Medicare "Competitive" Bidding Program Designed to Eliminate Competitors

This morning, the House Small Business Subcommittee on Healthcare and technology held a hearing to find out how Medicare's bidding program was impacting small businesses. Tammy Zelenko, CEO of AdvaCare Home Services represented AAHomecare. Here is her oral statement:

"Good morning Chairman Ellmers, Ranking Member Richmond, and members of the Subcommittee. My name is Tammy Zelenko. I am president and CEO of Advacare Home Services, a small business in the Pittsburgh area. We serve about 2,000 patients, with a staff of 49 employees in four locations.

Advacare specializes in respiratory care. We serve patients with COPD or other lung diseases, along with a variety of frail seniors who need help in order to live safely in their own homes. You may know us as providers of durable medical equipment and services, or DME.

 DME is an essential and extremely cost-effective component of our nation’s continuum of care. For a few dollars per day, homecare providers like me enable patients to be discharged from hospitals to home. We help control the nation’s healthcare costs:  DME equipment and services allow Medicare to reap savings by preventing hospital and ER visits and reducing expensive institutional care.

DME represents expenditures of just 1.4 percent of the annual Medicare budget. Falling payment rates and sharply rising regulatory burdens make it extremely hard to continue providing quality services without compromising care. 

As a member of the American Association for Homecare and the Pennsylvania Association of Medical Suppliers, I am very grateful to you for holding this hearing. The poorly designed bidding program has needlessly harmed hundreds of small providers like me and has eliminated 85 percent of providers from participating in the program in the nine areas included in Round One. 

How can we have a truly competitive program if the program is designed to eliminate competitors?

As the bidding program now expands to another 91 areas throughout the United States, small providers face severe cuts and arbitrary exclusion from participating in Medicare. There is no doubt thousands of good providers will be driven out of business as a result of this expansion. With 10,000 baby boomers turning 65 every day, need for cost-effective homecare is rapidly growing. Unfortunately, this bidding program is destroying the infrastructure to help meet that demand. 

In spite of the rhetoric from Medicare about set-asides for small providers, let’s be clear:  This bidding program is anti-small business.  It is a business and job killer.

We do not oppose market-based pricing or a well thought-out auction system. In fact, we endorse an alternative system developed by auction experts who design bidding systems for a living. 

We are often the eyes and ears of the elderly people living in their homes. We create a customized care plan based on physician orders and patient-specific goals and we communicate critical information to the physician.  This is what enables patients with acute care or chronic needs to remain in their homes—safe and independent.

However, there are costs to providing this level of care. These are not simple “commodities” we are providing.

As a small business owner, I have been able to compete against the local, regional, and national providers within my market. Each year I gained market share, grew my business, and received recognition due to the outstanding service that my company provided.

But all of that changed overnight when the bidding program went into effect. The bidding program, for me and thousands of providers like me, has created the biggest barrier to my company’s survival.

The government should not ration benefits or otherwise bar qualified providers from serving Medicare beneficiaries.

As I prepared for the bidding program, I made my business as lean and efficient as possible. I invested in electronic medical records, purchased GPS tracking devices, and invested in a new billing system.  I believed these changes would prepare us. I was wrong.

This is the first year that I did not grow my company. The first time that I had to pass all of the healthcare premiums increases on to my employees. And the first time I had to limit reimbursement for continuing education.

Before the bidding program began, my company competed based on the level of service we provided through education, clinical assessment, and follow up. But now, because of severe design flaws, this bidding system has eliminated my opportunity to compete in my communities where I have invested in physical locations, inventory, vehicles, and highly trained staff.

In closing, more than 200 economists and auction experts have warned CMS that the current bidding program will fail if significant modifications are not made. These experts designed an alternative called the Market Pricing Program. It achieves sustainable, market-based pricing. It preserves access to quality care. AND it gives small providers like me a fighting chance for survival.  

Please give us that chance by enacting the Market Pricing Program.  

Thank you."

Does the Left Hand Know What the Right Hand is Doing?

According to the Census Bureau, the number of Americans aged 65 and older grew by 900,000 between 2009 and 2010. For the same year, the American Health Care Association reported that the number of nursing facilities in the United States dropped by nine. Granted, nine isn’t a very big number, but why is the number falling at all when our population of older people is rising so dramatically?

A recent article in the New York Times explains that this odd discrepancy is in part a result of financial pressure on facilities that care for residents who receive Medicare and Medicaid. The other part is a growing consensus among health care professionals that the 24-hour care provided by nursing homes is more than many older patients need.

So where are these patients getting the care they do need?

Some combination of community- and home-based care seems to be the answer. As Jason A. Helgerson, the Medicaid director for New York State says, “If a person can get a service like home health care or Meals on Wheels, they can stay in an apartment and thrive in that environment, and it’s a lower cost to taxpayers.”

Examples of federal government support for this shift are the Community First Choice Option for Medicaid and the Independence at Home Demonstration Program for Medicare.

States that participate in the Community First Choice Option receive a six percent increase in federal Medicaid matching funds for providing community-based attendant services and supports to beneficiaries who would otherwise be confined to a nursing home or other institution. The Independence at Home Demonstration Program encourages primary care practices to provide home-based care to chronically ill Medicare patients.

If all of this is true, then the question of the day is, “Why is the federal government gutting the home medical equipment (HME) sector?”

People who are chronically ill or who have mobility issues need more than care to remain independent and safe at home. They also need medical equipment like oxygen concentrators, wheelchairs, and infusion pumps.

According to information gathered by the American Association for Homecare, VGM, and other groups in the HME sector, more than 450 HME providers have closed locations, been sold to other companies or gone out of business entirely since the Centers for Medicare and Medicaid Services (CMS) implemented its bidding program in 2011.

Ostensibly designed to cut costs, the program has in fact made a mockery of market-based capitalism. A forced contraction in a sector that is experiencing increased demand defies logic. Add to that CMS’ claim that patients aren’t experiencing any negative effects, like reduced access to equipment and service, and your average reasonable person has to start wondering what the true goal of the bidding program really is.

However, before we subscribe to any sort of conspiracy theory, it might be worthwhile to keep in mind an adage that goes back at least as far as the 1700’s: Never ascribe to malice that which is adequately explained by incompetence. Or, in other words, does the left hand know what the right hand is doing?

AAHomecare Independent Consultant Network: Meet Health Care Reimbursement Solutions, Inc.

Mary Ellen Spradlin grew up in a family business and always knew she would own a business herself someday. Opening a business means doing what you know and by the time she founded Health Care Reimbursement Solutions, Inc. in August 1995, she had been billing HME for 14 years.

The client list grew quickly and now, 17 years later, HCRS has clients in eight states ranging from small pharmacies to multi-location companies. HCRS works with their clients to be the back room without really being in their back room.

Keeping her staff and clients up-to-date on changing rules and regulations is a high priority for Mary Ellen. She’s active on the Region B council and in several state associations. She also sends her staff to trainings for Medicare, Medicaid, BCBS and others. HCRS offers training for its clients, too. Frequent client communication is one of the benefits of working with HCRS.

“I get a real thrill from assisting new clients who are just getting started in the business,” says Mary Ellen. Helping them with accreditation and Medicare enrollment is particularly satisfying, but she also enjoys watching them grow as they provide equipment and care to seniors and people with disabilities in the community.

Several of HCRS’ first clients signed on as a result of its AAHomecare membership. In fact, one of them from 1998 is still a client today. Mary Ellen likes to work with AAHomecare members because they’re knowledgeable and have integrity. Integrity is something that HCRS prides itself on. The goal is to make sure clients have everything needed not only to get paid but to KEEP their money.

Health Care Reimbursement Solutions, Inc. is a member of the AAHomecare Independent Consultant Network.

Medicare Bidding Program Puts Patients Last

Doctors don’t provide the medical equipment their patients use at home. Doctors and patients alike rely on home medical equipment companies to not only provide the right equipment, but also to provide numerous essential, required services and to teach patients how to use the equipment properly.

Now imagine a scenario in which equipment companies are paid the lowest possible price for the equipment and nothing at all for the teaching and the service. What happens to patients in such a scenario?

Actually, you don’t have to imagine it because that is the precise situation that doctors and patients in nine metropolitan areas across the country were forced into by Medicare last year through its bidding program. Another 91 areas will soon face the same troubling circumstances.

Dr. Dennis Rosen laid out the simple arithmetic and its complex consequences in a May 16 New York Times op-ed. He wrote, “This extra care takes time, and time costs money. But sicker patients and unnecessary hospital visits cost far more. And competitive bidding doesn’t take these subsequent costs into account. If competitive bidding is predicated on supplying equipment at the lowest possible price, something has to give. And more likely than not, that something will be patient care.”

“Using CPAP [continuous positive airway pressure], or any medical device, is complicated, and the machines work only if you know how to use them properly. If the CPAP mask doesn’t fit snugly, it can be uncomfortable and cause skin abrasion or even scarring…. If used incorrectly, CPAP will not do what it is supposed to. The obstructive sleep apnea will remain untreated...”

Rosen, a pulmonologist, concludes: “On the face of it, competitive bidding sounds like a very good idea… But as a doctor working with patients on the ground, I have doubts about that quality-of-care measure, and I worry that those savings obscure a potentially serious problem.”

Is this truly what we as a society want for our neighbors, or for ourselves? There is no denying that the need to control healthcare spending is forcing hard decisions upon us, but let’s consider just two questions for now: 1) Is an hour of service time to teach a patient how to use equipment more or less expensive than even one night in a hospital, and 2) Are we willing to let the most vulnerable among us suffer because we can’t do the math in 1)?

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