The End Of Competitive Bidding
There has been great deal of speculation on the what effect, if any, competitive bidding would have on PolyMedica (NASDAQ:PLMD), Walgreens (NYSE:WAG), Home Diagnostics (NASDAQ:HDIX) and AgaMatrix. Also watching with a great deal of interest are CCS Medical, Byram Healthcare and the major players in blood glucose monitoring.
Like most government efforts involving healthcare and Medicare the goal was to save taxpayer money. The government spends billions on meters, test strips and lancets and with the diabetes epidemic continuing will spend billions more in the future. Under the current system the government sets the price it is willing to pay for testing supplies. The hope with competitive bidding was that companies anxious to capture this large market segment would offer better pricing and ultimately lower what the government has to pay.
In typical government fashion things aren’t exactly working out as planned. The implantation of competitive has been delayed again and it’s anyone guess if this will ever see the light of day. It would have been much easier if the government instituted a 10% cut in reimbursement rates but that would just be logical and simple.
Diabetic Investor has maintained that even if competitive bidding became a reality it would only have a minor effect on the many companies involved. The fact of the matter is meter companies are already lower their manufacturing costs as the dynamics of the blood glucose monitoring market have forced them to do so. These costs reductions are also extending to SG&A as we seen several of the major BGM companies trim their sales forces.
A bigger problem facing the industry is what happens when insurers in an effort to lower their growing costs beginning changing the way they reimburse for testing supplies. For years it was assumed that there was a direct correlation between testing frequency and better outcomes. However the evidence supporting this view is divided. For every study that shows that frequent testing leads to better outcomes there is another that maintains the opposite. This particularly true when it comes to non-insulin patients. Unlike patients on insulin who need this information so they can properly dose their insulin, non-insulin patients have little use for this data.
This is not to say the data is not valuable and non-insulin patients shouldn’t test. On the contrary frequent testing can reveal whether or not the patients treatment regimen is working or if a change is needed. The problem is test results alone do not tell the whole picture. There are several factors that affect test results; food intake, exercise, stress levels, etc. To get a realistic reading on how a patient is doing test results need to be viewed with this additional information.
In the studies that do show improved outcomes with frequent testing a common thread among them is, in addition to testing the patient receives help from a diabetes educator or nurse. There is someone available to explain things and help them understand what factors go into the test results.
Diabetic Investor has written extensively on the dismal state of diabetes education. It’s no accident that in the studies with non-insulin using patients the ones that show little benefit from frequent testing do not have an educational component. It will be these studies which insurers will grasp onto to change the way they reimburse for testing supplies. In actuality this move is already underway as co-pays for testing supplies have been on the rise. The next logical step is for insurers to stop reimbursing for non-insulin using patients or raise co-pays to such a height that they will accomplish the desired goal of lower costs.
It would come as no surprise to Diabetic Investor if sometime in the next three years a major insurer stops reimbursing for testing supplies altogether. This could set off an avalanche of change and have a devastating impact on the BGM market. When this day comes there will be cries from the industry that testing is invaluable and insurers are putting profits ahead of good health. In reality they will have no to blame but themselves.
The industry has spent far too much money on developing meters with fancy features that no one uses instead of pushing for better patient education. If something isn’t done and done quickly this trend against testing will be difficult to reverse. Time is running out.