Medicare looks to the free market
Medicare is preparing to make medical supply companies compete against each other on prices. But as host Bob Moon learns from New York Times business columnist David Leonhardt, there may be a fight ahead.
Senior citizen puzzles over Medicare changes (Justin Sullivan/Getty Images)
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TEXT OF INTERVIEW
Bob Moon: A relatively small change in the way Medicare does business is set to go into effect next week, but we're not talking small change when it comes to the money that the government and Medicare patients could save.
It seems Medicare has been paying as much as double the retail price for some medical equipment, but as of July 1, suppliers are supposed to start submitting bids.
David Leonhart writes about this today in his business column in The New York Times.
David, thanks for joining us here once again.
David Leonhart: It's nice to be back.
Moon: You start your story today with a basic piece of medical equipment -- a walker -- and you show a huge gap in what you'd pay at Wal-Mart, for example, and what Medicare pays. Why is there such a difference?
Leonhart: Well, it's because Medicare doesn't buy these things on an open market. Instead, Congress has established this fee schedule that determines how much the government -- which is taxpayers -- pays for all sorts of pieces of equipment like walkers or beds or oxygen equipment. As a result, the companies selling this don't have to compete with each other in an open marketplace and the government ends up overpaying for almost all of this equipment.
Moon: So what kind of price disparity are we talking about here?
Leonhart: On Wal-Mart's website, you can buy this kind of walker that I looked into for $60. Medicare has been buying them for $110. Now, the equipment makers will point out that they also deliver it and they will help you set it up and that's fair enough, so maybe we shouldn't expect Medicare to be paying as little as Wal-Mart sells it for, but Medicare recently conducted a bidding experiment and that really showed how much these things should be priced.
Moon: And how did that work?
Leonhart: Basically, these walkers that are selling for $110 by congressional law instead went for about $80 once they did the bidding. On average, the things that Medicare is buying are overpriced by 26 percent, which is really quite stunning.
Moon: Now you point out that there's actually some holdup in Congress to get these prices lowered. Why the opposition?
Leonhart: Some of it is that the Democrats who now control Congress are sometimes skeptical of the workings of the free market -- sometimes they're right to be skeptical of the workings of the free market; In this case, I think they're wrong. Some of it is also that the medical equipment industry has launched a very effective public relations campaign. They've increased their contributions to Congress and they're raised all sorts of little issues including some scare tactics about how this could potentially deprive people of medical equipment that they need and what they're really trying to do is prevent competition from coming to this market and they're trying to protect their outsized profits. And I think if we have a real push for health care reform, we're going to see this again and again in which constituencies that benefit from the waste we now have in our medical system are going to go to Congress and fight to keep their share of the waste and they're not going to say "We're fighting to keep our share of the waste." They're going to claim that they're actually protecting patients.
Moon: You're suggesting that this is a sneak peak at a battle royale that would ensue if we tried to change the entire health care system. Are you suggesting that this is just impossible?
Leonhart: I don't want to suggest that it's impossible. To me, it's really a sign of how hard health care reform is going to be. All of us would benefit from a competitive bidding system in Medicare because we would pay less in taxes to fund Medicare. But the numbers are so small for each one of us, whereas for these equipment makers that are now benefiting from this closed system, it's a huge part of their business and so they have such a bigger incentive than we do to fight it.
Moon: I guess the bottom line here is if you're interested in this issue, you'd better write your congressman, huh?
Leonhart: I think that's right.
Moon: David Leonhart is a business columnist for The New York Times. Thanks for joining us.
Leonhart: Thanks a lot.
Comments
Comment | Refresh
From Verona, WI, 08/31/2008
I need to buy a new wheelchair cushion. Searching for ROHO Enhancer online, I have not found a single company where the price is not $319. Not one place where it's a different price. The medical equipment industry needs free market pricing. This is akin to the same thing anti-trust laws were made to combat.
From South Mills, NC, 08/16/2008
I am glad to see that you finally understand that biding does not necessarily lead to "a low-balling bidder". However, I am disappoint that it took you more than one month to do that, it took less time for my 9 year old daughter to do that. But then again, her allowance does not depend on her not understanding it.
From Arlington, VA, 08/11/2008
I know why you didn't win the contract - because the government discarded your bid as frivolous and a silly waste of time. If you (and your 9 year old daughter) think you proved something by that stunt, you're wrong. DoD isn't foolish enough to give you the time of day - and neither am I.
From South Mills, NC, 07/21/2008
I have repeated this so many times, yet "us" still do not understand that the only difference here is biding and that it has nothing to do with service.
This reminds me of a quote by Upton Sinclair who said: It is difficult to get a man to understand something when his salary depends upon his not understanding it (from: An Inconvenient Truth, By Al Gore).
From Annandale, VA, 07/19/2008
Jinchun Yuan: It has everything to do with service. Examples: walkers, power wheelchairs, oxygen systems. Low-ball the price and you ensure that the service and emergency care component to homecare minimal. "Us" is the homecare infrastructure in the US.
Michael Reinemer
American Association for Homecare
www.aahomecare.org
From South Mills, NC, 07/12/2008
Please read this again. "Basically, these walkers that are selling for $110 by congressional law instead went for about $80 once they did the bidding". The tax payers (you and I) have been over charged 38 percent. The only difference here is bidding. It has nothing to do with service as you suggested previously. It has nothing to do with government as Terry suggested. And it has nothing to do with reimbursement as you are suggesting now.
If walkers are a poor example, show me a better example with bidding and no bidding prices.
Who is "us", where may I find you all if god forbidden something like that happens?
"Responsible Home Medical Equipment suppliers" would like that you and I equal bidding to "a low-balling bidder". But, I can assure you that they are different. We (me and my 9 year old daughter) recently put in "a low-balling bidder" to US Department of Defense to produce Refueling Tanker for $10. The contract went to someone else for $35 billion. You know why?
From Arlington, VA, 07/09/2008
Yuan, when people who can't even remember who their doctor is, let alone understand HCPC/ICD9 coding, try to submit their Wal-Mart walker to Medicare for reimbursement, they'll find that they will end up eating the full $60 or $80 for that walker instead of the Medicare 20% coinsurance.
But again, you choose to ignore the fact that the walker is a purposely poor example to use, when life-sustaining equipment is included in this process.
If you're ever on oxygen, please be sure to share with us your experiences with a low-balling bidder providing your maintenance and service while you do all your own reimbursement paperwork.
From South Mills, NC, 07/02/2008
"Basically, these walkers that are selling for $110 by congressional law instead went for about $80 once they did the bidding". Charging something of $80 for $110 was overpricing it by 38 percent. The only difference here is bidding. Deb, it has nothing to do with service. Terry, both $80 and $110 are paid to government, so it has nothing to do with government either. Deb, don't be stunned. "On Wal-Mart's website, you can buy this kind of walker that I looked into for $60. Medicare has been buying them for $110." This difference is 83 percent. Here, you may say that service is a factor. Nobody demands that our "responsible Home Medical Equipment suppliers" charge Wal-Mart price. Just that they charge a responsible price for tax payers not just their shareholders.
From TN, 07/01/2008
Storys about governments paying more for what they buy than the best price an induividual could get. Some time ago one of the local TV stations ran a series on Medicare/Medicade paying higher prices. The repoter found a supplier that would talk on air. He gave a very good reason for charging more. The amount of time and effort it took him to get paid. Government programs then ( maybe there have been improvements since then ) set the supplier a PO and it could take months and several hours of work to get paid.
From Arlington, VA, 07/01/2008
"The stunning fact that on average, the things that Medicare is buying are overpriced by 38 percent is a comparison between competitive and non-competitive bidding"
No, it's a comparison between non-serviced and full-serviced medical supplies and equipment.
You're not working with a full equation.
Speaking of which, now I'm the one who is stunned... 83%?
From South Mills, NC, 06/30/2008
Although the main comparison that this report made is between competitive and non-competitive bidding, the critics were confused with or tried to shift to the difference between Wal-Mart and "responsible Home Medical Equipment suppliersâ". The stunning fact that on average, the things that Medicare is buying are overpriced by 38 percent is a comparison between competitive and non-competitive bidding. In comparison to Wal-Mart, so called "responsible Home Medical Equipment suppliers" overpriced by 83 percent not mere 38 percent.
From Arlington, VA, 06/30/2008
"on average, the things that Medicare is buying are overpriced by 38 percent, which is really quite stunning."
Unfortunately, the last comment proves the very point the prior comments were trying to make - that this is a very misleading interview.
Those who support competitive bidding will bellow these percentages until they turn blue, knowing that people will focus only on the "stunning" differences and not bother whatsoever to find out WHY there are large differences in cost.
In spite of over 1,200 words on this page so far explaining WHY there is a difference in costs between responsible Home Medical Equipment suppliers and Wal-Mart, Mr. Yuan focused only on the dollar amounts and percentages.
Competitive bidding has its place in the business world. But it's a dangerous and reckless method of cutting costs when the health of human beings is involved.
Lose the knee-jerk reaction to dollar signs and percentages, and take some time to understand WHY Wal-Mart and Overstock.com are able to provide equipment at such a drastically lower price.
From South Mills, NC, 06/29/2008
On otherwise an excellent report, Mr. Leonhart made an arithmetic mistake and as a result under stated the magnitude by which Medicare is over charged. When something worth $80 is sold for $110, it is overpriced by 37.5% not 26% as Mr. Leonhart had stated. On the other hand, when something worth $110 is sold for $80, it is discounted by 27%. So Mr. Leonhart’s statement should be modified to: on average, the things that Medicare is buying are overpriced by 38 percent, which is really quite stunning.
From Fort Worth, TX, 06/26/2008
This "news piece" was borderline irresponsible. It was stated that companies were to start submitting bids on July 1st and that the government recently ran a test or sample bid. That is incorrect. The bidding that was recently done in 10 major metropolitan areas goes into effect on July 1st unless the Senate intervenes. That means that in less than a week thousands of Medicare benefeciaries will not be able to continue to receive service from the HME providers they have built relationships with. David Leonhart completely misrepresented the legislation currently before the Senate. The legislation does not put a stop to competitive bidding. It delays it so that discrepancies in how CMS administereed the competitive bidding can be examinied and corrected. I am certain that it was not the intent of the law to have companies awarded bids who had NEVER provided these services before or who did not even have a location in the same state as the areas they are expected to service. (Which is what the results of the first round of competitive bidding left us with.)Very little consideration has been given to the medicare beneficiary who may now have to coordinate the services of several HME companies (one for each product they need in the home). Some of these patients can't remember if they ate breakfast, much less which of several HME providers to call when something is wrong with their oxygen delivery system as opposed to their hospital bed. He also failed to mention that built into the legislation is a pricing concession that would afford the Medicare program the same level of savings, not put companies out of business, allow Medicare beneficiaries to continue to choose their provider, and save all beneficiaries money as opposed to just those in certain major metropolitan areas. In the future, before you run a story, please make certain that the source you are relying on for information is truely knowledable on the topic.
From washington, DC, 06/26/2008
You presented a very important, often overlooked story in a surprisingly one- sided and misleading manner. David Leonhart's dismissive comparison between equipment suppliers working within the Medicare program and those who collect payment from the consumer was shoddy journalism. Leonhart skimmed over the many additional costs incurred by medical equipment suppliers over those of Wal-mart and others who do not bill insurance. In addition to delivering, instructing and setting up medical equipment, they make sure the patient meets the criteria required by Medicare, collect the prescription from the physician, bill and wait for payment from Medicare and supplemental insurance, store medical records for 7 years, and are subject to audit by Medicare to confirm that all of their rules have been followed. He implied that anyone opposing these cuts was not serious about reforming Medicare and reducing waste but ignored many real problems with the way this competitive bidding program was run. Many suppliers' bids were rejected for minor errors. These weren't even "bids" in the sense of give and take in the market place but were guesses by suppliers of what reimbursement they could accept to cover their costs. Only time will tell if these prices are sustainable. Your blanket use of the term "outsized profits" is a gross and misleading generalization. Janet Tersoff Billing Supervisor New Hampshire Pharmacy and Medical Equipment Washington, DC
From Arlington, VA, 06/26/2008
This is absolutely a biased, misleading piece.
Healthcare in any form is not something that should go to the lowest bidder. Imagine the quality of the equipment and service! We all know the old saying: "You get what you pay for."
When discussing National Competitive Bidding (NCB), it's ridiculous to use a walker as an example, and those who aren't well informed about this issue wouldn't know that. Walkers require very little instruction/setup time, and require little or no service. The real issue, which is on the outside of the blinders Mr. Leonhart is trying to put on us, is that CMS is looking to serve up contracts to the lowest bidder on other items as well - items that require maintenance and service - items that are life-sustaining and highly technical. Maintenance and service by Wal-Mart on life-sustaining equipment? No thank you.
Leonhart sidestepped the issue of delivery and setup costs as "fair enough", but if you delve into the real costs of delivering and setting up life-sustaining equipment like oxygen, you'll find that the costs are justified.
Also, there are other factors conveniently not mentioned in the interview that are built into the current reimbursement rate. Most HME businesses provide full service to their patients - including primary and secondary billing, maintenance and service, and even loaner equipment - in addition to the delivery and setup. They also don't sell DVDs, electronics, books, or clothing.
NCB is simply a "cost-saving" gimmick (one that several studies have shown will result in higher costs and compromised quality in the long run). Conveniently, it serves double-duty by making providers a scapegoat for CMS' failure in keeping watch over its herd. The billions (yes - that's a "B") of dollars each year that are lost due to fraud and abuse are rarely mentioned when NCB is discussed. Why not? Because for years, CMS has failed to make sure it has been paying legitimate providers. For years, all they had to do was send a surveyor out to make sure the businesses actually existed. They FAILED. They FAILED to the tune of millions of taxpayers' dollars. The NCB program shifts the blame from the government to the providers, profiling providers as money-grubbing, shady businesses that are pillaging the federal coffers. The truth is that CMS failed in protecting the taxpayers it's meant to serve.
A recent Government Accountability Office (GAO) report states:
"Because of concerns that competitive bidding may prompt suppliers to cut their costs by providing lower-quality items and curtailing services, ensuring quality and access through adequate oversight is critical. Limiting the number of suppliers could potentially affect beneficiaries’ access to quality items and services if there are an insufficient number to meet their needs. For some beneficiaries, having a choice of suppliers for some items and services could be important."
Given CMS' track record of oversight in paying fraudulent providers, I think we can all agree that NCB will only dig a deeper grave.
Limiting the number of suppliers by cutting reimbursement will lead to poor quality and less service. Limiting the number of suppliers by requiring them to be accredited will lead to reduced costs to the government, higher quality products, and a level of service the patients deserve. The requirement that all HME providers be accredited is the one positive step CMS has taken to cut its costs. Accreditation will not only help eliminate many of the fraudulent providers, but it will also bolster the reputations of those who pass, and give patients some comfort in knowing that they are using a legitimate provider for their equipment and services.
The National Competitive Bidding program is a train wreck, and Congress needs to clean it up and get it off the tracks. CMS needs to make positive changes within itself to reduce costs and increase efficiency. By shifting the blame to others for its failures, CMS will put thousands of patients at risk by taking away their choice and forcing them into a Wal-Mart healthcare system.
From Annandale, VA, 06/25/2008
This is an incredibily biased, misleading piece.
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