Competitive bidding:

Medicare is looking for ways to lower its costs, and has revisited fee schedules for several categories of services. Regarding medical supplies and DME, they have decided to use competitive bidding in order to extract lower prices from its service providers. To a certain extent this allows market forces to determine pricing for medical supplies. Competitive bidding would allow the Health Care Financing Administration, or HCFA, to contract with specific providers to deliver goods and services to Medicare beneficiaries in specific geographic areas—at a fixed price. The Department of Veterans Affairs is able to use competitive bidding, as are the individual states with their Medicaid programs, and commercial insurance plans and hospitals, so supporters of competitive bidding ask “why not Medicare”?[1]

Since 1989, Medicare has paid for medical equipment and supplies through fee schedules that list maximum and minimum payment amounts.

The schedules are based on average supplier charges on Medicare claims from 1986 and 1987 and have been updated to reflect inflation.

However, they feels this payment approach lacks the necessary flexibility to keep pace with market changes, and as a result, often pays higher prices than other public payers for medical equipment and supplies.

The Balanced Budget Act of 1997 (BBA) required CMS to test competitive bidding as a new way for Medicare to set fees for Part B items and services specified by CMS, (which was accomplished through a demonstration project focused on medical equipment and supplies). The estimated savings to Medicare based on the demonstration project were nearly 25%. About a year after the demonstration concluded, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) required CMS to conduct a competitive bidding program for DME, medical supplies, off-the-shelf orthotics, and enteral nutrients (and related equipment and supplies) on a large scale.

There are fears inside Medicare that as competitive bidding expands and suppliers get more aggressive, inferior products could get substituted, or loopholes found in the guidelines that would allow suppliers to finesse the system to their benefit. Providers are concerned that they will lose money both through lower prices, and the fact that only a certain number of providers will be allowed to qualify for Medicare’s competitive bidding program in any one area, leaving the rest of the suppliers to make up the lost revenue elsewhere.

CMS has plans to expand their monitoring of the program through beneficiary satisfaction surveys, so that beneficiaries and providers alike are protected.[2]

The Round 1 rebid will include the following categories of items and services:  Oxygen Supplies and Equipment; Standard Power Wheelchairs, Scooters, and Related Accessories; Complex Rehabilitative Power Wheelchairs and Related Accessories (Group 2);  Mail-Order Diabetic Supplies; Enteral Nutrient, Equipment and Supplies; Continuous Positive Airway Pressure (CPAP); Respiratory Assist Devices (RADs), and Related Supplies and Accessories; Hospital Beds and Related Accessories: Walkers and Related Accessories; Support Surfaces (Group 2 mattresses) and overlays in Miami.

It will be phased in in the nine largest Metropolitan Statistical Areas (MSAs):   Cincinnati – Middletown (OH, KY and IN); Cleveland –Elyria-Mentor (OH); Charlotte-Gastonia-Concord (NC and SC); Dallas-Fort Worth-Arlington (TX); Kansas City (MO and KS); Miami- Fort Lauderdale-Miami Beach (FL); Orland (FL); Pittsburgh (PA); Riverside-San Bernardino-Ontario (CA).