Better Prices on Medical Equipment -- Good for Medicare, Good for Beneficiaries

Today the Centers for Medicare & Medicaid Services (CMS) expands a promising demonstration from nine to 91 communities across the country -- the competitive bidding demonstration for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS). In addition, the program opens nationally for diabetic supplies received through mail-order pharmacies.

Expansion of the DMEPOS bidding demonstration allows the federal government to secure lower prices on medical equipment, such as oxygen tanks, wheel chairs and hospital beds. Better prices on DMEPOS means savings for American taxpayers and people with Medicare as well as an improved fiscal outlook for the Medicare program.

Through the bidding program, medical equipment suppliers compete for Medicare's business on the basis of quality and price, submitting bids to serve people with Medicare in a specified region. Current law requires CMS to accept enough bids to ensure that beneficiary needs are met and to repeat the bidding process at least once every three years.

Fighting Fraud, Finding Savings and Preserving Access

Thus far, the competitive bidding program has proven successful on multiple counts. The program was designed, in part, to diminish fraud by overzealous medical suppliers insistent on inappropriately selling medical supplies. In 2010, the Office of the Inspector General (OIG) noted that this rampant abuse is attributable to Medicare reimbursement rates that are "significantly misaligned with market prices" and the relative ease of becoming a certified supplier. The bidding program corrects both causes by limiting the number of Medicare suppliers in a given community and by lowering the price of medical products through a competitive process.

Decades of research consistently demonstrate that Medicare pays too much for medical equipment. For example, in 2007 Medicare paid $4,000 for power wheel chairs that cost only $1,000 for suppliers to purchase. Overpriced medical equipment costs not only the Medicare program, but also beneficiaries. In 2006, Medicare paid $7,200 for oxygen tank rentals over a three-year period; whereas, the true cost amounted to only $600. This mark up costs the average beneficiary $1,400 in coinsurance -- more than twice the market rate.

In its first two years, the competitive bidding demonstration saved the Medicare program an estimated $400 million. Over the next 10 years, the program is expected to save Medicare an estimated $25.7 billion and reduce beneficiary cost sharing by $17.1 billion. It is critical that these savings do not come at the expense of beneficiary access to needed medical equipment, a concern worthy of rigorous monitoring and ongoing oversight by CMS. Yet, findings to date show that access was not at all diminished in the first round of the demonstration.

False Claims Behind Calls to Halt the Demonstration

Despite the program's benefits, some members of Congress are calling for a moratorium on the expansion of the bidding demonstration -- a call to action admonished by a recent Washington Post editorial. Opponents of the bidding program cite false claims that the competitive bidding program limits access to needed equipment. These same groups also raise concerns about the licensing of medical suppliers selected to participate in the program.

We agree that ensuring access to needed medical equipment must be the top priority for CMS as it expands the bidding demonstration. Critical to achieving this goal is ensuring appropriate beneficiary safeguards are in place. Further, CMS must continue to enhance education for older adults and people with disabilities living in demonstration communities.

The demonstration already includes many such protections, including a dedicated ombudsman office, well-developed rules for selected suppliers and ongoing outreach to community-based organizations serving Medicare beneficiaries. To date, zero evidence suggests that the competitive bidding process limits access to care or diminishes the quality of service provided, suggesting that these important safeguards are serving their intended purpose.

As the demonstration moves forward, it can be expected that CMS will need to revisit contracts with suppliers who do not maintain the appropriate licensure, continuously monitor the supply of available medical equipment, field inquiries and complaints and make other adjustments to ensure beneficiary needs are fulfilled. Concerns raised by opponents to the competitive bidding demonstration can be overcome, allowing beneficiaries, taxpayers and the Medicare program to reap the cost saving benefits of competitive bidding for DMEPOS.

None of the questions raised by opponents of the demonstration outweigh the program's overarching value. In short, the competitive bidding program is a triple win: lower costs for older adults and people with disabilities, the right prices for Medicare and a better deal for American taxpayers.