Update on DME Competitive Bidding

Members of Congress have now heard what people on our blog have been saying at that is that there are structural flaws in the durable medical equipment (DME) competitive bidding process. Further they have caused significant service interruptions and supply problems for residents in long-term care facilities.

"Competitive bidding was designed for beneficiaries who are mobile and not institutionalized, and it fails to address the numerous challenges that it has created for long-term care facilities," said Cynthia Morton, Executive Vice President of the National Association for the Support of Long Term Care on Tuesday at a congressional briefing intended to introduce new legislators to the program.

Traditionally, the Centers for Medicare and Medicaid Services (CMS) has paid for durable medical equipment based on "reasonable cost." In a competitive bidding demonstration earlier in the decade, unsuccessful bidders were excluded from the market and Medicare reduced costs 17% to 22%. Nine metropolitan areas have implemented the DMEPOS competitive bidding program since Jan. 1; it is set to add at least 90 more metro areas, including New York City, Los Angeles and Chicago, by the end of the year.

What has become clear to me is that bidders have the ability to swoop into a market, bid low, then back out of the process thereby setting a low bar for pricing that CMS will then implement with suppliers that do stay in the process. Morton calls them "drive-by-bidders."

It also seems to set the stage for monopolies as bigger providers come in and can afford to bid low because of the volume that they will ultimately do. Any short-run cost savings will be more than offset by long-run increases as successful bidders gain market power say critics.

In their paper, The Impact of Competitive Bidding on the Market for DME, Brian O'Roark and Stephen Foreman concluded that "artificial limits on supply will produce artificial shortages and access problems in the intermediate run (five to 20 years), will ultimately increase price and reduce social welfare and will, more likely than not, result in monopoly profits for the successful bidders that CMS will have little incentive or ability to regulate.

They go on to say that jobs will be lost in competitive firms and there will be severe employee dislocations and inefficiencies.

Since the last post on this, I have become more educated on the issue and it seems there are indeed serious flaws to the process. While this was just a briefing to bring many up to speed it seems that it should signal some Congressional action to review this bidding process.

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