A fork in the road – how competitive bidding will forever change BGM.

A fork in the road – how competitive bidding will forever change BGM.

This week, assuming the weather cooperates, the Republicans will be holding their convention in Tampa. Although Mitt Romney clinched the nomination long ago, the plan for the convention is to outline the differences between himself and President Obama, giving voters a clear contrast between two visions for the future of America. One area which will surely be a hot topic this election year is the future of ObamaCare; Romney has publicly stated he wants to repeal the President’s health care plan and start all over. Another hot topic will be our nation’s growing budget deficit and what the next administration can do to get this under control. However, when it comes to improving health care and trimming the budget deficit these two goals don’t necessarily go together.

A perfect example of this is the debate over glucose monitoring supplies and competitive bidding. On the surface the government’s attempt to lower costs using competitive bidding seems to make perfect sense. While glucose monitoring companies may disagree there really isn’t much difference monitors and it really doesn’t matter which system is used as they all deliver the same piece of information. It is also a well-known fact that the majority of patients don’t even know which system their using and when asked usually state; “This is what my insurance company pays for.” Brand loyalty and glucose monitoring are like oil and water, they don’t mix.

Given this set of circumstances why not save the taxpayers some money and have the glucose monitoring companies compete. As we noted earlier at first glance this seems like the ultimate win-win scenario; the government saves money and Medicare recipients continue to receive a quality product.  However, this being a government run program what seems like a good idea on the surface becomes a nightmare when one examines the details of the program.

Long ago when competitive bidding was first introduced Diabetic Investor predicted that there was no way the major player would be able to compete effectively. That these publicly held companies have stakeholders to answer to and these stakeholders expect these companies to make a profit on the products they sell. However, when it comes to competitive bidding these large companies are actually at strategic disadvantage. While it is true they have a large share of the market, it is also true they have equally large infrastructures; infrastructures which are not just necessary to support their large share of the market but also add significantly to their cost structures.

Smaller companies, most of which are based off-shore, are not burdened by these costs and can submit much lower bids. They know the government is not interested in the quality of their products as like the general public they assume that since the FDA has approved the monitor it’s good enough for anyone to use. This is the same reason Nipro Diagnostics and Arkray can sell co-branded products at a much lower cost than the branded systems. As we noted only a few weeks ago Arkray has become Wal Mart’s newest supplier who is selling a box of 50 test strips for under $10. Nipro and Arkray can sell systems at much lower cost as they do not carry the high internal costs that the branded players carry.

It should also be noted that the major branded players aren’t the only companies which will be adversely impacted by competitive bidding, as the large retail pharmacy chains are also concerned. According to an article published last Wednesday posted on insidehealthpolicy.com entitled Pharmacists Eye Counseling Pay To Keep Diabetic Test Strip On Shelves; “Retail pharmacists say they will stop selling the supplies if CMS cuts payment anywhere close to the competitive bid price for mail-order supplies, but if Medicare were to pay pharmacists for counseling diabetics, that would both save Medicare money and provide pharmacists a way to continue selling supplies, industry sources say.”

Adding to the problem is the belief by Diabetic Investor that private insurers, who are already demanding further price concessions from the branded players, will use competitive bidding to ratchet up this pressure further and at the same stop reimbursing for non-insulin using patients; just as the government is looking at controlling the cost of treating diabetes so are private insurers. Already we have seen cost shifting take place as insurers are increasing patient co-payments for test strips. Given the many studies that have concluded that there is no corresponding improvement in outcomes when a non-insulin using patients monitors their glucose regularly these insures have the cover they need to take the next logical step and eliminate reimbursement unless the patient is following insulin therapy.

To be clear here Diabetic Investor does not dispute the findings of these studies, however we do believe the majority that we have read have one fundamental flaw, in that, they focus on the act of testing itself and not what the patient does or does not do after the test is performed. There are other studies that conclude that when patient education is combined with increased glucose monitoring non-insulin using patients do experience improved outcomes, often dramatic improvements.

Herein lays the main issue surrounding competitive bidding, an issue we believe boils down to money, who spends it, how much is spent and who makes it. The fact is for all their bluster about providing patients with free education, most retail pharmacists even if they were compensated for patient education would not be able to do so. The fact is for the larger pharmacy chains the pharmacy is the goose that lays the golden eggs and it would be counterproductive to take the pharmacist away from the area that generates over 80% of revenue. It is also true that while pharmacists do understand diabetes, education would be more effectively handled by a Certified Diabetes Educator (CDE). Still the reality for the major pharmacy chains is diabetes education whether it is delivered by the pharmacist or a CDE is not cost effective. This is one time when scale works against these major retailers who have 8,000 stores or more scattered across the country.

To Diabetic Investor the real issue here is short-term savings versus long term results. There is no question that competitive bidding is here to stay, although the exact nature of how it will work will likely change. It’s also highly unlikely given the current fiscal environment that the government will spend MORE money compensating pharmacists for patient education. The government is already spending billions on test strips, sees the Baby Boomers becoming Medicare eligible and they read the same studies the insurers have read which conclude that there is little, if any, benefit when non-insulin patients test regularly.  Simply put there is nothing standing in their way, no real reason not to proceed with competitive bidding. Politicians can then go back to their districts and state they are actually doing something which always looks good, especially this year when many are up for reelection and fiscal responsibility being a hot button issue.

On the flip side this zest to cut cost in the short term will likely have devastating consequences over the long term as Diabetic Investor believes we’ll see an increase in the many complications that are associated with poorly controlled diabetes. These complications are not just deadly, they are also very expensive to treat, a cost that will also be passed onto taxpayers albeit at a later date.  Studies have proven that well controlled diabetes not only saves employers money when it comes to healthcare costs, but also saves insurers and the government money as these patients do not experience many of the costly complications associated with poorly controlled diabetes.

The fact is like so many issues faced today it’s not a question of how much is being spent rather when the money is spent and who spends it. Yes it’s likely that competitive bidding will save the taxpayer money in the short term; however these short-term savings will be dwarfed by the costs incurred when complications set in. The reality is IF the government would reimburse for patients education, no matter who provided this education, it would not just save billions but also send a powerful message to private insurers and employers. Instead the exact opposite message is being sent and what looks like savings in the short term will turn out to be mirage.

The main problem is the savings from patient education is not a sure thing and is difficult to quantify, whereas the savings from competitive bidding are very real and can be easily quantified. This has always been the fundamental issue surrounding education, quantifying that education actually saves money or for a company in the business of diabetes can be used to increase and not detract from revenues. The fact is even educated patients experience complications; this unfortunately is the nature of the beast. Diabetes is chronic condition which requires a high level of patient participation, as we have said before managing diabetes is a 24x7x365 job with no days off.

Yet, it is also true that educated patients are more compliant with their therapy which means that are spending more, not less, money on devices and drugs. It also means these educated patients visit the pharmacy more, not less, often to refill their prescriptions. What it really means is that education can enhance, not detract, from revenues. A message industry better learn and in a hurry as the government has already chosen their path and even with the intense lobbying effort going on behind the scenes they will not dramatically alter the path they chosen.

So here we stand at a fork in the road, one which leads to short term savings and increased cost over the long term or another which is likely to enhance revenues while producing greater cost savings over long term not to mention the improvement in people’s lives. The government has made their choice the only question now is will industry follow this dangerous path or will they provide the true leadership needed so that the diabetes epidemic does not become a more devastating healthcare and economic disaster then it already is.