CA Governor's plans
SHERRY L DALEY
Description
Collection
Title:
CA Governor's plans
Creator:
SHERRY L DALEY
Date:
8/11/2004
Text:
The California Orthotics and Prosthetics Association is seeking input
from California colleagues concerning the Governor's proposal to require
all DME and O&P products supplied to Medi-Cal patients be provided under
a competitive bidding process. The Governor's recommendations were
released in the California Performance Review. Comments regarding the
propsal must be submitted by August 16.
Following is the pertinent section concerning O&P and DME. Although the
first part sounds like it is only DME, if you read further, you will see
that the intention is to include O&P.
HHS25 Obtain Best Prices for Durable Medical Equipment
Summary
The Department of Health Services (DHS), or its successor, should
implement a competitive bid process to purchase all durable medical
equipment for the Medi-Cal program at reduced rates through a limited
number of providers.
Background
Medi-Cal is California's Medicaid health care program. This program pays
for a variety of medical services for children and adults with limited
income and resources. Medi-Cal is supported by federal and state taxes.
The Medi-Cal program currently pays for a broad range of durable medical
equipment (DME). Item costs vary from a few dollars per item to items
that cost thousands of dollars. DME includes items such as canes,
crutches, walkers, oxygen equipment, wheelchairs, patient monitoring
devices, infusion equipment, breast pumps, inhalation therapy equipment
and nerve, muscle and bone stimulators. Total Medi-Cal costs for DME have
escalated in recent years with total expenditures for DME rising from $63
million in Fiscal Year 1994-1995 [1] to $230 million in FY 2002-2003.[2]
This represents an increase of 265 percent during an eight year period.
Success of interim bid process and negotiations
The Department of Health Services (DHS) has pursued cost savings for
other high-cost benefits through negotiating substantial rebates and
discounts from providers such as drug manufacturers and infant formula
manufacturers. Welfare and Institutions Code Section 14105.3 (b) allows
DHS to enter into exclusive contracts with manufacturers for DME
products.
Based upon the previous successes of competitive bidding and given the
existing legal authority, DHS was approved for a budget change proposal
in FY 2002-2003 which established positions and funding to implement and
oversee the DME Contracting Program. In justifying the additional
resources needed to implement the contracting program, DHS estimated
annual savings to the Medi-Cal program of $19 million ($9.5 million
General Fund). The full year savings for this effort were included in the
original Medi-Cal Estimate for FY 2004-2005.[3]
To date, DHS has yet to implement a DME contract due to conflicting
program priorities and a perception that recent reductions to DME
reimbursement rates will minimize potential savings.[4] Due to this
failure, the May revision to the 2004-2005 Governor's Budget now
estimates $7.4 million in savings in FY 2004-2005, assuming a November 1,
2004 initiation, and $11.2 million on an ongoing basis.[5] The reduction
to the annual savings figure in the Medi-Cal estimate reflects DHS
estimates of a reduced number of DME items that will be competitively
bid, and represents a projected 15 percent savings for those items that
will be competitively bid.[6] Greater savings can be generated by
implementing a competitive bid process that stipulates that the winning
bids must include a weighted average rate reduction in the products
offered of 10 percent, and no product shall be offered at a price that is
above the rate established within Title 22, California Code of
Regulations.
Other states have initiated processes to competitively bid
The states of Florida, New York and Texas have taken steps towards
initiating competitive bidding for the provision of DME products or
medical supplies. Florida has implemented a competitive contract for
hospital beds and respiratory equipment and supplies.[7] New York has
issued competitive bids for incontinent supplies and diabetic supplies.
Texas has yet to implement a competitive contract pending ongoing
discussions with the provider community. Although, due to the recent
implementation of these competitive bid processes, there exists no
confirming data, the State of Texas 2001/02 biennium budget reflected
anticipated savings of $18.3 million total funds ($7.3 million General
Fund) for planned contracting.[8] It is important to note that all three
states have received concerted opposition from the DME and medical supply
community, including filing of litigation. To date, no litigation has
expressly forbidden competitive bidding.[9]
At the federal level, the federal Centers for Medicare and Medicaid
Services has conducted demonstration projects on the feasibility and
effectiveness of establishing competitively bid Medicare fees for DME
with great success. The demonstration projects were conducted in Polk
County, Florida and in Bexar, Comal and Guadalupe counties in Texas. The
results of the projects showed overall savings to Medicare of 17 percent
to 22 percent and no significant adverse effects on beneficiaries.[10]
Most important to California, given recent trends in usage, the projects
showed significant declines in usage and the associated costs of
oxygen-related items and services, which is shown by Electronic Data
Systems, the California fiscal intermediary for Medi-Cal claim payments,
as one of the areas of most dramatic DME reimbursement increases for
California.[11]
Strategic purchasing can improve the fight against fraud
Fraud is prevalent in the area of DME due to the potential for quick
profits, the relative ease that providers have in obtaining
beneficiaries' eligibility numbers and there being no licensing
requirements for providers of DME products. A Florida Statewide Grand
Jury Report reported that the Florida Agency Health Care Administration
was incurring DME fraud of $3.5 million annually.[12]
The California Bureau of State Audits, in 1999 suggested that DHS
initiate reenrollment of all existing Medi-Cal providers as part of an
effort to curtail suspected fraud in Medi-Cal. As DME was considered the
highest area of fraud risk, DHS completed reenrollment of all DME
providers by the end of FY 2000-2001 and placed a moratorium to suspend
further enrollment of DME providers into the Medi-Cal program. There are
848 DME providers enrolled to participate in the Medi-Cal program, which
is approximately 500 less than existed prior to the reenrollment exercise
and initiation of the moratorium. The contracting via competitive bid for
DME services would further dramatically reduce the number of DME
providers, thereby consolidating the auditing of providers and allowing
for fewer, more in-depth audits to address fraud, and the implementation
of activities such as unannounced visits to DME providers to ensure that
the providers are a viable business.
Recommendations
The Department of Health Services (DHS), or its successor, should
contract for the purchase of all durable medical equipment by competitive
bid, with a limited number of providers.
This strategy will allow for significant savings, known standard costs
for durable medical equipment (DME) devices, potential minimization of
fraudulent billings and fraudulent providers, and increased ability to
audit the universe of Medi-Cal DME providers.
The competitive bid process should stipulate that the winning bids must
include a weighted average rate reduction in the products offered of 10
percent, and no product should be offered at a price that is above the
rate established within Title 22, California Code of Regulations relating
to reimbursement rates for DME.
The competitive bid process should include all durable medical equipment
devices and supplies, including prosthesis and orthotic devices.
It is imperative that the competitive bid process ensure that Medi-Cal
beneficiaries have adequate reasonable access to providers of DME.
In assuring access, DHS, or its successor, should be directed to
specifically address geographical barriers, public transit barriers and
hours of service barriers.
DHS, or its successor, should issue a Request For Proposals by September
1, 2004 and award individual contracts by January 1, 2005.
Staff has already been approved for this task, so the proposed timelines
are viable.
Fiscal Impact
The May revision to the FY 2004-2005 Governor's Budget includes General
Fund savings for FY 2004-2005 and an additional savings thereafter for
DME contracting. The annual savings figure in the Medi-Cal estimate
reflects DHS estimates of a reduced number of DME items that will be
competitively bid, and represents a projected 15 percent savings for
those items that will be competitively bid. The Governor's Budget also
reflects $354 thousand in ongoing staffing costs to implement DME
contracting.
A greater level of Medi-Cal savings can be generated by implementing a
competitive bid process that stipulates that the winning bids must
include a weighted average rate reduction in the products offered of 10
percent, and no product shall be offered at a price that is above the
rate established within Title 22, California Code of Regulations. The
projected savings shown are based on a 10 percent reduction in the
pricing of all DME products, using calendar year 2003 total payments of
about $244 million for all DME products as provided by the DHS
Fee-For-Service Claim Data Warehouse.[13]
General Fund
(dollars in thousands) Fiscal Year Savings Costs Net Savings (Costs)
Change in PYs
2004-05 $3,300 $0 $3,300 0
2005-06 $6,600 $0 $6,600 0
2006-07 $6,600 $0 $6,600 0
2007-08 $6,600 $0 $6,600 0
2008-09 $6,600 $0 $6,600 0
Note: The dollars and PYs for each year in the above chart reflect the
total change for that year from 2003-04 expenditures, revenues and PYs.
Federal Fund
(dollars in thousands) Fiscal Year Savings Costs Net Savings (Costs)
Change in PYs
2004-05 $3,300 $0 $3,300 0
2005-06 $6,600 $0 $6,600 0
2006-07 $6,600 $0 $6,600 0
2007-08 $6,600 $0 $6,600 0
2008-09 $6,600 $0 $6,600 0
Note: The dollars and PYs for each year in the above chart reflect the
total change for that year from 2003-04 expenditures, revenues and PYs.
-------------------------------------------------------------------------
-------
Endnotes
[1] Department of Health Services, Fiscal Year 2002-03 Budget Change
Proposal FLMC-08 (Sacramento, California), p. 2.
[2] Department of Health Services, Fee-For-Service Claim Data Warehouse:
Medi-Cal Fee-For-Service Payments by Provider Type, (Sacramento,
California, April 13, 2004).
[3] Department of Health Services Fiscal Year 2002/03 DHS Budget Change
Proposal FLMC-08, p. 3.
[4] Interview with Paula Patterson, Department of Health Services,
Sacramento, California (April 15, 2004).
[5] Interview with Michael Alexander, Fiscal Forecasting Branch,
Department of Health Services, Sacramento, California (May 5 and 6,
2004).
[6] Department of Health Services, Fiscal Year 2002/03 DHS Budget Change
Proposal FLMC-08, p. 3.
[7] Florida Agency for Health Care Administration: Durable Medical
Equipment and Supplies Services Request for Proposals AHCA 0203
(Tallahassee, Florida), p. 1.
[8] Texas Performance Review: Disturbing the Peace, Chapter 6 Fraud,
FR2: Ensure Appropriate Use of Medicaid-Funded Services and Equipment
(Austin, Texas, 1996).
[9] Texas Health and Human Services Commission: Draft Medicaid Durable
Medical Equipment/Medical Supplies Request for Proposal (Austin, Texas,
2002).
[10] Centers for Medicare and Medicaid, Evaluation of the Durable
Medical Equipment Competitive Bidding Demonstration,
<URL Redacted> (last visited April
16, 2004).
[11] Department of Health Services, Fiscal Year 2002-03 DHS Budget
Change Proposal FLMC-08, p. 2.
[12] Florida Statewide Grand Jury Report, Medicaid Fraud in the Area of
DME (Tallahassee, Florida, May 6, 1996).
[13] Department of Health Services, Fee-For-Service Claim Data
Warehouse: Medi-Cal Fee-For-Service Payments by Provider Type
(Sacramento, California, April 13, 2004).
from California colleagues concerning the Governor's proposal to require
all DME and O&P products supplied to Medi-Cal patients be provided under
a competitive bidding process. The Governor's recommendations were
released in the California Performance Review. Comments regarding the
propsal must be submitted by August 16.
Following is the pertinent section concerning O&P and DME. Although the
first part sounds like it is only DME, if you read further, you will see
that the intention is to include O&P.
HHS25 Obtain Best Prices for Durable Medical Equipment
Summary
The Department of Health Services (DHS), or its successor, should
implement a competitive bid process to purchase all durable medical
equipment for the Medi-Cal program at reduced rates through a limited
number of providers.
Background
Medi-Cal is California's Medicaid health care program. This program pays
for a variety of medical services for children and adults with limited
income and resources. Medi-Cal is supported by federal and state taxes.
The Medi-Cal program currently pays for a broad range of durable medical
equipment (DME). Item costs vary from a few dollars per item to items
that cost thousands of dollars. DME includes items such as canes,
crutches, walkers, oxygen equipment, wheelchairs, patient monitoring
devices, infusion equipment, breast pumps, inhalation therapy equipment
and nerve, muscle and bone stimulators. Total Medi-Cal costs for DME have
escalated in recent years with total expenditures for DME rising from $63
million in Fiscal Year 1994-1995 [1] to $230 million in FY 2002-2003.[2]
This represents an increase of 265 percent during an eight year period.
Success of interim bid process and negotiations
The Department of Health Services (DHS) has pursued cost savings for
other high-cost benefits through negotiating substantial rebates and
discounts from providers such as drug manufacturers and infant formula
manufacturers. Welfare and Institutions Code Section 14105.3 (b) allows
DHS to enter into exclusive contracts with manufacturers for DME
products.
Based upon the previous successes of competitive bidding and given the
existing legal authority, DHS was approved for a budget change proposal
in FY 2002-2003 which established positions and funding to implement and
oversee the DME Contracting Program. In justifying the additional
resources needed to implement the contracting program, DHS estimated
annual savings to the Medi-Cal program of $19 million ($9.5 million
General Fund). The full year savings for this effort were included in the
original Medi-Cal Estimate for FY 2004-2005.[3]
To date, DHS has yet to implement a DME contract due to conflicting
program priorities and a perception that recent reductions to DME
reimbursement rates will minimize potential savings.[4] Due to this
failure, the May revision to the 2004-2005 Governor's Budget now
estimates $7.4 million in savings in FY 2004-2005, assuming a November 1,
2004 initiation, and $11.2 million on an ongoing basis.[5] The reduction
to the annual savings figure in the Medi-Cal estimate reflects DHS
estimates of a reduced number of DME items that will be competitively
bid, and represents a projected 15 percent savings for those items that
will be competitively bid.[6] Greater savings can be generated by
implementing a competitive bid process that stipulates that the winning
bids must include a weighted average rate reduction in the products
offered of 10 percent, and no product shall be offered at a price that is
above the rate established within Title 22, California Code of
Regulations.
Other states have initiated processes to competitively bid
The states of Florida, New York and Texas have taken steps towards
initiating competitive bidding for the provision of DME products or
medical supplies. Florida has implemented a competitive contract for
hospital beds and respiratory equipment and supplies.[7] New York has
issued competitive bids for incontinent supplies and diabetic supplies.
Texas has yet to implement a competitive contract pending ongoing
discussions with the provider community. Although, due to the recent
implementation of these competitive bid processes, there exists no
confirming data, the State of Texas 2001/02 biennium budget reflected
anticipated savings of $18.3 million total funds ($7.3 million General
Fund) for planned contracting.[8] It is important to note that all three
states have received concerted opposition from the DME and medical supply
community, including filing of litigation. To date, no litigation has
expressly forbidden competitive bidding.[9]
At the federal level, the federal Centers for Medicare and Medicaid
Services has conducted demonstration projects on the feasibility and
effectiveness of establishing competitively bid Medicare fees for DME
with great success. The demonstration projects were conducted in Polk
County, Florida and in Bexar, Comal and Guadalupe counties in Texas. The
results of the projects showed overall savings to Medicare of 17 percent
to 22 percent and no significant adverse effects on beneficiaries.[10]
Most important to California, given recent trends in usage, the projects
showed significant declines in usage and the associated costs of
oxygen-related items and services, which is shown by Electronic Data
Systems, the California fiscal intermediary for Medi-Cal claim payments,
as one of the areas of most dramatic DME reimbursement increases for
California.[11]
Strategic purchasing can improve the fight against fraud
Fraud is prevalent in the area of DME due to the potential for quick
profits, the relative ease that providers have in obtaining
beneficiaries' eligibility numbers and there being no licensing
requirements for providers of DME products. A Florida Statewide Grand
Jury Report reported that the Florida Agency Health Care Administration
was incurring DME fraud of $3.5 million annually.[12]
The California Bureau of State Audits, in 1999 suggested that DHS
initiate reenrollment of all existing Medi-Cal providers as part of an
effort to curtail suspected fraud in Medi-Cal. As DME was considered the
highest area of fraud risk, DHS completed reenrollment of all DME
providers by the end of FY 2000-2001 and placed a moratorium to suspend
further enrollment of DME providers into the Medi-Cal program. There are
848 DME providers enrolled to participate in the Medi-Cal program, which
is approximately 500 less than existed prior to the reenrollment exercise
and initiation of the moratorium. The contracting via competitive bid for
DME services would further dramatically reduce the number of DME
providers, thereby consolidating the auditing of providers and allowing
for fewer, more in-depth audits to address fraud, and the implementation
of activities such as unannounced visits to DME providers to ensure that
the providers are a viable business.
Recommendations
The Department of Health Services (DHS), or its successor, should
contract for the purchase of all durable medical equipment by competitive
bid, with a limited number of providers.
This strategy will allow for significant savings, known standard costs
for durable medical equipment (DME) devices, potential minimization of
fraudulent billings and fraudulent providers, and increased ability to
audit the universe of Medi-Cal DME providers.
The competitive bid process should stipulate that the winning bids must
include a weighted average rate reduction in the products offered of 10
percent, and no product should be offered at a price that is above the
rate established within Title 22, California Code of Regulations relating
to reimbursement rates for DME.
The competitive bid process should include all durable medical equipment
devices and supplies, including prosthesis and orthotic devices.
It is imperative that the competitive bid process ensure that Medi-Cal
beneficiaries have adequate reasonable access to providers of DME.
In assuring access, DHS, or its successor, should be directed to
specifically address geographical barriers, public transit barriers and
hours of service barriers.
DHS, or its successor, should issue a Request For Proposals by September
1, 2004 and award individual contracts by January 1, 2005.
Staff has already been approved for this task, so the proposed timelines
are viable.
Fiscal Impact
The May revision to the FY 2004-2005 Governor's Budget includes General
Fund savings for FY 2004-2005 and an additional savings thereafter for
DME contracting. The annual savings figure in the Medi-Cal estimate
reflects DHS estimates of a reduced number of DME items that will be
competitively bid, and represents a projected 15 percent savings for
those items that will be competitively bid. The Governor's Budget also
reflects $354 thousand in ongoing staffing costs to implement DME
contracting.
A greater level of Medi-Cal savings can be generated by implementing a
competitive bid process that stipulates that the winning bids must
include a weighted average rate reduction in the products offered of 10
percent, and no product shall be offered at a price that is above the
rate established within Title 22, California Code of Regulations. The
projected savings shown are based on a 10 percent reduction in the
pricing of all DME products, using calendar year 2003 total payments of
about $244 million for all DME products as provided by the DHS
Fee-For-Service Claim Data Warehouse.[13]
General Fund
(dollars in thousands) Fiscal Year Savings Costs Net Savings (Costs)
Change in PYs
2004-05 $3,300 $0 $3,300 0
2005-06 $6,600 $0 $6,600 0
2006-07 $6,600 $0 $6,600 0
2007-08 $6,600 $0 $6,600 0
2008-09 $6,600 $0 $6,600 0
Note: The dollars and PYs for each year in the above chart reflect the
total change for that year from 2003-04 expenditures, revenues and PYs.
Federal Fund
(dollars in thousands) Fiscal Year Savings Costs Net Savings (Costs)
Change in PYs
2004-05 $3,300 $0 $3,300 0
2005-06 $6,600 $0 $6,600 0
2006-07 $6,600 $0 $6,600 0
2007-08 $6,600 $0 $6,600 0
2008-09 $6,600 $0 $6,600 0
Note: The dollars and PYs for each year in the above chart reflect the
total change for that year from 2003-04 expenditures, revenues and PYs.
-------------------------------------------------------------------------
-------
Endnotes
[1] Department of Health Services, Fiscal Year 2002-03 Budget Change
Proposal FLMC-08 (Sacramento, California), p. 2.
[2] Department of Health Services, Fee-For-Service Claim Data Warehouse:
Medi-Cal Fee-For-Service Payments by Provider Type, (Sacramento,
California, April 13, 2004).
[3] Department of Health Services Fiscal Year 2002/03 DHS Budget Change
Proposal FLMC-08, p. 3.
[4] Interview with Paula Patterson, Department of Health Services,
Sacramento, California (April 15, 2004).
[5] Interview with Michael Alexander, Fiscal Forecasting Branch,
Department of Health Services, Sacramento, California (May 5 and 6,
2004).
[6] Department of Health Services, Fiscal Year 2002/03 DHS Budget Change
Proposal FLMC-08, p. 3.
[7] Florida Agency for Health Care Administration: Durable Medical
Equipment and Supplies Services Request for Proposals AHCA 0203
(Tallahassee, Florida), p. 1.
[8] Texas Performance Review: Disturbing the Peace, Chapter 6 Fraud,
FR2: Ensure Appropriate Use of Medicaid-Funded Services and Equipment
(Austin, Texas, 1996).
[9] Texas Health and Human Services Commission: Draft Medicaid Durable
Medical Equipment/Medical Supplies Request for Proposal (Austin, Texas,
2002).
[10] Centers for Medicare and Medicaid, Evaluation of the Durable
Medical Equipment Competitive Bidding Demonstration,
<URL Redacted> (last visited April
16, 2004).
[11] Department of Health Services, Fiscal Year 2002-03 DHS Budget
Change Proposal FLMC-08, p. 2.
[12] Florida Statewide Grand Jury Report, Medicaid Fraud in the Area of
DME (Tallahassee, Florida, May 6, 1996).
[13] Department of Health Services, Fee-For-Service Claim Data
Warehouse: Medi-Cal Fee-For-Service Payments by Provider Type
(Sacramento, California, April 13, 2004).
Citation
SHERRY L DALEY, “CA Governor's plans,” Digital Resource Foundation for Orthotics and Prosthetics, accessed November 25, 2024, https://library.drfop.org/items/show/223467.
