Defective Medicare Bidding Program Forces Severe Hardships on California Business Owners and Beneficiaries

The controversial Medicare bidding procurement program for home medical equipment is forcing many small and large providers in California to lay off employees or close their businesses, developments that will likely disrupt the quality of service and products received by Medicare beneficiaries.

Under the defective and dangerous program, the Centers for Medicare & Medicaid Services (CMS) is reducing reimbursements to providers an average of 45 percent when the bidding program expands to 91 new locations in July. Due to these arbitrary cuts, many providers say they can no longer supply Medicare patients with durable medical equipment (DME), which includes critical medical devices such as power wheelchairs, hospital beds, oxygen, and diabetic supplies. Some of their stories are heartbreaking.

“Medicare has completely mismanaged the design and implementation of this bidding program,” said Tyler Wilson, president of the American Association for Homecare (AAHomecare). “It is creating havoc for providers in California and across the country. And it is jeopardizing the health of some of the most vulnerable people in our society. It is time Congress and the Administration end this bad experiment and create a program that guarantees quality service, while offering businesses fair, market pricing.”

Wilson called the current program “a sham.” CMS basically imposes a contract price anywhere between the lowest and highest bids that are made by providers. But at the same time, all the bids are non-binding, which has led some suppliers to make desperate “suicide” low bids in an effort to win contracts in enough equipment categories to stay in business.

What destroys the integrity of the process is that even these ridiculously low bids are utilized by CMS to establish their unrealistic prices. “The entire process lacks transparency because CMS never discloses how these unrealistic prices are calculated,” Wilson said. “This is government imposed pricing, not competitive bidding, and it is eliminating competition rather than increasing it.”

More than 240 economists, two dozen consumer groups, almost 200 members of Congress, and the National Federation of Independent Business have sharply criticized the bidding program. After a request from AAHomecare, the US Department of Health and Human Services Office of Inspector General (OIG) has agreed to investigate the program.

CMS has been harshly criticized by prominent economists and auction experts such as Dr. Brett Katzman, Interim Chair of the Department of Economics, Finance & Quantitative Analysis at Kennesaw State University. “While the CMS system does involve bidding, it is far from competitive,” Katzman said. “Yes, there are winners and losers, but winners are chosen based on their willingness to game the system rather than their cost competitiveness. The problem is that the CMS system entices providers to “low-ball” bid whereas a true competitive bidding system would reward providers for being cost efficient.”

Throughout California, the dangerous and defective program is impacting providers, beneficiaries, and even entire communities. Here are some of their stories.

Mark Hawkins is owner of Western Rehab, a provider of mobility equipment to clients in 15 counties in northern California. His company has stopped providing power wheelchairs and other mobility equipment to Medicare patients.

“We will no longer be able to accept any Medicare-funded beneficiaries due to the reduced reimbursement,” Hawkins said. “The reduced rates do not allow for delivery time and expense to our rural customers. It will have an extremely detrimental effect on beneficiary access to homecare products, as there are limited (or no) companies that service these rural counties. Our employees are aware of probable employment termination as our workload shifts away from Medicare-funded services.”

He said that many of his clientele are funded by both Medicare and Medi-Cal (Medicaid), a complication that will further restrict access to home medical equipment.

“We are unable by law to accept private funds for clients that are enrolled in the Medi-Cal program,” Hawkins said. “Because we are now not accepting Medicare reimbursement, the beneficiaries are unable to legally purchase the prescribed DME privately due to their enrollment in the Medi-Cal program. As there is no other source of funding, these beneficiaries will have no resource for the prescribed equipment that is needed.”

Near San Diego, Ashley Medical, Inc., a woman owned business that started in 1989, will be forced to close because of the bidding program.

Carol Ashley, CEO of Ashley Medical, Inc, said her company submitted fair and reasonable bids, but didn’t win any contracts. But after seeing the prices set by set by CMS, she said, “If offered a contract, we would have to decline, as the rates are acquisition prices leaving nothing with which to pay our employees, service and deliver the equipment, and provide outstanding customer service to our patients.”

Ashley maintained that “CMS appears to be applying bullying tactics on a defenseless DME industry and the end result will impact the beneficiaries in addition to small businesses.”

Leslie Forbes, ATP, Owner of A-1 Home Healthcare, Inc. has been servicing the Los Angeles, Ventura, and Santa Barbara areas since 1981, but now doubts if she can continue operating.

“We are a mother and daughter team,” she said. “We have five full-time and two part-time employees. The community has a large senior retirement population who depend on our company to provide DME and bill Medicare for their services. We have built a relationship of trust with our clients and their families. We have built a reputation of service bar none, like no other, and would like to continue this 30-plus year business!”

She pleaded with CMS to revisit the latest round of bidding. “At these rates we will not be able to sustain our company,” Forbes said.

Sunny Oh, owner of Aroma Medical Supply in Artesia, has run his store since 2006. “I have followed every single requirement stated by Medicare to uphold the integrity of the industry,” he said. “However, with every new year the fiscal requirements of maintaining my license with Medicare have grown exponentially. To put things into perspective, I am a small business owner. I have three employees, myself included, to run our entire operation. We have grown and maintained great relationships with the local hospitals, adult care centers, and our patients. To have to now place competing bids with larger companies that can take on a smaller profit margin by amassing large quantity orders seems to be unfair business tactics placed on us by Medicare.”

Oh said that Medicare business accounts for about 87% of his total revenue.

“At this point, by losing the Medicare Round 2 bids is not a matter of (just) laying off a few employees for me, but a matter of losing my store and my livelihood,” he said. “On the other hand, winning a bid, at current bid prices would only be a slight deferment of the inevitable with a slow choking off of revenue rendering us unable to maintain the cost of running the business. With this competitive bidding process, not only will it hurt my business but the patients we serve. I work in a predominantly Hispanic and Asian community and am able to provide services in Spanish and Korean.”

Oh said that many of the other DMEs in the area have closed. “If we were to also close our doors these patients would have to travel over an hour before they would be able to find services provided in their language,” he said. “This would be detrimental to these patients with whom we have built a relationship for the last few years.”

Wilson, of AAHomecare, said the DME industry is ready to support a fair procurement system based on three core principles: market-based prices, binding bids, and transparency.

“The current procurement system is destroying the Medicare program and its network of compassionate providers, while endangering patients,” Wilson said. “Medicare can no longer be depended on to provide the health safety net for our seniors and people living with disabilities. Congress has to take action.”

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Retrieved From:
American Association for Homecare
April 20th, 2013