“People have gone out of business because of credit issues, we’ve lost probably six members in the competitive bidding areas and several outside,” said John Gallagher, vice president of government relations for the Waterloo, Iowa-based member services group.

“We are already seeing consolidation in the rural areas; the nationals have already pulled back,” he continued. “We are already seeing concerns in rural areas where Medicaid has said it is going to go to those [competitive bidding] rates, and we are hearing that third-party payers are going to those rates. When that happens, Dr. Brown’s theories will be played out.”

Brown, a Ph.D. in economics and professor at the University of Northern Iowa, conducted a study last year on the effects CMS’ project would have on care in rural areas. He concluded that as national companies closed branches because of resulting reimbursement cuts, the number of rural providers could decline by as much as 40 or even 50 percent in the states he studied.

But in a December meeting with Brown, Gallagher and Tom Powers, also of VGM, CMS’ Jonathan Blum suggested that the analysis was “flawed.” Small providers would, Blum said, surface to fill the void left by the nationals.

That prompted a follow-up from Brown.

“During our meeting, you essentially suggested that the logic of my analysis was flawed,” he wrote in a Jan. 4 letter to Blum, deputy administrator and director of CMS’ Center for Medicare Management. “In particular, you argued that when the large national firms fail and close their offices across the country, including in rural areas, that this would, in fact, be a good thing for small independent suppliers of DMEPOS. You pointed out that when the national firms fail, the geographic holes left behind by their closure will be easily, and profitably, filled by small independent suppliers.

“Your argument rests on the ability of small independent suppliers to quickly and easily set up shop. Unfortunately, a number of barriers to entry will likely prevent this from occurring in a timely fashion.”

Those barriers, Brown pointed out, include accreditation, which can take nine months; a $50,000 surety bond; the difficulties of finding financing for equipment acquisition; and the significant barriers new providers would need to overcome, such as getting a Medicare number, learning and implementing the Medicare billing process and being solid enough financially to withstand the lag time in getting reimbursed.

“Thus, while it is easy to argue that in theory a new firm can easily enter the market and provide high quality products and service to Medicare beneficiaries in rural America after the large firms fail, the reality is that the process of starting up in this industry is far more difficult than one might initially suspect,” Brown wrote.

On rural America Main Street, small providers are not waiting to take over the vacancies left by big nationals, Gallagher said. “It’s not practical having to take care of patients and not be paid,” he said, adding that there are a myriad of regulations that must be met. “The sheer weight of trying to get a provider number would preclude it, and if there is no margin there ….”

Brown’s findings of significant job losses in rural areas because of competitive bidding are on target, Gallagher said. “It really comes back to jobs, jobs, jobs,” he said, noting that in President Obama’s state-of-the-union address last week, he called for the creation of jobs and putting Americans back to work.

“Here is one [government project] that is a job-killer, and we have a bureaucrat who has no concept, no clue how competitive bidding will affect rural areas,” Gallagher added. “Here is a classic example of the regulatory process run amok.”

That’s the message the industry needs to hammer home to Congress and the Obama administration, he added.

“It’s about the jobs — that has got to be the mantra,” Gallagher said. “We support the president in his desires to create jobs and to make the country more competitive. At the same time, CMS and [the Department of Health and Human Services] are trying to eliminate competition and eliminate jobs. You have an agency of the government putting people out of work.”

Download a PDF of Brown’s study.

Read Brown’s letter in full.