Thursday, April 19, 2012

The Market Works (when properly structured)

Today's Managing Heath Care Costs Indicator is $42 Billion

Durable medical equipment has been a conundrum for Medicare for decades; cable tv ads for scooters give us a sense of the profit margin in this space.   In many states, including Florida and Louisiana, fraud in home care and medical devices is a substantial underlying cause of high costs.

The New York Times and others report today that a pilot program requiring durable medical equipment vendors to bid to provide services to Medicare beneficiaries has been a big success.   This is a bold move -- restricting Medicare beneficiaries to a small number of suppliers who guarantee service levels and price.   No surprise that there has been robust opposition, including a congressional ban on this bidding that was reversed by the Affordable Care Act.  It's a bit distressing to see those promoting market forces opposing this program.  Small, local, high-cost providers will advocate to maintain their business and their profit margins.

The program in nine cities shaved costs by 42%.  CMS projects that nationwide savings from expansion of this program could reach $42 billion, including over $17 billion in decreased out of pocket costs for Medicare beneficiaries.   (Initial pilots probably focused on geographies with high costs, so savings rates from expansion will be lower than from the initial pilots).

Competitive bidding could be applied to pharmaceuticals and other purchasing.   Medicare is a large, high leverage purchaser, and we need CMS to vigorously use its leverage to increase value.  Pharmaceuticals next?  No one will go quietly!

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