Independent Study Predicts Competitive Bidding Program Will Hurt Beneficiaries

A new study funded by the VGM Group and conducted by an economics professor questions the need for a Medicare competitive bidding program for DME, and goes on to predict that Medicare beneficiaries will be harmed by it.

Brian O’Roark, Ph.D., a professor at Robert Morris in Pittsburgh, authored “The Impact of Competitive Bidding on the Market for DME – An Update,” which VGM released this month. In 2008, O’Roark conducted a study of the original competitive bidding program, which lasted for two weeks in July 2008, until the Medicare Improvement for Patients & Providers Act (MIPPA) halted it.

In discussing the Centers for Medicare & Medicaid Services’ (CMS) revamped competitive bidding program, O’Roark begins his new report by questioning the very need for the program.

“In fact, the implementation of a so-called ‘competitive’ bidding program has all the makings of destroying the only component of the DME market that is competitive,” he notes. “In essence, CMS has already dealt with the concern over what they see as unsatisfactory prices. Since CMS sets the reimbursement rates for Medicare patients, the price issue should be off the table.”

Because CMS sets DME allowables and therefore has leveled the reimbursement playing field, O’Roark says DME suppliers can currently distinguish themselves from competitors by providing superior customer service. Competitive bidding, however, would destroy that patient-centric model.

“A continuation of the bidding plan will prevent this from being possible, and is likely to lead to a decrease in social welfare -- a typical goal of public policy that seems to be ignored by CMS,” O’Roark says.

He goes on to say the competitive bidding program is actually a franchise bidding program: “Firms are acting in a competitive fashion to acquire the governmentally protected right to provide medical equipment to a given geographical area. Thus firms are competing for a franchise.”

O’Roark says that such franchises have the potential to become monopolies, which wouldn’t work in this industry because “the market for DME is not one in which natural monopoly characteristics are evident.” Among the reasons that DME wouldn’t function well in a monopoly model, O’Roark says, is that fixed contract pricing would not be flexible enough to accommodate changes in factors such as new technology, consumer demand or inflation.

With DME, he contends, market competition would be more effective than competitive bidding in keeping prices down for Medicare.

Long-term, fixed-price competitive bidding contracts with CMS, O’Roark warns, could force some suppliers to shut down their businesses, thus leaving fewer available suppliers to provide services and to participate in future competitive bidding programs.

And reducing DME provision to a “lowest-bid” model, O’Roark says, would encourage “adventurous” bids so low they cannot be honored or sustained by winning suppliers. He also predicts that beneficiaries will suffer as winning suppliers reduce their service component to try to keep costs as low as possible.

Mike Mallaro, VGM’s CFO/CIO and president of Last Chance for Patient Choice – the non-profit organization that sponsored the study – said, “O’Roark’s independent analysis of the so-called competitive bidding scheme devised by former Congressman Bill Thomas and pushed forward by CMS bureaucrats exposes many of its fundamental flaws. Limiting beneficiary access, arbitrarily reducing the number of suppliers, and picking winners based only on price is bad health-care policy.”

About the Author

Laurie Watanabe is the editor of Mobility Management. She can be reached at

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