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Using Medicare Bidding Rates for Medicaid Will Create Access Problems for Children and the Poor

WASHINGTON, April 18, 2014 /PRNewswire-USNewswire/ -- Despite mounting criticism of the Medicare bidding program for durable medical equipment (DME), the President's fiscal year 2015 budget includes a proposal to use the program's unrealistically low reimbursement rates for Medicaid. It's bad enough that the bidding program's reimbursement rates, which the government sets virtually arbitrarily, will be applied to areas not yet covered by the controversial program by 2016 unless Congress acts now, says the American Association for Homecare (AAHomecare).

Such a broad expansion of the bidding program has patients across the country worried even though it comes at a time when consensus is building on Capitol Hill that the program must be significantly changed. In fact, 171 House members are cosponsoring legislation that would implement a bidding program based on actual market pricing, rather than the unfair reimbursement rates currently used.

Physicians, patient advocates, economists, and DME providers support the action that Congress is taking.

In expanding the program to 91 new locations last July, the Centers for Medicare & Medicaid Services (CMS) announced that the new prices amounted to an average 45 percent cut for many products, such as oxygen therapy, wheelchairs, hospital beds, and walkers. Price cuts for diabetic testing supplies were even steeper—more than 70 percent. 

However, the methodology used to set prices is a fundamental problem of the program. Under this methodology, which lacks transparency because CMS won't release its specific formula for establishing prices, the government can set the reimbursement rate at any point between the highest and lowest bids.

But what really taints the prices is that the bids are non-binding. Thus, a provider can submit a "suicide" bid at an impossibly low price in a desperate attempt to win. Yet, a provider is under no obligation to sign a contract for that amount if it is chosen as a winner.

CMS compounds its error by using these rejected contract prices to set the reimbursement rates. In addition, CMS includes bids from unqualified bidders when it sets the rates. According to a report on the Round 1 Rebid issued recently by the Department of Health and Human Services Office of Inspector General, 19% of the rates the OIG studied were affected by bids from providers that did not meet program requirements.

More than 240 auction experts and economists have warned that the bidding program is unsustainable in its current form. 

"While the CMS system does involve bidding, it is far from competitive," says Dr. Brett Katzman, chair of the Department of Economics, Finance & Quantitative Analysis at Kennesaw State University. "Yes, there are winners and losers, but winners are chosen based on their willingness to game the system rather than their cost competitiveness. The problem is that the CMS system entices providers to "low-ball" bid whereas a true competitive bidding system would reward providers for being cost efficient."

Even the so-called bid winners can struggle with this unfair pricing. All-States Medical Supply, a North Carolina based company, won a contract to provide diabetic testing equipment via mail orders. But recently, the company announced that it had to lay off eight employees and blasted the bidding program in a press release, saying the cut in reimbursement rates and a 250% increase in audits were too much to sustain.

Tom Ryan, president of AAHomecare, said that in addition to not holding bidders accountable for their submissions, the program produces reimbursement rates that are financially unsustainable.

"The program is dismantling the DME infrastructure that seniors and people living with disabilities rely upon," says Ryan. "It has forced bankruptcies and business closures, leaving beneficiaries adrift to find businesses that can provide the home medical equipment prescribed by their physicians. It has also been challenging for many patients to find a provider to repair or replace their life-sustaining medical equipment." 

Furthermore, Ryan says there are other reasons for lawmakers to reject the proposals to expand the troubled bidding program.  For instance, in many states the Medicaid rates are already lower than the rates under the Medicare bidding program. And, certain state laws allow Medicaid to pay only 80 percent of the Medicare rate for items and services, while other states waive the 20 percent beneficiary co-payment because many Medicaid patients can't afford it. "Some states combine both of these provisions," Ryan says. "Therefore, if the Obama administration's proposal was enacted by Congress, many state Medicaid payment rates would be up to 40 percent below the already low rates established by the Medicare bidding program."

The President's 2015 budget says that having Medicaid mirror the Medicare bidding rates would save nearly $1.1 billion over the next 10 years, but at what cost?

Already, there is substantial evidence about seniors and people living with disabilities are suffering because of the bidding program. People for Quality Care, a patient advocacy organization, has received complaints from several thousand Medicare beneficiaries who can't obtain the home medical equipment that they need or can't get it repaired. AAHomecare is working with Congress to fix these problems, so that these patients can enjoy a reasonable quality of life.

The last thing the nation needs is for a new category of patients—children and people living in poverty on Medicaid—to endure these same problems. Stakeholders, as well as consumer and children's advocates, must work to prevent this proposal from being enacted.

The American Association for Homecare represents durable medical equipment providers, manufacturers, and others in the homecare community that serve the medical needs of millions of Americans who require oxygen systems, wheelchairs, medical supplies, inhalation drug therapy, and other medical equipment and services in their homes. Members operate more than 3,000 homecare locations in all 50 states. Visit www.aahomecare.org.

SOURCE American Association for Homecare

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