BALTIMORE — The Centers for Medicare and Medicaid Services hasn't heard the last of Peter Cramton. Nor has Capitol Hill or even the White House. The professor of economics at the University of Maryland — who spearheaded a September letter to Congress signed by 166 economists detailing the flaws of competitive bidding — continues to analyze the program, and he is not encouraged.
In fact, he is so troubled that he has written another letter, this time to CMS. He also hopes to talk again with CMS representatives and said he's "going to talk to others on the Hill and in the administration."
Cramton did an exhaustive analysis of the contract suppliers in each competitive bidding area and product category after the Round 1 bid winners were announced Nov. 3.
He said Friday he is alarmed by what he found: Huge nationals and small independents alike with significant market share and experience in all product categories in all nine CBAs are frequently out, replaced in many instances by unknown providers.
The numbers are scary according to Cramton's report:
- 87 percent of existing providers in mail-order diabetic supplies lost contracts (100 percent in five CBAS);
- 84 percent lost in complex rehab equipment (Group 2);
- 83 percent in standard power wheelchairs and scooters;
- 77 percent in enteral nutrients;
- 75 percent in hospital beds;
- 66 percent in walkers; and
- 56 percent in CPAP.
In the support surface category (Miami only), 98 percent of existing providers lost contracts, the analysis showed. The "best" showing, according to Cramton's analysis, is in the oxygen category, which came out at a 50-50 split between existing and new suppliers.
"They went from very large market share to zero," Cramton said, referring to many providers who had a large presence in the bidding areas.
And who are some of the new suppliers, several of whom are listed by an individual's name? "It's been extremely difficult to ascertain who [the winning] parties are, who owns them, their track record. All these things should be publicly available," Cramton said. He has requested more information from CMS, but as yet, has heard nothing, he said.
"My biggest concern is turning the whole market upside down," said Cramton, noting that the current fee-for-service model with established providers supplying products and services has been hurled out the window. "All of a sudden, we have this bizarre auction. We've got all these new players and certainly it seems, in many cases, that they have little or no experience and have not provided the services anywhere near the level of the existing providers."
Before the rebid contracts were announced, Cramton had already taken his concerns to CMS in person. On Nov. 1, he and Larry Ausubel, also a professor of economics at the University of Maryland and, like Cramton, a well-seasoned designer of auctions worldwide, met with Jonathan Blum, deputy administrator and director of CMS' Center for Medicare. They spent an hour with Blum and his team — some members via video from Baltimore — explaining their concerns with the bidding program.
"Quite naturally, [CMS has] invested a lot in their current approach. So it would be natural that they would be defensive — and they were very defensive," Cramton said of the meeting.
Cramton also said Blum and his team thought it was too late for the economists to bring up problems in the program's design. "I recognized that we were coming in at the 13th hour, but nevertheless, these are serious problems and they need to be fixed," Cramton said.
The economist compared the CMS bidding program to a train hurtling down the track toward a tunnel that is not finished. "It is going to crash into a wall if this is not fixed," he said. "It is a lot more costly to clean up the train wreck than to fix the tunnel … I think CMS would be much better off and the Medicare beneficiaries and the taxpayers would be if they would push forward with innovation with respect to market methods and latest technologies rather than responding to fire after fire, train wreck after train wreck," he added.
But Blum dismissed the economists' concerns. On a media call announcing the bid winners, he told reporters, "The fact that 92 percent of those who were awarded contracts signed gives me confidence in our program design … I believe our model is superior to other recommendations that are out there."
"How could he?" asked a flabbergasted Cramton. "When we see glaring flaws, I think that is something that he should step back and say, 'Maybe we should listen to the experts.'"
Overall, Cramton said of his meeting with CMS, "I was disappointed that we hadn't moved beyond the problems to the solutions." That prompted him to write a follow-up letter to Blum on Nov. 5, reiterating the program's design flaws and expanding on its ramifications.
"It is important that the program be stopped before its Jan. 1 start date to prevent harm to Medicare beneficiaries," he wrote, adding, "Continuing full-steam ahead in light of the problems with the Round 1 (rebid) is counter to the public interest and common sense."
As to Blum's contention that the contract acceptance rate gives confidence in the program, Cramton wrote, "The acceptance rate — 92 percent or otherwise — is a poor measure of performance and certainly inadequate to conclude that the program does not require redesign. The number is extremely misleading, since it is not weighted by supplier capacity nor does it control for supplier experience and quality … The high acceptance rate likely is nothing more than a statement that among the winners, there is a high frequency of 1) small suppliers, 2) desperate suppliers, or 3) fraudulent suppliers."
While there are assuredly high-quality suppliers among the contract holders, Cramton said, they will likely not be able to overcome the program's significant flaws.
"In the short run, CMS may be able to obtain agreement from winning bidders to perform the work. But to deal with below-cost prices, the suppliers will ultimately have to subsidize the contract from other parts of their business, cut corners on quality, not deliver promised supplies or engage in fraud," Cramton predicts in his Nov. 5 letter.
"This is where I am so troubled with the lack of transparency," Cramton told HomeCare. "It is the lack of transparency that prevents people like myself from seeing what is going on and evaluating whether there is a serious problem."
CMS said it will closely monitor the program's success, but Cramton questions the agency's self-monitoring. "CMS has done some evaluations of their program, but the people that did the evaluation are the same people that did the initial design. That's not the right approach," he said.
It comes back to transparency — or the lack of it. Cramton addressed the issue with Blum, he said. "The response from Blum was that they need to keep things secret because of the procurement process. That's just not the case," Cramton said. "There's lots of information that can be revealed, that promotes competition. Generally, the party administering an auction should err on the side of excessive transparency, not excessive secrecy."
The economist said he has not yet heard back from Blum.
"I'm still hopeful," he said. "I'm an optimist ... It's not over. I'm actually quite determined and think that good things happen if one persists."
See Cramton's full analysis of the bid winners.
View more competitive bidding stories.
