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CRE Statement on "Inherent Reasonableness" for Retail Pharmacy Diabetic Supplies

WASHINGTON, July 24, 2012 /PRNewswire/ -- The Center for Regulatory Effectiveness' Statement, delivered at today's CMS Public Meeting on:  "Inherent Reasonableness of Medicare Fee Schedule Amounts for Non-Mail Order (Retail) Diabetic Testing Supplies," is attached in pdf here and reprinted below.  The Federal Register notice for the meeting is attached here.  Comments are due to CMS by July 30th although the date may be extended.

Statement of the:

Center for Regulatory Effectiveness

before the Centers for Medicare and Medicaid Services

Public Meeting Regarding Inherent Reasonableness of Medicare Fee Schedule Amounts for Non-Mail Order (Retail) Diabetic Testing Supplies

July 23, 2012


I'm Bruce Levinson, Senior Vice President, Regulatory Intervention at the Center for Regulatory Effectiveness. We're a regulatory watchdog focused on ensuring agency compliance with the "good government" laws that regulate the regulators.

I would like to start by thanking CMS for holding this public meeting. This meeting is an important example of outreach activities that President Obama called for in his landmark Open Government Memorandum which directed agencies to be Transparent, Participatory and Collaborative.

CMS Does Not Have "Valid and Reliable Data" for Use in Setting Diabetic Supply Prices

CMS' Federal Register notice for this meeting stated that, according to their own rules, they must "use valid and reliable data" in determining whether a payment amount is "grossly excessive or deficient."

The competitive bidding data from the Round 1 Rebid, however, is emphatically NOT valid and reliable.  That's not CRE's view, that's the considered view of hundreds of economists and auction experts from virtually every major university.

A letter to the President signed by over 240 academicians, including several Nobel laureates, stated the following:

  • CMS competitive bidding program violates all of the principles [of President Obama's Executive Order on regulation], especially the principles of transparency and of basing regulations on the best available science. Indeed, the current program is the antithesis of science and contradicts all that is known about proper market design.

Specific problems with CMS' bidding design cited by the economists include:

  • The use of non-binding bids together with setting the price equal to the median of the winning bids provides a strong incentive for low-ball bids—submitting bids dramatically below actual cost.
  • The problems with the CMS auction grow worse upon closer inspection. The complete lack of transparency is inappropriate for a government auction.

An article published in the Quarterly Journal of Economics by researchers at the California Institute of Technology concluded:

  • The CMS auction fails to generate competitive prices of goods and fails to satisfy demand.
  • the CMS auction performs poorly as a procurement auction.
  • RESULT 5.  Prices generated in the CMS auction do not approximate the competitive price. They are significantly and consistently lower than the competitive price.
  • The challenge, for those who are unconvinced by the evidence that the CMS auction will perform poorly, is to explain why the principles seen operating so clearly in the laboratory environment will not operate when the auction is deployed in the field.

The study was financed by the Gordon and Betty Moore Foundation with additional support from a National Science Foundation grant.

The Data Quality Act and CMS' Regulatory Plans

The results from the Round 1 Rebid not only don't comply with CMS requirements for "inherent reasonableness," they also don't comply with the quality standards established by Congress and implemented by the White House Office of Management and Budget through the Data Quality Act.

The Data Quality Act provides affected parties the right to "seek and obtain" correction of information not meeting quality standards.

If anyone here would like to know more about the DQA and participating in exercising their right to "seek and obtain" correction of the Round 1 Rebid results, please see me, I'll be here through the end of the meeting.

SOURCE Center for Regulatory Effectiveness
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