Study: Competitive Bidding Unsustainable

AAHomecare-backed research shows Medicare reimbursement rates for HME cover only 88% of overall costs for businesses providing equipment and relates services.

• By David Kopf
• Oct 20, 2016

The reimbursement rates for items offered under the competitive bidding program are substantially lower than the costs providers incur in order to offer those products and services, according to a new study released by  the American Association for Homecare, which added that the findings raised serious doubts about the sustainability of the program.

“Analysis of the Cost of Providing Durable Medical Equipment to the Medicare Population: Measuring the Impact of Competitive Bidding,” was performed by Dobson DaVanzo & Associates, which surveyed costs and reimbursement for a wide variety of competitive bid items, and found that, on average, the reimbursement for the products surveyed only covered 88 percent of the overall cost of providing those products after all operational and purchase costs were factored in. The median percentage of costs covered by bidding for a variety of product items covered by competitive bidding can be seen in Fig. 1.

(Link to the full report: http://bit.ly/hmecoststudy)

Fig. 1: Percentage of Provider Costs Covered by Competitive Bidding Reimbursement

DMEPOS Product	Median Percent of Costs Covered
Standard Beds	69.58%
Heavy Duty Beds	90.35%
Liquid Oxygen	86.91%
All Other Oxygen	94.60%
BiPAP with Supplies	91.52%
CPAP with Supplies	67.83%
Walkers	83.88%
Lightweight Wheelchairs with Elevating Leg Rests	82.72%
Lightweight Wheelchairs with Footrest	82.79%
Standard Wheelchairs with Elevating Leg Rests	80.55%
Standard Wheelchairs with Footrests	71.35%
All Products Overall	87.68%

Source: AAHomecare 

“The data are remarkably consistent in showing that the reimbursement-to-cost ratio is significantly less than 100 percent,” said Allen Dobson, Ph.D, one of the study’s authors. “No matter how the data is sliced, by organization size and/or product category, the current reimbursement model does not cover provider costs. That is likely unsustainable over the long term.”

“This study clearly shows that the entire bidding program for home medical equipment is in need of a serious overhaul,” said AAHomecare President and CEO Tom Ryan. “We are nearing a point where this industry will not be able to meet the needs of a growing population of seniors and other individuals with healthcare challenges who want to remain in their homes.  Patients and their caregivers need to be aware of the challenges that lie ahead for them if home medical equipment providers don’t get a sustainable pricing model.”

The report was released right after the Government Accountability Office released its September report on beneficiary access under competitive bidding to the public. The GAO report found that the number of beneficiaries using HME services and supplies fell nearly three times as fast in competitive bidding areas (down 17 percent) as in non-competitive bidding areas (down 6 percent). The GAO reported also highlighted instances of diminished access and delivery delays, which could be contributing to beneficiary hospital use.

(See related story on the GAO report.)

“The new GAO findings are consistent with these study results,” Dobson added. “Taking both of these studies together, it’s evident that the competitive bidding process should be carefully examined and monitored to determine if problems encountered warrant fundamental changes to the program in order to avoid the possibility of severe dislocation to the home medical equipment industry and the patients it serves.”

Dobson DaVanzo & Associates is a health economics and policy consulting firm based in the DC metropolitan area. The firm’s research has influenced the design of demonstrations and public policy decisions, and appears in a various pieces of legislation and regulation

A statement from AAHomecare said the association plans to use the report’s findings to support legislative action on competitive bidding rural relief legislation in the post-election “lame duck” congressional session, and to bolster longer-term efforts to improve the overall competitive bidding system in hopes of securing sustainable pricing and more transparent operations.  

The association thanked the companies that supplied their data for the survey, as well as various individuals who contributed to the report, including the members of the industry Technical Advisory Panel for their input in developing the survey and assessing the results: Steve Ackerman, of Spectrum Medical; Bill Guidetti of Apria; Mark Higley of VGM; James Kirkpatrick of Rotech; Joel Marx of Medical Service Co.; Joey Tart of Family Medical Supply; Gwen Turner of Roberts Home Medical; and Laura Williard of AAHomecare.