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Quick Pace of Competitive Bidding Program Could Threaten Innovation

Maria Fontanazza

March 1, 2008

3 Min Read
Quick Pace of Competitive Bidding Program Could Threaten Innovation

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CMS's plans to further expand its competitive bidding program aren't going unnoticed by medical equipment suppliers. Some stakeholders view it as a plan that stifles innovation and limits patient access to new technologies.

The Medicare program for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) seeks to give Medicare beneficiaries access to products at a much lower cost. The program was mandated by the Medical Device User Fee and Modernization Act of 2002.

The first phase of bidding began in 10 metropolitan statistical areas (MSAs) last year. Although the bidding has started, payments under the program don't go into effect until April. As a result, groups such as AdvaMed argue that CMS's announcement of the second round of bidding might be too hasty.

“We are deeply concerned that CMS is expanding a program before the first phase has started and the impact on beneficiaries' access to supplies has been evaluated,” according Stephen Ubl, president and CEO of AdvaMed.

The second round of the program extends the bidding to 70 MSAs, including the New York City, Los Angeles, and Chicago regions. The program will be expanded into more areas after 2009.

By the time the program is fully implemented in 2010, it's expected to save Medicare $1 billion each year. Despite the projected savings, there is a feeling in the industry that competitive bidding “undermines the value of certain technologies because the focus is too heavily skewed toward achieving budget savings,” says Ted Mannen, member of Epstein Becker & Green PC (Washington, DC).

Ubl shared a similar sentiment during a press briefing in February. “I cringe every time I hear the proponents of these programs describe them as market-oriented or market-based,” said Ubl. “This really is not eBay; it's a government monopsony, setting all the rules and exercising its market power to monetize certain products. They're not based on the evolution of patient care but based on cost growth.”

Opponents of the program also feel that it hurts companies with annual revenue of $3.5 million or less. “Small suppliers often lack the ability to negotiate lower prices, as well as the physical size to cover an entire bid area,” says Mannen.

CMS puts safeguards in place to protect small suppliers. According to the agency, about 85% of suppliers enrolled in the program are considered small. However, its target number for winning small suppliers, or those that meet bidding requirements, is 30%. “This seems to signal a belief on CMS's part that more than two-thirds of the suppliers participating in the program will be larger in size,” says Mannen.

One of the biggest criticisms of the program is that it limits the amount of suppliers that can provide equipment to Medicare beneficiaries. A supplier cannot distribute competitively bid products in a designated competitive bidding area, unless the product is deemed a winning bidder by CMS. That could discourage investment in innovative products.

“If the competitive acquisition program reduces the prices for DMEPOS products to a point where companies no longer have the ability to invest in additional research and development, some fear that the ultimate burden will be borne by patients,” says Mannen.

AdvaMed, among other stakeholders, has been vocal in urging CMS to postpone the program's expansion into the second round of bidding. The association says the effect of requiring suppliers to compete mainly on price has not been properly evaluated, and it needs to be.

“The fear is that if we leap before we look, the result may be denial of access to products and services that patients genuinely need,” says Mannen.

Copyright ©2008 Medical Device & Diagnostic Industry

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