New Medicare rule aims to curb waste and fraud in medical equipment business

March 24, 2012

Stephen Ackerman’s Spectrum Medical is approaching its 30th year in helping Montgomery County seniors negotiate the infirmities of old age. The company’s small showroom and warehouse near Walter Reed Annex in Silver Spring offers a selection of wheelchairs, walkers, home oxygen equipment and other medical supplies used by people suffering from crippling arthritis, chronic obstructive pulmonary disorder and diabetes.

In one corner of the shop sit the most basic aids: canes, walkers, crutches and collapsible wheelchairs, which can be indispensable for getting around homes or nursing facilities. The walls of the modest building are lined with air mattresses, easy-access commodes and bath benches.

Most of the goods — known as durable medical equipment — have two things in common: First, Medicare will pay 80 percent of their cost if prescribed by a doctor; second, the equipment, mostly made in China, costs more than you might expect.

Although durable medical equipment plays a critical role in the lives of many seniors, the frequency of fraud surrounding its sale has turned it into one of the most vilified programs in Medicare. Numerous government reports over two decades have decried overutilization, overpricing and fraud.

Power wheelchairs are, by far, the most expensive item on Medicare’s long list of approved products for reimbursement. The retail price can range from $1,000 for a basic scooter to more than $6,000 for an advanced motorized wheelchair with sophisticated electronic controls and custom-made seats to accommodate the obese. You may have seen the commercials and billboards encouraging seniors to call and find out how they could qualify for a chair, Medicare coverage guaranteed. Time and again, these pitches have lured the elderly — as well as authorities tracking down fraud.

Beginning this month, the Centers for Medicare and Medicaid Services (CMS) is requiring suppliers to engage in competitive bidding to supply seniors with this equipment in 91 of the nation’s largest markets, including Washington. A two-year pilot project in nine cities, which included hotbeds of durable medical equipment fraud in south Florida and Texas, succeeded in lowering Medicare’s costs by nearly a third.

And if Ackerman’s description of his forthcoming bids is any indication, the same will happen in most of the country. Dealers will have no choice but to bid the lowest prices possible for their goods to continue to sell to Medicare beneficiaries. “It truly is a suicide bid,” said Ackerman, who employs 12 workers. “The elephant in the closet that no one wants to talk about is that participation in Medicare drives the rest of your business. If people don’t come in, you don’t get the cash business in bathroom grab bars, bath seats, adult diapers and other stuff that Medicare doesn’t reimburse for.”

Overuse and fraud

A sustained government effort since 2007 to crack down on abuse of the program has helped Medicare hold spending on durable medical equipment in check in recent years, even as the private sector could not. In 2010, the most recent year that data are available, spending on the equipment by public and private payers rose 7.3 percent, compared with an increase in total health-care spending of 3.9 percent. Medicare spending on durable equipment in 2010, though, rose just 0.5 percent.

Although durable medical equipment accounts for less than 2 percent of Medicare costs, and its growth has slowed, CMS, Congress and advocates for seniors are determined to slap further limits on its growth. The industry is fighting back with leading companies and trade associations hiring some of Washington’s highest-powered lobbyists to postpone or change CMS’s competitive bidding rollout.

The government is also cracking down on fly-by-night retailers who build a business by fleecing Medicare, especially with power wheelchair sales. A recent conviction obtained by a joint anti-fraud task force run by the Justice and Health and Human Services departments involved a former Los Angeles church pastor who owned several durable medical equipment companies. He was sentenced to three years in jail for defrauding Medicare of $14.2 million after his companies sold patients $6,000 wheelchairs purchased for $900 from the manufacturers.

An HHS inspector general’s report issued in July found that 9 percent of power wheelchair claims were medically unnecessary. An additional 52 percent had physician documentation that differed from the paperwork submitted by suppliers, which could indicate that providers were “upcoding” prescriptions to sell more expensive chairs. “In most cases, physicians’ records had insufficient documentation to support the medical necessity of power wheelchairs,” the report stated.

The campaign to lower prices and rein in fraud has been in the works for more than a decade. The 2003 Medicare Modernization Act called for competitive bidding, but industry pressure stalled the rollout. The nine-city pilot project that began in 2010 took place only after a delay that led Medicare to impose an across-the-board 9.5 percent cut in prices.

But the industry’s maneuvering only postponed the inevitable. CMS will take bids through the end of this month from companies hoping to continue selling durable medical equipment. The agency will notify the winning bidders later this year for sales commencing in mid-2013.

Some businesses will fail

CMS expects the same price cuts seen in the pilot project. “We have not seen declines in utilization, but we have seen declines in price,” said Jonathan Blum, an administrator at the Center for Medicare. “We’re paying less in all nine markets.”

The industry — made up of an estimated 18,000 mostly small businesses across the country — is bracing for a sharp contraction in the number of local suppliers. One retailer in south Florida estimated that half of the 400 durable medical equipment suppliers in the region had gone out of business in the past two years. “I couldn’t make it as a bid winner,” said Robert Brant, who closed City Medical Services in North Miami Beach last April and dismissed its seven employees. “The rates were too low.”

That’s what C.J. Ibetoh, owner of Lenox Medical Supply near Dupont Circle, expects will happen here. He fears competitive bidding will destroy his six-year-old business, whose five employees depend on sales of motorized wheelchairs. “If every insurer follows Medicare’s example, it will be devastating for us,” he said. “Certain companies will get the bid, and if you’re on the losing end, it’s sort of a monopoly.” About a third of his business comes from Medicare beneficiaries.

But that’s exactly what Congress intended when it called for competitive bidding to supply Medicare beneficiaries with durable medical equipment. Indeed, Medicare’s competitive bidding program — with all the consequences of free market capitalism that it entails — will be a first major test of the nation’s willingness to live with the consequences of any program that succeeds in holding down health-care costs and ferreting out fraud. Saving taxpayers money inevitably reduces business revenue and eliminates jobs.

“If we’re going to worry about the health-care system as a jobs producer, we’re never going to avoid the national bankruptcy facing us down the road,” said Paul Ginsburg, executive director for the Center for Studying Health System Change. “This will put some small businesses out of business that the taxpayers shouldn’t be propping up.”

Even patient advocates, often a voice for unlimited access to providers, are supporting CMS’ efforts. “A lot of durable medical equipment suppliers reached out to us to say beneficiaries will get less care, but we don’t think that’s true,” said Joe Baker, president of the Medicare Rights Center. “We’re concerned about wasting money, and the system now certainly does drive overutilization .”

Industry pushes back

Given the stakes, it’s not surprising the industry continues to push for postponing the CMS’s rollout of competitive bidding. Major dealers and manufacturers, which stand to lose through lower prices, have launched a major lobbying blitz and hired, among others, former Republican House member Nancy Johnson of Connecticut, to fight for changes in the bidding program. Johnson led the House Ways and Means health subcommittee until she lost her 2006 reelection bid. Her current clients include The Scooter Store, the best-known supplier in the field because of its ubiquitous cable television ads touting how easy it is to get Medicare to pay for motorized wheelchairs.

The industry’s trade group, the American Association for Homecare, at first tried to get Congress to cancel competitive bidding. Last year, it garnered 168 co-sponsors from both sides of the aisle on a repeal bill. When that went nowhere, it offered a replacement measure that would modify the bidding program, which industry officials say is flawed.

“A year ago, we wanted the whole thing to go away,” said Tyler J. Wilson, president of the association. “Maybe that was wishful thinking. Now we’re looking to help Medicare get to a reasonable price where beneficiaries don’t suffer and the Medicare homecare system doesn’t come apart at the seams.”

In a letter Wilson sent to Capitol Hill in early February, the association charged that “hundreds of patients and providers have reported problems and complaints about getting physician-prescribed home medical equipment and services. This program has clearly failed and needs to be replaced as soon as possible.”

CMS says there is no evidence that patients have been cut off from suppliers or suffered in the pilot cities. The agency’s monitoring detected no increase in the use of emergency rooms, longer hospital stays or use of skilled nursing facilities, which could be triggered by a failure to obtain needed equipment. A special 24-hour hotline, heavily advertised in local media, received fewer than 60 complaints in the nine cities. “The number of true concerns was so minimal that we didn’t have to deploy it,” CMS’s Blum said.

Suppliers say patients will feel the impact in the form of higher out-of-pocket costs and delays in such services as getting wheelchairs repaired or in-home oxygen tanks replaced. Those services are now embedded in the price of the products and will be cut in firms’ efforts to win bids.

“We’re already seeing a shift in people being willing to pay cash,” Spectrum Medical’s Ackerman said. “Nobody has the guts to say Medicare is becoming like the Medicaid system, while people who can, reach into their own pockets if they want better products and better service.”

Goozner is a reporter for the Fiscal Times, an independent news organization that provides original reporting and analysis on fiscal and economic matters.

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