Mail order maelstrom

Sunday, April 13, 2008

WASHINGTON - With the winning bids for mail order diabetes products averaging a whopping 43% cut, many well-established companies found themselves shut out of their own markets.

"We are losers," said Tim Cady, president of Advanced Diabetes Supply in Carlsbad, Calif. "Fortunately."

About 50% of Cady's business is to Medicare beneficiaries, mainly in the Riverside-San Bernardino, Calif., competitive bidding area (CBA), which was hammered with a 57% drop in reimbursement.

"That's too low to provide any kind of service," said Cady. "I've heard that people bid real low just to get a bid and now they've got a winning contract and they aren't sure what to do."

Other providers questioned how anyone could stay in business at the new lower rates. In the Charlotte, N.C., CBA, the winning bid for a box of 50 test strips was $19.08.

"That's lower than we pay, and we buy direct from the manufacturers," said John Crocker, senior vice president of Columbia, S.C.-based National Direct Diabetic Supply. "We are at the best pricing structure for a company our size. I would love to see who actually won."

Since competitive bidding was first announced, small providers have feared they couldn't compete against big companies with greater volume purchasing power. The early word, however, is that most of the largest suppliers, which comprise at least 70 to 75% of the industry, did not win bids, said Seth Lundy, a partner with Washington, D.C.-based law firm Fulbright & Jaworski.

That is a huge change for the industry, he said.

"You have suppliers that are not used to having that share of the market taking it over," said Lundy. "Beneficiaries are going to be shocked."

Maureen Usprung, director of national accounts for Salem, N.H.-based manufacturer AgaMatrix, has received calls from winning bidders seeking direction on how to provide diabetes supplies.

"It will be interesting to see who signs a contract," she said. "I think everyone was surprised that 64% of winning bidders were deemed small suppliers."

Not only will patients have new suppliers, they may find themselves having to use unfamiliar products as bid winners stock generic products in an effort to achieve any kind of profit.

Frank Seuss, president of Pharma Supply in Wellington, Fla., knows a winning provider that put together a bid based on "cheap monitors and strips."

"He won't be able to supply Lifescans," said Seuss. "I'm not saying the other meters are not good, but I don't think with NCB there was any consideration for quality."

Winning providers need to expect that some patients will refuse to change product brands, said Bryan Sowards, CEO of Titusville, Fla.-based Infopia USA, a glucometer manufacturer.

"Not every patient is going to want an off-brand meter," he said. "It's my understanding that the provider is going to have to provide what the patient requests."

As the industry dusts itself off and wonders what's next, they can only hope that prices have no further to go.

"I think they've hit the floor and might have gone too far as it is," said Sowards. "If somebody is going to do a good job and offer a full line of products, reimbursement has to increase."