MECHANICSBURG, Pa.--A new study by two economics professors at Robert Morris University in Moon Township, Pa., blasts the underpinnings of Medicare's competitive bidding program, saying its implementation will result in "substantial market failure," at least 21,000 lost jobs and prices that spiral up instead of down.

The explosive study, released last week, spurred the American Association for Homecare on Friday to send a letter to Department of Health and Human Services Secretary Michael Leavitt urging him to suspend the implementation of round one of bidding.

The study also encouraged discouraged providers.

"We feel it is the first glimmer of hope we have in this effort to stall round one of competitive bidding," said Chuck Blackburn, chairman of the board of directors and past president of Blackburn's Pharmacy in Tarentum, Pa. "We hope it is being sent to every member of Congress, and we hope it falls into the hands of people who will read it seriously."

In their study, "The Impact of Competitive Bidding on the Market for DME," Brian O'Roark, PhD, and Stephen Foreman, PhD, JD, MPA, say CMS might see some short-term benefits from competitive bidding, such as initial price cuts and the ease of regulating fewer firms.

However, they conclude, "In the long run, the bidding scheme will have traded a competitive market for a government-mandated concentrated market. As a result, we will have traded small, short-run benefits for major, long-run problems--poor public policy indeed."

Commissioned by the Pennsylvania Association of Medical Suppliers, the study was two months in the making, said John Shirvinsky, executive director of PAMS.

"This wasn't a study where we directed them in what to do and what to say," he said. "We just threw it out there and said, 'Tell us what you think.' They came up with ... a compelling document [that says] CMS' competitive bidding program is an anti-competitive scheme.

"The competition that exists is not pricing," Shirvinsky added. "It's quality of service, proximity to the people we serve ... the elderly, people who have a difficult time getting around, people who need us for mobility purposes, people who, in some cases, need these services for life itself."

But competitive bidding will not allow the quality of those services to continue, Foreman said upon the release of the study.

"The limits on competition that CMS is proposing to implement will have great potential to produce higher prices and lower service quality," the study co-author said. "The franchise bidding process that CMS is implementing is at odds with everything that we know about markets, efficiency and incentives. We should be encouraging added competition in the market, not limiting it. Limits on competition like those proposed by CMS rarely, if ever, make consumers better off."

Study Refutes CMS Claims
Its supporters said the study blows CMS' main contentions about competitive bidding out of the water. CMS has presented the program, the first round of which is set to be implemented in July, as one that will cut rising Medicare costs for durable medical equipment, rein in fraud and abuse and result in a more efficient market.

The study, however, refutes those claims, arguing that:

--Basic economic theory and experience hold that when competition in the market is reduced, prices ultimately escalate. "CMS claims that increased market intervention in DME will produce 'savings.' This contention flies in the face of decades of study, empirical observation and economic theory. Market deregulation--not increased regulation--is more likely to create cost savings, which will lower prices," the study says.

--There is no evidence that competitive bidding will eliminate fraud "or, for that matter, that the level of any existing fraud justifies the increased costs and inefficiency that will occur when the remaining DME suppliers are given market power."

--The market will be severely compromised. "Artificial limits on supply will produce artificial shortages and access problems in the intermediate run (five to 20 years)," according to the study.

Authors O'Roark and Foreman also predict that a minimum of 21,000 jobs would be lost because of competitive bidding. "The disruption will be significant, inefficient and unnecessary," they say.

In addition, the study questions why CMS believes the Medicare rates for DME are too high. "It is strange why CMS has determined that there is a problem with DME spending when CMS fixes DME price[s]," O'Roark and Foreman say in a footnote.

As well, the pair question why CMS is targeting home medical equipment at all. DME comprises only 1.3 percent, or $24 billion, of CMS' nearly $2 trillion Medicare budget, they note. DME spending increases averaged 4.4 percent during the past five years, while hospital and physician care grew by 8 percent and prescription drugs by 11 percent.

"Based on these figures, a case could be made that spending for medical equipment and supplies in the U.S. is not a problem at all," Foreman and O'Roark say, adding: "CMS would be better advised to concentrate on rapidly escalating costs for administration of health insurance, for hospital care, for physician care and for prescription drugs rather than exerting resources and political capital on such a small part of the health care cost equation."

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