A new competitive bidding program meant to save Medicare billions is shaking up medical suppliers across the U.S., including in Riverside and San Bernardino counties where the new system is already in place.
Medicare revolutionized the way it pays for items such as oxygen tanks and diabetic test strips, partly in response to widespread and blatant fraud. Federal agents routinely arrest hucksters, including criminal street gang members in Los Angeles, making millions off fraudulent power wheelchair sales.
Under the new system, medical supply firms compete for contracts to supply items to Medicare beneficiaries. Previously, firms simply had to send paperwork to Medicare for approval to sell a wide array of medical items, although the process has become more rigorous in recent years with bond requirements and storefront inspections.
The new program holds the promise of saving Medicare $27 billion over 10 years, officials say, a tantalizing prospect as program costs are an increasingly hot topic with Congress and the public.
But industry officials and a prominent group of economists who are watching the program’s early rollout in nine cities say the program has serious flaws.
Esta Willman, President of Medi-Source Equipment & Supply in San Bernardino County, is supporting a federal effort to eliminate the competitive bidding process altogether.
Willman, who runs a 20-year-old business, said the new program requires companies to submit bids for various categories of medical supplies, such as home oxygen tanks or diabetes care items.
She said she bid in five categories and got contracts in two that require her to bill the government at lower rates than what she’s used to. Willman said she isn’t sure whether the reduced level of business will be enough to sustain her company, which employs seven people.
“Do I close the doors or do I take these two contracts and hope that in the meantime I can diversify payer mix or do something different,” Willman said of her dilemma.
She said the new system seems to be forcing a consolidation in the market to the large companies that can afford to supply items at the lowest prices.
Willman said that’s a shame since she questions whether conglomerates will be able to provide the level of service that her firm offers. She said her company has gone out at 2 a.m. to help patients having trouble with a home oxygen tank.
“I don’t believe we’ve seen the worst of it yet,” she said, noting that a second round of competitive bidding will start in dozens of large cities in a year.
Peter Cramton, an economist at University of Maryland, has taken a strong interest in the bidding process and gathered data that shows Willman’s company is not alone in seeing a majority of its business disappear.
He compiled a report showing that for many categories of medical supplies in several cities, including Riverside, the market has seen a major shake-up [PDF].
In the Riverside County market for diabetic supplies, for instance, several suppliers that sold more than $1 million worth of such items were losers in the bid process.
Cramton said he and more than 160 economists [PDF] from Harvard, Yale, University of Chicago and other institutions signed a letter warning Medicare that the bidding process is seriously flawed.
Among the flaws they noted is a lack of transparency in the process. Also, he said, firms are essentially encouraged to submit rock-bottom bids to win the option of signing a contract for the price they name.
Cramton is advising lawmakers [PDF] on ways to fix the system, because as it stands, he said, it won’t work. He warns that established firms will collapse under the race-to-the-bottom pricing approach and leave patients with no local firm to provide medical supplies and repair services.
“What we have is a fatally flawed system,” Cramton said. “It defies the imagination that (Medicare) can stick with this.”
Laurence Wilson, a Medicare official overseeing [PDF] the bidding process, said his agency is “very pleased” with how the nine-city rollout has gone and has no major changes scheduled before the new system starts in large cities.
“We’ve had very few complaints, less than 40 from beneficiaries and those were resolved quickly,” he said.
Wilson said the program is designed so 30 percent of the contracts go to small firms. He said Medicare officials are carefully watching the billing claims of people who get medical supplies to be sure there is no uptick in emergency room or doctor visits. So far they are pleased with what they’re seeing, Wilson said.
Wilson also said the program is already saving Medicare 35 percent in Riverside and other early implementation cities over what it pays in other areas for similar medical supplies.
According to the inspector general who oversees Medicare, the program has paid as much as $4,000 [PDF] for wheelchairs that cost suppliers $1,000. Similarly, audits also showed that Medicare paid $7,200 for oxygen concentrators that cost suppliers $600.
Inspector General Daniel Levinson has also testified that [PDF] medical supplies have been issued to people from companies with no store front and in the name of doctors who had no valid Medicare credentials.
Wilson said the new program requires bidders to submit credit history documents and tax filings, helping to protect the program from fraud.
“Fraud in the program has always been a problem and one we’ve been addressing vigorously in the last few years and even more vigorously now,” he said.