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Letter to the Honorable W. J. "Billy" Tauzin 1 (September 2002)

handle is hein.congrec/cbo9242 and id is 1 raw text is: September 24, 2002 Honorable W. J. Billy Tauzin Chairman Committee on Energy and Commerce U.S. House of Representatives Washington, DC 20515 Dear Mr. Chairman: On June 24, 2002, CBO produced cost estimates for the versions of H.R. 4954, the Medicare Modernization and Prescription Drug Act of 2002, ordered reported by the Committee on Ways and Means and by the Committee on Energy and Commerce. Those bills, and H.R. 4954 as passed by the House of Representatives, included a provision to expand and make permanent a demonstration project in which certain durable medical equipment (DME) and orthotics are acquired through competitive bidding instead of paying on the basis of a fee schedule. A paper by Rodgers and Smith of PricewaterhouseCoopers L.L.P. (PwC) raises a number of questions about CBO's estimate and provides an alternative illustrative calculation of the budgetary effect of that provision.1 This letter discusses both the basis of CBO's estimate and issues raised by the PwC paper. CBO estimated that implementing the provision establishing competitive bidding for DME would reduce direct spending for Medicare by $7.7 billion over the 2003-2012 period, before taking into account the effect of that reduction in spending on premiums paid by beneficiaries. Lower premiums would offset about 25 percent of those savings, resulting in an estimated net reduction in direct spending of $5.8 billion over the 10-year period.2 The PwC paper provides an illustrative example of alternative calculations that yield savings of about $1 billion over the same period. Competitive Bidding Proposal. The act would require the Secretary of Health and Human Services to establish a competitive bidding program for durable medical equipment beginning in 2004, with 1. Rodgers, J. and L. Smith, Misunderstandings and Uncertainties Overstate Likely Savings from Competitive Bidding in the Medicare DME Market, PricewaterhouseCoopers, July 19,, 2002. 2. Those estimates reflect changes in spending for beneficiaries in Medicare's fee-for-service sector only, and do not reflect the interaction of changes in spending for beneficiaries in the fee-for-service sector with payments for beneficiaries in group plans.

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