A classic healthcare-lobbying story is in the making—a shootout between the government and the medical device industry over cost containment in Medicare, the $508 billion program that the pols have been telling us costs too much. Most of the media, except for a few alert trade publications have been snoozing on this one. And it’s a fascinating tale that gets to the heart of the problem in American healthcare—what to do about its high price.
Medicare, it seems, is trying to do something about costs, this time by reducing what it pays for test strips and other supplies that diabetics use to monitor their blood sugar. This is big money we’re talking about. A fine story by Andrew Wang in Crain’s Chicago Business reported that global market for blood meters, testing strips, and lancets has grown from $6.2 billion ten years ago and is expected to reach almost $11 billion in 2017. It’s also big bucks for Medicare, which covers these items as part of its standard benefit package.
That’s why Medicare has proposed buying them through a competitive bidding process, with beneficiaries getting their supplies through mail order suppliers just the way insurance companies push policyholders to buy their drugs through the mail as a way to lower the costs. Suppliers will submit bids to provide products for diabetics—as well as other “durable medical equipment,” such as hospital beds and oxygen supplies—at a lower price than what Medicare now pays. Medicare will then use these bids to set the price it will pay. Companies with the winning bids that meet Medicare standards will become Medicare’s suppliers. (If seniors don’t want to receive supplies at home, they can go to any local store that’s enrolled with Medicare and buy their supplies.)
Medicare estimates this new way of getting supplies will save $25.8 billion for the program—not exactly pocket change. And it would save about $17 billion for beneficiaries over the next ten years. Even though Medicare covers diabetes supplies, beneficiaries still have out-of-pocket costs, since Medicare pays 80 percent of its allowable charge leaving beneficiaries or their Medigap carriers to pay the 20 percent coinsurance. If a supplier does not accept Medicare’s payment as payment in full, beneficiaries have to cover the remainder. So saving beneficiaries some money is hardly a trivial matter.
But what a stir this proposal has caused in the medical device industry! Conflict! Controversy! And a big push by device makers to roll back Medicare’s rule by July 1, when it’s supposed to take effect!
That’s because lower prices for Medicare and nearly 50 million beneficiaries may mean lower profits for suppliers, and perhaps loss of market share too, since Medicare will be directing consumers away from high-cost providers who may have large shares of the market to lower-cost providers. The industry is not happy about that, and has embarked on a lobbying effort that’s is eerily similar to the health insurers’ successful campaign a few months ago to reverse reimbursement cuts proposed for Medicare Advantage plans. In that instance the lobbying campaign was so successful that Medicare, most likely under political pressure, not only stopped the proposed cuts but gave insurers a raise.
In that case the insurers used an entity called the Coalition for Medicare Choices, a phony grassroots group that AHIP, the insurers’ trade association, calls into action when it needs letters sent to Congress from Main Street to bolster its legislative agenda. In this new lobbying effort, the medical-supply industry is using the Diabetes Access to Care Coalition, “a collaborative effort of patient advocates, providers, suppliers, and manufacturers of diabetes testing supplies that is committed to ensuring that Medicare beneficiaries with diabetes mellitus maintain access to high quality products and services through avenues of their choice.”
The group sprang into action a few years ago in response to Medicare’s first round of competitive bidding for medical equipment products, which began in 2011 in nine regions. Medicare says that pilot reduced the costs for supplies by an average of 42 percent for Medicare patients. The second round—the one set to begin July 1—will expand the program to 91 metro areas.