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

Tennessee Providers Generate Strong Coverage of Bidding Program

Homecare providers need to raise the profile of the bidding program and the problems it is causing around the nation by engaging their local media. Here’s one recent example of successful media outreach pushing back against the bidding program.

Last week, Gene Ray, Greg Nuckles, and Tom Webb, executives from AAHomecare member companies in the Memphis, Tenn., area helped lead a group of their fellow home medical equipment providers to meet with Cole Epley, a reporter from the Memphis Business Journal to discuss the effects of the bidding program in light of the of Round 2 prices released on Jan. 30.

The result of their two-hour meeting sharing stories with the Epley resulted in a Feb. 8 story in the Journal  that laid out many of the problems that providers and patients are facing in the wake of Round 2:

“Gene Ray, president of Southern Diabetic Supply Co., says the program will simply price him out of business. Presently, Medicare accounts for 99 percent of the company’s revenue, but Ray adds that the ripple effect emanating from Medicare changing its prices will harm other businesses that work with private insurers.

‘Whatever Medicare does, BlueCross will follow,’ Ray says. ‘Competitive bidding means a 72 percent cut in reimbursement for diabetic testing supplies and that means no local providers are going to be available anywhere.’

‘We explained to our staff after the ruling that, after looking at our profit and loss statement, I don’t have room to make up for the loss in revenue,’ Greg Nuckles, COO at The Diabetes Store, says. ‘We’re lean as it is and there are not a lot of line items to cut other than employees. That’s the last thing you want to cut.’

 The program is ‘ill-conceived and poorly implemented,’ according to Tom Webb, president and CEO of Memphis-based VistaCare Health Services Inc., who says that ‘arbitrarily lowering Medicare reimbursement rates’ equates to a ‘de facto way of not providing services.’

‘The fee schedule is already lower than the suppliers’ cost, in many instances,’ Webb says. ‘In response (to Medicare’s actions), private insurers will come back with even lower rates and that’s absolutely scary.’”

Help raise awareness about the disastrous and dangerous effects of the bidding program with your local media. See our 10 Steps to Effective Media Relations primer for basic guidelines on working with the media, or contact Julie Driver or Gordon Barnes for additional insight on generating coverage on the bidding issue.

Hurricane Sandy Highlights "Competitive" Bidding's Danger to Patients

An E oxygen tank isn’t very big and doesn’t weigh very much, so delivering a couple of them to a patient should be fairly easy under normal conditions, but what about during or after a major storm like Hurricane Sandy?

What if the delivery van can’t get anywhere near the patient’s home because the streets are blocked by downed trees? What if the patient lives on the 41^st floor of a building that doesn’t have power?

HME providers along a large swath of the East Coast have faced these and other daunting obstacles in caring for their patients this week. Many providers have the additional difficulty of working out of offices that are themselves flooded, wind damaged, or lacking electricity and phone service.

In general, adversity tends to bring out the best in all of us. HME providers are no exception. They will work to the point of exhaustion taking care not only of their own patients, but also of each other. They’ll coordinate with competitors to make sure that everyone who needs help gets it. As first responders, they are a safety net for people who need medical equipment and supplies at home.

So what big lesson has Sandy taught us? We already knew that preparation is key and that having a back-up plan is essential. What we didn’t know was just how fragile the safety net that we built for our patients is becoming.

And the situation will only get worse if Medicare’s bidding program is allowed to take full effect across the country next year. When businesses are arbitrarily blocked from serving patients, the result is widespread tears in that safety net.

The net, though tattered, is holding together for now. Eventually, however, there will be enough holes that someone will fall through.

Even if Congress is able to ignore the job losses and the increased hospitalization and nursing home costs caused by the bidding program, can they ignore the danger to patients? Does someone actually have to die to get their attention?

If you haven’t yet, call or email your member of Congress today. Ask them to cosponsor H.R. 6490, the Medicare DMEPOS Market Pricing Program Act of 2012. This is a sustainable alternative to the current bidding program: it saves the same money, but without eroding access to cost-effective home-based equipment and care. 

Take just five minutes out of your day and use the AAHomecare Take Action Center. If you have questions, helpful resources explaining the bill and the Market Pricing Program can be found here.