Heritage Foundation: Throwing Good Medicine After Bad

Here’s a pop quiz: Your doctor says you need an oxygen concentrator to live. Do you (A) buy one for $587, or (B) rent one for 36 months through Medicare and pay $1,443 in co-insurance? The total Medicare bill for the concentrator would amount to $7,215.

If you’re a Medicare patient, the answer is B. Why? Because that’s what the Medicare bureaucracy says you — and the taxpayers who subsidize your coverage — are to pay under current law.

Under our hopelessly complex Medicare payment system, bureaucrats — not the open marketplace — determine how much you pay for a range of home health care equipment, from oxygen concentrators to wheelchairs to diabetes supplies. And bureaucrats are not known as smart shoppers — at least not when they’re spending taxpayers’ money.

Let’s go back to that oxygen concentrator. Just the patient’s co-payments on the rental fee will total $1,443 — enough to purchase two concentrators outright. The taxpayer subsidy — $5,772 — is just gravy … but enough "gravy" to buy almost 10 additional concentrators on the open market.

The Medicare payment system is wasteful and inefficient — and has been for a long, long time. That’s why Congress acted five years ago to remedy this problem, at least in the limited area of medical equipment and supplies.

Under the Medicare Modernization Act of 2003, Congress authorized the Department of Health and Human Services, the agency that runs Medicare, to make companies compete to sell these durable goods. The idea was that by injecting competition into the Medicare program, the government would get something approaching a real market price, thereby reducing costs for both taxpayers and co-paying seniors.

The reformed process was slow-tracked and phased in. It wasn’t slated to start until July 1 of this year, and then only in 10 communities across the United States. Earlier this year, HHS dutifully started taking bids and thus far has signed contracts with 325 medical suppliers who bid to provide medical equipment and supplies to Medicare patients in those communities.

It’s a small start, but a promising one. Based on the preliminary bids, HHS reports that Medicare costs in the 10 communities will, on average, be 26 percent lower than the current Medicare payment for their medical equipment.

It’s good news for taxpayers, too. The Washington Post reports that competitive bidding for medical equipment should save taxpayers $125 million in the first year. When it expands nationwide, the Medicare savings would reach as much as $1 billion annually.

Here we have the rare example of a government reform initiative actually working as advertised — providing necessary services at far lesser cost. So, naturally, the vested interests in Washington want to pull the plug.

A total of 132 members of the House of Representatives, supposedly the front-line guardians of the public purse, have signed a letter urging the House Ways and Means Committee to pass out a bill to delay the competitive bidding program for at least one year.

Rep. Fortney "Pete" Stark, D-Calif., and Rep. Dave Camp, R-Mich., are sponsoring a bill to delay the HHS competitive bidding, terminate the initial contracts and impose a revised government fee schedule. The assumption, presumably, is that the government will set the "right" prices for medical equipment.

So why would lawmakers oppose a program that would introduce competition into the Medicare program with the potential to save both taxpayers and seniors money?

They say it’s because the implementation of the competition is flawed; the real reason is special-interest politics. Because the government traditionally fixes prices and fees for medical goods and services, the entire process of Medicare price-setting is an exercise in frenzied lobbying.

Each year, mobs of lawyers, lobbyists and consultants representing hundreds of "provider groups" descend on the House Ways and Means Committee and the Senate Finance Committee. They work to make sure that their clients — the provider groups — get the "right" reimbursement. Nobody wants to give up that sort of power and influence.

But Medicare patients would be better off if they could benefit from competition in medical supplies, just like they are benefiting from competition in the Medicare drug program, which has experienced a 40 percent decline in projected drug premiums since its inception. Savings to seniors might seem small by federal budget standards, but they wouldn’t be to seniors living on a fixed income.

Besides, Medicare is facing a growing fiscal crisis. It has promised to pay out benefits that will cost $36 trillion more than the revenues dedicated to the program. If members of Congress — Democrats and Republicans alike — can’t resist special-interest pressure to allow for a modicum of competition among medical supplies, it’s hard to imagine how they will summon the fortitude when the big tests inevitably come.

Moving toward a market-based pricing system would be a step in the right direction. For many cash-strapped seniors, it could be just what the doctor ordered.

Robert Moffit is director of the Center for Health Policy Studies at The Heritage Foundation (heritage.org).