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U.S. expects big Medicare savings from competitive bid program

By David Morgan

WASHINGTON (Reuters) - Medicare and its beneficiaries in 100 metropolitan areas will pay less for durable equipment beginning July 1.

The new prices, set by competitive bidding, are expected to save 45 percent on average, on products including walkers, wheelchairs, oxygen equipment, hospital beds and prosthetics. Diabetic testing supplies will be available at savings of 72 percent through a separate national mail-order program.

Medicare is forecast to spend $598 billion this year on benefits for 50 million elderly and disabled beneficiaries. Its finances will come under mounting pressure, as the beneficiary population hits 80 million and spending tops 7 percent of the U.S. economy by 2030.

Wednesday's announcement illustrates the savings that traditional fee-for-service Medicare could achieve at a time when analysts, policymakers and lawmakers are considering ways to reduce spending as part of deficit reduction. Some have recommended broad use of the competitive bidding process for a host of private operators that do business with Medicare, including private insurers.

Until now, Medicare prices for durable equipment and related supplies have been set according to a fee schedule that was established in the 1980s and has been updated for inflation. But officials at the U.S. Department of Health and Human Services say the older system has proved vulnerable to fraud and price inflation.

About 20 million people who receive Medicare fee-for-service benefits live in the 100 metropolitan areas where the program is scheduled to operate, according to officials with the U.S. Department of Health and Human Services. Only a fraction of those beneficiaries need durable equipment supplies.

But the initiative is expected to save $27 billion for Medicare Part B, which covers physician and out-patient services, and $17 billion for beneficiaries, between 2013 and 2022.

"The program for far too long has been overpaying for these supplies and has led to numerous fraud concerns, over-utilization concerns," Jonathan Blum, director of HHS's Center for Medicare, told reporters in a conference call.

To demonstrate the scale of savings, officials said competitive bidding cut the price Medicare pays for a home hospital bed from $1,376 under the old schedule to $737. The co-insurance cost for beneficiaries fell from $275 to $147.

For diabetic lancets and test strips, the monthly cost will fall from $77.90 to $22.47 for Medicare and from $15.58 to $4.49 for beneficiaries.

Medicare moved to a competitive bidding process in nine metropolitan areas in 2011 and has expanded the practice to an additional 91 areas for the coming fiscal year. In its first year of operation, competitive bidding saved Medicare about $202 million.

HHS officials said lower prices would require some beneficiaries to change suppliers who are unwilling to meet prices set through competitive bidding. But they said Medicare has found few problems in the initial program.

(Reporting by David Morgan; editing by Jilian Mincer and Matthew Lewis)

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