A new study done by Brian O’Roark, PhD and Stephen Foreman, PhD, JD, MPA at Robert Morris University questions the long-term effects of National Competitive Bidding of durable medical equipment. The Medicare Modernization Act of 2003 required certain durable medical items be competitively bid. In theory this sounds like a great idea after all healthy competition is good. The question, is Medicare’s competitive bidding scheme healthy competition or a program to eliminate competition and empower the handful of huge companies in this industry?
I will examine the findings and conclusions of these two economists and add my own observations from years of working in the medical field. For your own copy of the study visit this LINK.
Quotes from the study text will be in bold. My additions will be italicized.
Interference with competitive markets leads to higher, not lower, prices. The customer base for medical equipment is expected to grow dramatically during the next 20 years. Restricting the market now will lead to substantial market failure in 10-20 years.
One of the stated goals of Centers for Medicare and Medicaid Services (CMS) was to eliminate the vast majority of small businesses that currently bill Medicare, thereby leaving the market share to the few very large companies in the market.
Another stated goal is the reduction of fraud. While this is a good goal the largest fraud cases ever settled by Medicare have been cases against the largest companies.
Increased market power, which will be the case as a result of the bidding process, is relevant to determining the potential for practicing fraud. Put another way, if some DME suppliers are currently practicing fraud and are not discovered, they have a competitive advantage. We should expect that they will also be willing to factor their advantages derived from fraud into their bids-which would make them more likely to be the successful bidders.
Does your DME Company send you CPAP supplies at regular intervals (say every 3 months)without asking if you need them? If you answered yes, you are a victim of Medicare fraud. This is a common practice of the national companies and is very wasteful of our limited health care resources.
After exit of a large number of firms from the market, suppliers of DME will demand price increase. Thus, if we want to maintain the future provision of medical supplies, CMS will have little choice but to agree to price increases. The other, and far less preferable option, is that government will have to subsidize the industry so they can afford to keep prices low. This works against the purpose of the bidding process, which, if you recall is to keep prices down. The subsidization merely allocates the cost to another line in the budget.
CMS sets pricing. If they want lower costs, they can simply set a lower reimbursement. This kind of legislation follows in a long line of past legislation that regulated competitive industries into oligopolistic industries followed by double-digit inflation (see health care insurance).
The idea that bidding for DME franchises will eliminate the bad behavior of firms in the DME industry is particularly ludicrous. If CMS is concerned about bad behavior it can and should deal with it directly.
There are two real problems. First, CMS is required to do a sight visit prior to issuing a billing number. They don’t do an adequate job. These sight visits are part of the funding of CMS. Where does this money go if not for the sight visits? Much of the well-documented fraud in Florida and California were shell companies that had no medical equipment, store, or regular hours that are a CMS requirement to receive a billing number.
Second, these large recoveries of fraudulently billed items and services, that CMS occasionally makes, is peanuts compared to the profits made by those committing the fraud. If a company makes $100 million for every $15 million in fines it pays, that is one heck of an investment. CMS can, should and is obligated to put these criminals in prison. The only reason I can see as to why this isn’t happening is these are the people who fund the politicians.
…after 15 years of merger and consolidation, health insurance in the U.S. is now dominated by large health insurance firms with monopoly power….What have we learned from this experience? They have used market power to increase health insurance premiums by double-digit amounts for years. Their administrative costs and profits are now approximately 20% of premiums-up from 8% fifteen years ago and they enjoy tens of billions of dollars of profits on an annual basis.
From 2000-2005 the consumer price index rose 13.4%. During the same time DME supplies rose 13%, physician spending up 46%, hospital spending up 47%, prescription drugs up 66% and health insurance administrative costs increased 76%. Yet, DME is the target of continual cuts while all the others receive increased reimbursement. Not so coincidently, DME has the fewest lobbyists and the shallowest pockets.
The increases for health insurance administrative costs, prescription drug costs and hospital costs are particularly problematic since government-approved consolidation in these industries over the past decade has been dramatic.
All of this suggests that current DME competitive bidding proposals will have a similar impact on the medical equipment and supply industry-not to reduce costs-but to dramatically increase them.
Anyone else wondering why DME faces cuts every congressional term while drug companies, hospitals, health insurers and physicians continue to make record profits and receive reimbursement increases?
There has been scant attention paid to the prospect for collusive behavior in public bidding. If formation of a collusive cartel is a goal of colluding firms, they will affirmatively embrace competitive bidding because collusive behavior becomes easier when there are fewer firms to monitor within a cartel…
Artificial limits on competition are so serious that collusion to limit competition is a criminal offense and may result i
n the award of treble damages.
No, couldn’t be, our heads of industry and politicians are honest, stand-up people. There is no way they would do something they know is bad for the American public for their own personal gain. Sarcasm intended.
“Capture Theory” suggests that when developing regulations, regulators naturally seek out those with expertise in the industry. Once they finish developing the “rules”, the regulators are often hired by the firms now under the auspices of the regulation they helped craft…The health care industry is generally characterized by “special interest capture.” This is undesirable, but will occur with DME just as it has occurred with hospitals and health insurers…Will those who work in CMS, who put together the competitive bidding program, ultimately find employment with the limited number of firms who are allowed to supply DME after the demise of competition? If history is any guide, they will. They will not find competition that is in the public interest-instead, they will discover an industry characterized by insider knowledge and networks, high levels of profits and substantial executive compensation.
Finally, we get down to the nuts and bolts. One side gets increased profits with less competition, the other side receives personal gain and the Government further builds it’s case for the increasing invasion into the lives of it’s subjects. Once again, small business takes the beating and rural America is left with less than adequate access to needed services.
Small town America is the real endangered species in this country and all because of rampant greed by those in power along with those who have access to the persons in power.
I am commissioning a similar study at the University of Montana and will post and comment on that study when complete.
I will be in Washington D.C. from March 2-7. I will update this blog again on March 8 concerning my visit.
The best defense against “special interests” is grassroots involvement in government and contact with your representatives. You are constituents. You are their boss. Special interest lobbyists are not. These lobbyists along with their employers are banking on the apathy of the general public. There is no politician that fears a lobbyist because it is one person who likely doesn’t vote in his or her state. When you make contact with a representative, they listen because for everyone who takes the time to express their views they know there are many others sharing that view.
Please, take the time today to instruct your employee and if they don’t listen you can vote to hire another. Taking action is the most important thing you can do today.
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