VGM study claims NCB produces minimal savings

Tuesday, May 31, 2005

WATERLOO, Iowa -- Expected savings of a national competitive bidding program could drop from the millions estimated by the CMS to mere thousands, according to a financial report released by VGM in February.
The report, commissioned by VGM and conducted by independent economist Dr. Kenneth Brown from the University of Northern Iowa, rescored the competitive bidding demonstration projects in Polk Country, Fla., and San Antonio, Texas, by taking into account oxygen and other DME cuts made under the new FEHBP fee schedule.
According to the original analysis from 2002 of the two demonstration projects, Medicare realized gross savings of about $9.4 million, or about 19% of the total DME cost for those two areas. After administrative costs were subtracted, the net savings drops to about $4.6 million dollars.
"These findings were a lot of the basis for Congress passing competitive bidding as part of the Medicare Modernization Act, that there was these big savings" said Mike Mallaro, VGM's chief financial officer. "Our premise was when you apply the FEHBP cuts, that would drastically reduce the amount of potential savings under competitive bidding."
The rescored analysis proves VGM's hunch. Brown found that potential competitive savings are reduced by almost 45% by the FEHBP cuts. If the demonstration projects were conducted now, the gross savings would be only $4.3 million, and when administrative costs are subtracted Medicare is $530,000 in the hole.
"The estimated savings are gone. They have been achieved by Medicare already with the FEHBP cuts," said Mallaro. "So why have this massive upheaval to the structure of the home medical system for something that now, because CMS already took a lot of the savings, is not going to have that big of an effect."
VGM will use Dr. Brown's findings to advocate for CMS to complete the three remaining demonstration projects that Congress originally mandated.
"Now that we have some new information, let's see what the real results are," said Mallaro. "At that point they can decide it doesn't make sense or they can decide it still does make sense, but at least they are going forward with a full set of information instead of scattered results from two, small demo sites, which don't in any way reflect the kind of results or challenges they are going to see in a metro area like Chicago or New York City."
VGM gave a copy of the report to Sen. Charles Grassley, R-Iowa, and is advising other industry members to share it with their representatives. Dave Kazynski, VGM's voice on the Program Advisory and Oversight Committee, also presented a preliminary summary of the report to the other panel members at the March meeting.
"The question for these Congress people becomes: Is the paltry amount of savings left under the competitive bidding program worth the disruption to the system, the potential deterioration of services, and the potential for a highly anti-competitive environment?" said Mallaro.