Bidding to Equip Medicare

Expect winners and losers.

Beginning in January, the Centers for Medicare and Medicaid Services will roll out a competitive bidding system for Medicare providers of home health-care essentials, such as walkers, power wheelchairs, oxygen and blood-glucose test strips.

The idea is to cut government expenditures for durable medical equipment, which accounts for about $8 billion of Medicare's annual $336 billion in expenditures.

The government now sets payment rates for the equipment, which includes prosthetics, orthotics and medical supplies. In 2005, some 15,000 providers were in the program.

The CMS outlined the proposed change in a 50-page document in yesterday's Federal Register. The proposal has rocked the $19 billion industry.

"This will have a dramatic impact on this industry," said Cara Bachenheimer , vice president of government relations for Invacare Corp. , the nation's largest manufacturer of home care equipment. "It encourages inappropriate low-balling [on prices], and it's problematic for small suppliers."

Medicare officials are issuing the proposal under a legislative mandate pushed by Rep. Bill Thomas (R-Calif.), chairman of the House Ways and Means Committee . The dramatic change is expected to save $1 billion annually within five years.

Herb Kuhn , director of the Center for Medicare Management , said in a statement that the agency thinks the proposal will ensure beneficiary access while reducing out-of-pocket costs "and saving money for taxpayers." Medicare users will continue to pay 20 percent of the cost of the equipment and service covered by the rule.

The agency's confidence in competitive bidding is based on two demonstration programs it ran from 1999 to 2002 in Florida's Polk County, a small geographic area, and in San Antonio.

Medicare regulators pronounced them a success, saving about 20 percent on the cost of items bid such as oxygen equipment and supplies, hospital beds and surgical dressings. It said access to services and the quality of them were "essentially unchanged."

The industry was not impressed with the results, cautioning that several years of bidding results would be needed to determine if companies stayed in business, prices declined and beneficiaries were happy with the program.

As the proposal is structured, the government would choose suppliers for equipment based on market costs and the quality standards it is developing. Competitive bidding would be used first in the 10 largest metropolitan areas, and 80 more areas would be added in 2009. New York, Los Angeles and Chicago would not be part of the initial program because of the complexity of getting the system running there.