New Policy Brief Outlines Problems With Medicare Competitive Bidding Program

by Matthew Glans on March 30, 2011

photo by yangui/Flickr, used under a Creative Commons license

For many Americans, access to quality medical equipment is a necessity. Known as durable medical equipment, products such as prosthetics, orthotics, and supplies, are important devices that ill patients need to live a healthy and active life. Recent changes to the health care system under the Patient Protection and Affordable Care Act have changed how medical suppliers are able to provide these products through Medicare.

Under the new Medicare competitive bidding program, which launched in several regions of the country at the beginning of the 2011, the only durable medical equipment suppliers that will be reimbursed for their products by Medicare will be those companies that won competitively bid contracts with the federal government. The competitive bidding program is designed to decrease the prices paid for durable medical equipment, prosthetics, orthotics, and other medical supplies (DMEPOS). The goal is to lower cost sharing for the patients who use the products and services and create savings for the Medicare program.

Supporters of the program argue it could save Medicare and its beneficiaries about $28 billion over the next 10 years. Opponents of the new competitive bidding program, including medical device companies and long term care providers, have argued that flaws in the competitive bidding process have caused significant service interruptions and the use of lower quality products. In a Crain’s Cleveland Business article, Joe Petrolla, president of Seeley Medical, a medical device provider argued the process created the unexpected side effect of what he called “suicide bidding,” where companies that won a contract to provide a product were forced to bid so low that providing a quality product and level of service while remaining profitable becomes near to impossible.

Another common problem with the competitive bidding process involves “drive-by bidders,” or suppliers who submit low bids in order to gain access to a certain market and then drop out of the process. These low bids then affect the prices of paid by Medicare to other suppliers, bringing the market prices down.

A new Heartland Institute Policy Brief argues that many of these problems emerged from four key flaws in the bidding process.  First, the bids are not binding, which is a common rule in other auctions. Second, a unique “median pricing” rule in bidding process ensures that some suppliers will be allowed to sell to the government only at prices below their actual bids, this is unique to these auctions,  no other auction currently works this way. Third, bidding rules give suppliers large incentives not to bid their actual costs, this encourages suicide bidding. Last, the bidding process lacks transparency; currently the program is unclear about certain important factors in the bidding process including quality standards and performance objectives.

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