CMS officials on Monday (Nov. 1) were presented with a California Institute of Technology experiment that concludes that the controversial durable medical equipment competitive bidding program is poorly designed and cannot be fixed with minor adjustments. CMS met with academics on the design of the Medicare DME bidding program after canceling an earlier meeting because it was reported by Inside Health Policy, according to sources following the issue.
Changes to the program would have large implications for DME suppliers as the health reform law calls for a major expansion of the DME bidding program.
Industry sources say CMS could redesign of the program, but doing so would put the agency in a difficult position. It’s too late to make changes for the first round, and CMS has begun preparing beneficiaries for program changes on Jan. 1 so delaying the effort to make further adjustments would confuse beneficiaries. CMS is expected to announce the winning bidders of the first-round bid this week (see story). A decision to change, for round two, rules that determine who wins and what they’re paid would likely lead medical equipment suppliers to complain to Congress that the agency is not being fair, a supplier says. That’s all the more likely given that new rules would likely pay round-two suppliers more, according to academics who specialize in auction designs.
But an overhaul might also find some congressional backing. Lawmakers from both parties recently sent CMS letters asking about the bidding effort after a group of more than 160 independent economists, computer scientists and operation researchers signed on to a letter, written by University of Maryland Professor Peter Cramton, stating that design flaws jeopardize the success of the program. Cramton spearheaded this week’s meeting with CMS, source say, but Cramton declined to discuss the meeting. Other sources say meeting participants have been instructed not to discuss the meeting.
The experiment conducted by Caltech researchers is the first time economists have studied CMS’ program, according to Charles Plott, a Caltech professor of economics and political science. Plott, who was one of the first to apply laboratory experimental methods in the field of economics, emphasized that the results of the experiment are preliminary, but he also said they were dramatic enough to be a cause for concern. Plott was not at the meeting with CMS, and he said industry did not pay him to run the experiment.
Although good auction architectures for procurement applications exist, CMS’ DME competitive bid program “is not a good procurement auction,” according to a draft report of the experiment’s results. “It is based on an inappropriate architecture that cannot deliver services at competitive rates and qualities.”
“The Medicare supplies auction architecture cannot be adjusted in some simple way,” the report continues. “There is no ‘quick fix.’ The two central pillars of the auction are flawed. First, the price determination by the median accepted bid is not an appropriate method for determining price. Second, the ability of bidders to cancel bids is an inappropriate guide for competitive bidding strategies.” — John Wilkerson ( jwilkerson@iwpnews.com )