10 min reading time

Jeffrey Baird, chairman of the Health Care Group at Brown & Fortunato, a Texas-based law firm, represents infusion companies, home medical equipment (HME) companies, and other health care providers throughout the United States.

We were talking about Medtrade (http://medgroup.biz/Medtrade-2014 Atlanta, Oct 20-23), the largest Home Medical Equipment (HME) Expo and Conference in the US, when he told me this enlightening story.

“For the first 12 years of my life, I grew up in a state mental hospital. My father was the hospital’s psychologist, and a cynic.

Dad saw the ridiculousness and hypocrisy in many things. When he observed something bordering on the absurd, he would say, ‘The insane are running the asylum.’

Jeff continues, “That’s how I feel about competitive bidding for four reasons.

# 1 The US Centers for Medicare & Medicaid Services (CMS) instituted competitive bids to reduce the number of suppliers. The goal is NOT to reduce fraud; there are tools in place to accomplish that. The goal is NOT to reduce reimbursement; there are tools in place to accomplish that.

# 2 I’ve seen large HME suppliers – with financials are as strong a bank’s – get disqualified because their financials ‘do not meet’ CMS standards. I’ve seen others – unable to get a car loan from a credit union – be deemed financially qualified.

# 3 I’ve seen HME suppliers bid responsibly only have their bids rejected. I’ve seen others submit suicide bids, be awarded a multiple bids for multiple product lines and have absolutely no ability to honor their obligations.

# 4 Any business (restaurant, sporting goods store, DME supplier) needs a working capital line of credit from the bank.

What bank wants to lend money to a HME supplier with the knowledge the lion’s share of the supplier’s business will be gone in three years if the supplier is not awarded a contract? I’ve heard competitive bidding program officials respond, ‘Well, the HME supplier just needs to move into other product lines.’

That’s absurd. No matter how you slice it, the primary customers for HME industry are old people. When a person reaches 70, his body breaks down. He needs HME and the payor is Medicare. To say the losing bidder just needs to go out and find other customers is ‘Alice in Wonderland.'”

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What do you think of Jeff’s comments? Do you have a reimbursement story to help members navigate CMS waters?

Related discussion this week: FDA and Home Use Devices at

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I was surprised to learn Medtrade admission is free! You can walk the floor of the expo at no cost. (There is a charge for the educational sessions.)

If you can make the trip to Atlanta, let’s try to meet in person.

Register online at http://medgroup.biz/Medtrade-2014 with code MTEXPO for the free Expo Pass.

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WHITE HOUSE VISIT

10x speaker Eric Rasmussen flies on Thursday to a White House meeting about improving the safety of healthcare workers treating Ebola patients in West Africa.

He wants to bring the Group’s ideas with him. Please leave your comment today at http://bit.ly/WH-ebola

I’ll share Eric’s 10x presentation in the next few weeks.

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Discussions This Week

One question for Hillary Clinton at AdvaMed

Becton Dickinson to buy CareFusion for $12 Billion

FDA on Cyber Security

FDA submission for Class I

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Make it a great week.

Joe Hage
Medical Devices Group Leader

P.S. Free webinar on Biocompatibility:ISO 10993 and ISO 14971.
Sign up at

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Gary Abramov
General Manager – Product Development Manager at Pacific Blue Innovations, LLC
Competitive bidding per se is a good thing, like all (fair!) competition. Otherwise, how would a customer know they are not being ripped off? We’d do it for a roofing/plumbing, etc. estimate; the government should be able to do the same.
The government, at least in the DoD procurement world has developed safeguards against unbelievably low bids. It’s called ‘cost reasonableness’ (read, believability) and any winning proposal ‘in theory’ is scrutinized. But, there’s a built-in conflict of interest and these checks may be omitted/overlooked and/or sloppy. Then a suicidal bid gets awarded. A similar situation (only in un-regulated industry) killed off a multitude of small suppliers to the automotive giants in the 80’s and 90’s: they were under-bidding (under tremendous pressure from the giants) while trying to ‘make it up in volume’.
Solution? I don’t have a silver bullet. Maybe more government transparency/oversight/prison terms. I know, a little watery :(.

Stephanie Beth Skaggs
Medical Device Business Manager, Account Manager and Event Manager
I agree with the article. In the diabetes care business I did see first hand DME bidding with prices that the DME could not sustain for a viable business or with any diabetes medical device that would have any FDA credentials. Yet strong businesses with long term success and customer focus were crushed by losing the diabetes Medicare business, which is a strong demographic for the business model. In my sphere of experience, there is nothing logical about competitive bidding and it hurts patients, small business, manufactures and the economy as a whole.

Tom KraMer
President & CEO, Speaker
What an overwhelming response to this issue! Every single response recognizes the faults of the system as it is poised to move forward, yet not one of us knows how to stop this train from moving in this catastrophic direction. The only power we have is that we are all voters, and we need to make this a platform issue with our lobbyists so we can all vote for lawmakers that will support changes to derail this train.

Thank you all for your thoughtful comments! I am going to send this conversation trail to lawmakers.

Gary Abramov
General Manager – Product Development Manager at Pacific Blue Innovations, LLC
@Dave: And yet, we don’t see even the slightest signs of the government encouraging innovation, esp. in the medical dev field. On the contrary, one may argue that they are trying to squish it by imposing frivolous and arbitrary tax on medical devices. Innovation (outside of outright business competition) in this country is encouraged by private entities, the likes of the X-prize and Qualcomm’s ‘tricorder’ competitions. Then again, what else is new?

Dave Sheppard
Global M&A, OutSourced B,D&L Leader for SME (Small and Medium Enterprises) & Emerging Technology Healthcare Companies
With the ACA act in place…and the development of ACO’s, this issue is going to be a familiar theme in the years to come. While we all strive to reduce cost in the system, we have to be be careful as to NOT drive out true innovation that saves lives and reduce costs in the system. As experienced supply chain professionals understand, price does not equal total cost !

Dominic Rotella
President/Owner Nichole Medical Equipment & Supply, Inc.
Respectfully, everyone needs to open thy eyes. CMS doesn’t want to pay for anyone if they could get away with it. The only deserving people in the minds of the Washington Bureaucrats are themselves that’s why they have a different health plan than everyone else. Imagine John McCain having a test ordered by his Doctor only to be told it would NOT be covered his Medicare Plan!!

Remember, the original Medicare concept wasn’t for 50,000,000 people. The country wasn’t projected to expand with ALL the immigration we have and continue to have within the program.

C. Angelique Steccato
VP Business Development, Client Services and Marketing at USDTL
I have been in healthcare too long, I remembered an article back in 2010 predicinting the suicide bidding and the effects on industy, jobs, patients, etc. see the link below it is from the PA Assoc of Medical Suppliers.
[http://www.news-medical.net/news/20100608/Medicare-bidding-program-will-lead-to-suicide-bidding-says-Pennsylvania-Association-of-Medical-Suppliers.aspx|leo://plh/http%3A*3*3www%2Enews-medical%2Enet*3news*320100608*3Medicare-bidding-program-will-lead-to-suicide-bidding-says-Pennsylvania-Association-of-Medical-Suppliers%2Easpx/ivcc?_t=tracking_disc]

Gary Abramov
General Manager – Product Development Manager at Pacific Blue Innovations, LLC
@Vince With my uber-cynic hat on: maybe the government is doing precisely that: cutting costs and (surreptitiously, oops, ‘inadvertently’ ) hurting patients to save the much bigger costs on Medicare, due to a ‘natural attrition’. How’s that for a conspiracy theory? :).
Bracing for flames to keep me awake on Friday:).

Dominic Rotella
President/Owner Nichole Medical Equipment & Supply, Inc.
Sadly, fixing problems and setting goals is a bigger issue than the industry can accomplish because the industry has NO venue where it can go to accomplish fixing any issue. CMS is deaf ears, Congress doesn’t control CMS and The Federal Courts have told the entire industry they have “lack of jurisdiction”!!

Vince Navarre
Diabetes Business Specialist at Boehringer Ingelheim
We have to agree on a goal and then a strategy to reach it. The goal cannot be just cutting costs across the board or folks will suffer. In healthcare let’s look at one aspect that competitive bid has hit and that is diabetes blood glucose monitoring for type 2 patients not on insulin. Medicare allow for 1 test per day to limit costs. There is little if any substantiation in the medical literature to support the value of once a day testing. In addition to that, most patients who use the benefit do not know the value of or what to do with the information. What is sad is neither do most providers! Millions down the tube in vain with no movement to a health care goal. However, the cost for test strips were cut 71% with competitive bid, decimating an industry who was supporting education and achieving the health outcomes we are seeking. Taking the power and accountability away from the patients and putting into industries who will develop expensive drugs to lower a1c. save money here and lose it somewhere else… problem not fixed. Healthcare goals are the key!

Lise Halpern
Vice President Marketing and Clinicals at Vapotherm
The reality is that it is the patient that suffers most form competitive bidding. All of the technical and clinical support is being cut out by the DME suppliers in order to try to preserve some margin and meet the new prices. In addition, patients have to go to multiple suppliers for their assortment of medical goods depending on who won the bid for that particular product.

I agree the real purpose, or at least the real effect, will be to reduce the number of DME suppliers. It drives business to the large internet consolidators, and to healthcare providers such as hospitals to provide in-house DME services.

Dominic Rotella
President/Owner Nichole Medical Equipment & Supply, Inc.
Respectfully, everyone needs to understand the evolution of the system. The best analogy to the current Medicare program would be the government building a highway that takes 20 years to complete with the purpose to help alleviate congested traffic in a specific geography that is gridlocked upon it’s opening. The current Medicare concept was designed in the mid 1960’s when the population was half of today’s and the life expectancy was years less than that of today not to mention the immigration from other countries that are given benefits without having contributed any money under the program. It is antiquated and inadequate for the current population. It has become a patch quilt program that is beginning to show it’s dire faults!!! Thousands of people are employed by CMS in Baltimore and they don’t process any claims!!!

Burrell (Bo) Clawson
I research patents & design products to get a patented competitive position: Over 30 patents.
Just further examples by people (above) that government does NOT belong in managing commercial ventures the way they are doing it. Private sector solutions with private companies warranties sound a lot better for quality solutions.

HOSNI SHAHEEN
Free Lancer – Broker
Yes you are totally right and also it is caused by one or a mix of the three reasons:-

1- Bureaucrats
2- Corruption
3- Related to both of the above (the wrong person (unqualified) controlling the wrong position); some times it reflects a show off actions and most of the time wrong and destructive actions

Chris Hurdleston
Regional Sales Manager- Eastern US and Canada
You get what you pay for. The metric any government bureaucrat is dictated is this; price is king. Quality, delivery and all other attributes take a back seat to price. Look at how the automotive supply chains function; the buyers metric is #1 price. Now that “low price” is costing GM how much in lawsuits due to poor design or poor quality? Years ago architects realized that “price” and “value” were independent variables. The lowest price was not always the best value. They were specifying products based on price alone (and some still do- think new school buildings) but finally realized a $100 window that lasts 2 years has less VALUE than a name brand window with a 20 year warranty that lasts 20 years, but is double the cost. One day the government will employ people who understand VALUE, not just price. And the pay to play game has to stop as well.

Kevin T. S. Riley
Improve the Experience, Improve the Results. Diagnostic Testing and Healthcare Fulfillment.
As we say to our teenagers: Don’t bring logic into the equation….

Bidding rarely yields the best result for any of the stakeholders….

Dominic Rotella
President/Owner Nichole Medical Equipment & Supply, Inc.
It doesn’t matter if the issue is Competitive Bidding or Outrageous Audits the Industry lacks the availability of Judicial Oversight and until the Industry campaigns congress to provide Federal Courts with this Jurisdiction for Civil Complaints NOTHING can or will change!!! All the fly-ins and HR-??? won’t have any meaning without Federal Judges to oversee the compliance of CMS and it’s Contractors. I have been writing this for years and it continues to be ignored even with my Third Circuit PRECEDENTIAL Opinion signed by Retired Supreme Court Justice Sandra Day O’Connor stipulating that The Federal Courts lack Jurisdiction for these complaints!!!

JEROME HAHN
Executive Vice President, MedSignals/VitalSignals LLC
CMS is simply not geared to properly evaluate large bid packages for devices where they have little familiarity…. and the diversity of products found in the HME market is enormous. This investment in becoming more structured and rigorous in assembling bid packages and providing feedback to the medical device community after rejecting a bid, is an important step (Dod does this particularly well). HME products range from large equipment that take up much of a bedroom to mobile devices that can be use effectively across global geographies with real time remote monitoring. The challenge is finding practical solutions that make sense in today’s world and that will not be so revolutionary that they cannot be comprehended by patients and HCPs with basic education and training. I also believe we are approaching a tipping point where the costs will be so staggering that CMS will have no choice but to find a way to leverage these technologies more effectively. The great hope is that ways to implement many of these amazing solutions are found before the country can no longer afford its healthcare programs.

Uwe Berning
Owner at Berning Vertrieb Medizintechnik
interresting read. Here in Germany it’s already the status quo. As you described it, it’s absolute chaos. Especially the so called “suicide bids”. Companies with very little or no expertise in what they are bidding for. The result is that patients are suffering from bad quality or bad service. There is only one effect that’s constant: prices go way down and good companies go with them…. @Burell: the gravy train is running fast 🙂 Too bad if you and I don’t participate in such ways. I consider myself an honorable business man (old fashioned, I know), so lots of business unfortunately gets past me.
happy bidding!

Vince Navarre
Diabetes Business Specialist at Boehringer Ingelheim
Love the comments by dad, that “the insane are running the asylum”. It definitely fits the topic. The chain reaction of this program is destructive and who pays the price is the patient. The do no and can not get a choice of product to meet needs and get limited and poor service due to the skeleton crews and paper work inundation-confusion. Many substatial DME bid winners are financially in trouble. Manufacturers are running for the hills due to lost profits and commoditization of major product lines causing whole business units to close along with resulting layoffs. (I know, because I have been laid off 3X in 3 years due to Medicare changes affecting diabetes and COPD products) Product research and development is halted it these areas for business reasons. With the population of elderly is growing at an alarming rate as well someone needs to stop the bleeding because we will bleed out.