LEdPrE OC mENT NoLF V A L/3 L E NJI United States General Accounting Office (NJ W4ashington, D.C. 20548 r4 FOR RELEASE ON DELIVERY Exoected at 9:30 a.m. EDT Wednesday, May 25, 1977 Statement of Gregory J. Ahart, Director Human Resources Division before the Subcommittee on Monopoly Select Committee on Small Business United States Senate on Procurement of Eyeglasses and Other Medicaid Supolies and Services Mr. Chairman and Members of the Subcommittee: We are oleased to aopear here today to discuss our review of the rocurement of eyeglasses and other Medicaid sunplies and services. We are making a review of the practices of four States--California, Idaho, Oregon, and Washington--for obtaining eyeglasses, hearing aids, oxygen, and durable medi- cal euipment for Medicaid recipients. We have also obtained information on New York City's attempt to contract for the purchase of Medicaid clinical laboratory services. Since our review is not yet comolete, our comments today will be limited primarily to the purchase of eyeglasses for Medicaid recipients and New York City's attemot to contract for the purchase of Medicaid clinical laboratory services. Medicaid--authorized by Title XIX of the Social Security Act, as amended--is a grant-in-aid program under which the Federal Government pays part of the costs incurred by States in providing medical supplies and services to persons unable to pay for such care. The Federal Government Days rom 50 to 78 percent of the costs incurred by States in providing medical suDolies and services under the Medicaid oroqram. The Health Care Financinq Administration of the Deoart- ment of Health, Education, and Welfare (HEW) administers Medicaid at the Federal level. The individual States are resoonsible for administerinq their individual Medicaid prograins. Under the Medicaid program, reimbursement rocedures for eyeglasses and other suoolies and services are set forth in the individual State plans. Payments for such items are qenerally limited to the vendor's usual and customary charges. In some States, these charges are also subject to ore-established State maximum prices. Participating vendors agree that the amount paid by Medicaid will be accepted as ayment in full. LIMITED MEDICAID COVERAGE OF MEDICAL SUPPLIES AND SERVICES The Social Security Act reauires that Medicaid services be proided to persons receiving federally supported financial assistance--generally kncwn as the categorically needy. In - 2- addition, States can cover other persons, generally known as the medically needy, whose incomes and other resources exceed State or Federal requirements to qualify for D,iblic assistance but which are not enouqh to pay for necessary medical care. The Social Security Act requires that State Medicaid programs provide certain basic services includinq laboratory and X-ray services. However, while eyeglasses and hearing aids must be Dnovided to children, they are otional services for other Medicai.d recipients which mav be provided if a State so chooses. Thirty-five States and jurisdictions rovide eyeglasses to Medicaid recipients, but 10 of these States do not rovide eyeglasses to the medically needy. Seventeen States and Puerto Rico do not rovide eyeglasses to Medicaid recinientL other than children. Twenty-three States rovide hearina aids to adults, but nine of these do not provide aids to the medically needy. Twenty-six States and the District of Columbia do not. provide hearing aids to adults. F;)rty-two States and jurisdictions provide durable medical equioment such as wheelchairs, crutches, and canes, to Medicaid recipients, but 1 of these States do not provide durable medi- cal equipment to the medically needy. Ten States and - 3 - Pu2rto Rico do not provide ciurable medical equipment under their Medicaid proqrams. To illustrate the differences in Statt practices, Cali- fornia and Washington rovide eyeglasses, hearing aids, and iurable medical equipmert tI, both the categorically and medi- cally needy, while Oregon Provides such services nly to the categorically needy, and Iaho rovides eyeglasses and hearing aids only to eligible children. STATE PRACTICES FOR PURCHASING EYEGLASSES California The California State Department of health, edi-Cal Division, administers the State's Medicaid orogram. Reimburse- ments for ontometric services are based on the State's maximum reimbursement rates or the provider's usual and customary charge, whichever is lower. The Rates and Fees Section of the Department of Health establishes the maximum reimbursement rates for medical services. In addition to materiel costs, the maximum allowances include services such as fittinq, adjusting, and followup visits. The maximum reimbursement rates are based on a 1975 study by the Rates and Fees Section of material and service cost data provided by opticians and optometrists. The cost data obtained in the study was us d to determine the proposed payment level. - 4 - The 50th percentile of the reported usual and customary charges was used to establish the payment level for lenses. The State determined that the 50th percentile would cover the costs reported by most optometrists and orovide an adequate profit. The maximum payment level for single vision lass lens ranged from $12.3U to $37.75, deDendinq on the type and strength of the lens. These prices include both provider services and material. For example, the $12.30 lens price includes $5.41 for material and $6.89 for orovider services. The reimbursement rate for frames was set at $14, at the 28th percentile. The State felt that an adequate number of durable and serviceable plastic frames were avai' bhle at a maximum price of $14 which includes $8 for frames and 6 for provider services. During calendar year 1976, California paid about $7,246,0U0 for the material cost of eveglass lenses and frames under the Medicaid program. During 1976, California's averaqe material price was 5.4~ for one single vision lens, 1U.16 for one bifocal lens, and 7.91 for frames. Idahe The Idaho Department of Health and Welfare, Bureau of Medical Assistance administers the State's Medicaid program. Payments for eyeglasses are limited to 20 for frames, $22 for - 5- a pair of single vision lses, and $25 for a pair of bifocal lenses, or the provider's usual and customary charge, which- ever is lower. Accordingly, the maximum rice for single vision eyeglass lenses and frames is $42. The Chief of the Bureau of Medical Assistance advised us that the maximums were established by the Bureeu rior to 1474 ased on a survey of Medicaid prices being paid in nearby States. During calendar yar 1976, Idaho aid $76,712 for new eyeglasses. The State of Idaho's cost reports do not separate eyeglass costs by lenses cr frames. Oreson Oregon's Deuartment of Human Resources administers the State's Medicaid program through its Public Welfare Division. The Medical Assistance Unit of the Division establishes maxi- mum fee schedules for eyeglasses. The Medical Assistance Unit reviewed the published prices of large ootical firms to establish the maximum allowable rates for eyealass frames and lenses. The maximum rate was set based on the highest published prices lus an allowance for postage. Providers are limited to the lesser of their usual and customary charges or the maximum allowable a payment in full for goods and services provided. - 6 The ma::imum allo.able cost for one single vision lens ranges between $4.9U and $11.4. The maximum allowable cost of frames is $8.50. Accordina to the State's optometric consultant, this maximum charge limits the number of frame styles available to about 10, most of which are plastic. A maximum dispensing fee of $3.95 per single vision lens was established effective July 1, 1976, as a result of a fee survey conducted by the Oregon O0 ometric Association. During calendar year 1976, Oreqon sent $283,632 for eyeqlass lenses and frames under the Medicaid program. The average cost for one single vision lens was $5.3U, for Goe bifocal lens. $11.31, and frames, $Sd.41. Washington The State of Washinqton Deoartment of Social and !Health Services administers that State's Mledicaid program. In July 1975, Washinqton requested bids from ontical supoliers to provide eyeglass lenses and frames for the State Medicaid proqram and the State Vocational Rehabilitation roaram. Effective October 1, 1975, Bausch and Lomb began suoPPvinq eyegl'iss lenses and frames for these programs. Under the contract, Bausch and Lomb provides frames manufactured by two other companies as well as its own to the State. - 7 - The contract provides single vision, bifocal, and trifocal corrected curved white plastic or impact resistant glass dress eyewear mounted in approved frames. Three styles each of dress frames for men, women, boys, and girls are orovided making a total of 12 dress frame styles. In addition, occuoa- tional protective lenses and frames are available for men and women. The contract requires that a suitable case be included. From October 1975 through June 1976, the contractor pro- vided two single vision lenses for $6.35, two bifocal lenses for $14.35, and frames for prices ranging from 2.oU to .dfl. From July 1976 through June 1977, the contract cost of two single vision lenses rose to $7.10. The contractor provides the eyeglasses to oroviders who are willing to Darticioate in the Medicaid program for a maximum disoensinq fee cf $12.3U. For the year October 197) through eptmber 197b, Wa:shinqton spent $362,292 for eyeglasses unoer this contract. The State estimates chat the annual saving was about 56b,000 comoared to the State's prior method of ourchasing eyeglasses at oroviders' usual and customary charges subject to mnaximul orices established by the State. POTENTIAL SAVINGS THROUGH CONTRACT PURCHASING OF EYEGLASSES Wasninaton paid $6.35 for a air of single vision lenses during the period January through June 1976 and $7.1U during the period July throuqh December 19/6 as compared to orices of $10.60 and $10.90 which Oregon and California, respectively, oaid durina calendar ear 1976. Durinq calenoar year 7b, Washington aid from $2.t0 to $D.Ui for frames, as opoosed t 7.9l and S8.41 aid by California arid Oreqon, resoe t ivel. California could have saved abotit 3.4 million durinq 197-b if it had nurchased eyeclasses at th, rate naii ,by Washington. Likewise, OreGon could have saved about $114,UU0 if it had urchased eveolasses at the rates naid by ashinqtton. rDDITIONAL MEDICAID SAVINGS POSSIBLE Althouqh our review of other Medicaid suPlies i.; not com- olete, we have observed other otential savinqs in th(e rocure- rr,ent ot hearinq aids, oxvlen, and durable medical elou,)mt.nt. None of the four States reviewed nurchased hear ina ids for Medicaid recionients on a Statewide comt)etitive contract basis. Washinqton pays U ercent of the retail rrice of hearing aids uo to $325) base d on 1972 aqreements with hearin aid dealers. In contrast, reqon has rcentlv tarted nur- chas; iq some hearini aid s for the M dicaid rogram under or ice aqreements negotiated with various oroviders by the Oreqon Department of General Services. Under these price agreements, substantial savings over the retail rrices of thest, aids can be realized. For example, during ebruary 1977 a Portland, Oregon, Public Welfare Office decided to purchase a hearing aid for $162 under their State price agreements instead of oaying a cal dealer 375 for the same hearinq aid. Washinqton contracts for the Durchase of oxvyen for Medicaid recipients at from $3.10 to $4.30 per 1UU cubic feet depending on the location. By contrast, California purchases oxvqen at the r3viders' usual and customary charges up to a aximum cf 14.35 for 244 to 27i cubic feet, or bout $.22 to $5.dd per 10U cubic feet. In December 197b, California ourchased 4,811 cylinders, ranging from 244 to 27b cubic feet of oxyaen at an averLge cost f 14.03. The cost of 217 cubic feet of oxygen under the Washington contract would range from d.53 to $11.63. The Washington contracL)r also has offices in the State of Oregon and charges the Oregon Medicaid rogram, on a non- contractual basis, $17 for 244 cubic feet of oxyoen. Washington purchases most of its durable medical euti)- ment and lends it to roqram beneficiaries but retains title to it. The beneficiaries are reauired to return the eclujn- ment to a ool when they no longer need it. Washington Medicaid officials advised us that purchase discounts of as much as 20 percent from manufacturers' suggested list prices - 10 - had been obtained from large suppliers on purchases of durable medical equipment. For example, Washinqton is paying $264.35 for a wheelchair, which lists for $311, and which must be returned to the State or reissue. California on the other hand, gives the wheelchair to the recipient and, in many cases is paying thp manufacturer's list price. PROPOSED NEW YORK C Y ONTRACT FOR MEDICAID LABORATORY SERVICES New York City officials, interested i,, better cost control and dissatisfied with the quality of work performed by labora- tories uinder the Medicaid program, attemnuted to contract for laboratory services. In ApLil 1975, the city advertised for bids for its Medicaid laboratory services. Potential bidders were invited to submit bids to service any or all of New York City's five boroughs. Successful bidders, however, could be awarded no more than one borough plus the borough of Staten Island. A sequential system of bid openings was designed based on the decreasing order f each borough's Medicaid population. If bidders were awarded one borough, they would become ineligible for further aards, except for Staten Island although they may have been low bidder. The intention was to maximize laboratory particioation in the award process. Because of its low Medicaid population, the borough of Staten Island was to be awarded last and to the lowest bidder, regardless of prior awards. - 11 - The bidders were L quired to submit the bid in two parts-- a maximum aggregate fee and a unit price for each test. The maximum aggregate fee represented the fixed ceiling price for which the contractor agreed to provide all clinical laboratory services requested within the designated borough during the stipulated time period. This amount would be the basis for the contract award. A contract was to run for 3 years with a safety clause which automatically increased the maximum agregate bid on a prorated basis to cover future increases in the Medicaid population. This maximum aggregate price is significant, especially in light of the city's expenditures for laboratory services which rose from $3.7 million in 1970 to $10.7 million in 1975. The unit price was the single fixed charge for any labo- ratory test processed, regardless of the cost of a particular test. This was important because actual reimbursement was to be limi'ed to the unit price times the actual number of tests performed, up to the maximum aggregate bid. The aggregate prices obtained by the city for its five boroughs totaled $5.7 million with unit orices varying from $0.89 to $4.00. This solicitation, had it been consummated, would have represented about a $S million annual savings. - 12 - This proposed contracting procedure represented not only a potential cost savings but also provided for more expedi- tious testing, increased quality control, and a computerized record of services provided to each patient and ordered by each physician. A coalition of clinical laboratories sought a Federal court injunction preventing the award of such contracts on the grounds that the city proposal would impair a Medicaid recipient's right under Medicaid law to freedom of choice to choose a clinical laboratory. The city contended that no patient's freedom of choice was involved since it was the attending physician who tradi- tionally made this decision. In August 1975, the court enjoined New York City from awarding contracts for all the city's clinical laboratory services. However, it ermitted the city to award a contract in one of the city's five boroughs. As of April 1977, a contract had not been awarded. The court stated that in the future it would address the question of whether the statutory freedom of choice require- ment is applicable to laboratory services. Proposed legislation, S. 705, was introduced on Febru- ary 10, 1977, which would amend the Social Security Act to permit competitive bidding for laboratory services. - 13 - HEW ADMINISTRATION The 1972 Amendments to the Social Security Act provided that reasonable charges for Medicaid medical supplies, eauip- ment, and services which do nuc d fer significantly in aual- ity from one supplier to another will be limiLtd to the lowest charqe levels consistently and widely available within a geoQraphic area. In January 1977, HEW published draft requla- tions to implement the Medicaid reasonable charge requirement. The draft regulations rovide that when the ouality of medical supplies, eauioment, and services do not varv siqnifi- c3ntly from one supplier to another, reimbuLsement will be based on the lowest charge level at which these items are generally available in a locality. While the lowest charge concept should help to reduce the prices being aid by Medicaid, it does not insure that the lowest possible price is being aid. In our opinion, agreements with suppliers--through competitive bids or negotiations--would provide greater assurance. Contracting for eyeglasses, hearing aids, and durable medical euipment at reduced prices is racticed by several Federal aqercies, including the Department of Defense and the Veterans Administration. - 14 - On September 29, 1976, HEW awarde a contract to the National Institute for Advanced Studies for the evaluation of selected Medicaid services reimbursement practices and policies--hearing aioas, eyeglasses, clinical laboratory services, and Health Maintenance Organizations. In May 1977, the Institute issued a report entitled, "Alternative Reimbursement Approaches for Eyealasses and Implications for Medicaid Policy," which pointed out the benefits of the Washington eyeglass contract in terms of saving money and guaranteeing uality. In May 1977, the Institute also issued a report which Presented alternate reimbursement approaches for Medicaid healinq aids. NEED FOR LEGISLATIVE CLARIFICATION The Social Security Act (42 U.S.C. Section 1396a(a)(23)) provides "* * * that any individual eligible for medical assistance (including drugs) may obtain such assistance from any institution, agency, com- munity pharmacy, or person aualified to Perform tne service or services reauired * * * who under- takes to provide him such services * * *." Both the House and Senate reports accompanying H.R. 12080 which added this section state that this provision was - 15 - included in order to provide Medicaid recipients with freedom in their choice of medical institution or medical practitioner. Our reviews have indicated that ast efforts by certain States to minimize Medicaid procurement costs have raised the auestion of whether such practices are in conflict with the freedom-of-choice provisions. For example, HEW filed a friend of the court brief in the New York City laboratory case. In its brief, HEW stated that: "* * * in liaht of the clear wordinq of Section 1396a(a)(23) itself and HEW's consistent construction that the rovision encompasses freedom of choice as to all providers of services, including laboratories, the Secretary submits that the New York proposal, which would effectively end a recinient's freedom of choice in obtaining laboratory services, is contrary to federal law." The HEW brief went on to state that the New York City laboratory project might be acceptable as either an experimental, pilot, or demonstration project for a limited duration; or as a non- exclusive contract with a articular laboratory which would er- mit those Medicaid recipients wishing to choose a different qualified laboratory if that laboratory would perform the medical services at the same fee. - 16 - The HEW brief also noted that: "* * * as practical matter most Medicaid Patients do not make a meaningful choice as to which labora- tory is to erform their laboratory tests but as a normal practice simply accet the referral of their doctor." As another example, on May 12, 1972, we issued a report regarding durable medical euiDment in which e discussed the State of Washinqton's practice of urchasinq and ooolinq this eauipment under its Medicaid program. The use f an euipment pool appeared to HEW to conflict with the freedom-of-choice provision. By letter ted January 26, 1972, HEW's General Counsel stated that HEW believed Washinqton's ractice was contrary to Federal law and regulations. Regarding contractinq for other Medicaid suoolies, it appears to us that the Social Security Act permits States to contract for the purchase of eyeglasses, hearing aids, and oxygen. However, the issue is not clear-cut since by the terms of the contract for hearing aids and oxygqen, program beneficiaries may not have a "free" choice in the selection, of the providers. In summary, we believe that the competitive biddinq and equipment pooling ractices of Washington represent economical methods which can help contain costs and assure optimum use of - 17 - available resources. The potential savings to both the Federal and State Governments through contracting for the purchase of certain Medicaid supplies and services is substantial. How- ever, because such contracting miqht conflict with the legis- lative provision concerning freedom of choice, the Congress should clarify its intent in this regard. Mr. Chairman, this concludes my statement. We shall be happy to answer any uestions that you or other members of the Subcommittee might have. - id
Procurement of Eyeglasses and Other Medicaid Supplies and Services
Published by the Government Accountability Office on 1977-05-25.
Below is a raw (and likely hideous) rendition of the original report. (PDF)