Moving the HME Industry Forward

Legislative/Advocacy

Another Letter Slams Competitive Bidding

July 1, 2013

WASHINGTON, DC – A powerful message combined with a powerful messenger in yet another letter expressing considerable concern about the competitive bidding program.

Former competitive bidding proponent Nancy L. Johnson, a member of Congress (5th District of Connecticut) from 1983 to 2007, sent the letter to Capitol Hill last week. Now a senior public policy advisor at Baker/Donelson, Johnson wrote that competitive bidding relied on “the boldest, most arbitrary use of executive power that I have ever seen.”
 
Full text of the pull-no-punches letter can be found below in italics.

As July 1st comes upon us, I want to thank you for the time and attention you have given me on the subject of Competitive Bidding.
 
If Competitive Bidding of DME were just about Competitive Bidding leading to lower prices at which many companies had to give up their DME business, I would not be so concerned.
 
As you know, I helped pass Competitive Bidding for DME because we needed to see if it would enable Medicare to use the markets to set realistic prices for DME products.
 
I’m writing you this closing note to summarize what we’ve learned.  CMS’ program is not Competitive Bidding.  It is administered pricing and relies on the boldest, most arbitrary use of executive power that I have ever seen.  If the programs’ administration wasn’t totally non-transparent, Congress would have stopped it.  Please bear with me as it is important to at least never let this program design be used again, or preferably for Congress to force a program delay until it is straightened out.
 
First, CMS does not want the market to set prices.  It has always done so for Medicare.
 
Second, they found a simple mechanism to create the appearance of great supply capacity at a steeply lower price.
 
That mechanism is capacity allocation.
 
The attached companies are only a few of the companies that won dozens or hundreds of contracts they did not bid for.  Had they bid for them, they would have had the capitol and experience to expand and certainly would not have overlooked getting the proper licenses for such a growth plan.  The fact that CMS’ financial and licensure review failed reflects the fact that their original bid did not propose the number of contracts they received.
 
Capacity allocation gave CMS 4 advantages:
 
1-     The appearance of 150% of the necessary capacity (though CMS has never responded to questions inquiring how they determined either individual bidder capacity or total market capacity needed).
2-     A low price, a 71% cut in diabetes test supplies and a 45% cut on average in other product categories. (CMS’ vague references to past fraud and high prices reflects problems that characterized this program before Congress required certification, bonding, rental payments and many other regulatory changes and payment cuts, and was particularly an issue with wheelchairs.)
3-     A large group of companies anxious to sell their many bids.  Like the companies attached, because they did not have the capitol, technology, management capability, or licenses to fulfill the bids.
4-     A large group of capable companies that got NO BIDS or FEW BIDS, and needed to buy bids; because the median price was dragged so far below their bid (which included large volume discounts) by the allocation of literally thousands of contracts to small and/or single state companies.
 
Thus CMS’ program design had nothing to do with competition but relied on arbitrarily picking winners and losers.  They picked winners by arbitrarily allocating tremendous capacity to a few companies which they could then sell and exit the industry with money in their pocket.  Losing bidders could buy the contracts of winners but at the low reimbursement prices, this has not happened at the pace it needed to in order to assure senior access to care.  In Round 1, CMS approached large companies that won no bids or few bids and offered them the right to serve at the price of Round 1.  Lincare accepted but said publicly they could only do it because they could subsidize the Medicare patients with the profit from their commercial patients.  Lincare has now left the business.
 
In Round 2, the result of their price setting mechanism will hurt seniors.  That may not matter to CMS in beds, walkers or wheelchairs.  But it really matters to patients in enteral nutrients, oxygen, CPAP, and diabetic strips.  Seniors dependent on insulin pumps, for example, require test strips with metals in them for accuracy.  These sell at Wal-Mart and drug stores for about $55-$65 a package. CMS will now pay $10.41.
 
I can provide much more detail about the processes of Round 2 and their impact.  But my goal in this letter is to help you see that licensure is the smoking gun of an entirely fraudulent Competitive Bidding process.  Delay really is important and I hope you will help pass it if the opportunity comes your way.
 
Thank you for your attention.  I truly appreciate it.
 
Sincerely,
 
Hon. Nancy L. Johnson
Former Member, U.S. House of Representatives
1983-2007 5th District of Connecticut
Senior Public Policy Advisor
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Washington, DC