CMS Shouldn’t Expand Its Broken Competitive Bidding Model

Durable medical equipment (DME) such as CPAP machines and hospital beds helps keep many patients out of expensive nursing home care and in their own homes. Unfortunately, creating the right payment model has long eluded the Centers for Medicare and Medicaid Services (CMS). Disconcertingly, they now plan to expand a flawed bidding process to include urology, tracheostomy, and ostomy supplies that could create even more negative ramification for patients.

But how did we get to this point? In 2011, CMS implemented its current competitive bidding system in response to its failed fixed fee schedule for compensating DME suppliers. This fixed fee system was widely panned as wasteful, outdated, and lacking a logical foundation. Critics included the General Accounting Office (GAO) and the Inspector General of the Department of Health and Human services.

The bidding process CMS ultimately implemented was still flawed. CMS set the winning bid equal to the median (or average) price of all the winning bidders. This “never before seen” bidding process made little sense and created several adverse incentives.

From a patient perspective, the structure biased winning bids toward lower cost and lower quality medical equipment. Often, these supplies were inappropriate and, therefore, reduced patients’ quality of care.

Past bidding rounds were also plagued by supplier attrition and access gaps. GAO found that in prior bidding rounds, dozens of contract suppliers became inactive, leaving beneficiaries without coverage options. The most recent round of competitive bidding (Round 2021) failed to achieve its savings goals due to too few viable bids, leaving a two-year “gap period” in which CMS reverted to the fee schedule.

Due to the failings of the previous competitive bidding rounds, CMS is planning to change its structure when it relaunches the program. While addressing some of the flaws of the previous system, the new process still has some disconcerting problems.

Even more troubling, the revisions will also expand the DME products that will be subjected to the competitive bidding process. CMS should focus on addressing the continued flaws of the system before considering any type of expansion.

When considering expansions, however, CMS should account for the different customization requirements of alternative DME products. It is essential to remember that CMS is not the ultimate user – patients are. Therefore, CMS is only an effective negotiator when the agency’s interests are aligned with patients. This alignment is much harder to achieve for DME products that require wide specification variances. Unfortunately for patients, the revised program expands the competitive bidding process to conditions that require greater customization.

For example, under the proposed competitive bidding model, urology, tracheostomy, and ostomy supplies would be included. But these are clinically managed DME, not off-the-shelf or one-size-fits-all commodities. They are individualized prosthetics designed for specific patients. The competitive bidding process is ill suited to account for the individuality inherent to these medical supplies. Importantly, deviations from patients’ individualized needs can cause infections and potentially hospitalizations.

A potential increase in infections and hospitalizations is particularly alarming because these patients are more clinically vulnerable and less able to tolerate disruptions to their care. Ironically, the greater use of more expensive hospitalizations could overwhelm any potential savings that the competitive bidding process could create.

Applying the competitive bidding process to individualized DME would also discourage technological advances because the bidding process does not reward tailored innovations.

Recognizing their clinical complexity and potential patient risk, Congress deliberately excluded prosthetics such as ostomy, urology, and tracheostomy supplies from competitive bidding in the 2003 Medicare Modernization Act that authorized the competitive bidding process. The proposed expansion would reverse 20 years of bipartisan policy with no new safety data.

Reworking CMS’ competitive bidding process is a necessary and positive change. However, it makes little sense to expand the program’s coverage until there are documented improvements in the program’s operations. Even then, expanding competitive bidding to individualized DME products such as urology and ostomy supplies is a policy misstep.

Doing so endangers patients, undermines innovation, and generates questionable savings