Home Health & Hospice Week

'Gaming' of the system is likely to hurt small suppliers and beneficiaries.

The study causing the big stir about home medical equipment competitive bidding in recent days is one that every supplier should know about, industry leaders say.

The study, "Will Competitive Bidding Decrease Medicare Prices?" was published in the January 2008 issue of the Southern Economic Journal. After researchers gained the HME industry's attention, stakeholders have embraced the SEJ study and its potential power to sway members of Congress to recall or revamp the program.

The study's findings have moved [the Robert Morris University report] "from theoretical to factual," says John Shirvinsky, executive director of the Pennsylvania Association of Medical Equipment Suppliers, in a bulletin on the study on the Web site of HME member service organization VGM.

The RMU report, released mid-February, criticized competitive bidding based on a review of economic theory, prompting the industry to send a Feb. 22 letter to HHS Secretary Michael Leavitt that called for the suspension of round one of the program.

One-two punch: The SEJ study packs more power for suppliers fighting bidding because the study is independent and peer-reviewed, Walt Gorski of the American Association for Homecare tells Eli. In addition, it draws on the actual results of competitive bidding demonstrations in Polk County, FL, and San Antonio.

Rethink Program For Accurate Bidding

The researchers' concerns about competitive bidding center on the potential for "gaming" under the bidding methodology used in the demonstration projects--a methodology which the Centers for Medicare & Medicaid Services also employed for round one of competitive bidding's national implementation.

"The root of the problem is that a firm's composite bid, and not its individual component bids, determines whether or not the firm is given Medicare provider status," write researchers Kerry Anne McGeary, associate professor of economics at Drexel University in Philadelphia, and Brett Katzman, associate professor of economics at Kennesaw State University in Kennesaw, GA. "At best, the complex bidding rules will lead to vast uncertainty regarding prices on individual goods. At worst, it opens the door for 'gaming' of the system."

Translated: The researchers contend that if a firm believes CMS has underestimated demand for a product, it may increase its bid on that item while lowering its bid on an item for which the firm believes demand will be lower than forecast.

"The problem with the CMS process is that the bid scoring and price formulation procedures are inconsistent with the bidding behavior CMS wishes to induce," the authors conclude. "That is, overly complex rules for choosing winners and setting prices distort the incentives that bidders face and may actually result in increased prices for some consumers."

Misleading: CMS claims that prices of products in the demonstration projects declined by 17 to 22 percent, McGeary tells Eli. But those numbers don't tell the real story of the impact the current competitive bidding method has had, she says.

"This level of savings is misleading in that it only uses goods on which the prices actually fell in the calculation, thereby avoiding the basic tenet of our paper: that the price decreases on some goods were only made possible by increases in the prices of other goods," explains McGeary.

Competitive bidding as it's conceived can also hinder quality of services, the researchers charge.

That's not to say that competitive bidding must be a bad thing, says McGeary.

Win-win potential: With the correct bidding rules in place, the program could create "a mutually beneficial gain for suppliers and CMS," the researchers say.

For more information: To read the full SEJ article, go to www.VGM.com.