NCPA - National Center for Policy Analysis


July 11, 2008

This week Congress will demonstrate if it is serious or not about reining in entitlement spending, says Michael O. Leavitt, secretary of the Department of Health and Human Services (DHS).  

Right now Medicare is paying insane rental prices for Durable Medical Equipment (DME) -- prices far higher than it would cost to purchase the equipment outright.  DME prices are based on a fee-schedule established by law in the 1980s, not on competitive market prices.  This is a price-fixing program, says Leavitt, and the equipment suppliers like it because they get overpaid and don't have to compete.

For example:

  • An oxygen concentrator costs about $600 on the open market.
  • Medicare beneficiaries typically rent the machines for periods of up to 36 months at a cost of $7,142.
  • The government, which pays 80 percent of the costs associated with items and services in Medicare Part B, pays $5,714 -- almost 10 times the free-market price of purchasing a concentrator outright.
  • The patient pays $1,428 -- more than twice the free-market price of purchase.

In light of this, when Congress passed the Medicare Modernization Act in 2003, it included a section instituting competitive bidding for DME, starting in selected communities.  Unsurprisingly, the bids came in substantially below what Medicare pays -- on average 26 percent below.  These new prices took effect on July 1, benefiting taxpayers and patients.

But those who benefit from excessive fees in the current system are now in lobbying overdrive, as they stand to lose substantial business.  In late June, House Democrats and many Republicans voted to delay the bidding program by a year and a half. 

Make no mistake: "Delay" means "kill," says Leavitt.  Killing this competitive-bidding program would cost taxpayers about $1 billion annually, while unjustly overcharging senior citizens, says Leavitt.

Source: Michael O. Leavitt, "Will Congress Continue a Medicare Scam?" Wall Street Journal, July 9, 2008.

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