Manufacturer Bidding?

The General Accountability Office recently issued a report called “Medicare: Issues for Manufacturer-Level Competitive Bidding for Durable Medical Equipment” requested in 2009 by Rep. Pete Stark, D-Calif., ranking member of the House Ways and Means Committee, Subcommittee on Health. On the same day the report was released, Rep. Stark sent a letter to CMS' Center for Medicare and Medicaid Innovation stating that it “deserves review” as a “cost savings alternative” to how Medicare currently pays for durable medical equipment.

In his original request, Rep. Stark asked the GAO to provide recommendations regarding how to structure such a program. However, unlike in most of its reports, the GAO did not provide any specific recommendations.

Notably, the GAO identifies a series of significant issues that would need to be addressed before any manufacturer bidding program could occur. Given the significant serious hurdles that would be required — particularly the need for Congress to pass a new law giving the Medicare program this new authority, and that such a program would conflict with the current DME bidding program underway — I believe there is little likelihood that the federal government will pursue such a large policy change in the near future.

In its report, the GAO explains how some government and private health care purchasers leverage their buying power to reduce spending on DME by contracting with DME manufacturers or using purchasing intermediaries. The Veterans Administration, for example, requires its medical centers to purchase certain DME items directly from manufacturers through one of three mechanisms.

The GAO also describes how some Medicaid programs contract with manufacturers for DME items. These programs select either a single or limited number of manufacturers to provide a particular DME item, enabling them to leverage their buying power in exchange for price discounts on items the states say require little or no servicing. The report also describes how some group purchasing organizations or third-party administrators negotiate manufacturer pricing.