Pay up, or Grandma gets it: the perils of Medicare reform

By Jeffrey Young
How hard will it be for President Obama to fulfill his campaign promise to reform the health care system by the end of the first term? The answer, of course, is "very." In large measure, this is because reform requires trade-offs and nobody's volunteering to make them. When the ball gets rolling, look for Big Insurance, Big Pharma and their ilk to push back the hardest against reforms that threaten their bottom lines (or even their entire business models). But let's not forget Big Durable Medical Equipment Suppliers. A little obscure, I know, but bear with me. Starting in 2007, the federal agency that runs the Medicare program started implementing a congressionally mandated new competitive bidding process for durable medical equipment, known in Medicare circles as DME. As of July 1, 2008, suppliers in 10 metropolitan areas were supposed to be subject to the bidding process and only winning bidders could provide supplies to the lucrative Medicare market. The program was to phase in nationwide over several years. Compared to overhauling the entire health care system, this was small potatoes. Only it never happened. The DME industry's mounted a lobbying campaign, resulting in an 18-month delay of the bidding program. I covered their lobbying efforts pretty extensively. In the process, I learned that rearranging even a relatively small corner of the health care market can be very, very hard indeed. 

The concept behind the DME competitive bidding program was simple: If suppliers of oxygen tanks, power wheelchairs, canes, diabetes test strips . . . etc . . .  etc . . . etc . . . were forced to submit bids to offer their wares to Medicare beneficiaries on a regional basis, the government would save money. 

The impetus behind this program was also simple: a federal audit in 2006 concluded that Medicare was grossly overpaying for these products. Noticing that Medicare spending on durable medical equipment was skyrocketing (and not knowing why) the auditors dug down into the numbers. 

They started, cleverly enough, with prices. For example, they compared the Medicare rate for oxygen tanks to the retail price. The result? Medicare paid $7,215 to rent this equipment, when comparable devices were available through internet vendors for $587. No, that is not a typo. Thus was born the competitive bidding program. 

The Bush administration said it would reduce government spending on durable medical equipment by 26%. DME companies, including heavyweights like Invacare and Lincare, went to war to stop it. They had lots of complaints, chief among them was the fact that the auditors' report did not account for their costs to service the equipment they rented or sold.

Of course, in grand lobbying fashion, they also griped about the bidding process, griped about the bidding process, said the prices would end up so low they would go out of business, and issued dire warnings about grandmas choking for breath while their oxygen tanks went unfilled. And in grand lobbying fashion, lawmakers were swayed by their efforts. Though they did extract a tribute of sorts, in the form of a 9.5 percent cut in Medicare fees for the equipment, Congress delayed the competitive bidding program, which died on the vine. 

Despite near-universal recognition on the part of Congress that Medicare spends too much on this equipment, legislators found they just could not stomach the political or economic disruption that would result from market intervention. Congress-the same folks charged with translating Obama's health care platform into legislation-blanched at taking a tiny baby step towards tackling rising health care spending in this one small area of our massive healthcare market. Rinse and repeat with insurers, doctors, nurses, and pharmaceutical companies, and you've got some idea of the herculean task facing Obama and his allies if they want to get serious about health care reform.

Jeffrey Young is a staff writer at The Hill.

This article available online at:

http://www.theatlantic.com/business/archive/2009/01/pay-up-or-grandma-gets-it-the-perils-of-medicare-reform/72/