VGM Study Says H.R. 3559 Will Not Affect Medicare Savings

Rehab Trends

A study commissioned by The VGM Group has found that H.R. 3559 — popularly known as the Hobson-Tanner bill — will not negatively impact the cost savings that Medicare expects to reap from its impending national competitive bidding plan.

H.R. 3559 — the Medicare Durable Medical Equipment Access Act of 2005 introduced by Congressmen David Hobson (R-Ohio) and John Tanner (D-Tenn.) — seeks to modify Medicare's competitive bidding policy by, among other provisions, exempting rural areas from the program and allowing small DME providers to provide equipment to beneficiaries even if those providers don't submit winning bids.

Dr. Kenneth Brown, a University of Northern Iowa associate professor of economics, conducted the study.

"H.R. 3559, which would allow small businesses to participate in the market without submitting winning bids, will have little or no impact on the recent cost savings estimate for competitive bidding for DME," Brown says. "Overall, I believe this provision will be beneficial to the overall DME market, particularly in terms of product and service quality, without adversely impacting the savings from the competitive bidding program."

Brown points out that because H.R. 3559 would allow qualifying small-business providers to continue to provide DME to Medicare beneficiaries if they submitted bids that are less than the existing fee schedule, fewer providers would try to submit wining bids. But the remaining bidders would still provide significant cost savings for Medicare, Brown says.

Brown bases his analyses in part on an economic and business theory called Bertrand's Oligopoly. The theory states that when losing bidders are eliminated from competing in a market, the remaining (winning) bidders charge prices equal to the lowest possible bid they can accept. Therefore, the process drives prices to the marginal cost level no matter how many or few bidders are participating.

In analyzing the competitive bidding plan, Brown also says that allowing all qualifying providers to supply DME to beneficiaries will motive suppliers to exceed minimum standards so they can retain customers. Reducing beneficiaries' choice of providers, Brown continues, will actually reduce the quality of service, while having more provider choices would improve the quality of service and convenience for beneficiaries.

Brown says 70 percent of Medicare's sought-after $9.9 billion savings from competitive bidding has already been achieved via price freezes and other cuts, but that competitive bidding is still being pushed by the Centers for Medicare & Medicaid Services (CMS). "One must wonder if the costs of implementing this program (competitive bidding) and the costs to the industry, especially the small business, justify its implementation," Brown says.

Mike Mallaro, VGM's CFO, says "We asked Dr. Brown to take a thorough look at the implications of H.R. 3559 and give us his opinion on its impact. He reached a clear and definitive conclusion that this bill has little or no impact on government saving, and it results in better product and service quality. VGM has believed all along that the best HME market is one where providers compete daily on quality and service, and all willing, qualified providers are allowed to serve people in need of medical equipment."

What Will H.R. 3559 Do?

What Will H.R. 3559 Do?

The Medicare Durable Medical Equipment Access Act of 2005 — H.R. 3559 — is commonly referred to as the Hobson-Tanner bill after its sponsors, Congressmen David Hobson and John Tanner. While H.R. 3559 will not eliminate competitive bidding, it seeks to make the following changes:

  • Requires that quality standards are in place before competitive bidding begins.
  • Restores appeals rights to providers participating in competitive bidding.
  • Exempts rural areas (metropolitan statistical areas with fewer than 500,000 people) from competitive bidding.
  • Requires the secretary of Health and Human Services to conduct a comparability analysis before the secretary can take a low winning bid from any area of the country and apply that same bid price to other areas of the country.
  • Requires the secretary of Health and Human Services to prove a cost savings of 10 percent or more for any product prior to being able to include it in competitive bidding.
  • Allows qualified small providers to continue to supply DME to Medicare beneficiaries, even if the small providers do not win the bid (also called the "any willing provider" provision). A small provider would be defined as one with annual sales of less than $6 million per year, but who meets the required quality standards and submits a bid that is less than the existing Medicare allowable.

Improve H.R. 3559's chances of becoming a law by contacting your representative in Congress and urging him/her to co-sign the bill. Pride Mobility Products' Web site — — features a letter that can be downloaded and presented to your clients and customers to sign. Then you can send or fax the letters to the appropriate representative to let them know where their constituents stand on H.R. 3559 and competitive bidding.

This article originally appeared in the October 2006 issue of Mobility Management.

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