In the June 28 Federal Register, the Centers for Medicare and Medicaid Services (CMS) announced the agency will conduct a survey of DMEPOS (Durable Medical Equipment, Prosthetics, Orthotics, and Supplies) companies in the San Antonio and San Marcos area of Texas to see how the competitive bidding demonstration under way in these two areas has impacted beneficiary access, quality, diversity of products, competition, and supplier financial performance. The competitive bidding projects have been opposed by many leading industry organizations, including the American Association for Homecare (AAHomecare) and the American Home Care Association.

However, at least one Texas bed provider. Racinda Vekasy, general manager and co-owner of Choice One Medical, San Antonio, says the project has been a boon to her business. Specifically, her business increased 65% between January and February when the new Medicare bid schedule took effect. Referrals are up, new customers are up, and Vekasy has had to increase her small staff to 12 employees. Her reaction to the competitive bid is not surprising. “We really like the bid [project],” she says.

Choice One is one of 24 companies in the San Antonio area—which serves Bexar, Comal, and Gaudalupe counties—that successfully bid to provide beds under the second demonstration of Medicare’s competitive bid project. The first demonstration was launched in Polk County, Florida, in October 1999. The Balanced Budget Act of 1997 authorizes up to five demonstration projects to limit beneficiary out-of-pocket expenses, improve access to high-quality medical equipment and supplies, test competitive bidding processes in the Medicare program, reduce the price Medicare pays for equipment and supplies, and prevent dealings with fraudulent suppliers.

One of the goals, lowering prices, has already been achieved, says CMS. Beds now rent in San Antonio for $119.26 a month down from $160.17. Medicare patients are required to pay 20% of the rental price.

CMS reviewed bids from suppliers in both Polk County and San Antonio for quality and price. Those who made it to round two then had to furnish additional financial information and referrals. Vekasy says that Medicare officials paid her office an on-site visit during the second phase to review her business records. Choice One participated in the bidding process because Vekasy believed it would give her company an advantage in the market. “We thought it was a good business move,” Vekasy says. “It gave us some exclusivity.”

Much of Choice One’s success is due to the new relationships it has forged with competitors who either did not offer beds or failed to submit a winning bid. Medical suppliers could skip bidding on the items in the Texas demonstration—which included oxygen, nebulizer drugs, hospital beds, wheelchairs, and orthotics—but those who either did not participate or failed to submit an acceptable bid cannot bill Medicare for these items. Because Choice One does not provide oxygen or respiratory equipment, other companies that cater to the bigger respiratory therapy market feel safe referring bed customers to Vekasy’s company. “We’ve been catching some of the fallout,” Vekasy says. “One of the best things that came from it all is [an increase] in communication with our competitors.”

According to Vekasy, her customers have not complained about the new prices or the level of service, which has increased. She has done this as a means to keep a tighter control on inventory—keeping more beds operational and in customers’ homes.

And though things have been rosy for Choice One, many of Vekasy’s competitors, particularly those that provide oxygen, have experienced a flattening or dip in their referral base, she says.

This does not surprise Asela Cuervo, vice president and general counsel for AAHomecare. “There’s no place for competitive bidding in health care,” she says. Cuervo and AAHomecare criticize the bidding process because they believe it keeps prices artificially low and erodes choice and service.

The “jury is out” on the Polk County experience, Cuervo says. But she discounts CMS’s claim that the demonstration was a success. “You can’t take a snapshot and say it’s all okay,” she says.

According to Cuervo, the Medicare bidding process is flawed because it ignores market forces forcing HME providers to take a loss in order to win a demonstration bid. She says that she has anecdotal evidence that many of the Polk County suppliers did not understand the bidding process and bid extremely low on beds—considering them loss leaders—in the hope of winning bids on other equipment.

Medicare recipient and Polk County senior Juanita Widen agrees with Cuervo that Medicare’s claim of success is an exaggeration. “I don’t see how anything that limits competition could be good,” she says.

Widen, who recently acted as a caregiver for a terminally ill friend, found the competitive bidding system difficult to deal with. For instance, there are no Medicare-sanctioned companies in Polk County that supply surgical dressings, she says. Of the 16 official Polk County suppliers—73 companies submitted bids—eight are located outside the county.

While taking care of her friend, Widen found that she was forced to deal with a supplier she says has a bad reputation in the community. “I didn’t feel I was real secure [using that supplier],” she says, though she admits her experience with the supplier was a good one.

Cuervo says that the key factor in providing health care is choice. “In health care, choice is the fail-safe for quality,” she says. “It drives quality care.”

According to Widen, that is one thing she does not have in Polk County—choice. And she does not think it is going to get better because the bidding process keeps new suppliers from entering the market.

San Antonio’s demonstration, like Polk County’s, has shrunk the market, mainly because not every HME supplier participated in the demonstration—hence some of the increase in Vekasy’s customer base. But, she says, another advantage to successfully bidding in the San Antonio demonstration has been a higher visibility in the marketplace—Choice One has been able to establish a new presence in the market it did not have before February.

With the second phase of the Polk County demonstration to take effect in October, and San Antonio’s first phase to continue until December 31, 2002, time will tell if competitive bidding’s gains for providers like Vekasy will continue or disappear as critics like Cuervo predict.

—C.A. Wolski