Quest for low prices in Medicare alarms suppliers

YUCCA VALLEY - In the new age of Medicare, Esta Willman would seem like a winner.

The small medical supply firm she co-owns with her husband just won two prized contracts to provide oxygen and power wheelchairs to Inland Empire seniors.

That places her on the front lines as Medicare embraces large-scale competitive bidding among suppliers in hopes of slashing medical equipment costs for the elderly and taxpayers alike. The program is scheduled to roll out Jan. 1 in nine regions nationwide, including west San Bernardino and Riverside counties, and is due to spread to 91 more regions by 2013.

Yet even with two lucrative contracts in hand, Willman, 46, says she feels like a loser.

"I'm fully prepared for bankruptcy," she said. "Isn't that terrible?"

But she vows to find new customers and keep the doors open at Medi-Source Equipment & Supply Inc., the Yucca Valley firm she and her husband have run for 16 years.

Medi-Source is lodged in a strip mall on Twenty-Nine Palms Highway, more than 3,000 feet above sea level near Joshua Tree National Park. The seven employees include Willman's mother, who handles accounts receivable.

Although the staff has won two Medicare contracts, they lost four more, meaning that other vendors will likely be delivering the hospital beds, walkers and sleep apnea devices that Medi-Source now rents or sells long-time clients in the Morongo Basin. The share of their firm's income from Medicare - now 60 percent to 65 percent - is about to shrink significantly.

"I don't know why anyone would get into this business at this point. Medicare is making it just not profitable," Willman said.

She is not alone. Suppliers interviewed at random in the past three weeks in San Bernardino County expressed qualms about the new bidding program. Some fear that their firms, too, will falter or fail. Some firms are bowing out of Medicare altogether.

Medicare officials say that the nation has an over-abundance of equipment companies, in part because prices based on a 1980s fee schedule do not reflect advances in technology that have lowered the costs of many items.

Suppliers counter that the new, lower prices leave little or no room for their basic administrative expenses. They suspect that some firms submitted impossibly low "suicide bids" in hopes of garnering contracts. Many local firms already know they won contracts, but Medicare has not yet made public the list of successful bidders.

To no one's surprise, the program was a hot topic last month when the board of the California Association of Medical Product Suppliers convened at a hotel in Irvine.

Some board members broke into laughter when a reporter asked how many of them had won bids. Those who lost in the bidding may be the lucky ones, they said.

"The winners are the losers," one member quipped.

Long-time local firm Gemmel Pharmacies and Wellness Centers chose not to bid. Gemmel's is a rarity, operating nine pharmacies in four counties in an era when CVS, Rite-Aid and Walgreens have spread their reach and many local drugstores have shut down. It has served generations of residents, and its staff knows many customers by name.

But the 80-year-old company based in Ontario would have a hard time competing with large national chains that are rumored to have entered the fray, said Joe Hernandez, who manages Gemmel's equipment supply business out of its pharmacy on Euclid Avenue.

"They buy a trainload of something, and we can only buy two or three of an item," said Hernandez.

He is also troubled by the program's complexity and is taking a wait-and-see attitude.

AFA Consulting Co., another Ontario-based firm, submitted bids to provide wheelchairs, walkers and other items. AFA currently serves the Inland Empire.

Now office manager Nikey Okoegwale is waiting to hear Medicare's decision, but is wary of how the program will work.

The timing is poor, she said, "especially considering there are no jobs and the economy is so crunched."

Back in Yucca Valley, Willman couldn't agree more. She pulled up a chair to her desk and scribbled numbers in the margins of equipment orders. The numbers just don't add up, she said.

Medi-Sources' two new contracts mean she can deliver oxygen and chairs to Medicare recipients across a wide swath of desert, mountains and suburbs, from Barstow to Palm Springs, and from Temecula to the Los Angeles County line. But that means more driving time, more gas consumed, more wear and tear on her one truck and three delivery vans.

She will try to recoup some money by subcontracting with firms that won contracts for beds and other devices, she said.

Willman has emerged as a leader in the suppliers' fight, starting in 2008 when Medi-Source didn't win a single contract in the first bidding round. She sought support from Rep. Jerry Lewis, R-Redlands, and was named to a national panel reviewing plans for the current bidding process.

Now she's hoping the program will be postponed and is encouraged by a letter that 166 prominent economists delivered to a high-level congressman last week questioning if the bidding will really work.

"If our administration officials and our legislators are responsible," she said last week, "they will at least pause and reflect on what's going to happen."

Center Staff Writer Lauren M. Whaley contributed to this article.

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