Medicare Competitive Bidding Program

Abstract

A recent study by the National Minority Quality Forum (NMQF) reported the failures and adverse health outcomes of the Medicare competitive bidding program as implemented by the Centers for Medicare & Medicaid Services (CMS) in 2011. CMS has repeatedly reported that the program caused no disruption of beneficiary access to needed medical products (including diabetes testing supplies) and that no adverse outcomes occurred. Although signals of disruption were seen early in the program implementation, economic modeling by McGeary and Katzman in 2004 demonstrated that the program design was significantly flawed. This article discusses the unintended consequences of competitive bidding program and provides a rationale for suspending the program until CMS can implement effective monitoring protocols to protect the safety of Medicare beneficiaries.

In 2011, the Centers for Medicare & Medicaid Services (CMS) launched its competitive bidding program in 9 metropolitan areas. The intent of the program is to improve the effectiveness of the Medicare methodology for setting payment amounts for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS), which will reduce beneficiary out-of-pocket expenses and save the Medicare program money while ensuring beneficiary access to quality items and services.¹ Diabetes testing supplies were among the products covered by competitive bidding.

CMS has repeatedly reported that competitive bidding has saved millions of dollars with no disruption of beneficiary access to needed products and supplies.¹ However, in a recent article published in Diabetes Care, a leading, peer-reviewed medical journal, researchers reported that the initial rollout of the Medicare competitive bidding program did, in fact, disrupt access to diabetes supplies, resulting in increased mortality, hospitalizations and costs among beneficiaries with insulin-treated diabetes.² While it is likely that beneficiaries who depend upon the other covered DMEPOS suffered similar (or more severe) consequences, studies in these populations have yet to be conducted.

The unintended consequences of the competitive bidding program are clearly disturbing. However, even more disturbing is that fatal flaws of the program design were predicted several years prior to competitive bidding implementation.

Flawed by Design

As early as 2004, economic modeling showed that the bidding process CMS used to set prices and select distributors would likely result in supply shortages, diminished quality and service to Medicare beneficiaries, and an increase in long-term total cost as Medicare beneficiaries are forced into more expensive options.³ Or, as seen with diabetes testing supplies, beneficiaries will simply stop using these products, putting them at increased and unnecessary risk for mortality and hospitalization.

Although reimbursement prices on individual products are set using winning bids on those products, contract winners are actually chosen based on a “composite” bid that is an average (median price) of their individual bids on the different products in a category.³ CMS then selects winners beginning with the lowest composite bid and works upward until the total capacity of winners is sufficient to satisfy estimated demand in each product category.³

This never-before-seen bidding process is significantly different from what Congressional members anticipated. More importantly, the approach is totally flawed.

Because winning bidders are not obligated to actually sign a contract with CMS, the approach encourages suppliers to “low ball” their bids, thereby, creating a median price that is well below the true costs of producing quality products and/or providing necessary product support and service (eg, home delivery of oxygen tanks). The approach also limits the number of suppliers to those who can actually provide these products/services at the set prices.

Both of these scenarios have played out with diabetic testing supplies – beneficiaries now have access mainly to inaccurate, unreliable diabetes blood glucose meters⁴ and the number of suppliers has been reduced by over 90%.⁵ If one or more of the current suppliers decides it can no longer afford to provide products at the set price, beneficiary access to needed products will be further limited. In essence, the competitive bidding program was designed to fail, which it did.

Another fatal flaw of the competitive bidding program is in the legislation, itself, which disallows judicial review of any aspect of the program.⁶ Although it is assumed this judicial immunity was included to safeguard against an anticipated plethora of lawsuits filed by disgruntled suppliers, the net result is beneficiaries have no legal recourse to suspend the program when harm is detected.

The mistakes made by CMS can be somewhat forgiven due to the agency’s inexperience in orchestrating such a large initiative that involves free-market principles. However, the agency’s total lack of transparency in its design and implementation of the program cannot be excused.

The Failure Continues

Despite overwhelming evidence of disruption and beneficiary harm, CMS continues to claim that the program is a success. Yet, the agency refuses to reveal the methodology it used to monitor beneficiary safety and evaluate financial outcomes. According to a 37-page report by the National Minority Quality Forum (2015, www.nmqf.org), findings of “no disruption of access” and “no adverse health outcomes” are not supported by the data and methodology descriptions presented in CMS’s reports.⁶

According to former Congresswoman Nancy Johnson, a new round of bidding, which will slash prices by another 20%, occurred in January of this year.⁴ After a 6-month phase-in period, the new prices will be applied nationally, starting July 1. Given that there has been no public comment from CMS nor any apparent changes in their methodology for monitoring beneficiary access and safety, we expect the same disruption, mortality and increased costs observed in 2011 to continue, but on a much larger scale.

Because the courts cannot address the real and ongoing health consequences of competitive bidding, it will, literally, take an act of Congress to suspend the program and end the costly and unnecessary harm to Medicare beneficiaries. Senate Finance Committee leadership, Senators Orrin Hatch and Ron Wyden, recently sent a letter to the Department of Health and Human Services (HHS), urging the agency to extend the phase-in for an additional 12 months to avoid disruptions.⁷ Specifically, the committee stated that they are concerned the current phase-in period “does not allow sufficient time to detect and correct problems, and, as a result, puts beneficiaries at risk of experiencing a delay in the receipt of needed DMEPOS or being unable to obtain items altogether.”

The committee also requested that CMS shares information about the “specific indicators the agency is monitoring to determine if beneficiaries experience access problems or adverse outcomes and to report the results publicly on the agency’s website.” In other words, neither Congress nor the public really knows how CMS is monitoring safety or evaluating outcomes.

Summary

CMS’s program design, coupled with the total lack of transparency about crucial details regarding safety monitoring, unnecessarily puts our must vulnerable patient population at risk increased mortality and morbidity. While we applaud the Senate Finance Committee’s strong interest in remedying the situation, their letter contains only a recommendation; HHS is under no obligation follow those recommendations or comply with the requests made.

Congress needs to act immediately to suspend the Medicare competitive bidding program until CMS can credibly demonstrate its ability to modify and manage the program, and, most importantly, monitor the safety of beneficiaries.