Medicare says medical equipment costs down under pilot program in San Bernardino

Esta Smith, Esta Willman's mother, helps her daughter clear files in October from the now-closed Medi-Source Equipment & Supply Inc. in Yucca Valley. The Willmans say competitive bidding drove them out of business. (Lauren M. Whaley/CHCF Center for Health Reporting)

This story was originally published on January 1, 2013 in the San Bernardino County Sun and several other Los Angeles newspaper group newspapers.

A two-year Medicare cost-cutting experiment in San Bernardino and other areas has been wildly successful, officials say, reducing the price of certain medical equipment by 42 percent and saving the government and taxpayers more than $200 million nationwide.

Those savings, however, have exacted a cost, say some local suppliers,  forcing them to close their doors while rewarding large out-of-area companies that finance lower prices through bigger volume.

Medicare officials launched the new competitive bidding program in nine areas around the country, including parts of San Bernardino and Riverside counties, in 2010. Under the program, medical supply firms for the first time had to bid for the right to continue selling certain pieces of equipment to Medicare recipients.

Before the program was introduced, beneficiaries could pick any supplier from which to purchase their equipment; Medicare used a fee schedule to reimburse suppliers. Officials say under the old fee schedule, for example, suppliers were allowed to bill Medicare an average of $2,080 for an oxygen concentrator. Competitive bidding has now made that average contract price $1,395. Seniors, who pay about 20 percent of the cost, now pay about $279 instead of $416.

For 18 years, Esta Willman and her husband Steve ran Medi-Source Equipment & Supply Inc., a medical supply firm in the high desert town of Yucca Valley, near Joshua Tree. They sold medical devices to San Bernardino County seniors, about 65 percent of whom were Medicare patients.

Under the new program, the Willmans bid and won contracts from Medicare to sell oxygen and power wheelchairs. But almost exactly two years after securing the contracts, the Willmans have liquidated their assets and closed their doors. They said the two contracts were not enough to keep the lights on and the delivery trucks running.

“I’m leaving a community I’ve been in for 30 years, leaving a home I’ve been in for 24 and leaving a business I’ve been in for 18,” said Willman, who just moved in November with her husband to Visalia to accept a job at a skilled nursing facility.

“That’s wonderfully ironic,” said Michael Reinemer, Vice President, Communications and Policy for the American Association for Homecare. “If you win the bids and you still can’t keep your doors open, what does that say about the program?”

Reinemer cited nearly 40 Southland medical supply businesses that have been forced to close or sell since the program started. The Willman family business is the “tip of the iceberg” nationwide, he said.

“We estimate that several hundred home medical equipment providers have gone out of the business of serving Medicare patients,” he said. “This is not an overnight change but rather a slow-motion trainwreck.”

But the agency remains convinced of the program’s success and now plans to roll out a similar competitive bidding process in 91 more areas across the country later this year. Much of California is included in the expansion. Medicare officials project savings of more than $42 billion nationwide - $17 billion of that for seniors themselves - over the next decade.

“You can’t argue with a program that increases quality, guarantees access and reduces costs both for the taxpayers and for the beneficiaries,” said David Sayen, regional administrator for the Centers for Medicare & Medicaid Services (CMS). “I can’t think of an attribute that I would want to add to a health reform strategy that isn’t in this program.”

CMS also notes that suppliers close their doors for a variety of reasons, “including an owner’s retirement, a sale of the business, a merger, inability to compete with more efficient competitors, general economic conditions, referral agent preferences, and contracts with other government agencies,” said spokesman Jack Cheevers.

The agency reports that 51 percent of contracts were awarded to small businesses. Industry groups say small businesses made up a much bigger piece of the original pie.

Yet, even if a business did close because it did not win enough contracts, some experts say this is a necessary part of curbing costs.

“Now, the people who are going to lose are potentially going to be small suppliers, sort of mom and pop shops, that really aren’t that competitive,” said Jeff McCombs, University of Southern California health economist who worked on a competitive bidding plan for the government in the late 1980s.

McCombs said it is not the government’s job to keep small businesses afloat.

“Is there any reason why Medicare should continue to buy stuff from inefficient providers?” he said. “Is it like mom and pop stores have a constitutional right to exist based upon the federal government being stupid? No. The answer is no.”

But boosters in San Bernardino, where the city declared bankruptcy in 2012, worry that such closures will further the disintegration of the community.

“It’s businesses that provide jobs, it’s businesses that make the whole country run,” said Judi Penman, president and CEO of the San Bernardino Area Chamber of Commerce. “We need to provide jobs for people. You need those small businesses to survive so that they can provide jobs and increase the economy.”

Medi-Source’s Esta Willman worries that when businesses like hers go under, seniors will suffer. She served some of the same homebound elderly patients for years, people who needed wheelchairs tuned up and oxygen concentrators delivered. And even now, a few months after Medi-Source closed, Willman is still receiving voicemails from seniors wondering where to get their hospital beds, wheelchairs and walkers.

She said her family business provided more than what comes in the box with the piece of equipment.

“We’ve seen oxygen drop-shipped FedEx to patients’ homes,” she said. “Now what happens when their equipment malfunctions, the power goes out, what happens in the middle of the night? Are they gonna be within a one to two hour turnaround? I don’t know how a company in Florida does that for a patient in California.”

Willman said that, at its core, the issue is bigger than her business.

“It’s this ripple effect that happens that affects our employees, that affects the tax base for our community, it affects the patients that we serve,” Willman said. “Eventually service to that community will be restricted.”

Medicare’s Sayen said that under the new scheme every service area will have at least five suppliers for any given piece of equipment.

Sayen said patient satisfaction has not declined under the program. CMS reports that in 2011, out of 2.3 million beneficiaries in the nine test areas, it received 151 complaint calls that could not be resolved by a call center operator.

Opponents say that is a major underestimation.

Industry groups support a bipartisan bill that, if adopted by Congress, would replace the current bidding program.

American Association for Homecare’s Reinemer said the proposal would require bidders to put up money, binding them to the bids, unlike the current system where bidders can walk away if they change their minds. Reinemer said that the proposed alternative would save Medicare the same amount of money.

“We are proposing a solution,” Reinemer said. “A better bidding system that saves the same number of dollars but without dismantling the nation’s infrastructure for providing home-based care and medical equipment.”

In 2010, The Center partnered with the San Bernardino County Sun and KQED Public Radio to report a series of stories titled "Medicare testing grounds" that examined Medicare's pilot program in San Bernardino and Riverside counties. This is a follow-up report on the program.

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Lauren M. Whaley

Freelance journalist Lauren M. Whaley is a photographer, radio producer and print reporter specializing in topics related to mental illness, reproductive health care and health disparities. She is also a childbirth photographer.This year, She is working on a series about how low-income parents access care for perinatal mental illnesses. The project is funded in part by the Rosalynn Carter Fellowships for Mental Health Journalism.She was a 2016-17 Knight Science Journalism Fellow at the Massachusetts Institute for Technology.Her work has been recognized by the Association of Health Care Journalists, the Scripps Howard Foundation and the Public Radio Exchange (PRX) STEM story project. She has contributed radio, video, photography and written stories to KQED Public Radio, Southern California Public Radio, the San Jose Mercury News, the New York Times and other media outlets. For six years, she worked as the Center for Health Reporting's multimedia journalist. She is a past president of the national organizationJournalism and Women Symposium (JAWS) and spent her early 20s leading canoe expeditions for young women, including a solo-led 45-trip in the Canadian Arctic. She is based in Los Angeles.

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