Injury Association of America, the Christopher and Dana Reeve Foundation, the International Ventilator Users Network, the Muscular Dystrophy Association, National Emphysema and COPD Association, the National Council on Independent Living, the National Spinal Cord Injury Association, and United Spinal Association, among others.

These consumer groups support H.R. 1041, a bill in the U.S. House of Representatives that would eliminate the bidding program. The bipartisan bill has 171 cosponsors so far, including roughly equal proportions of Republicans and Democrats.

MYTH #5: The bidding system is good for Medicare beneficiaries.

REALITY: In January 2011, round one of the bid program was implemented in nine metropolitan areas. Since then, more than 600 patients, clinicians, and homecare providers have reported:

• Difficulty finding a local equipment or service provider;
• Delays in obtaining medically required equipment and services;
• Longer than necessary hospital stays due to trouble discharging patients to home-based care;
• Far fewer choices for patients when selecting equipment or providers;
• Reduced quality; and
• Confusing or incorrect information provided by Medicare.

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 systems, wheelchairs, 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. Visit www.aahomecare.org/athome

American Association for Homecare Applauds Efforts to Eliminate Fraud in Medicare

WASHINGTON, DC ----- The American Association for Homecare reports that most of its 13-point anti-fraud plan that it proposed to Congress early in 2009 has been adopted by Medicare or incorporated into legislation. The Association continues to urge Congress and the Centers for Medicare and Medicaid Services (CMS) to take effective steps to root out waste, fraud, and abuse in Medicare and preserve patient access to cost-effective care, including home medical equipment and services (HME), or durable medical equipment.

Medicare spending for home medical equipment and services represents 1.4 percent of total Medicare spending and is growing less than one percent annually, according to CMS.

“As we have stated for many years, the home medical equipment and service sector has zero tolerance for illegal activity,” said Tyler J. Wilson, president of the American Association for Homecare. “This is why we proposed to Congress early in 2009 an aggressive, comprehensive 13-point anti-fraud plan. Most provisions of that plan have been incorporated into legislation and Medicare policy, and the reduction of fraud related to home medical equipment in recent years is a tangible demonstration of our commitment to stopping fraud and abuse in Medicare.”

“We were pleased that the HHS Office of Inspector General testified before Congress in June 2010 that criminals have shifted away from the durable medical equipment sector. We can be thankful that improved Medicare policies, better enforcement of existing laws, and support from our sector have had a positive impact.”

Specific Anti-Fraud Measures Proposed by American Association for Homecare, and Status:

The American Association for Homecare proposed the following 13 specific recommendations:

1. Mandate Site Inspections for All New HME Providers. A July 2008 GAO report underscored the need for CMS to ensure that its contractors are conducting effective site inspections for all new applicants for a Medicare supplier number.
   
   Status: Under its final rule implementing provider screening requirements in Section 6401 of the Patient Protection and Affordable Care Act (ACA), CMS requires that the National Supplier Clearinghouse (NSC) conduct a site visit for all newly enrolling HME providers.
   
   
2. Require Site Inspections for All HME Provider Renewals. All renewal applications should require an in-person visit by the National Supplier Clearinghouse.
   
   Status: Under its final rule for Section 6401 of ACA, CMS requires that NSC conduct a site visit for all HME providers upon revalidation of enrollment, which occurs every three years.
   
   
3. Improve Validation of New Homecare Providers. Additional validation of new providers should be included in a comprehensive and effective application process for obtaining a Medicare supplier number.
   
   Status: Under its final rule for Section 6401 of ACA, CMS set up three risk categories for providers. Newly enrolling HME providers are in the “high risk” category, which requires that they undergo additional screening, including fingerprinting and background checks.
   
   
4. Require Two Additional Random, Unannounced Site Visits for All New Providers. Two unannounced site visits should be conducted by the NSC during the first year of operation for new HME providers.
   
   Status: Currently, the NSC must conduct at least one site visit. Agencies that accredit HME providers serving Medicare beneficiaries also must conduct a site visit as a part of accreditation.
   
   
5. Require a Six-Month Trial Period for New Providers. The NSC should issue a provisional, non-permanent supplier number to new HME providers for a six-month trial period. After six months of demonstrated compliance, the provider would receive a “regular” supplier number.
   
   Status: H.R. 4872, the reconciliation bill passed along with ACA, contains a requirement in Sec. 1305 for a 90-day period of enhanced oversight for initial claims of HME providers. It requires a 90-day period to withhold payment and conduct enhanced oversight in cases where the HHS Secretary identifies a significant risk of fraud.
   
   
6. Establish an Anti-Fraud Office at Medicare. CMS should establish an office with the sole mandate of coordinating detection and deterrence of fraud and improper payments across the Medicare and Medicaid programs.
   
   Status: In 2010, CMS created a new Center for Program Integrity, which serves as the focal point for fraud and abuse activities for national and state-level Medicare, Medicaid, and CHIP program integrity activities.
   
   
7. Ensure Proper Federal Funding for Fraud Prevention. Increase federal funding to ensure that the NSC completes site inspection and other anti-fraud measures.
   
   Status: Anti-fraud efforts by Medicare and the Department of Justice have dramatically expanded and accelerated. Congress has granted increased funding for CMS program integrity activities many times over the past three years.
   
   
8. Require Post-Payment Audit Reviews for All New Providers. Medicare’s program safeguard contractors should conduct post-payment sample reviews for six months’ worth of claims submitted to Medicare by new providers.
   
   Status: The Durable Medical Equipment Medicare Administrative Contractors (DME MACs) now conduct post-payment audits.
   
   
9. Conduct Real-Time Claims Analysis and a Refocus on Audit Resources. Medicare must analyze billings of new and existing providers in real time to identify aberrant billing patterns more quickly.
   
   Status: The Small Business Jobs Act of 2010, H.R. 5297, required CMS to implement a predictive modeling system similar to those used by credit card companies to track unusual billing patterns for Medicare claims. The CMS predictive modeling system went live on June 30, 2011, for all Medicare Part A and Part B claims.
   
   
10. Ensure All Providers Are Qualified to Offer the Services They Bill. A cross-check system within Medicare databases should ensure that homecare providers are qualified and accredited for the specific equipment and services for which they are billing. Status: CMS now has the ability to identify claims if the provider submitting the claim is not on file as qualified or accredited to provide the specific item or service.
    
    
11. Establish Due Process Procedures for Suppliers. CMS should develop written due process procedures for the Medicare supplier number process, including issuance, denial and revocation of the Medicare supplier number. The procedures must include, for example, an administrative appeals process and timelines.
    
    
12. Increase Penalties and Fines for Fraud. Congress should establish more severe penalties for instances of buying or stealing beneficiaries’ Medicare numbers or physicians’ provider numbers that may be used to defraud the government.
    
    Status: Sections 6402 and 6408 of ACA include additional penalties for fraud.
    
    
13. Establish More Rigorous Quality Standards. Ensure that all accrediting bodies are applying the same set of rigorous standards and degree of inspection to their clients.
    
    Status: AAHomecare has proposed specific quality standards for negative pressure wound therapy items provided under Medicare.

In recent years, the American Association for Homecare has endorsed anti-fraud legislation such as the Prevent Health Care Fraud Act of 2009 (S. 2128), and its companion bill in the House, H.R. 4222, which contained a number of key recommendations from AAHomecare’s anti-fraud proposals including implementation of real-time data monitoring technologies to detect fraudulent claims, increasing site inspections to ensure that Medicare allows only legitimate providers to file claims, and a dedicated office at the federal government level to combat Medicare fraud.

In 2011, the Association endorsed H.R. 3399, the Medicare and Medicaid Fighting Fraud and Abuse to Save Taxpayers' Dollars Act (FAST Act), which would establish a workable prior-authorization program for power wheelchairs. The American Association for Homecare represents providers of home medical or durable medical equipment and services who serve the needs of millions of Americans who require prescribed oxygen therapy, wheelchairs, enteral feeding, and other medical equipment, services, and supplies at home. Visit www.aahomecare.org/stopfraud

Medicare’s Competitive Bidding Problems in Pennsylvania Are Harbingers of Negative Impact on Beneficiaries in More than 40 States

PITTSBURGH ----- The Medicare bidding program for home medical equipment and services (HME) is forcing those providers in the Pittsburgh area to revise operating models, lay off workers, or leave the profession. Medicare beneficiaries are also affected, since many out-of-state providers, with no connection to the community or patients, are assigned to provide critical equipment and services.

Pittsburgh was one of nine locations across the country where the flawed competitive bidding program was tested last year. From all indications, the impact in the Pittsburgh area for providers and beneficiaries is similar to what has occurred in the other eight locations – Charlotte, Cincinnati, Cleveland, Dallas, Kansas City, Miami, Orlando, and Riverside, Calif. Now Medicare is on the verge of expanding this program to 91 more metropolitan areas nationwide, including Philadelphia, Allentown/Bethlehem, and Scranton/Wilkes-Barre.

While the Centers for Medicare and Medicaid Services (CMS) touts an average 32 percent reduction in HME reimbursements in those locations, providers say there is another side of the story not being told – details of how businesses have been ruined, bonds broken with elderly and disabled patients, and a dismantling of the care network.

Essentially, CMS has used the bidding process to cut prices to unsustainable levels, while significantly reducing the number of providers allowed to care for Medicare patients. Some winning bidders either never sign contracts to provide the equipment to Medicare beneficiaries or are forced to lay-off workers because the low prices could not sustain their actual costs.

Furthermore, 58 percent of the winning bids went to companies with no footprint in the Pittsburgh area.

“The effects of the bidding program, from a provider perspective, are worse than we ever expected…and we expected it to be challenging,” said Georgie Blackburn, Vice President of Government Relations and Legislative Affairs at Blackburn’s, which has provided home medical equipment in the Pittsburgh area for more than 75 years.

In reality, some of the 32 percent cut in walkers, wheelchairs, oxygen therapy, diabetic supplies, and other products, will result in higher Medicare costs for emergency room visits, longer hospitals stays, and confinement in nursing homes. Moreover, the bidding procurement system is causing hardships for beneficiaries, as well as providers, many of whom are small or family-owned businesses.

“It’s terrible,” says John Shirvinsky, executive director of the Pennsylvania Association of Medical Suppliers. “The bidding program is impacting everyone. Patients incur delays in receiving medical equipment and often complain it isn’t what was ordered. Companies are selling their businesses, laying off workers, and going out of business. One company let go 10 percent of their workforce after they won bids. Some who received contracts refuse to be called bid ‘winners.’ There are no winners in this badly flawed process.”

With Medicare, he says, each division operates in its own silo. “So if cutting HME saves $100 in one category, there is absolutely no consideration that it may cost another category $1,000. This happens when a patient in respiratory distress is forced into more-expensive hospital care because emergency home care is no longer immediately available. Or when a patient with mobility needs is forced into a care facility because they can’t sustain themselves independently in their home. In either case, an unintended consequence of the bidding program moves patients from a Medicare category costing dollars a day to categories costing hundreds or thousands of dollars a day.”

Shirvinsky says the broad problem is one frequently aimed at Washington: “The bureaucrats making these policies and regulations have no idea of the actual impact on the ground. They brag about the savings from the bidding program, but ignore the fact that Medicare and taxpayers are picking up much higher costs in other program areas.”

Citing another example, Shirvinsky notes an ongoing issue with repairs for home medical equipment. Bid winners are not required to repair equipment for Medicare beneficiaries after initial warranties run out. This puts a financial burden on non-bid winners, who are frequently asked to perform repairs that Medicare doesn’t fully reimburse. Medicare only pays for up to three units of labor time, which amounts to a limit of 45 minutes. The allotted time doesn’t include travel to the patient, and rarely does 45 minutes cover the actual labor time for repairs.

Moreover, Shirvinsky says companies have smaller inventories of parts and equipment because they can no longer afford to stock them. “For Medicare patients,” he says, “this means a longer time before their equipment can be repaired or delivered. Patients can be confined to bed for days or weeks creating painful skin disorders that can be difficult and costly to treat.”

Even respected national firms are impacted by the bidding program. Omnicare, Inc., a publically traded company headquartered in Covington, Ky. had operated a facility in Philadelphia and a satellite office in Pittsburgh that were associated with their HME business in the region. But competitive bidding was one of the factors that persuaded them to sell the facilities.

While the provider sector feared the bidding program would present certain perils, it has had many unexpected consequences for businesses.

At Blackburn’s, for instance, the company had provided equipment and supplies to a wide-range of customers, including hospitals, nursing homes, physicians, and businesses. But with the bidding program, many of these customers streamlined their ordering processes. When Blackburn’s didn’t win bids for certain Medicare-covered products, customers began purchasing other supplies and equipment – orders that had previously gone to Blackburn’s – from the companies that were now providing the Medicare products.

“It made things easier for the discharge planners to limit the places they called since they were precluded from calling providers of their choice,” says Blackburn. “But it was lost revenue for our company and something we had not anticipated.”

Blackburn says it is particularly “galling” when out of state providers win bids for services and equipment in the Pittsburgh area, but don’t have the skills or capacity to provide the service or products for Medicare beneficiaries. What happens? These bid winners contact Pittsburgh area providers offering subcontracting deals to supply the same equipment to patients who had previously been serviced by the locals. But now the local providers are asked to perform the services and products, sometimes to former customers, at drastically lower prices.

“We were contacted to become a subcontractor by several companies, but it did not make sense to us to support the bid program through subcontracting,” says Blackburn. “We had fought the program since 2007 and worked closely with our congressmen to stop it. We continue to push for an alternative, market-based pricing system, while trying to move our company forward under the current program.”

It has been a challenge.

“We decided that we wouldn’t lay off people or sacrifice patient service,” Blackburn says. “Last year, we reduced the percentage of contribution made to 401K accounts and shareholders recently reduced quarterly dividends. But other companies in the state actually reduced staff when they won multiple contracts in the bidding process.”

By contrast, Klingensmith HealthCare located 40 miles north of Pittsburgh has had a difference experience with the bidding program, one that some might call bittersweet.

The company, whose main business is oxygen therapy, won five categories of bidding, and in the prominent category it didn’t win, it is serving as a subcontractor for the winner. Andrew Stuart, the company’s compliance director, says their Medicare business has increased 23 percent, but acknowledges the company receives less revenue per patient.

“Reality is allowables are down, but volume is up. I wish I could say that they balanced, but they don’t,” Stuart says. “But we have maintained year over year revenues. More patients served, same revenues, less revenue per patient…for us it has not been a negative. We are alive and breathing.”

The key, he says, is that the company was pro-active and did early planning for the bidding program that has allowed it to be successful. “We laid-off 14 people before the bidding program started and have invested hundreds of thousands of dollars in technology and infrastructure,” Stuart says. “We have also started a home health agency on the respiratory side that has been very successful and won a prestigious award.”

Still, while not openly attacking the bidding program, it’s clear that Stuart has recognized downsides.

“We lost 20 competitors who are not doing Medicare business anymore,” he says. “They either didn’t bid or weren’t awarded bids. In their place are a bunch of interlopers from out of town and out of state. In 15 months, none of them have established any bricks or mortar participation in the market place. Quality competitors have been erased and replaced with these interlopers. We’ve been able to take advantage of this. But it is not satisfying. I know my competitors. I’ve been doing this for 32 years. These are good people and I feel sorry for them.”

Meanwhile, Shirvinsky hopes that in an election year, Congress pays attention to the health threats to Medicare beneficiaries and the impact of jobs losses on local economies. He wants Congress to pass an alternative approach to HME procurement, citing a Market Pricing Program endorsed by the HME sector, economists and auction experts that would establish market-based prices without jeopardizing access to cost-effective care for seniors and people living with disabilities.

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 systems, wheelchairs, 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. Visit www.aahomecare.org/athome.