Yesterday the Centers for Medicare & Medicaid Services (CMS) announced the results for Round 1 of competitive bidding and according to a press release issued by CMS; “The Centers for Medicare & Medicaid Services (CMS) today announced new, lower Medicare prices that will go into effect this July in a major expansion of the Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program. The CMS Office of the Actuary estimates that the program will save the Medicare Part B Trust Fund $25.7 billion and beneficiaries $17.1 billion between 2013 and 2022. Medicare beneficiaries in 91 major metropolitan areas will save an average of 45 percent for certain DMEPOS items scheduled to begin on July 1, 2013.
Medicare beneficiaries across the country will save an average of 72 percent on diabetic testing supplies under a national mail-order program starting at the same time.”
The winning bid $10.41 for a box of 50 test strips and no this is not an early April Fool’s joke. Diabetic Investor had anticipated a very low winning bid perhaps around $13 but in no way did we expect an ultra-low winning bid of $10.41. A winning bid which is being felt at every major glucose monitoring company who understands there is no way they can effectively compete in the huge Medicare market and still have any hope at all of making a profit.
Considering the winning bid it’s almost guaranteed that another Diabetic Investor prediction will come true as the market for BGM will become one of the haves and have not’s. Medicare patients due to the ultra-low winning bid will either be forced to switch to a cheaper system, more than likely made overseas, or pay out of pocket for their supplies should they prefer to stay on their existing system. Patients not covered by Medicare who have quality plans will have access to the better systems which offer state of the art technology. However, it should be noted that many private payors model their reimbursement rates after what Medicare pays- as if the major players didn’t already have enough to worry about.
As we have noted for some time – LifeScan, a unit of Johnson and Johnson (NYSE:JNJ), Roche, Abbott (NYSE:ABT) and Bayer – will now battle fiercely over capturing insulin using patients who are not covered by Medicare. It’s also pretty much guaranteed this news will adversely impact all the smaller, lesser well-known companies who are developing way cool technology that nobody wants to pay for. More than ever the BGM market is one all about scale as companies must have it if they are to have any chance at all to make a profit.
It makes Diabetic Investor wonder what a company like Sanofi (NYSE:SNY) might do. Will they finally acknowledge that the iBGStar while way cool was a disaster as they never fully supported the product which needed all the support it could muster if it were to have any chance at all. Or will they double down go back to Bayer and say they once again have changed their minds and now want to proceed with the deal. Perhaps they will really go for the gusto and try and persuade Roche to sell their troubled diabetes unit. Diabetic Investor is watching this situation closely as the company appears to be positioning for a 2013 Wacky Wabbit award, but as we have noted previously the list of nominees is already long and were only one month into the New Year.
We also wonder what’s being said in Alameda, California home of Abbott Diabetes or Indianapolis, Indiana home of Roche Diabetes or the company’s corporate headquarters in Switzerland. Just yesterday Roche who reported results noted they are looking for even more ways to cut costs, while Abbott has begun yet another round of job cuts. Even market leader LifeScan is not immune to the impact which makes one wonder whether the mother ship, who is known not just for buying businesses but also divesting units may decide they’ve had enough.
Finally we wonder what the BGM market will look like five years from today which to Diabetic Investor is the greatest unknown. The possibility exists that none, that’s right none of the current major players will still be in the market. It’s quite possible that in some ways we’ll go back to the way the business was 15 or 20 years ago when the majority of companies were privately held and management did not have to worry about quarter results or satisfying the demands of their stakeholders.
The other possibility is BGM will morph into a completely different business where the glucose monitor is just one element of a broader diabetes management system, where the profit does not come solely from the sale of test strips but more related to the software licenses and disease management services. Diabetic Investor has long believed that one day physicians would no longer prescribe the individual pieces of diabetes management but a complete diabetes management system where all the pieces, drugs and devices, are provided by one company.
Whatever the future holds one thing is certain January 30, 2013 will likely go down as the beginning of the end for BGM as we know it. The fat lady is starting to sing and like the classic rock song American Pie, the one and only hit for Don Mclean which was inspired by the death of rock legend Bubby Holly, the swan song for BGM will be noted by one simple number – $10.41.