WASHINGTON--The rebate program proposed under CMS' draft competitive bidding rule for Medicare DME has the potential to induce fraud and should be eliminated, the Medicare Payment Advisory Commission told CMS.

"Although the goal of sharing potential provider profit with the beneficiaries is laudable, it is preferable to obtain the best price through competition, not through a rebate," MedPAC wrote in a June 28 letter commenting on the rule.

Under the proposed competitive bidding rule (see HomeCare Monday, May 1), winning suppliers that bid below the payment amount set by CMS have the option of offering beneficiaries a rebate, representing the difference between their bid amount and the Medicare payment. If a provider decides to offer a rebate for any item, it must be given to all beneficiaries--but a provider cannot advertise that it is offering a rebate.

"A rebate program will complicate the design and administration of the program and possibly induce additional demand for DME, as well as raise the risk of fraud and abuse as noted in the proposed rule," wrote MedPAC, which advises Congress on Medicare policy.

"If beneficiaries' cost-sharing were reduced or eliminated, demand for DME may be induced (allowing a beneficiary to be paid to purchase DME if the rebate exceeded cost sharing would be even worse)," the commission continued. "Demand could be channeled to more expensive substitute items if rebates made those items less expensive for the beneficiary. Induced demand and item substitution could increase rather than decrease Medicare spending."

Also in the letter to CMS, MedPAC recommended:

• eliminating an automatic payment update. In the draft rule, CMS proposes that item prices be increased annually over the three-year life of the contract using the Consumer Price Index for Urban Consumers. If the annual inflation update is frozen, it is possible for prices to rise faster within the competitive bidding areas than in other areas using the fee schedule.
• expanding criteria for the ranking of metropolitan statistical areas. In addition to ranking MSAs on the total number of DMEPOS suppliers, CMS also should consider the number of suppliers of constituent categories of DMEPOS, for example, oxygen supplies or hospital beds. If there are enough suppliers to support competition in each of the constituent markets within an MSA, it should be included in the competitive bidding process.
• defining competitive bidding areas to be equal to MSA boundaries for the first round of MSA selection. The draft rule proposes that competitive bidding areas could be equal to MSAs, larger than MSAs or smaller than MSAs.
• clarifying how physicians will provide DME in competitive bidding areas. The self-referral law that prohibits physicians from supplying most DME items seems to conflict with the rule's requirement that all bidders must bid on all items within a category of DME. MedPAC suggests that CMS allow physicians to continue to supply a limited range of items and not require them to bid.
• accepting bids that include some items with prices above the current fee schedule as long as the total bid would result in lower spending. "Allowing this variation is likely to give CMS the most accurate price signals for both over- and under-priced items," MedPAC said. Also, "if the bidders are not permitted to bid a higher price for items that cost them more to supply than the current fee schedule allows, then they will not offer the program substantial discounts on the items that are currently priced too high."

In the letter, MedPAC also stated its support for DME competitive bidding. "By giving suppliers an incentive to offer prices close to their costs, competitive bidding has the potential to give CMS better price signals for rate setting and to improve the value of beneficiary and program spending," the commission wrote.

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