Small Business Perspective on the Bidding Program, Part 4: Where Are Our Statesmen? and The Solution

You’ve heard plenty about the extraordinary challenges that Medicare’s competitive bidding program will cause for home medical equipment providers in our first three chapters of this series:

• A Small Business Story and An Alphabet Soup of Regulation
• Fraud Alert and A Fly in the Ointment
• What the Experts Say and What the Government Says

Today, Mark Richardson offers a better alternative to CMS’ unsustainable and poorly designed scheme.

Where are Our Statesmen?

I get it that Congress has to delegate the administration of the Medicare Program to CMS.  But I don’t think Congress wanted to devastate an entire industry when it mandated CMS to implement a Competitive Bidding Program for the home medical equipment industry.  So when CMS goes too far, and fails to use conventionally accepted auction processes—and instead creates a system which all the experts agree will fail—who’s responsibility is it to step in and protect our homecare businesses, our employees, and ultimately Medicare beneficiaries?

Of course the answer is, our Statesmen and Stateswomen.  In these dark hours for homecare, we need our Congress to come forward and fix this.  We need them to deliver a fair solution for all—not just hide behind the CMS promises of easy cost-savings.  Of course CMS is promising cost-savings with reductions of 45%!  But at what cost?  The devastation of an entire industry?

The Solution

By and large, Congress has been deaf to the pleas of our industry because they want to believe the easy claims of CMS that Medicare is saving money with their “Competitive Bidding Program”.  And in this day and age, it seems Congress will grasp at any straw that technically allows spending cuts, whether it’s right or not (big example: Sequestration).  However, there have been a few statesmen that have come forward with a way of deliverance for our industry.  Congressman Tom Price (R-Ga.), a physician who understands the Home Medical Equipment industry, along with 184 other members of Congress who have co-sponsored legislation with him in the last session of Congress, are dedicated to stopping the current bidding program and replacing it with an economist-created alternative bidding program called the Market Pricing Program (MPP).  This legislation is budget neutral and will require CMS to make some fundamental changes to ensure that a financially sustainable program results and layoffs and closings will not be the order of the day in the Home Medical Equipment industry.  It is supported by all of the industry’s stakeholders and all of the national associations representing the industry.

My hopes and certainly no less than the hopes of our entire industry are pinned to this MPP legislation.  Please tell your Congressmen to support it, get it to the floor, and then vote for it.  Tell them to be Statesmen because that’s what we need in times like these.  We need them to implement a competitive bidding process that actually supports a robust provider community that partners with CMS to produce savings for the Medicare program—not the current one-sided, adversarial process that does nothing but dictate artificially low prices to a noble  industry that’s already under siege.

AAHomecare thanks Mark Richardson, owner of Home MediService in Havre de Grace, MD, for sharing his perspectives and passion.  We urge you to do the same at CBRound2BiddingProblems@aahomecare.org and learn more about what you can do to Help Save Homecare today!

Small Business Perspective on the Bidding Program, Part 3: What the Experts Say & What The Government Says

Wednesday's post from Mark Richardson concluded with an endorsement of furthering free market principles in home medical equipment pricing “as long as it doesn’t harm the industry that it’s regulating” but warns that “implementing these prices and this misguided program will harm this industry.  It puts companies out of business by barring half of them from the Medicare program and subjecting the other half of them to prices that cannot be sustained.”

Read the first two entries in this series – A Small Business Story and An Alphabet Soup of Regulation  followed by Fraud Alert and A Fly in the Ointment

What the Experts Say

But don’t take my word for it—these are not just my conclusions—they are the conclusions of many respected economists and auction experts that have been examining CMS’s “Competitive Bidding Program” for several years.  In fact, in June of 2011, 244 concerned auction experts sent a letter to President Obama detailing how the program’s structure would incentivize low-ball bids (bids dramatically below cost) which would lead to market failure.   And more recently, a study by the California Institute of Technology researchers published in the Quarterly Journal of Economics a scathing report detailing this auction’s fatal design and the unorthodox rules that CMS incorporated into the bidding program that will doom it to “face severe difficulties.”   In addition, Professor Peter Cramton, a respected professor of economics at the University of Maryland said on January 30, 2013, “One thing is certain:  these are not competitive prices set by the competitive bids of suppliers.  And there is no basis to believe that the set of ‘winning’ suppliers includes those who can supply quality goods and services at least cost.  Both the prices and the set of winners were arbitrarily set by CMS without any explanation.  On this all experts agree.  It is difficult to imagine a more flawed process.”

Some additional flaws of this CMS-dubbed “Competitive Bidding Plan” that have been pointed out by the experts are:

• Bids are non-binding—those who bid don’t have to accept their awards—this encourages “low-ball” bids because providers don’t have anything ultimately to lose if they bid below their true costs.
• The eventual selling price is set at the median of all the winning bids—causing half of the “winners” to receive a price lower than they bid—instead of the more acceptable practice of using the clearing price to pay all winners.  (In addition, as “winners” decline bid awards, the so-called median price does not adjust upward—thereby keeping the price even lower than the real median.)
• The bid areas are too big—they do not reflect the marketplace.  Healthcare is provided at the local level—not by huge mega-companies serving whole Metropolitan Statistical Areas.
• Bids were offered by product category.  Providers can “win” one product category (e.g. hospital beds) but lose another (e.g. wheelchairs).  Then, losers are barred from participating in the categories that they did not “win”.  Instead of continuing to promote competition and maintaining a robust supplier community, this program re-structures business models and puts companies out of business if they did not “win” enough categories of bids.  In addition, this flawed process delays hospital discharges by forcing discharge planners to call and coordinate multiple DMEPOS providers—by product category—for each patient and thus creates unnecessary chaos for the patient as well.

For me and my business, this is catastrophic.  Again, if nothing changes, we will certainly go out of business within a short period of time.  I don’t know of any business in this economy that can absorb a 45% cut in reimbursement, but I certainly know that we can’t sustain our business with that kind of loss. The ironic thing is, we “won” six bid awards—2 of which we declined because we would’ve lost money on every Medicare transaction in those categories—but every one of our awards were offered at levels well below the amounts that we bid.   My company is an accredited, respected, growing company that’s been in business for 42 years and we’re part of the healthcare continuum that actually saves Medicare money by helping to discharge patients from the more expensive institutional part of the system.  It just seems that we are the proverbial baby being thrown out with the bathwater—being driven out of business by our own government because they can’t come up with a fair way to cut costs without destroying our industry.

What the Government Says

If you listen to CMS, their “Competitive Bidding Program” is a great success.  They claim it will save billions of dollars, and they claim that they haven’t had to lower one price.  The DMEPOS industry has submitted these bid prices themselves, they say.  It just proves how much unmitigated profit there was in their prices, they say.  On the surface, it is true that the industry has submitted these bid prices.  What is not true is that the results of this flawed bid process represent anything relative to the industry’s margins.  The problem is that this program has produced exactly what the experts said it would produce—unsustainable suicide bid prices that were placed by providers who feared being barred from the Medicare program all together.  If left unchanged, this will ultimately lead to failure of our entire industry—but only after a lot of companies like mine are already gone.

Mark’s entry concludes Monday with Where are Our Statesmen? and The Solution

Small Business Perspective on the Bidding Program, Part 2: Fraud Alert & The Fly In the Ointment

Mark Richardson continues his take on bidding program for home medical equipment – you can read the first entry here: A Small Business Story and An Alphabet Soup of Regulation.

Fraud Alert

Of course, over the years there have been examples of overpayments and fraud within our industry.  But so have there been like examples in every other sector of healthcare.  That is the cost of any government-regulated industry.  Everyone that I know in our industry however, is just as interested in eradicating fraud where it exists as the government is.  Our national associations often point out potential areas of fraud and abuse to CMS before they even happen.  Further, everyone that I know in the homecare industry considers their jobs a noble enterprise—taking care of patients in their own homes.  We play by the dizzying myriad of rules, 24 hours a day, 7 days a week, through snow storms, natural disasters, and every kind of hardship you can think of.  We do it not out of obligation to the government, but because we believe in the dignity of our patients who want to remain independent and able to recuperate in their own homes. 

But because CMS sees us all—the vast number of good, hardworking providers and the very few providers who take advantage of the system—through the same lens, they would like to dramatically reduce the entire number of providers in our industry in order to manage us more effectively.  That’s right—in an economy where roughly 10,000 Baby Boomers will turn 65 and become eligible for Medicare EVERY SINGLE DAY FOR THE NEXT 19 YEARS, CMS thinks that we need FEWER providers of home medical equipment—FEWER of the people that get patients out of expensive hospital care and back into their own homes where they can be cared for at a fraction of the cost.  And they think that if they can accomplish this that they’ll be able to reduce Medicare expenses as well.  (I don’t understand how making home medical equipment less accessible and increasing patient days in the hospital will save Medicare money, but that’s the theory that CMS, the guardian of the Medicare program has come up with.)

How will they accomplish these goals you ask?  Ironically, they hope to accomplish it by introducing some free market principles into the healthcare system.  There can’t be anything wrong with that, can there?  That’s exactly what’s always been missing in our healthcare system, after all, right?  Actually, the problem isn’t the theory—it’s the application of the theory that’s the problem. 

The Fly in the Ointment

On July 1, 2013, if nothing changes, CMS will implement Round Two of their so-called “Competitive Bidding Program” which will set payment amounts for DMEPOS, on average, 45% lower than the current fee schedule and will bar the vast majority of current DMEPOS providers across this country from the program.  CMS will finally attain its twin goals of reducing the number of providers and reducing Medicare costs—all in one single blow.  In actuality however, there is nothing “competitive” about this program, and the “bid” system that CMS designed is actually a fundamentally failed auction that promotes low-ball, or suicide bidding.  The prices that this program is generating will lead to a certain failure of my business and I have no doubt, of our entire industry as we know it in the near future if nothing changes.  If this flawed program is allowed to continue, jobs will be lost and hospital discharges of Medicare beneficiaries will slow down dramatically.

Don’t get me wrong; as a taxpayer in these troubling times I am not against the government trying to curb its spending.  But it should do so in a way that doesn’t harm the industry that it’s regulating.  Homecare is an integral, cost-saving part of the healthcare continuum and it should be nurtured, not devastated.  But implementing these prices and this misguided program will harm this industry.  It puts companies out of business by barring half of them from the Medicare program and subjecting the other half of them to prices that cannot be sustained.

Friday: What the Experts Say and What the Government Says (we’ll give you a preview: they don’t agree)

A Small Business Perspective on the Bidding Program

Home medical equipment providers and other stakeholders in the healthcare sector have been sending in their experiences and perspectives on the bidding program for DME to CBRound2BiddingProblems@aahomecare.org.   This week, we feature a particularly comprehensive and compelling entry from Mark Richardson, the owner of Home MediService, located in Havre de Grace, Maryland.  We’ll be running Mark’s tale in four blog entries, starting with:

 

A Small Business Story

I always thought that if my business failed that it would be at the hands of the marketplace.  I certainly never dreamed that it would happen at the hands of the government.  My name is Mark Richardson and I am the second generation owner of Home MediService, a provider of home medical equipment (or DMEPOS—government-speak for Durable Medical Equipment, Prosthetics, Orthotics, and Supplies) in Havre de Grace, Maryland.  We provide oxygen and respiratory equipment, hospital beds, enteral feeding supplies, wheelchairs, ambulatory assist devices, bathroom aids, and many other types of products and services that make it possible for a patient to be discharged from a hospital and go home to recuperate in a healthy, safe, and comfortable environment.  Our company works out of 3 locations in northeastern Maryland and one location in northern Delaware, serving over 3,500 patients.  We were founded in 1971 and employ a staff today of nearly 50 people.

 

Alphabet Soup of Regulation

I’ve always believed that free market principles like competition and laissez faire and supply and demand have been the secret ingredients of our economy’s and our country’s success, but we haven’t had any of those things in the healthcare sector in this country for a long time.  Because healthcare is a government-paid-for entitlement in this country, government regulates healthcare instead of relying on free market principles.  My particular business is regulated by CMS (the US federal agency that administers Medicare and Medicaid), the FDA, DOT, the Maryland Department of Health and Mental Hygiene, the Maryland Department of Environment, the Pennsylvania Department of Health, the Pennsylvania Department of Labor and Industry, the Delaware Division of Professional Regulation, the Delaware Health & Social Services Division of Public Health, and we maintain mandatory accreditation with the ACHC (Accreditation Commission for Health Care, Inc.).  But that is not even to mention the other alphabet letters that regulate us that aren’t directly related to healthcare such as the IRS, OSHA, MD Comptroller of the Treasury, MD Department of Labor, MD Department of Assessments and Taxation, and I’m sure some others that I can’t remember.

The point is, ours’ is a highly regulated industry.  You’d think with all those government officials looking over our collective shoulders that we’d be doing something right.  Not so, according to our government.  CMS thinks that our entire industry is overpaid and rife with fraud and over-utilization of the Medicare program.  Because of this, ours’ is an industry under siege by CMS and our government.  We are subject to endless audits and a constant, mind-numbing stream of new regulations that are all designed to slow the growth of claims from the ever-increasing numbers of Medicare beneficiaries who require our services. 

Coming tomorrow: Fraud Alert and A Fly in the Ointment