Medicare Expands Competitive Bidding Program for Devices

Medicare Expands Competitive Bidding Program for Devices
April 20, 2012

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)

The Centers for Medicare and Medicaid Services have announced plans to expand the controversial competitive bidding program for medical devices which has to this point been a pilot project.

The New York Times reports:

The experiment represented a sharp break from the usual fee-for-service Medicare program, under which beneficiaries can choose any supplier or provider of goods and services. In the experiment, Medicare officials invited bids and awarded contracts to 356 suppliers of medical equipment in nine metropolitan areas, including Cleveland, Dallas, Miami-Fort Lauderdale and Riverside, Calif.

Kathleen Sebelius, the secretary of health and human services, said the pilot program had reduced Medicare costs by 42 percent, or $202 million, by securing lower prices and curbing “inappropriate utilization” of personal medical equipment in the nine markets.

The bulk of the savings came from oxygen equipment, power wheelchairs and mail-order test strips for people with diabetes.

Jonathan D. Blum, deputy administrator of the Centers for Medicare and Medicaid Services, said the switch to competitive bidding had not compromised beneficiaries’ access to the items they needed.

“Moreover,” Mr. Blum said, “there have been no negative health care consequences to beneficiaries as a result of competitive bidding.”

Blum's statement conflicts, however, with research by University of Maryland professor Peter Cramton.  He found that in reality, the cost savings of the competitive bidding program were offset by other new costs. Incidences of ER visits, hospitalization, length of hospital stays and death all increased in the targeted areas of the program:

Recent CMS data show the implication of the decline in utilization: higher risk of death, higher frequency of ER visits and hospitalization, and longer hospital stays. These results suggest that the cost savings in Medicare DME are dwarfed by the much higher costs to Medicare coming from increased hospital care. Essentially the flawed auction program is substituting low-cost DME expenses with high-cost hospital care.

Cramton blames this on a flawed auction design which has come under much criticism. But the expansion by CMS does nothing to solve these problems.

Read our latest research and commentary for a further explanation of competitive bidding and the differences between it within the Ryan plan and other programs.

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)