Competitive bidding: What manufacturers will and won’t do

Friday, March 29, 2013

YARMOUTH, Maine – When it comes to surviving competitive bidding, HME providers have a big cheerleader in manufacturers.

That’s because if providers sell fewer products or go out of business as a result of the program, it hurts manufacturers, too. Several manufacturers contacted by HME News say they made it through Round 1 relatively unscathed, but Round 2, which is scheduled to go into effect in 91 cities on July 1, may be another story.

“It’s going to have a significant impact,” said Larry de la Haba, senior vice president of business development for GF Health Products. “I know several providers who have been in business for years who have said for the first time that they’re going to get out. They either can’t operate any longer to this degree of change, or they can’t change their businesses fast enough.”

Manufacturers have noticed a decrease in utilization in Round 1 areas for products like walkers, but sales for those products have been buoyed in many cases by attempts by providers to sell them for cash instead.

Also, there may be decreases in sales for a certain product in a category, but they’re made up with sales for another product in that same category, manufacturers say.

“We’ve found that sales of non-delivery oxygen technology have increased in the first nine areas,” said Oscar Meyer, vice president of marketing and business operations for North America. “With the change in reimbursement, the oxygen delivery model is a clear opportunity for providers to operate more efficiently.”

Manufacturers say their sales didn’t suffer because providers responded to the cuts in Round 1 (32% on average) with this kind of outside-the-box thinking. They’re crossing their fingers that providers will have the same response to the cuts in Round 2 (45% on average).

“While we are not in favor of competitive bid as a vehicle to reduce Medicare expenditures, we have found that this change has opened providers up to rethinking their business, their partnerships and their willingness to change how they do business,” said Doug Francis, principal and co-founder of Drive Medical.

Manufacturers say they're more than willing to offer providers products and programs to help them navigate competitive bidding, but there’s one thing they’re not willing to do: cut their prices.

“It doesn’t solve the problem,” Meyer said. “Addressing a reimbursement cut as significant as what we are seeing in Round 2 is not an issue that can be solved simply by manufacturers lowering the prices of our products. The cost of the product is a small part of our customers’ overall costs of doing business.” HME


Ummm... When the cost of goods is less than the reimbursement rate, how exactly does greater internal efficiency help? I guess is it reduces the amount of money we lose on each patient? This is helpful how? At these rates, it's beyond efficiency. COGS is key. If manufactures don't have more cost effective options, they will be out.