Hundreds of experts including Nobel laureates say Medicare's bidding system for durable medical equipment will fail

166 Authorities, Including Two Nobel Laureates in Economics, Share Concerns with Congress

Medicare's bidding program for durable medical equipment will fail, say 166 leading experts on auctions and competitive bidding systems.  

New restrictions and steeply reduced prices based on the controversial bidding system are scheduled to take effect on January 1, 2011 in nine of the largest metropolitan areas including Charlotte, Cincinnati, Cleveland, Dallas-Ft. Worth, Kansas City, Miami, Orlando, Pittsburgh, and Riverside, Calif.

The 166 critics, who include two Nobel laureates and numerous economics professors from leading universities, signed a letter criticizing the bid program. Their letter was delivered this week to Rep. Pete Stark (D-Calif.), who chairs the House Ways and Means subcommittee on health. Chairman Stark forwarded the letter to Donald Berwick, administrator of the Centers for Medicare and Medicaid Services (CMS).  To view the letter, go to www.aahomecare.org.

The experts, who do not oppose the concept of using a competitive bidding system to set Medicare prices, point out that the bidding program designed by CMS has several flaws that will prevent it from achieving the objectives of low cost and high quality:

• The bidders are not bound by their bids, which undermines the credibility of the process.
• Pricing rules encourage "low-ball bids" that will not allow for a sustainable process or a healthy pool of equipment suppliers.
• The bid design provides "strong incentives to distort bids away from costs."
• There is a lack of transparency in the CMS program that is "unacceptable in a government auction and is in sharp contrast to well-run government auctions."

The experts' letter concludes, "This collection of problems suggests that the program over time may degenerate into a 'race to the bottom' in which suppliers become increasingly unreliable, product and service quality deteriorates, and supply shortages become common. Contract enforcement would become increasingly difficult and fraud and abuse would grow… We recommend that the government fix the flaws in the current auction program and develop a new design that emphasizes the key features of successful designs. Implementation of the current design will result in a failed government program."

Many of the professors and experts who signed the letter are affiliated with major universities including Yale, Harvard, Stanford, MIT, London School of Economics, University of Chicago, University of Pennsylvania, Duke, Columbia, California Institute of Technology, and Cornell, among others. The letter states the signatories' views are their own and do not represent the views of any organization.  

The American Association for Homecare, which represents providers of home medical equipment and services, has argued that the Medicare bidding program uses economic coercion to force homecare providers to submit unsustainable bids necessary to win a contract that would permit them to continue serving Medicare beneficiaries.  The bid program is also designed to steeply and artificially reduce the number of providers of home medical equipment, which reduces rather than fosters competition. The program will severely limit patient choice of preferred providers and make it impossible for any new provider to enter the market.

The bidding system affects providers of home medical equipment and services such as oxygen therapy, respiratory devices, hospital beds, wheelchairs, and other medically required equipment and supplies used by seniors and people with disabilities in Medicare.

Organizations that favor elimination of this bidding program include the ALS Association, the American Association for Homecare, American Association of People with Disabilities, Cerebral Palsy Association of Ohio, Muscular Dystrophy Association, National Association for Home Care & Hospice, National Association for the Support of Long Term Care, National Council on Independent Living, National Emphysema/COPD Association, National Spinal Cord Injury Association, and United Spinal Association.  

In the U.S. House of Representatives, 257 legislators have cosponsored a bill, H.R. 3790, that would eliminate the bidding program. That legislation would lower reimbursement rates for durable medical equipment but would allow providers to continue competing to serve Medicare beneficiaries on the basis of service and quality.