Thursday, April 5, 2012

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

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