Medicare — Competitive Bidding and Cost Reduction

Circa 2010

Approximately 47 million Americans who are aged or who have disabilities are beneficiaries of the Medicare program. Seven and a half million of these people are eligible to be recipients of Social Security Disability Insurance (SSDI). But thanks to a new competitive bidding program for suppliers, Medicare beneficiaries who use certain medical equipment and supplies may experience welcome changes in how such items can be accessed.

The new bidding program—called the Medicare Durable Medical Equipment, Prosthetics, Orthotics and Supplies Program (DMEPOS) —requires that suppliers of medical equipment such as walkers, oxygen tanks, and hospital beds submit bids for Medicare contracts. If a beneficiary’s supplier does not submit a winning bid, or decides not to participate in the program, the beneficiary will need to use a new supplier or pay the full cost of items covered by the program.

Its supporters are confident that DMEPOS will replace present Medicare costs with lower, more accurate prices. This will help both Medicare beneficiaries and the Medicare program save money by reducing Medicare’s costs and the expense of beneficiaries’ co-payments. It will also ensure access to quality medical equipment, supplies, and services. There may be some transitional challenges, however, as suppliers drop out of Medicare or fail to qualify as Medicare contract suppliers. At present, the Centers for Medicare and Medicaid Services (CMS) are working to make the transition as easy for beneficiaries as possible.

Some facts about the program:

• The bidding process is expected to result in savings of 32% to the government and beneficiaries—that equates to more than $17 billion over a ten-year span. Additionally, the program is expected to reduce fraud and abuse, which will likely contribute to savings.

• DMEPOS requires that bids to provide designated medical equipment and supplies to Medicare beneficiaries be lower than current Medicare prices, which will consequently lower beneficiaries’ current co-payments. Suppliers seeking to participate in the program submitted bids to CMS by September 30, 2009. The winning contract suppliers will be revealed in September 2010.

• Suppliers must be accredited in meeting the DMEPOS program’s business and products quality standards. Each must also secure and maintain a surety bond in the amount of $50,000, which is designed to weed out fraudulent equipment suppliers.

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• The first round of the competitive bidding program will begin in the following regions on January 1, 2011: Charlotte-GastoniaConcord (North Carolina and South Carolina), Cincinnati-Middletown (Ohio, Kentucky, and Indiana), Cleveland-Elyria-Mentor (Ohio), Dallas-Fort Worth-Arlington (Texas), Kansas City (Missouri and Kansas), Miami-Fort Lauderdale-Pompano Beach (Florida), Pittsburgh (Pennsylvania), Riverside-San BernardinoOntario (California).

• CMS expects a gradual expansion of the program until it covers the whole country by 2016.

• The program has supporters and detractors, but is moving forward as planned. A bill to repeal the program (H.R. 3790) has received strong bipartisan Congressional support. However, Senator Max Baucus, Chair of the powerful Senate Finance Committee and Senator Jay Rockefeller, Chair of the Subcommittee on Health Care, continue to support the competitive bidding process.

• Many durable medical equipment (DME) suppliers oppose the competitive bidding process, arguing that unqualified, financially unstable companies will drive fees down so far as to invite fraud. However, a long history of Medicare fraud in this industry provides support for anti-fraud programs such as the DMEPOS Program. On June 16, 2010, federal authorities arrested 94 people in five states for taking part in Medicare scams, many of which involved false claims for DME. The amount at issue in the arrests was $251 million, while it is estimated that Medicare fraud costs taxpayers $60 billion to $90 billion each year.

To learn more about the DMEPOS program and how it is likely to affect Medicare beneficiaries, ABILITY editor Lauren Becker interviewed David Sayen, Regional Administrator for Region IX of CMS. Sayen’s region includes Arizona, Hawaii, Nevada, California and the Pacific territories.

Lauren Becker: How much of these proposed savings do you expect will result from competitive bidding and cost reduction and how much from eliminating fraud?

David Sayen: Our savings projection of 32% represents the change from the existing prices to the new, competitively bid prices. We have already implemented accreditation, as well as bonding, for all suppliers. All of the suppliers have a bond posted, have been inspected, have submitted a bid, and have had their financials analyzed by us. So we know the people with whom we’re doing business are legitimate. We’re already seeing savings from fraud reduction that will be quantified as we get to the end of the first year.

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Becker: How did you select the individual areas for the first round of the competitive bidding program?

Sayen: We began with a smaller pilot program to figure out our best approaches. Our upcoming phase, which has nine distinct areas, will tell us more about what works. Basically we chose areas that had a variety of configurations so we could learn what works best in different kinds of communities. For example, Miami is huge and has a significant fraud problem, so there’s not a real need for us to look at Los Angeles, because Miami and LA are too similar in that regard.

The nine regions we’re looking at give us a good representation of the country as a whole, and will give us what we need before we go to 91 areas in the next phase. We’re going to use this new process pretty much everywhere, so it really has to work.

Becker: And when did suppliers have to be compliant with the accreditation requirement?

Sayen: They had to be accredited and place their surety bonds by October of 2009. A substantial number of suppliers essentially disappeared in October 2009 and nobody really noticed.

Becker: What was the reason for those disappearances?

Sayen: Some suppliers had multiple businesses that they may have consolidated so they wouldn’t have to buy multiple bonds. But we know there were some questionable suppliers. So it’s time to clean house.

Back in 2001, the state of California told all of its DME suppliers, “you’re out, you have to reapply, everybody has to.” After that decision, the state saw a big reduction in the supplier population, Today the new Affordable Care Act has a similar requirement for other medical care providers, like doctors, who will have to reapply periodically. These shake-ups give us the opportunity to take a fresh look at the situation, and to run everyone against our database of bad apples.

Becker: When those big reductions happened, how did you help consumers whose suppliers had disappeared?

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Sayen: We battened down the hatches with people ready at the phones at 1-800-MEDICARE and at our regional offices. But we had very few inquiries, almost none, from people who had problems getting equipment. We were very pleased with the way the program rolled out.

Becker: So this new program not only saves money, it’s also something of a protection.

Sayen: It is. We’re really squeezing a lot of waste out of the system. The prices that we’ve negotiated through this bidding process represent a 32% savings over what the prices were before. And remember, that’s net of the 7% reduction in Medicare reimbursements for durable medical equipment last year.

In the end, we’re still paying more for these things than you might if you bought them on eBay. But there’s good reason for that. You really can’t go out and buy your own oxygen on eBay—you need someone to hook it up and to be there for services if it doesn’t work. There are people dependent upon these products and devices for their lives, for their health, for their ability to work, for their ability to talk. They’re essential.

Becker: Are you getting the word out? Do you have any kind of external relations campaign to inform beneficiaries of the changes? Are you doing community meetings?

Sayen: Absolutely. We have health insurance counseling and assistance programs in every county in the country. This is a program we fought for in concert with the states, each of which sometimes has private money. We’ve got volunteer Medicare beneficiaries who counsel people about health, and we have folks on the ground in all of the competitive bidding areas, doing town halls, holding meetings with suppliers, holding meetings with referral agents like physicians’ offices and hospitals.

Becker: You mentioned an 800 number. Aren’t a lot of people intimidated by that form of contact? It seems like some might avoid calling to get information they need.

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Sayer: Most people are referred by health care providers for their medical equipment, so we’re doing a lot of work with referral agencies. See, you or I are not going to decide, “I feel like getting some oxygen today.” These situations come about after a hospital stay. Somebody at the hospital arranges for those things. But our operators are ready to help anyone who needs to find a supplier.

We’ve identified the beneficiaries, and we’re sending literature about the program to every beneficiary affected by the changes. We’re also going to every conference we can find—an amputee conference in Orange County, a national aging conference. A month ago, I was at the National Council on Aging conference in Chicago, talking about the program. We’re talking to hospitals, disability groups, the Alzheimer’s Association. We’ve brought in people from those groups and have shown them our materials. We’ve done focus groups.

Obviously there’s a big intersection between disability and aging. There are people who are on Medicare because of their disabilities and who, with age, will develop new challenges to their mobility. They will become users of these products.

Becker: What are some other items that are included in the bidding program?

Sayen: Oxygen-related items are a big area for us. Concentrators and liquid oxygen air tanks, standard power wheelchairs, scooters. We don’t provide the scooters you see people drive around in the streets. Medicare only pays for power mobility devices intended for use in the home. We’re selling medical devices, not transportation, so we restricted the complex rehabilitative wheelchair more narrowly.

We also deal with mail-order diabetic supplies, certain wheelchairs, CPAP (continuous positive airway pressure) respiratory assistance devices, hospital beds, and walkers.

Becker: Tell me a bit more about the efforts to make sure people know about these changes.

Sayen: Sure. One big step we’re taking is to send a mailer to every affected beneficiary who has a record of using durable medical equipment. It’s an expensive effort, but we think it’s the right thing to do. That’s the center of the strategy.

We also began speaking at conferences this summer, going into each of the competitive bidding areas to get on the ground and meet with beneficiary groups, other partners, referral agencies, medical associations—everybody we can find to whom we can talk and give some information about this. We’ll continue these efforts in the fall, as we get ready to go live. At that time, we’ll also be able to go in and meet with the successful suppliers and help them be as ready as possible.

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A legitimate concern some people have is that those companies who aren’t successful may go out of business. We don’t want to put people out of business. So we’re telling people in the mailing and in our outreach to contact their suppliers and ask if they are going to continue to participate in the future. If their supplier says no, we’ll hook them up with someone else.

And, of course, we’ll do some paid media, radio. We’ll certainly do some ethnic media. We have a large group of people who exclusively do active media work. In all of our offices, we have Spanish and Asian language speakers who do a lot of radio. We find that’s really useful in those communities.

Becker: What if the beneficiary still has problems getting his supplies?

Sayen: That’s where our ombudsmen come into play. By putting an ombudsman in each of the competitive bidding areas, we’re providing an advocate for beneficiaries. We are working so that the beneficiary has a positive experience and a seamless transition. We want to achieve savings and provide a better customer experience than the one we have today.

There is still some opposition, but we’ve been down this road before. There are people in the industry who aren’t happy about any changes because those changes mean that not as much money will be made. For example, at present, the amount Medicare pays for a rental on an oxygen concentrator is $190, which is rounded to $200. That means Medicare is paying $160 and the beneficiary is paying $40.

Many of our friends are in need of these devices, so the new amount across the board is $140. That means there’s a $46 savings for Medicare and $11 savings for the beneficiaries. The point is that there are not just savings for the government and taxpayer. There are savings for the beneficiaries as well.

Becker: So the beneficiary has a vested interest in keeping costs down.

Sayen: Yes. Medicare was designed to have co-insurance so that people would be conscious of costs. But the widespread use of Medigap insurance among more affluent beneficiaries makes people indifferent to prices, so everybody tends to look at a medical service and presume the more expensive provider is better—just as people might look at two automobiles and choose the more expensive one. But our government needs to step up and evaluate these purchases. Money can be saved.

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Becker: What kind of opposition, if any, have you faced with regard to the program?

Sayen: One of the common concerns is that some of these suppliers are small businesses and, consequently, are connected to several jobs. So you’ve got to balance the jobs against the savings of the taxpayers. We are committed to taking everyone’s issues into consideration. Ultimately, we want the program to save money for the government and for beneficiaries, to eliminate fraud, and to do everything in our power to make this an easy and positive transition.

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