Many of the suppliers who won contracts under Medicare’s new competitive bidding program for durable medical equipment are financially shaky, two new studies say. The result for seniors will be undependable supplies, reduced quality and fraud.

Washington (PRWEB) December 2, 2010

Seniors in nine major cities will have to deal with financially shaky suppliers under Medicare’s new Competitive Bidding program for medical equipment, which goes into effect Jan. 1, two new studies have found.

The result of the Competitive Bidding program will be “immediate harm to Medicare beneficiaries,” according to a study by Prof. Peter Cramton, an internationally recognized expert on auctions at the University of Maryland. The program will cause “poor service, selective fulfillment of orders, fraud, and other abuses.”

Most of the larger, stable companies now providing supplies did not win contracts under the new system or declined to participate. In many cases new suppliers are financially weak, the studies say.

A preliminary study of the 359 contract winners by Invacare, the largest U.S. manufacturer of home medical equipment, found 34 percent of contract winners “have credit limits of less than $10,000, are on credit hold, have no home care account with us or are so far behind on their payments that their accounts have been turned over for collections or legal process.”

Since suppliers generally finance purchases with manufacturers, the study casts strong doubt on the ability of many suppliers to live up to their contracts and provide needed supplies. Seniors will face shortages.

The study by Prof. Cramton shows that the vast majority of suppliers will turn over in the nine markets. For mail-order diabetes supplies, for example, more than 98 percent of existing suppliers by volume will be new, the study shows. In most cases, the new suppliers have little experience in providing supplies in the volumes required by the program.

The result of the competitive bidding program, Cramton’s study said, “will be immediate harm to Medicare beneficiaries and the vast majority of Medicare providers in the nine service areas covered by the auction.”

“Beneficiaries will face poor service, selective fulfillment of orders, fraud, and other abuses,” the study said.

The supplies at issue are called Durable Medical Equipment and range from wheelchairs to diabetes test strips. In some cases, supplies now used by seniors will become unavailable under the program.

For example, the No. 1 selling diabetes test strip, OneTouch Ultra by Johnson & Johnson, will very likely become unavailable by mail order in the nine cities.

That’s because the reimbursement price under the competitive bidding program is less than what the manufacturer charges suppliers.

The reimbursement price in the nine cities varies between $13.88 and $15.62 per package of 50 test strips. The manufacturer’s charge is $21.75, according to a recent invoice.

Competitive bidding was mandated by a 2003 law. Problems with the program forced a halt to an earlier attempt to implement the program in 2008.

But the current process Medicare has selected to use is deeply flawed.

In fact, 167 experts in competitive bidding with significant experience in complex government procurement, including two Nobel laureates, asked Medicare last month to stop the program and put an alternative in place. Medicare refused.

The 167 experts said in a letter that the competitive bidding process was faulty and would lead to shortages and reduced quality, and create fraud.

One big problem with the process cited by the experts is that it encourages low-ball bidding, driving prices below sustainable levels.

For example, the rules allow suppliers to submit bids without committing themselves to accept contracts if awarded. That encourages them to submit very low bids so they will be named a winning bidder. Those low bids cause the price Medicare pays contractors to be artificially low.

The bottom line on the process is that seniors will have trouble getting the supplies and quality service they need.

The process is driving out the quality suppliers who have served seniors reliably and well. They are being replaced by a much weaker group, some of whom may see their only opportunity to make money by providing inferior product and service.

The program’s impact on seniors across the country will increase as CMS intends to begin the process of expanding the program to 91 major metropolitan areas nationwide next year.

Medicare beneficiaries and their families who have concerns about the program are urged to call their member of Congress at 202-224-3121.

Editors notes:

The two Nobel Prize winners who signed the letter are Thomas C. Schelling of the University of Maryland and Roger Myerson of the University of Chicago.

The nine multi-county areas where the program is slated to begin Jan. 1 are: Charlotte; Cincinnati; Cleveland; Dallas-Fort Worth; Kansas City, Mo.; Miami; Orlando; Pittsburgh and Riverside, Calif.

Details on the criticisms of the Competitive Bidding program, including the letter from the 167 experts, may be found on the website of Prof. Peter Cramton of the University of Maryland, who is a leading international authority on auctions and who has advised the FCC on auctioning radio spectrum for mobile phones, PJM and ISO New England on auctioning wholesale electricity in the United States and the FAA on auctioning airport slots in New York City.