AAH Update

Early this year the Health Care Finance Administration (HCFA) announced it would begin a second competitive bidding demonstration in San Antonio. The demonstration is slated to begin Jan. 1, 2001, and HCFA will solicit bids from durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) providers for hospital beds and accessories, oxygen, manual wheelchairs, orthotics and nebulizer drugs.

With only a few exceptions, only DMEPOS providers selected by HCFA will be eligible to serve Medicare beneficiaries during the demonstration.

The demonstrations were authorized by Congress for Part B services and items (except physician services) under the Balanced Budget Act (BBA) of 1997. Under a sunset provision in the BBA, all competitive bidding demonstrations must end by Dec. 31, 2002. The first demonstration began in Polk County, Fla., in October 1999.

The President and some members of Congress believe that "competitive bidding," or "competitive pricing," is a way for Medicare to obtain better prices for health care products and services. They argue that benefits of competitive bidding as a pricing mechanism accrue to the private sector.

Indeed, during one of his weekly radio broadcasts while discussing his efforts to fight fraud and abuse in the Medicare program, President Clinton said, "The budget will also include a new competitive pricing initiative designed to give Medicare more ability to use market-oriented purchasing techniques to buy services."

The analogy to the private market is misleading when applied to health care. It is tempting to think that "market-oriented purchasing techniques" can solve the issues facing the Medicare program. However, the key to preserving quality health care is the ability of beneficiaries to freely choose a health care provider.

Competitive bidding threatens quality by removing the wide choice of providers promised to Medicare beneficiaries. Suppose that instead of the term "market-oriented purchasing techniques" the President had said: "In my fiscal year 2001 budget, I will be proposing that Medicare adopt the same cost-cutting measures that have proved so successful in managed care."

In other words, President Clinton is suggesting that by restricting beneficiary access to only certain providers that the government chooses, those providers will give the government a better price for the goods and services they deliver. This model most resembles a closed panel health maintenance organization (HMO) that beneficiaries cannot disenroll from.

It is interesting that even as Congress is debating the Patient Bill of Rights (PBOR) that will guarantee HMO patients access to the provider of their choice, HCFA is proceeding with a demonstration that will eliminate a beneficiary's ability to freely choose from a wide range of providers.

In fact, the demonstration is more restrictive than managed care. Beneficiaries can at least choose between joining a managed care plan or staying with traditional Medicare, and they can leave the managed care plan if they do not like it. For the DMEPOS items in the demonstration, Medicare beneficiaries in Polk County and San Antonio have no choice except for the demonstration providers selected by HCFA.

HCFA chose San Antonio because it is a medium size metropolitan statistical area (MSA) with a significant number of DMEPOS providers. According to HCFA, San Antonio has 118,000 Medicare beneficiaries (compared to Polk County's 92,000) of which 12,000 use DMEPOS items (5,000 beneficiaries use DMEPOS items in Polk County).

In 1998 there were 100 providers in San Antonio who billed Medicare $10,000 or more. Importantly, Medicare expenditures for DMEPOS in San Antonio are higher than the average for Region C, and the average per beneficiary DMEPOS expense in San Antonio was $287 in 1998 whereas the Region C average was $217 - a difference of $70.

These cost figures do not reveal whether the Medicare population in San Antonio has other characteristics that may account for higher DMEPOS expenses.

HCFA's implementation of the second demonstration will follow the Polk County model except that bids will be solicited on three new items: manual wheelchairs, nebulizer drugs and orthotics. HCFA announced that it would not solicit bids on custom orthotic products or the items under HCPCS code E0192.

Other than these two exceptions, bidders who choose to bid on a product category must bid on every HCPCS code within the category. As in Polk County, capped rental items and oxygen will be subject to "grandfather" provisions. Providers servicing beneficiaries on nebulizer drugs also will have the option to grandfather those patients.

The other difference from Polk County is that there will be only one round of bidding in San Antonio. The sunset provision in the BBA requires HCFA to conclude the demonstrations on Dec. 31, 2002, making it impossible to hold a second bidding cycle in San Antonio without a legislative change. HCFA expects to conduct a second round of bidding in Polk County late next year.

HCFA is expected to publish a bid package and hold a bidder's conference this month while bid evaluation and the selection of winning bidders will take place in the summer and the winning bidders will be announced in the fall. The American Association for Homecare (AAH) and the Texas Association of Medical Equipment Dealers will hold seminars this month on the bidding process for the demonstration.

The AAH has urged Congress to be cautious before implementing competitive bidding nationwide. The Polk County demonstration had been declared a success even before it had begun based solely on the price reductions HCFA had achieved. While HCFA was able to announce some savings on DMEPOS items in Polk County, we still don't know how the beneficiaries will fare in this experiment.

The fate of the beneficiaries trapped in this experiment and the impact of the demonstration on health care quality and access should be the focus of the debate.

The reason Congress is considering the Patient's Bill of Rights is because a majority in Congress believe that managed care plans are sacrificing health care quality and access in the effort to reduce health care costs. Competitive bidding introduces this inequity to the Medicare program. If unfettered access to the provider of choice is good enough for managed care enrollees, why isn't it good enough for Medicare beneficiaries?

This article originally appeared in the May 2000 issue of HME Business.

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