Editor's Note

Lowered Expectations

Is competitive bidding creating a class system?

• By David Kopf
• May 01, 2016

For anyone who’s worked in the industry over the past six or seven years the phrase “unintended consequences” has unique meaning. The expression was used regularly during the early years of the fight against competitive bidding, prior to implementation, when a variety of academic studies examined CMS’s proposed system and determined it was flawed.

Economists use the phrase “unintended consequences” to describe unforeseen outcomes that result from the implementation of a new system, changes in a marketplace, or public policy. Sometimes, the unintended consequences can be good, but often they’re detrimental.

In the case of competitive bidding, we’ve seen nothing but bad unintended consequences: patients have seen more limited access to the equipment, supplies and services they need; providers have gone out of business, which means job losses, money falling out of local economies, and a compounding of patients’ reduced access; and now with the national expansion we will likely see rural communities feel those impacts even more than the larger urban areas of Rounds One and Two.

But there’s another unintended consequence coming into focus, and I don’t like the picture that’s developing: competitive bidding is starting to create “classes” of HME users. No, I’m not trying to establish myself as some kind of wild-eyed class warrior for healthcare, but I do think competitive bidding is starting to foster a dynamic that runs counter Medicare’s fundamental nature as an entitlement.

Let’s start with how things were, before competitive bidding: When a patient needed a piece of equipment that patient would get evaluated by his or her physician and possibly other health professionals, the medical necessity would be documented, and a device with the right features and capabilities would be provided to that patient. The underlying dynamic was that Medicare, providers and partners were all focused on getting the patient the right item.

After competitive bidding happened, we have seen an entirely different dynamic develop. The goal is still to get the patient equipment that will provide the necessary therapeutic benefit, but might not necessarily deliver all the features the patient might have received in the original scenario. Moreover, because competitive bidding has so substantially cut reimbursement for covered DME items, provider businesses are now in a position where they must factor profit margins into their inventory-purchasing decisions far more than before. And while manufacturers might want to offer more innovations, they can only trim so much cost from their manufacturing.

Simultaneous to this, the lure of retail sales as a revenue diversification and expansion opportunity has given providers the opportunity to provide top-of-the-line solutions to patients who are willing to pay out of pocket for the exact solution they need and want, with all the bells and whistles possible. Now, I have absolutely no problem with this. People should be able to buy what they want and get all the features imaginable. Moreover, that kind of marketplace drives the kind of innovation that ultimately improves care and quality of life for HME users.

The problem is that on the other side, by creating a situation in which providers are financially forced into offering no-frills options for Medicare beneficiaries, competitive bidding is lowering expectations of what’s possible for patients. Where the Medicare program would have once paid for a much better solution in the past, it is now only giving beneficiaries the least, while more affluent beneficiaries have the option of obtaining much better solutions via cash.

My worry is that this gap will only widen over time and beneficiaries will get less and less than they would have if competitive bidding hadn’t existed — regardless of what they paid into the program. That lowering of expectations doesn’t sit right with me, and I don’t think anyone should be happy about it; beneficiaries are getting less for their money than they did just a few years ago.

Now, it can be argued that the product advances and features that develop in the retail market for HME could trickle down to Medicare beneficiaries. That might very well happen, which would at least narrow the gap between the developing HME “classes,” but it still doesn’t fix the competitive bidding flaws that drive providers to seek no-frills solutions in the first place.

One competitive bidding reform that could help turn this trend around is part of the Senate rural bidding reform legislation (S.2736; see “News, Trends & Analysis,” on page 8 to learn more). Specifically, one of the bill’s provisions would prohibit CMS from using single price amounts from the previous round of bidding as the ceiling for future bid rounds. Instead CMS would be required to preserve the bid ceiling at the unadjusted fee schedule rates from Jan. 1, 2015. Removing that bid ceiling could create a marketplace that would see better HME solutions re-proliferate among Medicare beneficiaries while preserving the innovations available to the retail market.

This article originally appeared in the May 2016 issue of HME Business.