Competitive bidding and mail-order diabetes: 'Race to the bottom'

WASHINGTON - In the weeks leading up to competitive bidding's start date, mail order diabetes providers are skeptical that contract suppliers will be able to fulfill their obligations without disrupting beneficiaries.

"Almost nobody who is a top provider in this category is a winner," said Tom Cronin, CEO of Woburn, Mass.-based Neighborhood Diabetes. "Can these companies actually scale up and provide any product effectively to the beneficiaries they are going to need to supply?"

Of the winning bidders, only one, NationsHealth, billed more than $10 million for test strips in 2009, according to data obtained by HME News and available at www.hmedatabank.com. Most billed well under $2 million. By contrast, Liberty Medical, the largest Medicare biller of test strips in the country, received about $236 million in Medicare payments for test strips in 2009.

If the largest companies, with their economies of scale, didn't win bids, it's hard to see how a smaller company can make the numbers work, say industry insiders. Reimbursement for the product category was reduced, on average, by 56%, with the price for a box of test strips, on average, at $14.62.

"Our overhead is low, we're dramatically efficient and we've beat our vendors down as low as we can possibly get them and it's just not possible to get down to $14 a box," said one provider. "It doesn't matter how cheap the product is."

But if there's a good system in place, mail order diabetes can work well for the provider and its beneficiaries, especially those who are used to the model, counters one contract winner.

"Whether you are doing 1,000 or 10,000 patients, it should scale," he said. "We are financially stable, we've done this before and we've had some success at it, right down to collecting documentation."

If contract winners can't meet demand, or have to cut service in order to sustain such a low reimbursement, beneficiaries are the ones who will suffer.

"It doesn't take a lot to throw some people off their regimen," said Cronin. "By CMS racing to the bottom on price, I think people will wind up not using poorer quality equipment they receive and become less healthy."