Second round of competitive bidding drops strip pricing a further 20% to $8.32 per 50-ct; Diabetes Care paper shows the unintended consequences – April 19, 2016

Executive Highlights

  • CMS recently announced results from the second round of its competitive bidding program, establishing even lower new payment amounts for mail order and retail blood glucose strips – $8.32 per 50-count box ($0.17 per strip), down 20% from the current allowable payment of $10.41 ($0.21 per strip), and a striking 76% reduction from the pre-competitive bidding price (~$35). The new prices will go into effect on July 1, 2016. A much smaller group of suppliers will be announced soon.
  • A Diabetes Care analysis has linked interrupted access to SMBG supplies in competitive bidding markets with increases in mortality (nearly double), inpatient admissions (more than double), and higher costs (more than double). We first saw this in a late-breaker at ADA 2015 and we are very surprised it has not received more attention, particularly from government payers who presumably would be seeing much higher costs associated with inpatient admissions.
  • Patient organizations, academic groups, industry, and Congress continue to fight against competitive bidding, although not in a unified way. Surprisingly, CMS’ March press release maintained that the program is going swimmingly: “Competitive Bidding Program Continues to Maintain Access and Quality While Saving Medicare Billions.” We summarize the state of advocacy efforts below.

The Centers for Medicare and Medicaid Services (CMS) recently announced results from the second round of its competitive bidding program, establishing new payment amounts for mail order and retail blood glucose strips – $8.32 per 50-count box ($0.17 per strip), down 20% from the current allowable payment of $10.41 ($0.21 per strip), and a 76% reduction from the price before competitive bidding started (~$35). The new fee schedule is slated to go into effect on July 1, 2016, marking the three-year anniversary of the implementation of the last round of bidding (July 1, 2013). Bid winners will be announced soon (“spring 2016”), and CMS’ press release notes that only nine mail-order suppliers have won a contract this time around (vs. 18 previously). We have to imagine that the 50% reduction could cause even greater disruption as many Medicare beneficiaries lose access to their current supplier.

In a tremendous disappointment, this second round of competitive bidding also failed to resolve many of the limitations of the original program: the process still lacked bindings bids, incentivized lower prices before quality, and provided an avenue for a market with subpar products that compromise patient safety. Of even greater concern, Medicare has yet to even acknowledge these limitations, and a recent press release blatantly refers to the program’s ability to “successfully cut costs while maintaining access and quality” – we aren’t sure how it measures the latter. We find the assertion particularly shortsighted considering that: (i) academic groups, industry, providers, patients, and other parties have expressed concern with the effects of the program’s implementation (though not in as unified a way as possible); and (ii) results (first seen as a late-breaker at ADA 2015 and now published in Diabetes Care) have documented increases in mortality (nearly double), inpatient admissions (more than double), and higher costs (more than double) in nine competitive bidding test markets (details below).

The new pricing adjustment will only put more pressure on the BGM field – can quality SMBG manufacturers maintain viable businesses? We had expected some increase in strip pricing in this round as suppliers took stock of losses since July 2013; clearly that did not happen. We have to imagine that “no-name” suppliers are driving the new decrease with even lower bids that will presumably sacrifice quality. In this increasingly margin-squeezed industry, it will clearly be harder for brand name players to operate at a profit, maintain high quality, and invest in R&D to make better products that drive patient outcomes. If these prices stick, how significantly will device quality and innovation be hampered? What about patient safety? If revenues continue to decline, will more companies exit the field like Bayer? Will these reimbursement levels spread to private payers? Will pricing pressure spread to CGM and insulin pumps too? Will the glucose monitoring field bifurcate, increasingly providing quality BGM and CGM to those with insurance, and limiting strip access to patients on Medicare (particularly type 2s on non-hypoglycemia-causing agents)? What company is best positioned to deal with this change? What company is most at risk? Can business models change (e.g., bundled services, coaching) to adapt the new pricing?

The American Association of Clinical Endocrinologists (AACE) has actively criticized the competitive bidding program for its negative health and economic consequences and is advocating for the passage of a bill that will protect patients, while the Diabetes Patient Advocacy Coalition (DPAC) has similarly organized a petition demanding that Congress suspend the program until it is shown to be safe for patients. Last month, the ADA officially joined the fray, asking for a third-party to conduct a comprehensive assessment of the competitive bidding program. ADA believes – as we do – that CMS’ monitoring is not sufficiently robust.

We hope that CMS and Congress more carefully consider the unintended consequences of this program going forward. The Agency has shown an increasingly open mindset of late, reimbursing the Diabetes Prevention Program after it found that the program effectively prevents diabetes and reduces costs (by $2,650 per person over 15 months). Are similar changes possible for competitive bidding? Patient organizations, academic groups, and industry have already begun the fight against the price adjustment, and below, we provide an overview of ongoing campaign efforts along with additional background on competitive bidding.

Background on Competitive Bidding Program, Round 2

  • CMS has announced its new single payment amount for national mail order blood glucose strips – $8.32 per 50-count box ($0.17 per strip). The price adjustment represents a 20% decline relative to the current allowable payment of $10.41 ($0.21 per strip) and will be implemented in all parts of the US. As we understand it, payment amounts for mail order diabetic supplies will also be applied to the retail arena.  
  • We expect the payment adjustment to intensify BGM pricing pressure that is now three years old. Commentary on the challenging stateside market has been a near certainty even during recent financial calls. Our estimates suggest that US pooled BGM sales have declined in 13 of the past 14 quarters (1Q15 was the one exception when sales grew 4% against a very easy comparison [down 25% in 1Q14]). Depressed revenues have been the new normal in US BGM, though the bottom of the market is presumably further out with the new price adjustments.
  • According to the CMS press release, Medicare has already saved $3.6 billion (all products, not just diabetes) in the first two years of the competitive bidding program. We wonder how this breaks out in diabetes specifically. After all, competitive bidding might lower diabetes healthcare costs short-term the impact of lower-quality glucose tests and disrupted BGM access may prompt higher costs over the long haul.
    • The CMS press release cites data indicating that competitive bidding implementation has been successful, with “few inquiries or complaints and no negative beneficiary health outcomes.” We would note that complaints are hard to submit to CMS, since contacting the agency is such a black box. Further, in diabetes, it’s hard to tie negative health outcomes to a specific inaccurate meter result, since there are so many variables that influence blood sugar. (“Is my meter wrong or did I just eat the wrong thing or take the wrong dose?” Most patients are likely to assume the latter.) Plus, an inaccurate reading is hard to identify on the spot, given the lack of a gold standard reference at home and the invisible nature of blood sugar.
  • Although we had hoped that CMS would keep patients’ best interests in mind as it thinks about competitive bidding, we do not believe that it did. In diabetes care, the majority of healthcare costs come from inpatient care and treating diabetes complications, not from the technology and therapies that patients use. Reducing reimbursement for BGM technologies stands to negatively affect R&D, incentives to innovate, support services, and the quality of care patients receive. Longer-term, it can also drive costs as patients use inaccurate meters or don’t have access to blood sugar testing supplies at all.

Scientific Community Response

  • A group of respected KOLs recently teamed up to publish a very critical analysis of the first round of CMS’ competitive bidding program in Diabetes Care. The study links interrupted access to SMBG supplies in nine test markets with increases in mortality (nearly double), inpatient admissions (more than double), and higher costs (more than double). We first saw data from this study at ADA 2015 and the nine pages of full results are worth reading here.
    • The authors include National Minority Quality Forum’s Dr. Gary Puckrein, UT Southwestern’s Dr. Jaime Davidson, Medtronic’s Dr. Robert Vigersky, and Indiana University’s Dr. David Marrero, among others.
  • The study investigated CMS data from 2009-2012, looking at testing supply access and mortality in all Medicare beneficiaries with an insulin prescription within the nine test markets (n=43,939) and all non-test markets (n=485,688). Propensity-matched scores (age, sex, race/ethnicity, medical conditions) were use to compare the two populations. Here were the key findings:
    • The acquisition of SMBG supplies was significantly disrupted in the test site populations – the percentage of beneficiaries with no access or partial access to SMBG increased 23% in test markets vs. 2% in non-test markets following the initiation of competitive bidding.
    • Disturbingly, patients in test sites had more than twice as many inpatient admissions (982 admissions vs. 460) and more than double the associated costs ($11 million vs. $5 million) compared to the non-test site population, which translated into almost twice as many deaths (102 deaths vs. 60).
    • Propensity score matching is a statistical method to estimate the effect of an intervention by accounting for potential biases. As such, the above absolute numbers of admissions, costs, and deaths are based on much smaller subsets (n=~3,000) of the patient populations in the test and non-test markets. If extrapolated to the entire test and non-test market, the absolute numbers would be far, far greater.
  • The causes of SMBG disruption presumably stem from the loss of previous strip suppliers and difficulty in securing a new supplier. When CMS implemented the competitive bidding program, reimbursement for test strips was dramatically reduced (~$35.00 to ~$10.41 per 50-ct). These cost reductions may have dissuaded some pharmacies from providing SMBG supplies, reducing testing frequency among Medicare beneficiaries.
    • Competitive bidding certainly made it difficult for many beneficiaries to continue using the BGM systems with which they were familiar. We wonder if some beneficiaries reduced or discontinued fingerstick testing due to lack of training or confidence in their new BGM.
  • These results were presented at the 2016 National Minority Quality Forum Leadership Summit (April 11-12). Will they bring the findings further into the spotlight and compel Congress and CMS to take action? We hope that CMS and Congress are aware of the results, though it’s hard to believe they are. We learned in an interview with Dr. Jaime Davidson that in the nearly 11 months (!) since the first presentation of these results at ADA, CMS has yet to reach out to the researchers to even acknowledge the disparate findings.
    • Why do CMS’ results differ so significantly from those of third-party studies? Dr. Davidson offered his take: “How did Medicare come to the conclusion they did? Honestly, I don’t think they looked at the data. They are human beings and they made an error. I hope they can correct it. I’m not blaming them because I don’t think they did it on purpose. I think they were trying to do the right thing and it resulted in the wrong thing. The most important thing is to move forward correctly. If we don’t make mistakes and learn from them, we won’t advance.”
    • Another explanation is that CMS has not looked at the data to measure the clinical impact of competitive bidding. Are Medicare patients getting fewer BGM strips following competitive bidding? Are they testing less often? How do mortality rates, hospitalizations, and costs compare in those forced to switch suppliers vs. those on their same pre-competitive bidding supplier?
  • An AADE survey published last February also documented supply access issues with the competitive bidding program. That analysis, however, looked at insulin pumps in nine pilot areas. [Insulin pumps were not included in this round of competitive bidding.] Results indicated that only 58% (17/29) of surveyed suppliers carried insulin pumps and only 62% (18/29) carried replacement supplies and reservoirs. This is despite the requirement that all contract suppliers are supposed to offer pumps and associated supplies under the CMS program. Moreover, among the 17 suppliers who did offer insulin pumps and replacement supplies, an alarming 53% (9/17) offered only one pump brand, and only 18% (3/17) of suppliers offered all four brands (Medtronic, Animas, Roche, Tandem – as a reminder, Insulet is not reimbursed by Medicare). Read the full results here.

CMS Response

  • Despite a wealth of evidence to the contrary, CMS continues to wholeheartedly support its competitive bidding program. Medicare’s most recent press release explicitly emphasized the absence of negative consequences of competitive bidding: “… Extensive real-time monitoring data have shown successful implementation with very few beneficiary complaints and no negative impact on beneficiary health status based on measures such as hospitalizations, length of hospital stay, and number of emergency room visits compared to non-competitive bidding areas."
  • Medicare’s April 2012 report on adverse outcomes associated with competitive bidding also suggested that there was no disruption of access to supplies and no negative healthcare consequences associated with the program. The report also notes that the competitive bidding program: (i) saved the Medicare Fee-For-Service program ~$202 million during its first year; (ii) estimates that the program will save the Medicare Part B Trust Fund $25.7 billion between 2013 and 2022; and (iii) will save Medicare beneficiaries $17 billion.
  • Multiple reports have challenged CMS’ claims, most notably studies from the US Government Accountability Office (GAO) and Diabetes Translational Research Center.
    • In May 2012, the GAO cited data suggesting that the utilization of diabetes supplies has decreased in competitive bidding areas. At the time, the authors noted that it was “too soon to determine its full effects on Medicare beneficiaries and DME suppliers” and that continued monitoring was required to determine the long-term effects. That said, the results certainly raise concerns that CMS’ has yet to acknowledge.
    • More recently, the National Minority Quality Forum (NMQF) asked the Diabetes Translational Research Center to review CMS’ methods for monitoring the effects of the competitive bidding program patients’ access to supplies and health outcomes. Findings highlighted a slew of issues and concerns with Medicare’s monitoring and the competitive bidding process as a whole. For example, CMS did not use a matched control group in its study and failed to establish baseline values for DMEPOS access and health status, thus making it impossible to determine whether the competitive bidding program changed these metrics. The report also emphasizes CMS’s lack of transparency in disclosing the methodology of its study. Authors conclude that Medicare’s claims of no negative outcomes are unfounded and that the Diabetes Care study [cited above] “is more firmly aligned with standard, scientific safety monitoring of health studies.” We certainly believe that the competitive bidding program should be held to the same safety- monitoring standards as other clinical trials – the stakes are far wider here! – and it is concerning to see rigorous statistical science is not being used.

Congressional Response

  • Two bills intended to improve the competitive bidding program were introduced to Congress in 2015 – one was diabetes-specific. The goal of both pieces of legislation was to protect patients and ensure that only respectable suppliers receive contracts. Very few bills are being passed in the current legislative environment (with an election on the horizon), and we’re still trying to assess the chances of either bill being pushed through.
    • We continue to watch the Diabetes Caucus is – as of our last check in September, a striking 64% of Diabetes Caucus members hadn’t signed on to co-sponsor the Medicare CGM bill. This has improved a bit since then – another three senators, for example, have signed on (leaving 14 Senate Diabetes Caucus members that still haven’t signed on) – though there is still runway to improve further (we have not tabulated the House numbers, but assume they are in the ballpark). Of course, we believe every Senate and House Diabetes Caucus member should support this bill to ensure a level of safety for people with diabetes, particularly older Americans and the elderly. On the bright side, overall sponsorship of the Medicare CGM bills has significantly improved: the House bill now has 220 co-sponsors (up from 134 last September), while the Senate bill has 42 co-sponsors (up from 27 last September).
  • The Protecting Access to Diabetes Supplies Act of 2015 (HR. 771) was introduced to Congress in January 2015 and is still in committee. The legislation is sponsored by Ms. Diana DeGette (D-CO) – co-leader of the Congressional Diabetes Caucus – and proposes an amendment to the Social Security Act that will strengthen the competitive bidding “50 Percent Rule” and the “Anti-Switching Rule” – see below for details on both. AACE is advocating for the passage of the bill and has published a Legislative Fact Sheet detailing the bill’s provisions and calling for co-sponsors.
    • 50 Percent Rule and Anti-Switching Rule: The former “requires bidders for mail order diabetic supplies to demonstrate that their bids cover at least 50 percent, by volume, of all types of diabetic testing strips on the market.” The latter rule “prohibits contract suppliers from influencing or incentivizing beneficiaries to switch their current glucose monitor and testing supplies brand to another brand.” Both rules had laudable intentions of ensuring a broad supply of popular meters but compliance has been limited. A January 2014 AADE survey demonstrated that none of the suppliers selected in the first round of competitive bidding offered a portfolio of diabetes testing supplies that reflected greater than 50% of the market and that only three suppliers carried each brand of testing supplies that they reported as carrying to Medicare.
    • HR. 771 revises the competitive bidding program in two ways: (i) requiring diabetes test strip volume to be determined through the use of multiple sources of data on the consumption of test strips in the US (to improve the accuracy and reliability of estimates); and (ii) asking that the HHS reject any bidding manufacturer that does not demonstrate that it can supply the strips included in its bid (so that patients are assured access to brands they are promised).
    • If the bill successfully passes through Congress, we think the implications could be very positive. That said, the devil is in the details and Congressional legislation is never an easy road. There is not enough recognition of diabetes as a driver of healthcare costs – both short- and long-term. Until that is understood in a bigger way, we assume dramatic change will be a tough road.
  • A second bill entitled Medicare DMEPOS Competitive Bidding Improvement Act of 2015 (HR. 284) recently passed the House and has moved to the Senate for review. This bill is sponsored by Ohio Representative Mr. Patrick Tiberi, and aims to improve access by ensuring that only worthy bidders receive contracts and (thus preventing interrupted access to supplies). You can read about the legislation in detail here.
  • As a reminder, Congress has voiced concerns with competitive bidding from the beginning of the program in June 2013. At the time, the House of Representatives submitted a letter signed by 227 Congressmen and women requesting that CMS delay the start of the program through the end of 2013 – any delay would have also applied to the national mail-order competitive bidding program for diabetic supplies. Unfortunately, the request came too late and the program went into effect on July 1, 2013. As we noted in our coverage of the news, the letter cited “continued concerns about the lack of transparency, the lack of binding bids during the contract process, and the improper vetting of the financial wherewithal of many firms that have been awarded contracts to service many bid areas far from their current base of operations.”

Medical and Patient Community Response

  • Multiple advocacy groups have expressed concerns over the competitive bidding program for years, and the recent Diabetes Care results have spurred even greater action. Campaigns are grounded in several arguments, including: (i) concerns about product quality and strip accuracy; (ii) reduced budgets to invest in R&D and create products that make it easier to manage diabetes; (iii) the competitive bidding process in general; and (iv) patient access to brand name products. We highlight some of the most notable advocacy efforts below.
  • The Diabetes Patient Advocacy Coalition (DPAC) has organized a petition demanding that Congress suspend the competitive bidding program “until a full and complete investigation can be completed and assurance made that people with diabetes are safe.” The DPAC website highlights the failure of competitive bidding to save money, decrease hospital stays, or save lives, and urges interested parties to send a message to their state Senators and Representatives.
  • Last month, the ADA published a press release advocating for the Office of the Inspector General (which oversees Medicare programs) to perform an independent and comprehensive assessment of the competitive bidding program. The piece expresses concern that CMS’ monitoring of the impact of the competitive bidding program on beneficiaries with diabetes has not been sufficiently robust.
  • On December 14, 2015, AACE President Dr. George Grunberger sent letters to several Congress members asking them to: (i) delay CMS’ re-compete of the national mail-order program for diabetes testing supplies until it can demonstrate safety; and (ii) pass the National Diabetes Clinical Care Commission Act (S 586) that would bring together FDA, CMS, patients, and providers to ensure consistent and effective approaches to new federal programs. Dr. Grunberger’s letters express concern for the safety of Medicare patients, stating that the competitive bidding program has limited choices and restricted access to improved technologies to save costs. However, he points out that the resulting increase in adverse events, mortality rates, and hospitalizations has “ironically…led to overall higher Medicare costs.”

Appendix – Competitive Bidding Primer

The durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) competitive bidding program was created in December 2003 and has since held four rounds of bidding – Round 1, Round 1 Rebid, Round 2, and Round 2 Rebid. The national mail-order (NMO) competitive bidding program for diabetic supplies was conducted in concert with the Round 2 program. For a brief review of the competitive bidding program, we’ve included a timeline below.

December 2003 – The Medicare Prescription Drug, Improvement, and Modernization Act established the durable medical equipment, prosthetics, orthotics, and supplies competitive bidding program, in which CMS solicits bids from contractors for selected DMEPOS products. The program was intended to reduce costs to CMS and Medicare beneficiaries. The first round of competitive bidding, Round 1, was held in ten metropolitan statistical areas (MSAs; defined by the US Office of Management and Budget based on population density) in 2007. Importantly, mail order diabetic supplies were included under selected DMEPOS products.

July 2008 – Round 1 single payment amounts for competitive bidding products went into effect in 10 MSAs; however, after two weeks, the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) terminated supplier contracts in order to implement bidding process changes. Though MIPPA delayed the CBP, it simultaneously imposed a nationwide 9.5% reduction for all Round 1 items in 2009. At this time, CMS planned to conduct a Round 1 Rebid in 2009, a Round 2 program in 2011 in 70 additional MSAs, and a national mail- 0rder (NMO) competitive bidding program for diabetic supplies to be implemented after 2010.

March 2010 – The Affordable Care Act of 2010 expanded the Round 2 program to include 91 MSAs and mandated that all areas of the country would be subject to competitive bidding programs or beholden to competitively bid rates by 2016.

November 2010 – CMS announced that the national mail-order competition for diabetes care supplies would be conducted in 2011. Additionally, CMS finalized the 50-Percent Rule and Anti- Switching Provision as part of the competitive bidding program. The former “required bidders for mail order diabetic supplies to demonstrate that their bids cover at least 50 percent, by volume, of all types of diabetic testing strips on the market.” The latter “prohibits contract suppliers from influencing or incentivizing beneficiaries to switch their current glucose monitor and testing supplies brand to another brand.” For a fuller description, please see CMS’ publication.

January 2011 – The Round 1 Rebid Program went into effect in nine metropolitan areas. The bidding resulted in an average 55% price decrease for mail order strips in these nine locales, as the Medicare payment for a 50-count box of strips dropped to $13.88 - $15.62 (average: $14.62). Prior to Round 1 Rebid, CMS payments for mail order strips in the nine metropolitan areas averaged $37.55 per 50-count box of strips in the retail segment and $32.36 in the mail-order segment. Nationwide, retail averaged $37.67 and mail order $32.47.

July 2012 – CMS hosted an open public meeting regarding the inherent reasonableness (IR) of Medicare fee schedule amounts for non-mail order (retail) diabetic testing supplies. For our coverage of the open floor discussion, please see our July 25, 2012 Closer Look. Overall, while we felt the public generally supported using IR to lower long-term medical costs, great contention existed as to whether CMS should bring retail payment amounts in line with the results of competitive bidding in the mail order arena.

January 2013 (a) – The American Tax Relief Act (ATRA) stipulated that CMS’ current payment adjustment for diabetes care mail order supplies (i.e., the 9.5% payment reduction established by MIPPA July 2008) be applied to the retail arena in April 2013, and that payments established under the national mail order competitive bidding program for diabetic supplies (i.e., the $10.41 single payment amount for 50-count box of strips) be applied to the retail arena July 2013. The new legislation can be found in section 636 of the ATRA.

January 2013 (b) – CMS announced the results of the national mail order diabetic supply and Round 2 CBP. According to CMS, the NMO program resulted in a 72% average payment reduction from current fee schedule amounts, with average Medicare allowable monthly payments for mail order diabetic supplies (e.g., strips, lancets, batteries) decreasing from $77.90 to $22.47.

July 2013 – Round 2 and NMO competitive bidding contracts and prices went into effect with CMS expanding the competitive bidding program to 90 additional areas of the country.

December 2014 – CMS announced the bidding timeline for the Round 2 Recompete and NMO recompete of the DMEPOS CBP. Suppliers competed (with no guaranteed carryover) to become a Medicare contract supplier.

March 2016 – CMS announced the results of the national mail order diabetic supply and Round 2 CBP. Winning suppliers will be announced in Spring 2016. The new contracts and single payment amounts will take effect on July 1, 2016.


-- by Varun Iyengar, Ava Runge, Adam Brown, and Kelly Close