5 min reading time

Am I recommending cheating or doing something illegal? No.

But my friend Rick wrote me about how Medicare’s competitive bidding program is killing his business.

I did a little digging and found this article in Forbes: http://medgroup.biz/bidding-fiasco

An excerpt:

“While it’s said that bids are evaluated based on the supplier’s eligibility, its financial stability and the best bid price, it’s simply not true. Contracts are awarded to the Medicare suppliers who offer the best price and meet applicable quality and financial standards. Contracted suppliers will be paid the bid price amount. The bid price amount is derived from the median of all winning bids for an item.”

And explains, “The auction rules established by CMS actually encourage low balling, because the low ball bidders understand the awarded price will actually be higher.”

So, go ahead. Bid $30 to win a bid, even though it’s below your cost. You’ll probably win at a higher price and eke out a profit.

What do you think of that strategy?

It’s legal. And you can be one of the “lucky few” who win a bid.

Write your comments below. And I hope my go-to person on reimbursement Beth Brooks chimes in with her comments.

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Beth and InterMountain’s Nic Anderson will teach a 3-hour workshop on Reimbursement and Health Economics at the 10x Medical Device Conference.

See http://medgroup.biz/10x for details.

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UDI WEBINAR WEDNESDAY

Unique device identification (UDI) webinar at http://medgroup.biz/UDI-next-steps at 12 p.m. New York time.

Join us.

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DISCUSSIONS

5 events and 2 chances to meet

Money-back guarantee in product development: Good or desperate?

Quality Metrics for Medical Device Manufacturers

Seeking Angel/VC Funding

FDA Considers Regulating Medical Device Refurbishers and Other Third Parties

3rd party device service, FDA questions

Conflict of Interest

Your OEM contract unrenewed

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Make it a great week.

Joe Hage
Medical Devices Group Leader

P.S. Very exciting news. Katie Weimer, VP for Medical Devices at 3D Systems, just joined our 10x faculty. Her talk, “3D Printed Medical Devices: What’s Next?” is in four weeks. Can you make it? http://medgroup.biz/10x

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Loren J. Decker
Certified Prosthetist
It is sad that this is what healthcare has come to. There is a fee schedule for DMEPOS. CMS is trying to save a few bucks in the short term with bidding.

Marc Timothy Smith
Confidential Business Systems and Standards Specialist
Mike Hagerty – I totally agree. Never under bid a project/product. I also have seen many companies which did so for various reasons and regretted it afterward.

Kristina Port
Government/ Healthcare Advocacy
Now these are topics I will read. Thank you for sharing links.

Marc Timothy Smith
Confidential Business Systems and Standards Specialist
Julie O – That was my point. If the customer’s requirements are high enough the product is going to cost a lot. Most people missed the $1600 (some say $7000) coffee pot. Oh, and the toilet seat… It was for aircraft, so you can imagine the requirements for a coffee pot considering altitude changes and such. Having worked for DoD suppliers as far back as the 1980’s I understood their requirements made that $500 hammer cost $500 (if it ever was true to begin with).

A n old, but good, read on Snopes: http://msgboard.snopes.com/cgi-bin/ultimatebb.cgi?ubb=get_topic;f=96;t=000012;p=0

Also see: https://en.wikipedia.org/wiki/Project_On_Government_Oversight

I admit I was surprised to see the old $500 hammer thing come up after all these years.

Julie Omohundro
Principal Consultant at Class Three, LLC
I don’t know the facts of the $500 hammer thing either, but I always thought one former DOD supplier probably hit the nail on the head when he summed it up as, “Yeah, and by the time you get through making it the way the government wants it made, it will have cost you $500.”

Julie Omohundro
Principal Consultant at Class Three, LLC
I don’t see how this is either cheating or a win.

I agree with Michael K’s assessment, but I also don’t think this is all that unique to CMS. They may structure it a bit differently, but whenever there is competitive bidding for anything, there will always be low-ballers, some of whom will be prepared to stand by their “below-cost” bids, and then cut corners to reduce their costs below their bid and turn a profit.

Marc Timothy Smith
Confidential Business Systems and Standards Specialist
@Barry – The problem is… How does one determine what a “fair” price is?

I will say that the $500 hammer thing was long ago and few people actually knew the facts. Anyone who works in supplying the DoD in the US understands why, years ago, that happened. I “cut my teeth” in QA working in DoD suppliers in the 1980’s. If the DoD (or any buyer for that matter) puts enough requirements in the RFQ you can get a $500 hammer today. E.g.: The Lockheed Martin F-35. And – Just go to any hardware store – You’ll find hammers in a significantly wide price range.

Personally I believe that every bidder should have to submit data on some aspects such as consumer/customer returns and reliability data with their bid. I fully agree that price alone should not be the determining factor.

Mike Hagerty
President of Cuna Supply
@Barry,

Regrettably, the government doesn’t subscribe to a philosophy of fairness today – if it ever did. We operate on the Federal Supply side of the street and one of the favorite procurement acronyms is LPTA, short for lowest price technically acceptable. It’s much like the Medicare bid system, except the winner takes all, and no pesky arithmetic. Another favorite phrase is “…for the convenience of the government”, which never seems to go out of use. It perfectly encapsulates the vast gulf between what the government says and what the government does – and perhaps even explains why. By the way, bidding below cost is almost never a good idea. Eking out a narrow profit is rough ; being turned into an involuntary not-for-profit organization is even rougher.

Rick Gerace
Business executive with accounting foundation and 20+ years’ experience in financial, operational & project management.
I believe the goal of reducing Medicare spending is completely appropriate. My problem with this competitive bidding process is that as usual, the government’s “Big” bias seems focused on excluding small businesses. An alternative process could have been developed that would still allow any qualified company, willing to accept the reduced reimbursement rates, to continue to serve Medicare beneficiaries. If CMS can establish fee schedules for drugs, physician services, and the like, how hard can it really be to establish reimbursement for manufactured DMEPOS items? In my experience, it’s the small and privately owned businesses that offer the highest commitment to quality customer service!

Nigel Harris
Sales Manager at MMM Medical Equipment UK Ltd
That may be ok for the US, but in the UK if you put in a low bid you are expected to produce the finished delivered article at that price with no exceptions allowed. Occourances beyond anyones control are of course considered as exceptions. One or 2 building contractors have gone bust due here to this it seems.

Linda Moore
Clinical Consultant at Resideo LifeCare Solutions
It would seem everyone would want to bid HIGH if the average is paid. If everyone bid low, you really would be underpaid since the average would be less. Just a thought.

Barry Kuban
R&D Engineering Director
The purpose of a bidding process should be to get the most FAIR price, not the lowest one. If the lowest price puts the supplier out of business, nobody wins. Why bidding? Because we (government/consumers) don’t trust the supplier to tell us the truth about their profit margin and we worry that we are being taken advantage of ($500 hammers?). Solution? Perhaps the suppliers open their books to the payer with respect to that product and the payer caps the profit at a reasonable level and selects the supplier that meets all criteria and offers the best solution at the capped profit margin.

Michael Kotowski
Seeking New Opportunity! Strategy/Innovation/EmergingTech-AI|Blockchain|Cloud|CyberSecurity|Digital|IoT|RPA|3D Print
This is neither “strategy” nor sustainable. The rules are set up for short-term perceived “wins” and “simplicity”. In the end all that happens is that it degrades the levels of service and the quality of the provider/suppliers and products, ultimately having negative impact on the outcomes for the patients in need.

This is a terrible fiasco.

I’ve seen it from the contract/supply side, as well as unfortunately at the end in caring for my parents and the crap devices that they receive and need to have repaired/replaced and are dysfunctional at best more of the time than they are useful for the immediate need.

The practices of the CMS need to be brought in line with the universe of capable and consistent providers, delivering quality products serving Patient needs. Cost cutting from administrative and contract perceptions are actually creating further financial costs and burdens that are simply displaced line items – as in “not my problem here anymore, I’ve done my job…”