AAH responds to Scully

Monday, September 30, 2002

WASHINGTON -  Policy makers, including Mr. Scully, would like the public to believe that competitive bidding for DMEPOS would emulate the private market. Competitive bidding is, after all, the cornerstone of free enterprise and as American as "Old Glory" herself. This superficial analysis however, lays the foundation for a deadly mistake because it ignores the important role that choice plays in securing quality health care. Even under a scenario where there are multiple winners - as there have been in Polk County and San Antonio - competitive bidding reduces the number of suppliers to only those selected by the government on the basis of their low price. Competitive bidding can result in lower prices, but over time, it also creates a smaller and smaller pool of suppliers. Eventually, the savings diminish, as Mr. Scully seems to acknowledge. More importantly, quality begins to erode as beneficiaries and referral sources are left with fewer alternatives to suppliers that reduce service to maintain their margins.

It's interesting that Medicare is endorsing competitive bidding when the discussion in health care has centered on increasing, not reducing, consumer choice. Recently for example, CMS announced the beginning of a PPO demonstration with the goal of giving beneficiaries more choices within the Medicare + Choice program. In contrast, competitive bidding for DMEPOS creates a closed-panel HMO, an antiquated and universally disliked model. Beneficiaries and referral sources are stuck with the suppliers Medicare chooses, unless they are willing to pay out of pocket. The CMS press release announcing the PPO demonstration proclaims that beneficiaries who choose PPOs will have more flexibility than those enrolled in Medicare HMOs. Ironically, for chronically sick and disabled beneficiaries, CMS is moving in the opposite direction.

The fact is that the demonstrations are experiments that remain incomplete. Competitive bidding can lower prices in the short term, but that's the extent of what we know. If the goal is to lower prices, and the horizon is short, then competitive bidding could be a model for the DMEPOS benefit. But if policy makers have sincere concerns about the impact of competitive bidding on the overall market for these items and services, or how limiting choice affects quality and access, and they should, then there are far too many questions to endorse competitive bidding. For example, how would competitive bidding work in Manhattan or Miami? What happens when disparity in bid prices across the country reduces access to rehab and assistive technologies for some beneficiaries but not others? How does competitive bidding impact spending for other government programs such as Medicare Part A or Medicaid? How much will it really cost? Not only does CMS lack the answers to these questions, the questions have not even been asked.

This simplistic analysis of private sector pricing is also evident in policy makers' enthusiasm for IR. The discussion of this issue has also focused on the price Medicare pays for an item, without considering what services are furnished with the item or how those services affect individual outcomes. Given the changing demographics of this country, it's not unreasonable for CMS to be concerned about increasing costs. CMS is missing part of the equation, however, by focusing only on the costs incurred by Medicare. Medicare wants to emulate private sector payers, but ignores how its arcane hierarchy of rules imposes administrative costs on suppliers. Private sector payers have streamlined documentation and billing requirements. These payers also understand that homecare saves money. They explicitly recognize and pay for the services necessary for good individual outcomes. Understanding how reducing administrative costs and improving individual outcomes affects overall costs must be an important part of the discussion about saving Medicare money. In other words, CMS needs to pursue a more balanced analysis in its quest to become a "balanced, reasonable payer." HME