Competitive bidding: Victory is elusive

Sunday, August 31, 2003

The prospects of a national Medicare competitive bidding program for the home medical equipment (HME or DME) industry have reached unprecedented levels this year. Only a few short months ago, the Bush Administration unveiled an abbreviated budget proposal which omitted any reference to support for a DME competitive bidding program. Many in the industry lauded the Administration’s budget document as evidence that the Administration was not pushing for DME competitive bidding. Not so. Simply read the multiple HHS/Administration press releases about the DME competitive bidding programs in Polk County, Florida and San Antonio, Texas. Competitive bidding has been a great success, according to the Administration, with savings of approximately 20% per product category, including home oxygen which had just been subject to a 30% cut from the Balanced Budget Act of 1997.

In an unusual move in June, Senate Finance Committee Chairman Charles Grassley (R-Iowa) unveiled his Medicare reform priorities before House Ways and Means Committee Chairman Bill Thomas released his Medicare reform package. Typically, the House approves its Medicare package before the Senate considers its own. The Senate passed its Medicare Prescription drug and Medicare reform package in June, including a seven-year consumer price index (CPI) freeze for DME plus a provision that would mandate accreditation for DME suppliers.

Next, the House approved its Medicare Prescription Drug and Medicare reform package, including competitive bidding for DME, a pet project strongly supported by the House Ways and Means Committee Chairman Bill Thomas (R-Calif.). The House DME competitive bidding package includes a number of alarming provisions. Most notably, the House DME competitive bidding provision would provide explicit authority for the Administration to use pricing data from a competitive bidding program as the basis to for inherent reasonableness payment reductions. Therefore, if the House competitive bidding package were to pass into law, the Administration could conduct one or just a few regional competitive bidding programs and use the resulting decreased Medicare payment amounts as the basis for an inherent reasonableness reduction for those same items across the entire country.

Both the House and Senate Medicare reform packages would change Medicare payment for drugs used in conjunction with DME, such as albuterol sulfate. The Senate package would reduce the payment amount to 85% of the “average wholesale price,” and then would allow for further payment reductions through calculation of a new “market price.” The House package would include drugs used with DME in the competitive bidding program.

While President Bush had called upon the House and Senate leaders in July to pass a reconciled Prescription Drug package (which would include the various Medicare “reform” provisions) by the August recess, the deep philosophical differences between the House and Senate bills regarding the delivery of prescription drug benefit has prevented any swift resolution. Instead, the House and Senate conferees continue to try to iron out their differences between the respective House and Senate-approved Medicare Prescription Drug bills. The conferees must also resolve differences between the two approved Medicare “reform” packages, which are attached to the larger Medicare Prescription Drug bills.

For our purposes, the conferees must adopt either the House bill’s proposal for DME competitive bidding or the Senate bill’s proposal for a seven-year consumer price index (CPI) freeze for DME plus mandatory accreditation for HME suppliers. In addition, the conferees must choose between the House provision for competitive bidding for drugs used with DME or payment reduction to the AWP calculation.

Will the conferees be able to reconcile the differences between the two bills? If not, it is possible that there will be no Prescription Drug/Medicare package this year. Remember, the big issue in contention is, of course, not the DME provisions, but how to provide seniors with a prescription drug benefit. Importantly, the president needs to be able to go to the November 2004 polls touting a Republican victory in providing seniors a Medicare Prescription Drug benefit. Even if the House and Senate conferees fail to reach an agreement on the “Big Prescription Drug Issues”, the Congress may still pass a Medicare reform package. Those are the “easy” issues to resolve.

The industry should not proclaim victory if the House and Senate conferees cannot resolve their differences about the Medicare Prescription Drug package. The Senate and House could simply pass a Medicare reform package, with DME competitive bidding or a seven year CPI freeze and mandatory accreditation. Similarly, in the event that the industry narrowly escapes competitive bidding this year, we should not celebrate but rather gather our collective forces and resources to develop a bigger and better strategy for next year, because the competitive bidding issue will surely return next January with a new legislative year.

- Cara Bachenheimer is a partner with the law firm of Epstein Becker & Green. Contact her at 202-861-1825 or