Suppliers Fight Plan to Cut Medicare's Equipment Costs

By Christopher Lee
Washington Post Staff Writer
Tuesday, June 10, 2008

Medicare shells out $1,825 for the same home hospital bed that anyone can buy online for $754, according to government data. It pays $4,023 for a power wheelchair that retails for $2,174.

Outraged over such disparities, Congress in 2003 required the federal health insurance program for the elderly to phase out its outdated fee schedule in favor of a competitive bidding system that would bring its durable medical equipment costs more in line with market prices.

The new system, scheduled to begin in 10 metropolitan areas July 1, relies on bids by accredited suppliers to determine who can sell to Medicare beneficiaries. It promises to cut prices by an average of 26 percent, saving the government about $125 million over the next year, according to the Centers for Medicare and Medicaid Services. Taking it nationwide eventually would generate annual savings of $1 billion, officials say.

"We look forward to the beneficiary and the taxpayer being able to save money and to deal with high-quality accredited suppliers who meet our financial standards," said acting CMMS Administrator Kerry Weems.

But Weems may have to wait. An intensive industry lobbying campaign on Capitol Hill threatens to derail the new bidding system weeks before its start.

Suppliers contend that the changes will sever longstanding ties between Medicare beneficiaries and many of the businesses they depend on for oxygen, diabetic supplies, walkers, power wheelchairs and scooters. The new system has unfairly disqualified some suppliers, accepted bids from others with little experience and will lead to declining quality and service, they argue.

"Large numbers of small business in our industry will begin losing money and will be forced to reduce staff or ultimately close," Gary Gilberti, president of Baltimore-based Chesapeake Rehab Equipment, testified at a recent congressional hearing.

Julie Chesley, 83, a retired travel agent in Aventura, Fla., worries that she will have to switch to a new provider of the supplemental oxygen equipment that she uses for asthma and other conditions.

"If I have any kind of problems, I just call the office and within a few hours someone is here to take care of it," Chesley said of her current supplier. "You can't put a price on that kind of service."

The industry's arguments are gaining traction in Congress. Only about 4 million households will be affected by the program's first phase, but all lawmakers count Medicare beneficiaries among their constituents. A lot of money is at stake: Medicare spends about $8.5 billion annually on durable medical equipment.

A bipartisan group of 132 lawmakers sent a letter this month urging House Ways and Means Committee leaders to pass legislation delaying the program for at least a year. Sens. George V. Voinovich (R-Ohio) and Debbie Stabenow (D-Mich.) are circulating a similar letter in the Senate this week.

"[W]e are hearing from our constituents that companies who won bids have no experience in delivering the product in which they were awarded a contract," the senators wrote. "We have concerns these situations will lead to poor service for our most vulnerable constituents."

Rep. Pete Stark (D-Calif.), chairman of the Ways and Means subcommittee on health, said he plans to introduce legislation as soon as this week to delay the program by 18 months. But his cooperation comes at a price: The industry must agree to cuts in current fees equivalent to the projected savings of the bidding program.

"I don't mind the fee schedule if we set the fees right," Stark said in an interview. "But when I can go on eBay and buy stuff for a third of what Medicare is paying for it, then I know something is wrong. . . . There's money to be saved there, but I don't know that you have to put people out of business to do it."

Officials with the American Association for Homecare, a trade association that has contributed $138,490 to members of Congress since 2002, said many suppliers favor temporary fee cuts over the possibility of being excluded from the program. Most derive as much as half their revenue from Medicare, officials say.

Weems said the concerns are overstated.

The program allows oxygen and oxygen-equipment suppliers who were not low bidders to keep servicing their Medicare customers -- but only at the new, lower price, he said.

Similarly, wheelchair suppliers can still provide repairs and service on chairs they've sold, he said. For the first time, suppliers of equipment must be accredited and meet standards for quality and financial health. And lower prices will help beneficiaries, who typically pick up a share of the cost, he said.

"The statute contemplated losers," Weems said. "In fact, 60 percent of the bidders were priced outside of the competitive range."

Walter Gorski, vice president of government affairs for the Homecare Association, said many beneficiaries will lose, too.

"If Congress wants to create the model of DME [durable medical equipment], then competitive bidding may be the direction they want to go in," Gorski said. "What is lost many times is . . . it's more than just an equipment-based benefit."

Research editor Lucy Shackelford contributed to this report.

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