Medical Equipment Suppliers’ Ongoing Opposition to the Competitive Bidding Program and Consequences for Beneficiaries

I.                   Introduction

Since the introduction of the Competitive Bidding Program (CBP), trade organizations––representing the billion dollar Durable Medical Equipment Prosthetics Orthotics and Supplies (DMEPOS) industry––have been opposed to Medicare's congressionally mandated competitive bidding program.  In keeping with this opposition, supplier organizations were successful in initially delaying the implementation of the program.[1] 

The Medicare program has long been plagued by overbilling for DMEPOS. For example, a 2007 Government Accountability Office (GAO) report stated that Medicare made $700 million in improper payments for DMEPOS from April 2005 to May 2006.[2] More recently, the GAO reported that while the implementation of the CBP may be helping to reduce the risk of DMEPOS fraud, "continued vigilance of DMEPOS suppliers is warranted."[3]

The Centers for Medicare & Medicaid Services (CMS) estimates that following the implementation of the CBP in 2011, the program saved $202 million in its first year; that between 2013 and 2022 the CBP will save Medicare nearly $26 billion; and that beneficiaries will save $17 billion dollars during the same time frame.[4] These substantial savings, however, have not stopped efforts of supplier organizations to repeal the CBP.[5]

II.                Background

The Origin of Competitive Bidding

In order to address overpayments for DMEPOS, the DMEPOS CBP was mandated as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).[6] The purpose of the program is to reduce beneficiaries' out-of-pocket costs and reduce costs to Medicare while maintaining beneficiary access to DMEPOS items and services.[7] Under the CBP, contracts are awarded to qualified DMEPOS suppliers who provide the best bid price on select DMEPOS items.[8] The contract suppliers are paid at the bid price, which is the median of all winning bids received for an item or service.[9]

As the CBP has rolled out, the Center for Medicare Advocacy (the Center) continues to receive complaints from beneficiaries that contract suppliers are not meeting their obligation for providing needed DMEPOS items and services.[10] Supplier organizations, on the other hand, continue to complain about the actions of contract suppliers––many of whom are presumably their members––under competitive bidding, such as under bidding for contracts or declining to accept bid contracts. They fail, however, to address the issues of reasonable bidding and adherence to contracts amongst their members. As a result, we fear the emergence of an anti-DMEPOS campaign that begs the question whether the industry's opposition to competitive bidding includes a conscious strategy to ignore its member non-compliance in hopes of seeing the CBP fail. Unfortunately, while supplier organizations seek to dismantle the structure of the bidding process, the beneficiary suffers.

Trade Association Responses to Competitive Bidding

Trade organizations representing suppliers of DMEPOS have expressed concern about Medicare's CBP.  Following the implementation of Round 1 in 2011, many complaints––similar to those received by the Center––were reported by Medicare beneficiaries, providers and case managers through the website of the American Association for Homecare (AAH).[11]  Many complaints describe beneficiaries having a difficult time in finding a local equipment or service provider; experiencing delays in obtaining medically-necessary equipment and services; having few choices when selecting equipment or suppliers; and experiencing a reduction in the quality of DMEPOS items and services received.[12] Similarly, the Center has received complaints that a contract supplier failed to deliver walkers upon the beneficiary's discharge from a skilled nursing facility, thereby causing the beneficiary to pay out-of-pocket for a walker from a non-bid winning supplier. [13]

Paying out-of-pocket for DMEPOS items and services is costly.  Approximately half of all Medicare beneficiaries manage with incomes under 200 percent of the Federal Poverty Level.[14] Moreover, in some instances Medicare beneficiaries spend upwards of 14 percent of their annual income on health care costs.[15] According to the AAH, in the first eight months of 2011 it received 500 complaints from Medicare enrollees and their families who were unable to find a supplier of necessary DMEPOS––more than nine times greater than the number of complaints CMS reported having received.[16]  We note too that the Center has experienced an uptick in the number of DMEPOS related complaints.  As to the complaints received by the Center, most involve situations in which providers and suppliers either delay providing necessary items of DMEPOS or outright fail to provide such items even though they have won competitive bids to provide and service such items. 

Other concerns expressed by supplier organizations included the absence of a surety bond.[17] Suppliers fear that the absence of surety bonds may allow bidders to manipulate contract prices, including driving prices down.  Suppliers also complain that; contract winners are allowed to refuse to sign contracts and that standards used to qualify bids are not accessible to the public; and that small businesses are disproportionately affected by the competitive bidding process.[18]  In response to these concerns, supplier organizations have lobbied Congress for the passage of legislation to repeal, replace, or refine the current competitive bidding program,[19] and rallied beneficiaries to share their stories of negative experiences with the competitive bidding program.[20]

III.             The Effort to Legislate Away Competitive Bidding

Trade organizations have lobbied for the passage of legislation to  change, or repeal, the current competitive bidding program. Some trade association proposals offer alternatives to the current problem while others simply repeal the competitive bidding process.

Initial legislation efforts were to repeal the competitive bidding process without providing a replacement.[21] Later proposals sought to repeal competitive bidding, and replace it with market pricing.[22]  This latter approach would repeal and replace competitive bidding with a market-based pricing system.[23] This system would include smaller areas, and provide a price driven solely by the DMEPOS market with no pricing control from CMS.[24]

While support for legislation repealing the CBP has not disappeared, supplier organizations, such as the Ohio Association of Medical Equipment Services, have taken the position that this method may not be the best avenue in the current political climate.[25] More recently supplier organizations have supported legislation that would require that suppliers meet state licensure requirements, and present a surety bond.[26] Such legislative proposals would require bidders to put down a bid bond and if offered a contract that they do not accept, CMS would collect on the bid bond.[27] The notion here is that such practice would encourage bidders to submit bids that are more reflective of the market price. Also, CMS would be required to verify a supplier's licensure prior to accepting a bid.[28]

Provider Anti-Competitive Bidding Legislative Proposals

A Review of Provider Website Positions against Competitive Bidding

To gain a better understanding of the stance of various DMEPOS trade organizations on competitive bidding, the websites of twenty-one provider organizations representing forty states were reviewed. Of the fifteen supplier organizations that made advocacy information available to the public, six advocate for amending competitive bidding to include binding bids, seven advocated for market pricing, and two advocate for the repeal of competitive bidding without a suggested replacement.  In short, all of the fifteen DMEPOS supplier organizations for whom advocacy information is publicly available opposed competitive bidding.

Overview of DMEPOS Supplier Organizations' Positions on Competitive Bidding^Ɨ

Ɨ Information presented as it appears on the supplier organization's website as of July 16, 2014 and is limited to items publicly available on each organization's website.
* "Not available" means that the advocacy information was only available in the members' only area of the organization's website.