Members of Congress, under pressure from industry lobbyists, are
poised to block competitive bidding for durable medical equipment
and supplies in the Medicare program. Special-interest pressure
operates through both political parties and even across the
ideological spectrum and is yet another sad reminder of Congress's
deplorable weakness in controlling entitlement costs without
structural changes in Medicare and the budget process itself.
In providing senior and disabled citizens with medical equipment
and supplies, Congress authorizes the purchase of everything from
wheelchairs and walkers to orthotics and oxygen tanks. For years,
Medicare payment for these items, like other Medicare goods and
services, has been established through a government system of
administrative pricing. Sustained by special-interest lobbying, the
current Medicare payment system is insulated from real market
forces that control cost. As a result, neither taxpayers nor
seniors are able to benefit from competitive pricing for the
durable equipment and supplies that are purchased though the
Government reports make it clear that Medicare's existing
pricing system hurts seniors and taxpayers alike. Take, for
example, the Medicare rental payment for home-based oxygen
equipment including the oxygen concentrator, a stationary device
that can concentrate oxygen in the air of a room, the subject of an
extensive 2006 report by the Department of Health and Human
Services (HHS) Office of Inspector General (OIG). In his
memorandum, Mark McClellan, M.D., Administrator of the Centers for
Medicare and Medicaid Services (CMS), told Inspector General Daniel
Regarding equipment costs, the report found that the average
purchase price for concentrators is $587; under the current payment
system suppliers would receive a total of $7,215 for 36 months, a
figure significantly in excess of the equipment acquisition costs.
Indeed, the report finds that the Medicare beneficiary coinsurance
during a 36 month rental period of $1,443 would be in excess of
twice the equipment purchase price. Regarding servicing, the report
finds that minimal servicing and maintenance is necessary for
concentrators and portable equipment and that servicing tasks can
be performed in less than five minutes.
A few years ago, Congress took baby steps toward remedying
Medicare's pricing system woes, at least in the limited area of
medical equipment and supplies. Under the Medicare Modernization
Act of 2003, Congress authorized HHS, which runs Medicare, to make
companies compete directly in the sales of these durable goods. By
securing payments based approximately on market prices, HHS is
seeking to reduce costs for both taxpayers and seniors.
On July 1, 2008, the new competitive bidding program for durable
goods and equipment is supposed to go into effect. HHS has signed
contracts with 325 medical suppliers, who bid to provide medical
equipment and supplies to an estimated 3.6 million Medicare
patients in 10 communities across the United States at lower prices
than these patients are paying now. In 2009, in the next round of
bids, absent congressional obstruction, the competitive bidding
program will expand to 70 communities across the United States.
Kerry Weems, Acting Administrator of the Centers for Medicare
and Medicaid Services, notes that Medicare today pays $1,825 for a
hospital bed that can be purchased on the Internet for about
$750. CMS's preliminary data demonstrate that the
new competitive bidding program would yield significant savings in
various categories of equipment. For example:
Based on the results of the bidding process thus far, HHS
reports that Medicare would see prices on average 26 percent
lower than the current pricing for these items. The
Washington Post reports that competitive bidding is expected to
save taxpayers $125 million over the course of a year and as much
as $1 billion annually if the program is allowed to grow. As
Medicare patients routinely pay a 20 percent co-insurance for the
cost of medical equipment and supplies, they would benefit directly
and immediately from the proposed competitive bidding process.
Medical supply "provider companies" that do not offer their
services at competitive prices oppose the new competitive bidding
process and are lobbying against its enactment. Indeed, most of the
companies that received government contracts did not meet the lower
price targets in the bidding process, and about 20 percent of them
failed to satisfy HHS standards or provide sufficient documentation
to justify the awarding of a contract.
The bipartisan congressional response has been sadly
predictable: 132 members of the House of Representatives, the
first-line guardians of the public purse, have signed a letter
urging the House Ways and Means Committee to act on legislation
delaying the HHS competitive bidding program for at least one
year. Such a delay would force taxpayers and
seniors to bear higher costs for medical equipment and supplies.
Nonetheless, Representatives Fortney "Pete" Stark (D-CA) and Dave
Camp (R-MI) have introduced the Medicare DMEPOS Competitive
Acquisition Reform Act (H.R. 6252), which would terminate the first
round of contracts affecting 10 communities under the new
competitive bidding process and authorize HHS to re-bid those
terminated contracts in 2009.
Additionally, the proposed second round of contracts (affecting
70 communities) would be delayed until 2011 and in some rural areas
until 2015.The proposed delay would cost an estimated
$3 billion and would be paid for by a 9.5 percent "across the board
reduction" in payment for durable medical equipment and supplies
"subjected to competitive bidding." Subsequently, some
legislatorsCongressman Stark in particularwould like to abolish the
competitive bidding process altogether and rely on the Medicare
bureaucracy to set the "right" prices for medical equipment.
In the Senate, Senators Debbie Stabenow (D-MI) and Sen. George
Voinovich (R-OH) are authors of a letter calling for delay similar
to that of their House colleagues.
Another Case for Comprehensive
Because the government traditionally fixes prices and fees for
medical goods and services everything from physicians' fees and
hospital payments to medical devices the entire process of Medicare
price setting is an arena for frenzied special-interest lobbying.
Each year, mobs of lawyers, lobbyists, and consultants representing
hundreds of "provider groups" descend on the House Ways and Means
Committee and the Senate Finance Committee, the committees with
jurisdiction over Medicare. Their task is simple: to make sure that
their clients--the provider groups--receive the "right"
Genuine competition and market-based pricing threatens existing
business arrangements, which is one of the reasons why Congress
ought to embark on a serious reform of Medicare financing. Such
reform could be realized by transforming Medicare from today's
system into a premium support system of financing, whereby the
government makes a direct contribution to the health plan of a
Medicare beneficiary's choice, thus forcing health plans to compete
directly for Medicare dollars. This type of financing would obviate
the need for Medicare's antiquated system of price setting for
medical goods and services, a source of current overpayments and
underpayments--the political favoritism and inefficiencies that
characterize the program.
As special-interest groups' courtship of Congress intensifies,
Medicare faces a growing fiscal crisis, with promised benefits
costing $36 trillion more than the projected revenues dedicated to
the program. If Members of Congress, Democrats and Republicans
alike, cannot resist special-interest pressure and allow for newly
enacted competitive bidding to commence, it is hard to imagine how
they will summon the fortitude when larger challenges inevitably
Robert E. Moffit, Ph.D.,
is Director of the Center for Health Policy Studies at The Heritage
a brief discussion of the budgetary changes, see Robert E. Moffit,
Ph.D., and Alison Acosta Fraser, "Washington Must Pull the Trigger
to Contain Medicare Spending," Heritage Foundation WebMemo
No. 1796, February 4, 2008, at http://www.heritage.org/research/budget/wm1796.cfm.
Mark McClellan, M.D., Administrator, Centers for Medicare and
Medicaid Services, memorandum to Daniel R. Levinson, Inspector
General, U.S. Department of Health and Human Services, September 7,
2006, p. 1. Under the Deficit Reduction Act of 2005, Medicare
monthly rental payments can continue for 36 months, after which
period the ownership of the equipment is transferred to the
communities are Charlotte, North Carolina; Cincinnati and
Cleveland, Ohio; Dallas, Texas; Kansas City, Missouri; Orlando,
Florida; Pittsburgh, Pennsylvania; Riverside, California; and San
Juan, Puerto Rico.
Associated Press, June 9, 2008.
"Suppliers Selected for New Program."
background on the legislation and the implications of the delay,
see Republican Study Committee, "Durable Medical Equipment," RSC
Policy Brief, June 16, 2008.