Good Luck

Good Luck

It seems that glucose monitoring companies aren’t the only ones unhappy with the most recent round of competitive bidding conducted by CMS. A round which witnessed the reduction in reimbursement for a box of 50 test strips go from $10.41 to $8.32.  As noted and not just by Diabetic Investor competitive bidding has basically turned Medicare patients into second class citizens as the branded BGM companies just can’t make money in this market channel.

Basically Medicare patients are regulated to using no name meters made off shore that may or may not deliver accurate test results. Keep in mind just because a meter is approved by the FDA this does not mean these no-name companies can manufacture a quality product consistently. What it does mean however is due to these ultra-low reimbursement rates Medicare patients are not just regulated to use no-name meters but also meters which lack many of the features available with the more popular branded offerings.

Now none of this should surprise anyone as this is what everyone wanted, lower prices for diabetes testing supplies. Prior to competitive what did we hear? Manufacturers were raping customers, the cost of diabetes testing supplies were too high, that patients weren’t testing because of the cost, that it was time for the government to step in and do something about the exorbitant cost of diabetes testing supplies.  (If this sounds like what we are now hearing about the “rising” cost of insulin, the tone is eerily familiar and should give these people a moment of pause, but let’s not digress to this debate just yet.)

Well as it turns out the same people who were complaining that the cost of diabetes testing was too high are now complaining that CMS reimbursement is too LOW.  That lower reimbursement is HURTING not helping patients. According to a story posted on; “With drastically reduced payment amounts for diabetes test strips looming, advocates have taken to social media to call for a suspension of Medicare’s competitive bidding program.”

The story goes onto to state;

“Although CMS says there has been no disruption in access to diabetes supplies as a result of payment reductions, a *study by the National Minority Quality Forum, first presented in June and recently published in the prestigious medical journal Diabetes Care, found not only decreased access, but also increased hospitalizations and deaths in test markets.”

All we can say to these groups looking for CMS to suspend competitive bidding is good luck. This is not to say these groups do not have a valid point, rather this is like trying to put the genie back in the bottle. That their efforts should have come BEFORE competitive bidding started in the first place. Listen we hate to point out the obvious but anyone with even the slightest knowledge of how the market for diabetes testing supplies works knew competitive bidding would have a major impact on patients.

The government correctly anticipated that BGM companies seeing the huge size of the Medicare channel companies would offer ultra-low bids hoping to make up in volume what they lost in margins. This is exactly what happened as after the first round competitive bidding prices decreased by over 70%. A move which was supposed to save the government billions and at the time was hailed as a major victory for patients. After all, how could it be a bad thing that the government was saving money and costs to the patient were going down.

What these patient advocate groups did not anticipate was that the companies who won the bids would be a bunch of no-name companies that no one had ever heard of. Companies that had no choice to be offer ultra-cheap meters that lacked many of the features patients had grown accustomed too.

Nor did these groups understand that in order to make a profit these no name companies would have to make certain adjustments. That costly items such as customer support and quality manufacturing processes would go by the wayside. As we noted earlier just because the systems were approved by the FDA this did not guarantee that these companies could manufacture a quality product consistently.  The reality which was obvious to Diabetic Investor yet oblivious to these patient advocates was that in order to make money at these ultra-low prices companies had to make these adjustments.

Where these patient advocates seriously miscalculated was they just assumed the major branded companies like Johnson and Johnson (NYSE: JNJ), Abbott (NYSE: ABT) and Roche would not want to risk losing valuable market share. That they would offer ultra-low bids and make up in volume what they were losing in margin. Basically these patient advocates assumed that patients would continue to use these branded systems the only difference being they would come with a lower cost.

Instead after crunching the numbers the branded companies offered bids which allowed them to make a reasonable profit. Knowing the complex dynamics of the BGM market they reasoned there was no way any company could make a profit with an ultra-low cutthroat bid. Yes, they knew there was a bunch of no-name offshore ultra-low cost manufacturers who could eke out a small profit with an ultra-low bid but figured the government would offset these ultra-low bids with the fact that patients needed systems that came with a proven record for delivering accurate results. They did not believe it would just be about money that the government would be reasonable.

Just as the patient advocates were somewhat delusional so too were the branded companies, who frankly should have known better. They should have known that when it comes to saving taxpayers billions of dollars CMS would give quality lip service. They should have also known that CMS like most everyone else believed that all meters did the same thing the same way, that it wouldn’t make a difference which system patients used as they were all the same.

The reality here is about the only people who weren’t delusional were the folks at CMS. For in the end that got exactly what they wanted.

Again we don’t want to minimize the noble goals of what these patient advocates are trying to accomplish as misguided as they may be. The harsh reality however is these noble efforts have little chance of succeeding if for no other reason that the government has already booked the savings generated by competitive bidding into future budgets. Yes, we know this convoluted accounting but this is how our government works. Basically what these patient advocates must prove is that higher reimbursement for diabetes testing supplies SAVES money. That the government should be spending MORE money not “saving” money.

This is also the reason Diabetic Investor is concerned with the recent uproar over the “rising” cost of insulin. Listen we have no doubt for a certain segment of the patient population the cost of insulin, however you want to define cost, is impacting outcomes. On the flip side we also have no doubt that if the government gets involved whether it be through price controls or new regulations this situation will get worse not better. Competitive bidding in the diabetes testing supply arena is living proof of this.

Just as the dynamics of the BGM market are not as simple as everyone seems to believe they are, the dynamics of the insulin market are even more complex. Do patient advocates who ae now clamoring for lower insulin costs really want the government to get involved and “solve” this problem. Have they not learned from competitive bidding that all the government cares about is saving money? That when it comes to insulin, a lifesaving but also lethal drug, that better not take any chances with the quality of the product.

Now there are those who will argue that insulin companies like Lilly (NYSE: LLY), Novo Nordisk (NYSE: NVO) and Sanofi (NYSE: SNY) are raping patients just as the BGM companies were raping patients. That these companies are making obscene margins and charging excessive prices for a product that they cannot live without. That all these companies care about is the almighty dollar. That the first responsibility of these for profit publicly traded companies is to patients and NOT to their stakeholders.

Do they not realize that whether its price controls or new regulations these insulin companies will do exactly what the major BGM companies did? They will crunch the numbers, offer a reasonable bid and/or price only to get outbid or undercut by some no name insulin company they have never heard of. A company which may or may not have the ability to manufacture a quality product. That like BGM just because they have achieved FDA approval for an insulin this does not guarantee quality manufacturing processes.

Whether these patient advocates who complain loudly about the “rising” cost of insulin realize it or not, about all price controls or new regulations would do is to destroy the insulin market. With the added bonus of stifling innovation and new drug development. Yes, we know these advocates just hate it when we note that this is the BUSINESS of diabetes, that this is America and the last time we looked it was still legal to make a profit. But the simple fact is the only reason patients have newer and better insulin’s, the only reasons these companies are working on even better insulin’s is they can make a profit in the insulin market.

This is not to say these patient advocates don’t have a legitimate grip, as yes there is no doubt, even without hard evidence that for a segment of the patient population the cost of insulin is impacting outcomes. Yet it also true as we have seen with the impact of competitive bidding that the “supposed” cure is no cure at all and only makes the situation worse not better.

And one last point as we cannot leave these topics without noting how the groups who are supposed to protect patients have failed. That the American Diabetes Association (ADA), JDRF, American Association of Clinical Endocrinologists (AACE) and the American Association of Diabetes Educators (AADE) should learn from past mistakes made with competitive bidding. That competitive bidding like it or not is here to stay and any effort to change competitive is doomed to fail. That they should not waste time and precious resources to fight an unwinnable battle.

That instead they should marshal their resources to come up with a fair and balanced solution to the cost of insulin issue. That this solution should take into account not just the concerns of patients but also the concerns of industry. For years there has been an uneasy relationship between patient advocates and industry, a basic distrust that frankly goes both ways. Well it’s time to bury the hatchet, time to listen to each other and realize that in the end everyone will be a little bit unhappy.

Without this cooperation or understanding, with no coherent voice the solution will be left in the hands of government and as we have seen with competitive bidding this didn’t help anyone, patients or industry. As Momma Kliff used to say; It’s not necessary that everyone love each other but a little understanding and cooperation goes a long way.