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American Association for Homecare Calls for Market-Based Alternative to Medicare's Flawed Competitive Bidding Program

WASHINGTON, April 18, 2012 /PRNewswire-USNewswire/ -- While myths about Medicare's deeply flawed bidding program for durable medical equipment (DME) persist, the American Association for Homecare is urging Congress to adopt the alternative Market Pricing Program (MPP) to replace the controversial bidding program. The current, badly designed bid program is opposed by hundreds of economists and dozens of consumer groups.

The Centers for Medicare and Medicaid Services (CMS) implemented the bidding program in nine test areas a year ago – Charlotte, Cincinnati, Cleveland, Dallas, Kansas City, Miami, Orlando, Pittsburgh and Riverside, California.   


Consumer advocates, auction experts, DME providers, and economists are concerned that seniors and people living with disabilities are not receiving critical medical equipment and services. Since the program was implemented in 2011, the American Association for Homecare has received reports from hundreds of Medicare patients about difficulty finding local equipment and service providers, delays in obtaining medically required DME, and fewer choices when selecting equipment and providers.

Medical oxygen, walkers, respiratory devices, hospital beds, wheelchairs, and other medical equipment and supplies prescribed for Medicare beneficiaries reduce spending by preventing treatment in higher-cost settings. Data from CMS shows that when Medicare patients don't use prescribed home medical equipment and services, their use of emergency room and hospital services increases.  So while the current bidding program may further reduce spending on DME (which represents 1.4 percent of Medicare spending and is falling), taxpayers will see spending increase dramatically in hospitals and ERs as patients' options for home-based care continue to shut down.


Lined up in opposition to the current Medicare bidding program are 244 economists, 30 consumer and disability groups such as United Spinal and the ALS Association, and 171 members of Congress

CMS is now expanding the bidding program to 91 additional metropolitan areas throughout the U.S.  However, economists have warned that expanding the deeply flawed program is a mistake.  University of Maryland economist Peter Cramton, Ph.D. stated, "Now is not the time to scale up a program that everyone agrees is fatally flawed.  The Market Pricing Program steps in and fixes each of the flaws with direct and understandable solutions." 

Kennesaw State economics professor Brett Katzman, Ph.D. said, "I am a proponent of competitive bidding. What you have now is not competitive bidding."

The current bidding program prevents several thousand qualified DME providers from serving Medicare beneficiaries. "The existing system reduces choice, access, and quality of care for seniors and people with disabilities who require home medical equipment and services," said Tyler J. Wilson, president of the American Association for Homecare. 


In calling on Congress to enact the Market Pricing Program, Wilson explained that the current system, which allows non-binding bids, encourages irresponsible bids and creates unsustainable prices while doing nothing to ensure that winning bidders are qualified to provide the products and services to Medicare beneficiaries.

The Market Pricing Program is based on recommendations by economists and auction experts who have studied the current program. MPP features an auction system to establish market-based prices around the country and would require Medicare to make fundamental changes to ensure the long-term viability of the pricing program. Key components include:

  • The Market Pricing Program is designed to achieve an accurate market price.
  • Bids are binding for the bidders and cash deposits are required to ensure that only serious homecare providers participate.
  • The bid price is based on the clearing price, not the median price of winners.
  • The program includes the same equipment and services as the current bidding system and would be implemented across the country during the same timeframe. 
  • Two product categories per market area would be bid. Eight additional product categories in that same area would have prices reduced based on auctions conducted simultaneously in comparable geographic areas. 

"The market-based system would ensure that Medicare beneficiaries receive the services and equipment that they need and ensure that the government pays fair, competitive prices for the equipment and services provided," Wilson said. "That makes it a win-win for taxpayers and beneficiaries."     


Proponents of the bidding system have conveyed misleading information that exaggerates the benefits and ignores the severe shortcomings of the program.

MYTH #1: Medicare overpays for home medical equipment and services, and the bidding system improves the method for setting reimbursement rates for that equipment and service.

REALITY:  Proponents of the bidding system use out-of-date reimbursement rates and false comparisons of retail costs versus Medicare costs to argue their case.  For many years, CMS has set reimbursement rates for home medical equipment through a fee schedule. Over the past decade, those reimbursement rates have dropped nearly 50 percent because of cuts mandated by Congress or imposed by CMS. 

The costs of delivering, setting up, maintaining, and servicing medically required equipment in the home are obviously greater than the cost of merely acquiring the equipment. But Medicare does not recognize the costs of these services. So comparing the cost of the equipment to the larger cost of furnishing the full array of required equipment, supplies, and services is misleading. 

Moreover, experts, including two Nobel laureates and numerous economics professors from leading universities, have warned Congress that this bidding system will fail.  The experts, who do not otherwise oppose competitive bidding to set Medicare prices, point out that the system has four fatal flaws:

  • The bidders are not bound by their bids, which undermines the credibility of the process. 
  • Pricing rules encourage "low-ball bids" that will not allow for a sustainable process or a healthy pool of equipment suppliers.
  • The bid design provides "strong incentives to distort bids away from costs." 
  • There is a lack of transparency in the bid program that is "unacceptable in a government auction and is in sharp contrast to well-run government auctions."

These concerns have been shared with CMS, which designed the bidding system. But the agency has dismissed the concerns. 

A New York Times' "Freakonomics" article addresses the bidding issue.  Yale University economist Ian Ayres and University of Maryland economist Peter Cramton, conclude: "The mystery is why the government has failed over a period of more than ten years to engage auction experts in the design and testing of the Medicare auctions…. We suspect the problem is that CMS initially did not realize that auction expertise was required, and once they spent millions of dollars developing the failed approach, they stuck with it rather than admit that mistakes were made." 

MYTH #2:  The bidding program will make healthcare more cost-effective.

REALITY: The home is already a highly cost-effective setting for post-acute and long-term care. For many years, home medical equipment providers competed in Medicare on the basis of quality and service to facilitate the hospital discharge process and enable patients to receive cost-effective, high-quality care at home. As more people receive quality equipment and services at home, patients and taxpayers will spend less for hospital stays, emergency room visits, and nursing homes. Home medical equipment is an important part of the solution to the nation's healthcare funding crisis. Home medical equipment represents 1.4 percent of total Medicare spending.  So while this bidding program would make even more severe cuts to reimbursement rates for home medical equipment, that will ultimately result in much higher spending in Medicare and Medicaid for hospital and nursing home stays and for physician and emergency treatments.

MYTH #3: The bidding program will eliminate fraud.

REALITY:  CMS continues to describe the bidding program as an anti-fraud tool. In reality, it is a price-setting mechanism that has nothing to do with fraud prevention.  In fact, the exact opposite is true, according to the market experts who warned Congress that the CMS bidding program "will lead to a 'race to the bottom' fostering fraud and corruption." 

The real solution to keeping criminals out of Medicare is better screening, real-time claims audits, and better enforcement mechanisms for Medicare. Two years ago, the American Association for Homecare proposed to Congress an aggressive, 13-point legislative action plan to combat fraud, and most of those provisions have been included in regulations or congressional legislation. Moreover, two important anti-fraud requirements for home medical equipment providers – accreditation and surety bonds – took effect more than two years ago, in September 2009.   

MYTH #4:  Only the home medical equipment sector opposes the bidding system.

REALITY:   In addition to the economists and bidding experts who have expressed grave concerns about the bidding program, 30 consumer and patient advocacy organizations have called for a halt to the bidding system. Those groups include the ALS Association, the Brain Injury Association of America, the Christopher and Dana Reeve Foundation, the International Ventilator Users Network, the Muscular Dystrophy Association, National Emphysema and COPD Association, the National Council on Independent Living, the National Spinal Cord Injury Association, and United Spinal Association, among others.

These consumer groups support H.R. 1041, a bill in the U.S. House of Representatives that would eliminate the bidding program. The bipartisan bill has 171 cosponsors so far, including roughly equal proportions of Republicans and Democrats.  

MYTH #5:  The bidding system is good for Medicare beneficiaries.

REALITY:  In January 2011, round one of the bid program was implemented in nine metropolitan areas.  Since then, more than 600 patients, clinicians, and homecare providers have reported:

  • Difficulty finding a local equipment or service provider;
  • Delays in obtaining medically required equipment and services;
  • Longer than necessary hospital stays due to trouble discharging patients to home-based care;
  • Far fewer choices for patients when selecting equipment or providers;
  • Reduced quality; and
  • Confusing or incorrect information provided by Medicare.

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




SOURCE American Association for Homecare
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