Bottom drops out of diabetes market

YARMOUTH, Maine - Days after CMS announced draconian cuts to reimbursement for diabetes testing supplies, providers were still scratching their heads.

“It really appears there is not any value placed on diabetes patients or the prevention of complications,” said Shelly Leonard, owner of Carolina Diabetic Supply in New Bern, N.C. “I cannot see how quality product or service or choice will be provided once this is implemented.”

The payment amounts for the diabetes national mail order program are, on average, 72% lower than the current fee schedule. That means, for example, that a 50-count box of test strips will be reimbursed at $10.41.

The biggest head scratcher: How did the payment amounts come in so much lower than in Round 1, which saw a cut of, on average, 56%? The small pool of providers in the diabetes market is one likely factor in the low rates, says attorney Seth Lundy.

“Given the limited number of suppliers and the limited number of truly large suppliers that serve more than 100,000 customers, it's not surprising that they've (gotten to) such a low price,” said Lundy, a partner with King & Spalding. “I think the national bidders had a target mark of the Round 1 bids and there were a number of small bidders who wanted to win at all costs. It's unclear whether this is sustainable.”

Program rules required bidders to offer brands with at least 50% market share, but that's simply not possible at these rates, say providers.

“On the value brands, the best price I've ever seen on strips is about $6 a box,” said Chris Rice, CEO of Diamond Respiratory Care in Riverside, Calif. “And, you haven't even shipped it yet.”

With the program rolling out nationally on July 1, it's unclear whether there will be enough coverage to serve Medicare beneficiaries. CMS has said it offered 15 mail-order contracts. One large national mail order supplier estimates there are approximately 10 million Medicare beneficiaries with diabetes, about 60% using mail order.

“If the winners shared equally in the number of beneficiaries, they would each be serving 400,000 patients,” he said. “There is no way (these suppliers) are going to get there.”

Ironically, the low-ball pricing, in conjunction with a provision in the “fiscal cliff” deal that will apply mail-order rates to supplies obtained at retail locations, could come back to haunt CMS. The agency has long maintained that beneficiaries will still be able to obtain their diabetes supplies from their local provider or pharmacy if they don't want to use mail order, say stakeholders.

“CMS indicated that they had very few complaints that weren't resolved during Round 1,” said Lundy. “That was self-professed as a result of the fact that CMS was able to (resolve problems) by moving them to the retail setting.”