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As health reform bills consume Congress, a battle over a program designed to help cut soaring rates of Medicare overpayment and fraud is playing out unnoticed on the sidelines.

The dispute concerns so-called durable medical equipment — items like power wheelchairs and oxygen supplies. Federal investigators have long complained that the equipment business was a hotbed of Medicare abuse. A competitive bidding program for durable medical equipment finally went into effect late last month after an 18-month delay that was mandated by Congress. But a bill introduced by Florida Democrat Kendrick Meek that would scrap the competitive bidding program for good has picked up 70 cosponsors since it was introduced five weeks ago.

The squabble is occurring just as the Department of Health and Human Services is reporting — according to the Associated Press — that the federal government paid more than $47 billion in questionable Medicare claims in fiscal year 2009, and just as President Obama prepares to sign an executive order cracking down on improper payments by a variety of federal programs, Medicare prominently among them.

The roots of the fight over durable medical equipment go back to 2003, when Congress authorized the Competitive Bidding Program as part of the Medicare Modernization Act. The bidding program required medical equipment suppliers to bid for Medicare contracts, overturning a system under which suppliers would automatically be paid under an established system of fees. Medicare officials expected competitive bidding would drive down prices and weed out fraudulent suppliers in an industry long plagued by shady storefront businesses, corrupt medical professionals, and organized crime.

The Government Accountability Office has concluded in numerous reports going back more than a decade that Medicare pays far higher than market rates for medical equipment. The federal Centers for Medicare & Medicaid Services estimated that Medicare improperly paid $1 billion for durable medical equipment from April 2006 to March 2007, in part due to fraud, according to a 2008 GAO report.

“Across the board, durable medical equipment has been an area where fraudsters have loved to prey for a long time,” said Gerry Roy, the assistant inspector general for investigations at Health and Human Services’ Office of Inspector General. Roy said organized criminal groups set up fake storefronts for 60 days and move on after bilking Medicare for hundreds of thousands of dollars in fraudulent claims for products including wheelchairs, oxygen, and prosthetics.

The competitive bidding program finally kicked off in July 2008 in ten metropolitan areas. But less than three weeks later, Congress passed a Medicare bill, over President George W. Bush’s veto, that delayed implementation of the program for 18 months. Awarded contracts were terminated, splitting the supplier community into factions of those who won contracts and stood to profit and those who lost.

Now that bidding has re-launched (this time in nine metropolitan areas), the bulk of the durable medical equipment industry, which lobbied against the program, has found a new champion in Meek — a 2010 candidate for Florida’s open U.S. Senate seat. In mid-October, Meek introduced House Bill 3790, which would repeal the Competitive Bidding Program.

Meek’s spokesman Mahen Gunaratna said the bill is necessary because the Centers for Medicare & Medicaid Services have not fixed problems that led to the program’s 2008 delay, including the number of “illegitimate bidders” with no manufacturing experience who won contracts.

“Entire counties were left without a bid winner for suppliers of oxygen and respiratory assist devices,” Gunaratna wrote in a prepared response to questions from the Center for Public Integrity. He said Meek pushed to include language from the bill in congressional health reform efforts, but now considers his legislation a stand-alone measure. The bill has been referred to the Committee on Energy and Commerce and the Committee on Ways and Means.

Peter Ashkenaz, a spokesman for the Centers for Medicare & Medicaid Services, a branch of Health and Human Services, said he is not aware of any counties that were left without bids for supplies. He admits, however, that the program had technical problems during the first bidding round — problems he said have been resolved. And Medicare suppliers are now required to be registered and bonded, which Ashkenaz said will prevent illegitimate companies from bidding.

Ashkenaz said the program will save money by forcing suppliers to compete — just as they do with other government agencies that use competitive bidding, including the Department of Defense. During the first round of competitive bidding back in 2008, Ashkenaz said, the Centers for Medicare & Medicaid Services signed contracts with 325 suppliers, among the 1,005 suppliers who submitted bids. “Before the bidding program was delayed we found a savings of 26 percent,” he said.

Among those enraged by the bidding delay back then was President George W. Bush’s Secretary of Health and Human Services at the time, Michael Leavitt. “If Congress fails to uphold even this modest effort at entitlement reform,” wrote Leavitt in The Wall Street Journal, “there is little reason to believe its members will muster the political courage for the unspeakably harder choices that await them.”

But even some of the winners had questions about the program. Tim Robinson, vice president of Mobility Medical Equipment in Addison, Texas, won a contract in the first round to supply power wheelchairs. Although winning would have meant a big increase in orders, Robinson doesn’t support the bidding program because he fears it will drive down profit margins. “It probably will help get rid of the fraud because it will take care of a lot of the profit,” Robinson said. “The legitimate business people will have to run their business on a closer margin, but the thieves will move on. They will find some other way to scam the government.”

Robinson, who is re-bidding for a contract this year, admits that a patient can buy a wheelchair on the Internet for much less than Medicare pays, but he said the price comparison doesn’t take into account his time working with patients and doctors and fitting the wheelchair. And it doesn’t take into account what he calls an onerous Medicare billing process.

Industry watchers on both sides of the competitive bidding issue say they doubt Meek’s bill will gain much traction during the current health care reform debate. Judging from campaign contributions and industry lobbying efforts, however, it is clear that the struggle will continue.

In the first three quarters of 2009, Meek and 27 of the cosponsors of the bill received more than $82,000 in campaign contributions from the medical supplies industry, according to the Center for Responsive Politics. Meek alone received $20,750.

Over that same time period, health care interests spent more than $21 million to lobby Congress on Medicare supplier bonding requirements, the competitive acquisition program, and other legislative and regulatory issues, according to a Center for Public Integrity analysis of Senate lobby disclosure forms. The collection of interests ranged from medical equipment manufacturers and associations to the retail companies CVS Caremark, Wal-Mart, and Target.

Considering the stakes, Paul Precht, spokesman for the Medicare Rights Center, an advocacy group that promotes affordable care for seniors and the disabled, said he’s not surprised that “suppliers that are affected put a bill together to rally around to repeal the program.” But he thinks the current cost-cutting mindset of health care financing makes Meeks’ bill a tough sell. “I don’t see any appetite to reverse a policy where Medicare overpays,” he said.

Medical equipment suppliers say if they fail to scuttle the complete program, they will attack it piece by piece. “We want to get rid of the program,” said Alex Bennewith, senior manager for government affairs for the American Association for Homecare, one of the main lobbying voices for the durable medical equipment industry in Washington, D.C. “And if that doesn’t happen, we’re working to improve it,” she said.

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