Friday, December 31, 2004

Beat the fly-by- nighters
with Asela Cuervo

Q. After implementation of the FEHBP-based cuts, can CMS really expect to yield significant savings through competitive bidding?

A. The driver for competitive bidding is the need to save the Medicare program money as the Medicare population grows, but the savings projections for competitive bidding have always been speculative. This is especially true now in light of the reimbursement reductions mandated under the Medicare Modernization Act (MMA). Current estimates of the savings rely on spending data from 2003 or earlier. The MMA calls for a CPI freeze through 2008 and payment reductions based on the percentage difference between Medicare’s and FEHB plans’ payment amount for the items. These reductions become effective Jan. 1, 2005. For DME items included in the two competitive bidding demonstration projects, the MMA reduction in reimbursement closely approximates the demonstration savings for the items.

For example, effective Jan. 1, 2005, payment for hospital beds will be reduced by 20.34% based on the MMA provisions. Manual wheelchairs will be reduced by 7.19%. Payment reductions for oxygen and oxygen equipment remain under review, but the OIG recommended cuts as high as 12% to 15%. By comparison, the demonstrations achieved overall pricing reductions of 17%. Demonstration items included hospital beds, manual wheelchairs and oxygen. These MMA reductions are in addition to the CPI freeze that applies to all DME. Given the overall payment cuts and freezes effective for the items that are most likely to be competitively bid, and in light of the experience gained from the demonstrations, it is highly unrealistic to expect significant additional savings from competitive bidding, especially for an item like oxygen that is service intensive.

As CMS begins the process of implementing competitive bidding, it is critical that it consider the impact of these cuts on the savings projected from competitive bidding.

Asela Cuervo is the principal in the Law Office of Asela M. Cuervo in Washington, DC. 202 496-1281.