Serving Medicare patients with walkers, diabetes supplies and other durable medical equipment has been a cornerstone of Bill Griffin’s Charlotte, North Carolina business for nearly 30 years.

But now the only equipment Griffin Home Health Care offers Medicare patients is oxygen supplies. That was the only product category Griffin won under a new competitive bidding program launched in January. Griffin concedes that the rule changes have cost him some business and he’s also had to cut staffing. But he says the bigger impact is on patients. Griffin has turned away longtime clients seeking anything besides oxygen supplies, sending them to other providers. Some of those bid winners are out of the region, even out of state– too far for a provider to conveniently connect with a patient to meet a medical equipment need.

“It’s just frustrating for the Medicare beneficiaries that they have to go somewhere else,” Griffin said.

Charlotte is one of the first cities in the country implementing Medicare’s new competitive bidding program for suppliers of durable medical equipment, or DME. Included among the other nine first round markets are Cleveland, Dallas-Fort Worth, and Miami-Fort Lauderdale. North Carolina’s Research Triangle is scheduled for a later round.

Medicare spends more than $8 billion a year buying durable medical equipment for Medicare beneficiaries. The competitive bidding program being phased into select markets was established by the Medicare Modernization Act of 2003. It aims to cut those annual costs, which are borne by taxpayers.

Competitive bidding is replacing asystem that relies on a fee schedule to determine what Medicare pays for equipment. Ellen Griffith, a spokeswoman for the Centers for Medicare & Medicaid Services, or CMS, said that the 1980s-era schedule was too far out of date — meaning the prices CMS pays are higher than necessary. The outdated prices have Medicare paying three to four times more than what pharmacies or retail stores currently charge for the same equipment, she said.

“From a taypayer standpoint, that doesn’t make sense,” Griffith said.

Under competitive bidding, DME suppliers in each market bid what they will charge for equipment in specified categories. The bid winner becomes the Medicare supplier in that market. CMS said that a two-week test of the program in 10 markets in 2007 resulted in projected savings of 26 percent compared to the Medicare fee schedule. For DME suppliers, that amounts to a 26 percent cut in prices. CMS projects that the new bidding program will save more than $17 billion in Medicare expenditures over the next 10 years.

Equipment providers claim the bidding program is flawed. Griffin has voiced his concern about the program to Congress. Here is his February 11 testimony before the House Committee on Small Business:

Beth Bowen, executive director of the North Carolina Association for Medical Equipment Services, or NCAMES, says that some of the bid winners are not legitimate equipment providers. Some of them are not in the region where they bid, leaving it up to the patients to figure out how to get the equipment from a distant provider because Medicare won’t pay for supplies from the local company they’ve been using for years. Bowen adds that patients who need equipment falling in more than one equipment category are further burdened by the new rules. Before, patients could have all their needs met by one supplier. Now, in order to secure equipment from bid winners, patients must make multiple trips to multiple vendors.

“That’s not exactly efficient access,” Bowen said.

CMS’ Griffith disputes such claims. She says the agency has heard no complaints from Medicare beneficiaries regarding equipment access, nor have there been any concerns raised about patient health being adversely affected by the new bidding program. “We’re not seeing the (patient) problems,” Griffith said. “We are seeing a lot of suppliers who are not happy.”

While it may be early to assess the patient impact and cost savings, it’s hard to dispute that out-of-state companies are winning Charlotte bids. A search on the CMS website shows competitive bid vendors serving Charlotte include a number of out-of-state vendors. A search for suppliers of walkers and related supplies turned up a bid winner from Florida; a search for power wheelchair vendors turned up a Connecticut company.

DME suppliers in North Carolina and around the country have marshaled support from some lawmakers who introduced legislation to rescind the competitive bidding program. House Bill 1041, the “Fairness in Medicare Bidding Act,” was sponsored by two Pennsylvania Congressmen, Republican Glenn Thompson and Democrat Jason Altmire. It has a bipartisan slate of 53 cosigners, including several members of the North Carolina delegation. Griffin says rather than competitive bidding, CMS should provide a list of the prices it will pay for certain equipment. Vendors who don’t like those prices wouldn’t have to sell to Medicare patients, and beneficiaries would still be free to choose from a number of providers.

CMS has no official position on federal legislation but perhaps the agency sensed that further changes could be in store for the bidding program. Roundtwo of competitive bidding was scheduled to launch on Jan. 1, 2013, in 91 markets. CMS this week announced it would postpone the second round launch until summer 2013.

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