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Bloomberg Study Questions Medicare's Bidding Program

Bloomberg Government, the division of Bloomberg dedicated to analysis of government issues, released a report last week concluding that Medicare may be overstating the projected savings from its competitive bidding program for durable medical equipment and care.

The Bloomberg study also highlights the criticisms of auction experts about the design of Medicare's bidding system and describes the 85 percent reduction in home medical equipment providers allowed to bill Medicare in the initial nine metropolitan areas where the program was introduced. 

The 26-page study by Brian Rye begins with a summary of findings:

  • "CMS's assertions that the program saved $202 million in its first year may be overstated for a number of reasons, including a spike in claims seen in late 2010 and CMS's intentional selection of areas with higher-than-normal usage levels for Round 1 of the program.
  • The bidding process employed by CMS will likely reduce the number of market participants and spur a wave of consolidation within the highly fragmented home medical equipment industry. In the nine metropolitan areas covered under Round 1, more than 2,300 entities had submitted Medicare claims immediately before the program's implementation. As a result of the new program, the government awarded Medicare contracts to just 356 providers for 2011 in those same nine markets, an 85 percent reduction.
  • Rather than setting the price for a product based on the amount of the market-clearing bid (the bid at which the aggregate supply meets the government's estimated demand), CMS stipulates that the price is equal to the amount of the median of all the winning bids. Because of this rule, about half of the ‘winners' in each bidding process are offered a contract for a value that's less than they bid. Academic auction experts contend that this policy, along with the non-binding nature of supplier bids, encourages unrealistic, low-ball bids that threaten the long-term integrity of the bidding process."

The study also repeats the questions raised by the Government Accountability Office (GAO) in May about the method CMS used to measure complaints about the bidding program. GAO said the CMS definition of "complaint may be an optimistic characterization of beneficiary calls." Finally, the study called for further examination of the cost-savings picture painted by CMS. "To fully assess whether the program is resulting in any kind of ‘cost-shifting' activity that generates other types of Medicare expenditures, it would be helpful if CMS would provide an analysis of Part A and other Part B claims from the nine areas affected by the competitive bidding program."

See the GAO report, "Review of the First Year of CMS's Durable Medical Equipment Competitive Bidding Program's Round 1 Rebid." 

View the video of Bloomberg analyst Brian Rye summarizing his study.  

OAMES has shared this information with Ohio's Congressional representatives and we urge all Ohio providers to do the same, especially if you're in Round One and dealing with the problems that have been identified by many third party sources.  This is more compelling, non-industry evidence questioning CMS' assertions that the Medicare bidding Round One rebid is going well and is a viable and sustainable program for our seniors and healthcare community. 

OAMES, along with the American Association for Homecare, is urging Congress to adopt the Market Pricing Program (MPP) to replace the controversial bidding program.  This program is based on recommendations by economists and auction experts who have studied the current Medicare bidding 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

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